UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002, 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 001-16043
ALTEON INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3304550
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
170 WILLIAMS DRIVE, RAMSEY, NEW JERSEY 07446
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(Address of principal executive offices)
(Zip Code)
(201) 934-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, Par Value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the American Stock Exchange closing
price of the common stock ($2.06 per share), as of June 28, 2002, was
$65,516,106.
At February 28, 2003, 33,600,841 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
Documents Incorporated By Reference
Document Where Incorporated
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Proxy Statement for 2003 Part III
Annual Meeting of Stockholders
PART 1
ITEM 1. BUSINESS.
OVERVIEW
We are a product-based biopharmaceutical company primarily engaged in
the discovery and development of oral drugs to reverse or slow down diseases of
aging and complications of diabetes. Our product candidates represent novel
approaches to some of the largest pharmaceutical markets. Our lead compound is
in Phase 2b clinical development; several others are in earlier development
stages. These pharmaceutical candidates were developed as a result of our
research on the Advanced Glycation End-Products ("A.G.E.") pathway, a
fundamental pathological process and inevitable consequence of aging that causes
or contributes to many medical disorders, including cardiovascular, kidney and
eye diseases.
A.G.E.s are glucose/protein complexes that form as a result of
circulating blood glucose reacting with proteins. These A.G.E. complexes
subsequently interact and bond (crosslink) with other proteins, resulting in
"hardened" (stiffened) arteries, toughened tissues and impaired flexibility and
function of many body organs. In healthy individuals, this pathological
A.G.E.-formation process occurs slowly as the body ages. In diabetic patients,
the rate of A.G.E. accumulation and the extent of protein crosslinking are
accelerated because of high glucose levels.
Our current research and drug development activities targeting the
A.G.E. pathway take three directions: the breaking of A.G.E. crosslinks between
proteins in order to reverse damage ("A.G.E. Crosslink Breakers"); the
prevention or inhibition of A.G.E. formation ("A.G.E.-Formation Inhibitors") and
the reduction of the A.G.E. burden through a novel class of anti-hyperglycemic
agents, Glucose Lowering Agents ("GLA"). We believe that we were the first
company to focus on the development of compounds to treat diseases caused by
A.G.E. formation and crosslinking. Since our inception, we have created an
extensive library of novel compounds targeting the A.G.E. pathway, and have
actively pursued patent protection for these discoveries. We have 99 issued
United States patents and over 80 issued foreign patents focused primarily on
A.G.E. technology.
ALT-711 is an A.G.E. Crosslink Breaker and our lead product candidate.
ALT-711 offers the possibility of the first therapeutic approach to "breaking"
A.G.E. crosslinks, the benefit of which may be to reverse tissue damage caused
by aging and diabetes, thereby restoring flexibility and function to blood
vessels and organs of the body. We are initially developing ALT-711 for the
treatment of cardiovascular diseases, and have completed two Phase 2a safety,
efficacy and pharmacology studies. Preliminary results from the first 17
patients in the recently conducted Phase 2a DIAMOND (Distensibility Improvement
And REMODELING in Diastolic Heart Failure) clinical trial evaluating the
activity of ALT-711 in diastolic heart failure ("DHF") patients demonstrated
that patients who received ALT-711 for 16 weeks experienced a statistically
significant reduction in left ventricular mass, a marked improvement in left
ventricular diastolic filling and a positive effect on patients' quality of
life. In 2001, we conducted a Phase 2a clinical trial, in which 93 patients
received ALT-711 or placebo tablets once daily for eight weeks. Study results
showed that ALT-711 patients experienced a statistically significant and
clinically meaningful reduction in pulse pressure (p<0.02), defined as the
difference between systolic and diastolic blood pressures. Results also showed a
statistically significant increase in large artery compliance (p<0.03), an
indicator of greater vascular flexibility and volume capacity. Additionally, the
drug was well tolerated. This Phase 2a data was published as "breakthrough
information" in the September 26, 2001 issue of the peer-reviewed journal,
Circulation: Journal of the American Heart Association.
The positive results from the Phase 2a trials suggest that ALT-711 may
be a novel therapy for a number of cardiovascular conditions, including systolic
hypertension and diastolic heart failure, two diseases that occur as a result of
vascular stiffening due to age or diabetes.
We have initiated two companion Phase 2b clinical trials, the SAPPHIRE
(Systolic And Pulse Pressure Hemodynamic Improvement by Restoring Elasticity)
trial focused on patients with systolic hypertension and the SILVER (Systolic
Hypertension Interaction with Left Ventricular Remodeling) trial in patients
with systolic hypertension and left ventricular hypertrophy ("LVH"). Data from
these trials is expected to be reported concurrently about mid-year 2003. We
are also considering further clinical development of ALT-711 for DHF and other
related conditions.
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A topical formulation of an A.G.E. Crosslink Breaker, ALT-744, is being
clinically evaluated in skin aging for cosmetic applications. We continue to
evaluate potential clinical trials in other cardiovascular and therapeutic
indications where A.G.E. Crosslink Breaker compounds may address significant
unmet needs.
We are also actively evaluating product development opportunities from
other classes of compounds in our patent estate, including A.G.E.-Formation
Inhibitors which target the A.G.E. pathway by inhibiting the formation and
crosslinking of A.G.E.s. In addition, we are utilizing our technical expertise
in the field of diabetes to develop compounds focused on glucose regulation and
control, our GLA compounds. We are evaluating our lead compounds in these
classes to determine the optimal strategy for pre-clinical development.
We were incorporated in Delaware in October 1986 under the name
Geritech Inc. Our name was changed to Alteon Inc. in August 1991. We are
headquartered at 170 Williams Drive, Ramsey, New Jersey 07446. Our web address
is www.alteon.com, and our telephone number is (201) 934-5000.
OUR BUSINESS STRATEGY
Our strategy is to develop drug candidates from our proprietary
portfolio of new chemical entities. Because of their novel mechanism of action,
these compounds address large medical needs that are unmet by existing
therapies. We will seek, as appropriate, to selectively out-license our drug
candidates to corporate partners. As we continue clinical development of
ALT-711, we will determine if it is appropriate to retain development and
marketing rights for one or several indications in North America, while at the
same time continuing to evaluate potential corporate partnerships for the
further development and ultimate marketing of the compound. In addition to
ALT-711, we have identified compounds in multiple chemical classes that warrant
further evaluation and potential development.
MARKETS OF OPPORTUNITY
Our research and development efforts have led us to an initial focus on
cardiovascular diseases, including systolic hypertension and diastolic heart
failure, as well as complications of diabetes. Targeting the A.G.E. pathway may
have an impact on a number of medical disorders related to aging and diabetes,
thus potentially broadening our markets of opportunity.
The pre-clinical and clinical data generated to date on our A.G.E.
Crosslink Breakers and A.G.E.-Formation Inhibitors demonstrates clear and
consistent findings across several species, including rats, dogs, non-human
primates and man.
Cardiovascular Disease
According to the American Heart Association, nearly 62 million
Americans have one or more types of cardiovascular disease. Cardiovascular
disease has been the number one killer of Americans since the early 1900's. The
latest World Health Organization - International Society of Hypertension
guidelines for the management of hypertension emphasize the importance of pulse
pressure (the difference between systolic and diastolic pressures) and arterial
stiffness as predictors of general cardiovascular risk. Currently available
anti-hypertensive agents reduce pressure on the vessel wall in such a manner as
to lower both systolic and diastolic blood pressures without significantly
affecting pulse pressure. Our approach rapidly increases large artery
elasticity, thereby reducing pulse pressure beyond what would be expected from
restoring the dynamic range of the vessel wall with a reduction in blood
pressure alone. Pharmacologic intervention targeting the stiffness of the
cardiovascular system may decrease the incidence and severity of complications
such as LVH, a thickening and stiffening of the heart tissue, and congestive
heart failure. Published studies have shown that a 10mm Hg reduction in pulse
pressure correlates with approximately a 35% reduction in cardiovascular
mortality.
Systolic Hypertension
Systolic hypertension, defined as elevated systolic blood pressure
greater than 140mm Hg, is the most common form of hypertension in those over the
age of 50, with an estimated prevalence of nearly 25 million Americans. It is
associated with a significantly increased risk of overall mortality,
cardiovascular mortality and congestive heart failure. According to the American
Heart Association, it is the type of hypertension least likely to be well
treated. The ability of ALT-711 to decrease pulse pressure and increase large
artery compliance offers an
3
opportunity to provide a treatment option specifically for systolic
hypertension. See "--A.G.E. Crosslink Breakers - ALT-711." Although currently
marketed anti-hypertensive agents are being used to treat the disease, it is not
adequately treated by these therapies. ALT-711 is the first drug to show direct
activity by targeting the stiff vessels that cause systolic hypertension. We
believe that ALT-711 will provide additional benefit because it exerts its
activity by a mechanism unique from currently marketed anti-hypertension drugs.
Diastolic Heart Failure
Diastolic heart failure is caused by an impaired ability of the heart
to relax after a contraction and fill properly, in part due to the stiffening of
the heart tissue. When the ventricles (the heart's lower pumping chambers) do
not relax normally, increased pressure and fluid in the blood vessels of the
lungs may be a result (pulmonary congestion). DHF can also cause increased
pressure and fluid in the blood vessels coming back to the heart (systemic
congestion). DHF is a poorly treated medical condition that is estimated to
account for 30-50% of all heart failure cases, which total nearly five million
cases in the United States alone. ALT-711 offers promise as a novel therapy for
DHF because currently available therapies do not specifically target the
stiffening heart and vessel walls.
Left Ventricular Hypertrophy
Left ventricular hypertrophy refers to the thickening of the left
ventricle that can occur with hypertension. LVH can lead to decreased cardiac
output, the inability to meet the circulatory needs of the body and to heart
failure itself. LVH is a component of many cardiovascular diseases, including
systolic hypertension and DHF. In the DIAMOND trial, a statistically significant
reduction of left ventricular mass was noted in DHF patients treated with
ALT-711. Additionally, in several pre-clinical studies, ALT-711 has been shown
to reduce the thickening of the left ventricle and remodel the heart.
Complications of Diabetes
The Diabetes Control and Complications Trial ("DCCT"), a multi-center
clinical trial conducted by the National Institutes of Health, demonstrated that
elevated blood glucose levels significantly increase the rate of progression of
eye, kidney, blood vessel and nerve complications from diabetes. More than 50%
of people with diabetes in the United States develop diabetic complications that
range from mild to severe.
Overt Nephropathy
Kidney disease is a significant cause of morbidity and mortality in
patients with Type 1 and Type 2 diabetes. It is a chronic and progressive
disease. One of the early signs of kidney damage is microalbuminuria
(characterized by leakage of small amounts of protein into the urine), which
progresses to overt nephropathy (characterized by leakage of large amounts of
protein into the urine) and ultimately to End-Stage Renal Disease ("ESRD").
Approximately 34% of patients with Type 1 diabetes and approximately 10-15% of
patients with Type 2 diabetes develop nephropathy.
In the Phase 2/3 ACTION (A Clinical Trial In Overt Nephropathy) trial
in diabetic patients with overt nephropathy, therapy with our first
A.G.E.-Formation Inhibitor, pimagedine, showed a statistically significant
reduction in urinary protein excretion, although it did not reach statistical
significance in its primary endpoint, the time to doubling of serum creatinine.
Though pimagedine is no longer in active clinical development, the ACTION trial
serves as a proof-of-concept study, demonstrating the potential of compounds
that target the A.G.E. pathway in the treatment of diabetic kidney disease and
other complications of diabetes. See "--Retinopathy." ALT-946, another
A.G.E.-Formation Inhibitor, has demonstrated the ability to slow the progression
of overt nephropathy in a pre-clinical study.
Cardiovascular Complications
A significant portion of diabetic individuals develops cardiovascular
diseases and complications due to the high levels of blood glucose and A.G.E.s
within the body. According to the American Diabetes Association, heart disease
is the leading cause of diabetes-related deaths. Heart disease death rates are
two to four times higher in adults with diabetes than that of adults without
diabetes. The risk of stroke is also two to four times higher in those with
diabetes.
4
ESRD
As a component of our clinical strategy in developing ALT-711 for
cardiovascular diseases and diabetic complications, we are currently conducting
Phase 1 safety studies of ALT-711 in the critically ill ESRD patient population
undergoing peritoneal dialysis. ESRD is a condition in which the kidneys no
longer function. Peritoneal dialysis is a method of dialysis that uses the
patient's peritoneum (a membrane in the abdomen) to filter out waste products.
Latest statistics show that almost 25,000 of the 400,000 Americans living with
ESRD are undergoing peritoneal dialysis. The ESRD patient population has a
limited five-year survival (less than 30%) and significant cardiovascular
complications, including LVH.
Retinopathy
Approximately nine out of 10 people with diabetes eventually develop
retinopathy, a complication that affects the blood vessels inside the eye and
can lead to blindness. Each year, approximately 12,000 to 24,000 people lose
their sight because of diabetes. The incidence and severity of retinopathy
increases with the duration of diabetes. Though not a primary endpoint in the
Phase 2/3 ACTION trial, pimagedine therapy did result in a statistically
significant reduction in the progression of retinopathy. Pre-clinical evidence
suggests that ALT-711 and other compounds from the A.G.E. Crosslink Breaker
class also may have a positive impact on retinopathy.
Skin Aging
Pre-clinical data has demonstrated the potential of A.G.E. Crosslink
Breaker compounds to increase skin hydration and elasticity. A topical
formulation of ALT-744, an A.G.E. Crosslink Breaker, is being clinically
evaluated in skin aging for cosmetic applications.
Other Diseases
A.G.E.s have been shown to cause or contribute to many disorders beyond
cardiovascular diseases and complications of diabetes, such as
arthritis/inflammation, ophthalmic diseases, respiratory diseases and urological
diseases, among others. We continue to evaluate potential indications for our
compounds.
OUR TECHNOLOGY: THE A.G.E. PATHWAY IN AGING AND DIABETES
The harmful consequences of A.G.E. formation in man was proposed in
1986 by our scientific founders as an outgrowth of a research effort focused on
diabetes. The foundation for our technology is the experimental evidence that
intervention along the A.G.E. pathway provides significant benefit in slowing or
reversing the development of serious diseases in the diabetic and aging
populations. We are the pioneer in A.G.E. technology, and we have built an
extensive patent estate covering our discoveries and compounds.
A.G.E.s are permanent structures that form when simple sugars such as
glucose bind to the surface of proteins. As the body ages, A.G.E. complexes form
on proteins continuously and naturally, though slowly throughout life, at a rate
dependent upon glucose levels and on the body's natural ability to clear these
pathological structures. A.G.E. complexes subsequently crosslink to other
proteins, causing a progressive loss of flexibility and function in various
tissues, blood vessels and organs.
The formation and crosslinking of A.G.E.s is a well-known process in
food chemistry, where it is called the Maillard Reaction. The browning and
toughening of food during the cooking process occurs, in part, as a result of
the formation of A.G.E. complexes between sugars and the amino acids of
proteins. The A.G.E. crosslink has been found to be unique in biology and is
prevalent in animal models of aging and diabetes. Scientific literature suggests
that the formation and subsequent crosslinking of A.G.E.s is an inevitable part
of the aging process and diabetes that leads to a loss of flexibility and
function in body tissues, organs and vessels.
The A.G.E. pathway may provide the scientific explanation for how and
why many of the medical complications of the aging process occur with higher
frequency and earlier in life in diabetic patients. Diabetic individuals form
excessive amounts of A.G.E.s earlier in life than do non-diabetic individuals,
due primarily to higher levels of blood sugar. For this reason, diabetes may be
viewed as an accelerated form of aging.
5
A.G.E.s and A.G.E. crosslinks are considered to be likely causative
factors in the development of many age-related and diabetic disorders, including
those associated with the cardiovascular and renal systems. For example,
proteins in the body, such as collagen and elastin, which play an important role
in maintaining the elasticity of the cardiovascular system, are prime targets
for A.G.E. crosslinking. This stiffening process can impair the normal function
of contractile organs, such as blood vessels, which depend on flexibility for
normal function. Loss of flexibility of the vasculature may lead to a number of
cardiovascular disorders, including systolic hypertension, diastolic dysfunction
and LVH, and ultimately may lead to heart failure.
Studies conducted in animal models of diabetes and aging at numerous
independent institutions worldwide demonstrate that A.G.E.s are a major factor
contributing to many of the disorders of aging and diabetes, including
cardiovascular, kidney and eye diseases, as well as atherosclerosis. Recent
human clinical studies we performed confirm that impacting the A.G.E. pathway
can have beneficial effects on these diseases.
The following chart illustrates the process of A.G.E. formation and
crosslinking and is qualified by the more detailed description in the text. It
also highlights those areas within the A.G.E. pathway where we are developing
pharmaceutical agents to intervene therapeutically.
OUR TECHNOLOGY PLATFORM AND PRODUCT PIPELINE
Glucose + Proteins --------> A.G.E.s --------> Crosslinked A.G.E.s
I I I
Glucose Lowering A.G.E. Formation A.G.E. Crosslink
Agents and Crosslink Breakers
Inhibitors
- New Chemical Class - 9 New Chemical Classes - 17 New Chemical Classes
(51 Compounds) (852 Compounds) (658 Compounds)
- New Mechanism - New Mechanism - New Mechanism
- Improves pancreas function - Blocks A.G.E. cascade - Breaks A.G.E. crosslinks
- Increases insulin production - Improves renal function - Restores vascular function
- Restores insulin sensitivity - Effects additive to - Restores heart function
conventional therapies - Activity unlike any known drug
- Effects additive to
conventional therapies
Key Products in Development:
Lead Identification Pimagedine ALT-711
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- Ongoing Phase 2/3 Phase 2
- Type 2 Diabetes - Diabetic Kidney Disease (inactive) - Systolic Hypertension
Veterinary Health - DHF
- Diabetic Neuropathy Phase 1
- ESRD
ALT-744
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Clinical Evaluation
- Skin Aging
We incurred research and development expenditures of approximately
$14,992,000, $8,461,000 and $6,375,000 for the years ended December 31, 2002,
2001 and 2000, respectively.
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A.G.E. Crosslink Breakers
By "breaking" A.G.E. crosslinks, these novel classes of compounds may
have an impact on a number of medical disorders where loss of flexibility or
elasticity leads to a loss in function. Our lead clinical candidate, ALT-711,
has demonstrated the ability to reverse tissue damage and restore function to
the cardiovascular system in two Phase 2a clinical trials, in cardiovascular
compliance and diastolic heart failure.
Additionally, we are evaluating the development of several compounds in
the breaker class for other indications where A.G.E. crosslinking leads to
abnormal function. Early clinical experience in human studies of ALT-711
suggests that urinary elastic dysfunction (leading to urinary incontinence) is a
potential therapeutic target. The scientific literature also points to the
possible utility of breaker compounds in ophthalmic and dermatological
conditions, stiff joint disorders and treatment of complications in patients
undergoing peritoneal dialysis.
We have identified 17 distinct chemical classes of A.G.E. Crosslink
Breakers, and have a library of more than 650 compounds.
ALT-711
Through its unique mechanism of action, ALT-711 is the first compound
that breaks A.G.E. crosslinks between proteins, both in vitro and in vivo.
ALT-711 is an orally bioavailable compound dosed in tablet form. The compound is
under Phase 2 clinical evaluation in cardiovascular diseases, as well as in
Phase 1 evaluation in ESRD patients undergoing peritoneal dialysis. ALT-711 is
being evaluated in various pre-clinical models to assess its potential in a
number of other disease states.
In January 2003, we announced positive results from a preliminary
analysis of the first 17 patients in the Phase 2a DIAMOND clinical trial
evaluating ALT-711 in DHF patients. The trial was conducted at Wake Forest
University Baptist Medical Center and the Medical University of South Carolina
in patients at least 60 years of age with isolated DHF. In the DIAMOND trial, 23
patients received 210 mg of ALT-711 twice daily on an open-label outpatient
basis for 16 weeks in addition to their current medications. Primary endpoints
included changes in exercise tolerance and aortic stiffness; effects on LVH,
diastolic filling and quality of life were also assessed. Patients who received
ALT-711 for 16 weeks experienced a statistically significant reduction in left
ventricular mass, as well as a marked improvement in left ventricular diastolic
filling. Additionally, the drug had a positive effect on patients' quality of
life. Measurements of exercise tolerance and aortic distensibility proved to be
more variable than anticipated for a study of this size and were not reportable.
In January 2001, we announced successful results from a Phase 2a
clinical trial of ALT-711 evaluating the effects of the compound on the
cardiovascular system. This trial, conducted at nine United States clinical
sites, was a double-blind, placebo-controlled study evaluating the safety,
efficacy and pharmacology of ALT-711. The trial enrolled 93 patients over the
age of 50 with measurably stiffened large vessels, including systolic blood
pressure of at least 140mm Hg and pulse pressure of at least 60mm Hg. Patients
were randomized to receive oral doses of either 210mg of ALT-711 or placebo once
daily for eight weeks. Patients were evaluated for cardiovascular elasticity and
function as measured by pulse pressure, cardiovascular compliance, pulse wave
velocity and cardiac output. Under this protocol, ALT-711 treatment was in
addition to the best available therapeutic regimen chosen by the treating
physicians. Study results showed that patients who received ALT-711 experienced
a statistically significant (p<0.02) and clinically meaningful reduction in the
arterial pulse pressure, defined as the difference between systolic and
diastolic blood pressure. Results also showed a statistically significant
increase in large artery compliance (p<0.03), an indicator of greater vascular
flexibility and volume capacity, using a traditional measurement of the ratio of
stroke volume to pulse pressure. Additionally, the drug was well tolerated. This
Phase 2a data was presented at the Special Sessions Presentation of "Late
Breaking Clinical Trials" at the American College of Cardiology Annual
Scientific Session in March 2001, and published as "breakthrough information" in
the September 26, 2001 issue of the peer-reviewed journal, Circulation: Journal
of the American Heart Association.
Based on the positive results of this trial, we initiated two Phase 2b
efficacy trials of ALT-711 in systolic hypertension, the SAPPHIRE and SILVER
trials. These trials further evaluate ALT-711's ability to lower systolic blood
pressure and pulse pressure in aging and diabetic patients and extend the range
of doses and the dosing period of ALT-711 used in the Phase 2a trial.
7
In the SAPPHIRE trial, ALT-711 is being tested in 479 patients at more
than 60 sites throughout the United States. Recruited patients receive ALT-711
tablets once a day for six months, in addition to their existing medications.
The study consists of five treatment arms, comprised of four different dose
levels of ALT-711 plus placebo. Patients enrolled in the trial are older than 50
years of age and have systolic blood pressure of greater than 150mm Hg and
diastolic blood pressure of less than 90mm Hg. The trial includes male and
female, non-diabetic and diabetic patients.
The SILVER trial is designed as a companion trial to the SAPPHIRE
trial, and is being conducted at the same clinical sites. Entry criteria are
identical to that in the SAPPHIRE trial, except that patients have LVH in
addition to systolic hypertension. The trial will evaluate the blood pressure
lowering effects of ALT-711 in approximately 282 patients who are randomized to
one of two treatment arms, ALT-711 or placebo.
The primary endpoint of both studies will be the change in systolic
blood pressure. In addition, secondary endpoints will include additional blood
pressure measurements and change in certain urological characteristics.
During 2001, we also initiated a Phase 1 trial assessing the safety of
ALT-711 and the way the drug is metabolized in ESRD patients undergoing
peritoneal dialysis. This patient population has a limited five-year survival
(less than 30%) and significant cardiovascular complications, which are the
primary cause of death. The ongoing Phase 1 program is an important component of
our clinical strategy in developing ALT-711 for cardiovascular disease.
ALT-711 data is consistent across species. Studies in animal models in
several laboratories around the world have demonstrated rapid reversal of
impaired cardiovascular functions with ALT-711. In these pre-clinical models,
ALT-711 reverses the stiffening of arteries, as well as the stiffening of the
heart, that accompanies the development of aging and diabetes. Pre-clinical
studies of ALT-711 conducted by researchers from the National Institute on Aging
and Johns Hopkins Geriatric Center demonstrated the ability of the compound to
significantly reduce arterial stiffness in elderly Rhesus monkeys. In a
pre-clinical study of ALT-711 in aged dogs, administration of ALT-711 for one
month resulted in an approximate 40% decrease in age-related ventricular
stiffness, or hardening of the heart, with an overall improvement in cardiac
function. Reductions in blood pressure that have been observed in animal models
of diabetic hypertension suggest that ALT-711 may prove beneficial in the
treatment of systolic hypertension in the elderly or in the diabetic.
Additionally, in several pre-clinical studies, ALT-711 has been shown to
normalize the thickening of the left ventricle and remodel the heart.
ALT-711 is a small, easily synthesized compound with a rapid mode of
action. It is well absorbed from an oral tablet formulation. In addition to the
Phase 2a human trials, a series of Phase 1 safety and dose escalation studies
were conducted. These trials have shown the drug to be well tolerated.
Additional A.G.E. Crosslink Breakers
ALT-744 is another A.G.E. Crosslink Breaker in a topical formulation.
It is being clinically evaluated in skin aging for cosmetic applications. We
continue to evaluate other A.G.E. Crosslink Breakers from our library of
compounds.
A.G.E.-Formation Inhibitors
A.G.E.-Formation Inhibitors are designed to prevent glucose/protein
formation and crosslinking. This class of compounds may have broad applications
in slowing down the key complications of diabetes.
We have identified nine distinct chemical classes of A.G.E.-Formation
Inhibitors, encompassing a library in excess of 850 compounds.
Pimagedine
Pimagedine has been the lead compound in the A.G.E.-Formation Inhibitor
class.
In November 1998, we announced results of an analysis of data from the
ACTION 1 trial of pimagedine in diabetic patients with overt nephropathy.
Although the results showed that pimagedine reduced the risk of doubling of
serum creatinine, the study's primary endpoint, the data did not reach
statistical significance. However, pimagedine therapy did result in a
statistically significant and clinically meaningful reduction of urinary protein
8
excretion. Pimagedine also reduced, to a statistically significant extent,
cholesterol and triglycerides as well as the progression of retinopathy.
Additional data suggested a trend toward improvements in other measures of
kidney function, including estimated creatinine clearance and glomerular
filtration rate. The drug was generally well tolerated. Though pimagedine is no
longer in active clinical development, the ACTION trial serves as a
proof-of-concept study demonstrating the potential of compounds that target the
A.G.E. pathway in the treatment of diabetic kidney disease and other
complications of diabetes. ALT-946, another A.G.E.-Formation Inhibitor, has
demonstrated the ability to slow the progression of overt nephropathy in a
pre-clinical study.
We are continuing to evaluate the A.G.E. Inhibitors in our patent
portfolio in order to identify pre-clinical leads for further development.
Glucose Lowering Agents
High glucose levels (hyperglycemia of diabetes) accelerate the rate of
A.G.E. formation and crosslinking. Controlling glucose levels has been shown to
slow the rate of progression of diabetic complications. The GLA program arose
from a search of plant-derived natural products that would exhibit a beneficial
profile of glucose and lipid lowering of Type 2 diabetes. Several pre-clinical
candidates that display these beneficial properties have been evaluated. They
have demonstrated the ability to lower glucose and lipids, restore insulin
sensitivity and stimulate increased insulin production.
We have identified one chemical class of GLA, which includes more than
50 compounds.
COLLABORATIVE ARRANGEMENTS AND LICENSE AGREEMENTS
We have entered into a number of licensing and collaboration agreements
relating to the development and distribution of our A.G.E-related technology.
Pursuant to an agreement with Rockefeller University, we have exclusive,
royalty-free, worldwide and perpetual rights to the technology and inventions
relating to A.G.E.s and other protein crosslinking, including those relating to
the complications of aging and diabetes. See "--Patents, Trade Secrets and
Licenses." We have also entered into an exclusive licensing arrangement with
Roche Diagnostics GmbH ("Roche") for our technology for diagnostic applications,
and we have also entered into clinical testing and distribution agreements with
Gamida for Life which grant Gamida the exclusive right to distribute pimagedine,
if successfully developed and approved for marketing, in Israel, Bulgaria,
Cyprus, Jordan and South Africa. We have a license and supply agreement with
IDEXX Laboratories, Inc., pursuant to which we licensed pimagedine to IDEXX as a
potential therapeutic in companion animals (dogs, cats and horses) and our
A.G.E. diagnostics technology for companion animal use. All of these agreements
will entitle us to receive royalties on sales if any products covered by the
agreements are developed and sold.
On November 6, 2002, we entered into a new agreement, effective as of
April 15, 2002, with The Picower Institute for Medical Research ("The Picower
Institute"), which terminated their license agreement dated as of September 5,
1991. Pursuant to this termination agreement, Picower assigned to us all of its
patents, patent applications and other technology related to A.G.E.'s, and we
agreed to prosecute and maintain the patents and patent applications. We will
pay The Picower Institute royalties on any sales of products falling within the
claims of these patents and patent applications until they expire or are allowed
to lapse. See "--Patents, Trade Secrets and Licenses."
Effective as of August 5, 2002, we entered into a letter agreement with
Yamanouchi Pharmaceutical Co, Ltd. ("Yamanouchi"), which terminated their
License Agreement dated as of June 16, 1989. Pursuant to the letter agreement,
for a period of fifteen years, (i) we will pay Yamanouchi royalties on any sales
of pimagedine or pimagedine products in the territory covered by the License
Agreement and (ii) we will have the option to purchase from Yamanouchi all or
any part of our common stock owned by Yamanouchi.
In October 2000, we entered into an agreement with HemoMax, LLC
("HemoMax") for the development of a novel technology designed to increase the
delivery of oxygen to tissues in the body through enhanced blood circulation. On
February 9, 2002, HemoMax advised us that because of uncertainties regarding its
ability to receive patents adequate to support commercialization of the
technology, it has decided to cease operations and liquidate.
9
MANUFACTURING
We have no manufacturing facilities for either production of bulk
chemicals or the manufacturing of pharmaceutical dosage forms. We rely on
third-party contract manufacturers to produce the raw materials and chemicals
used as the active drug ingredients in our products used in clinical trials, and
we expect to rely on third parties to perform the tasks necessary to process,
package and distribute these products in finished form.
We will inspect third-party contract manufacturers and their
consultants to confirm compliance with current Good Manufacturing Practice
("cGMP") required for pharmaceutical products. We believe we will obtain
sufficient quantities of bulk chemicals at reasonable prices to satisfy
anticipated needs. There can be no assurance, however, that we can continue to
meet our needs for supply of bulk chemicals or that manufacturing limitations
will not delay clinical trials or possible commercialization.
See "--Collaborative Arrangements and License Agreements."
MARKETING AND SALES
We retain worldwide marketing rights to our A.G.E. Crosslink Breaker
compounds. We plan to market and sell our products, if successfully developed
and approved, directly or through co-promotion or other licensing arrangements
with third parties. We believe that ALT-711 may address the cardiovascular,
diabetes and primary care physician markets. Such arrangements may be exclusive
or nonexclusive and may provide for marketing rights worldwide or in a specific
market.
For certain of our products, we have licensed exclusive marketing
rights, formed joint marketing arrangements or granted distribution rights
within specified territories with our corporate partner, Roche. See
"--Collaborative Arrangements and License Agreements."
PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for our product candidates, processes and
know-how is important to our business. We aggressively file and prosecute
patents covering our proprietary technology, and, if warranted, will defend our
patents and proprietary technology. As appropriate, we seek patent protection
for our proprietary technology and products in the United States and Canada and
in key commercial European and Asia/Pacific countries. We also rely upon trade
secrets, know-how, continuing technological innovation and licensing
opportunities to develop and maintain our competitive position.
As of December 31, 2002, our patent estate of owned and/or licensed
patent rights consisted of 99 issued United States patents, none of which expire
prior to 2005, and 23 pending patent applications in the United States, the
majority of which are A.G.E.-related. We also own or have exclusive rights to
over 80 issued patents in Europe, Japan, Australia and Canada.
We have seven issued United States patents and five issued foreign
patents, including one from the European Patent Office, as well as 19 pending
patent applications in the United States, covering certain novel compounds in
the A.G.E. Crosslink Breaker category. These patents and additional patent
applications contain compound, composition and method of treatment claims for
several chemical classes of crosslink breaker compounds, including ALT-711.
Pimagedine is not protected by a composition-of-matter patent but is
protected by a series of use patents. In 1992, a United States patent on the use
of pimagedine was issued to Rockefeller University and subsequently exclusively
licensed to us with claims relating to the inhibition of A.G.E. formation. The
patent claims the new use of a known agent for the treatment of the
complications of aging and diabetes. In 1994, corresponding patents were granted
in France, Germany, Italy, the United Kingdom and other European countries. A
corresponding patent was issued in Japan in 1995. We continue to pursue and
patent chemical analogs of known A.G.E.-Formation Inhibitors, as well as novel
compounds having potential inhibitory properties.
We believe that our licensed and owned patents provide a substantial
proprietary base that will allow us and our collaborative partners to
commercialize products in this field. There can be no assurance, however, that
pending or future applications will issue, that the claims of any patents which
do issue will provide any significant protection of our technology or that our
directed discovery research will yield compounds and products of therapeutic and
commercial value.
10
In 1987, we acquired an exclusive, royalty-free, worldwide license
(including the right to sub-license to others) to issued patents, patent
applications and trade secrets from Rockefeller University relating to the
A.G.E.-formation and crosslinking technology currently under development by us.
Additional patent applications have since been filed on discoveries made in
support of the technology from research conducted at Rockefeller University, The
Picower Institute and our laboratories. Pursuant to our agreement with The
Picower Institute, certain patentable inventions and discoveries relating to
A.G.E. technology have been licensed exclusively to us. On December 31, 2001,
The Picower Institute ceased operations. On November 6, 2002, we entered into an
agreement, effective as of April 15, 2002, with The Picower Institute, which
terminated their license agreement dated as of September 5, 1991. Pursuant to
this termination agreement, The Picower Institute assigned to us all of its
patents, patent applications and other technology related to A.G.E.'s and we
agreed to prosecute and maintain the patents and patent applications. We will
pay The Picower Institute royalties on any sales of products falling within the
claims of these patents and patent applications until they expire or are allowed
to lapse.
We intend to continue to focus our research and development efforts on
the synthesis of novel compounds and on the search for additional therapeutic
applications to expand and broaden our rights within our technological and
patent base. We are also prepared to in-license additional technology that may
be useful in building our proprietary position.
Where appropriate, we utilize trade secrets and unpatentable
improvements to enhance our technology base and improve our competitive
position. We require all employees, scientific consultants and contractors to
execute confidentiality agreements as a condition of engagement. There can be no
assurance, however, that we can limit unauthorized or wrongful disclosures of
unpatented trade secret information.
We believe that our estate of licensed and owned issued patents, if
upheld, and pending applications, if granted and upheld, will be a substantial
factor in our success. The patent positions of pharmaceutical firms, including
ours, are generally uncertain and involve complex legal and factual questions.
Consequently, even though we are currently prosecuting such patent applications
in the United States and foreign patent offices, we do not know whether any of
such applications will result in the issuance of any additional patents or, if
any additional patents are issued, whether the claims thereof will provide
significant proprietary protection or will be circumvented or invalidated.
Competitors or potential competitors have filed for or have received
United States and foreign patents and may obtain additional patents and
proprietary rights relating to compounds or processes competitive with those of
ours. Accordingly, there can be no assurance that our patent applications will
result in patents being issued or that, if issued, the claims of the patents
will afford protection against competitors with similar technology; nor can
there be any assurance that others will not obtain patents that we would need to
license or circumvent. See "--Competition."
Our success will depend, in part, on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing on the proprietary rights of third parties. There can be no assurance
that our current patent estate will enable us to prevent infringement by third
parties or that competitors will not develop competitive products outside the
protection that may be afforded by the claims of such patents. To the extent we
rely on trade secrets and unpatented know-how to maintain our competitive
technological position, there can be no assurance that others may not develop
independently the same or similar technologies. Failure to maintain our current
patent estate or to obtain requisite patent and trade secret protection, which
may become material or necessary for product development, could delay or
preclude us or our licensees or marketing partners from marketing their products
and could thereby have a material adverse effect on our business, financial
condition and results of operations.
GOVERNMENT REGULATION
We and our products are subject to comprehensive regulations by the
United States Food and Drug Administration ("FDA") and by comparable authorities
in other countries. These national agencies and other federal, state and local
entities regulate, among other things, the pre-clinical and clinical testing,
safety, effectiveness, approval, manufacturing, labeling, marketing, export,
storage, record keeping, advertising and promotion of our products.
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The process required by the FDA before our products may be approved for
marketing in the United States generally involves (i) pre-clinical new drug
laboratory and animal tests, (ii) submission to the FDA of an investigational
new drug application ("IND"), which must become effective before clinical trials
may begin, (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug for its intended indication, (iv) submission
to the FDA of a new drug application ("NDA") and (v) FDA review of the NDA in
order to determine, among other things, whether the drug is safe and effective
for its intended uses. There is no assurance that the FDA review process will
result in product approval on a timely basis, if at all.
Pre-clinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Certain pre-clinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
pre-clinical tests are submitted to the FDA as part of an IND and are reviewed
by the FDA prior to the commencement of clinical trials or during the conduct of
the clinical trials, as appropriate.
Clinical trials are conducted under protocols that detail such matters
as the objectives of the study, the parameters to be used to monitor safety and
the efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND. Further, each protocol must be reviewed and approved by
an institutional review board.
Clinical trials are typically conducted in three sequential phases,
which may overlap. During Phase 1, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase 2 involves studies in a limited
patient population to (i) evaluate preliminarily the efficacy of the product for
specific targeted indications, (ii) determine dosage tolerance and optimal
dosage and (iii) identify possible adverse effects and safety risks. Phase 3
trials are undertaken in order to further evaluate clinical efficacy and to
further test for safety within an expanded patient population. The FDA may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.
We will need FDA approval of our products, including a review of the
manufacturing processes and facilities used to produce such products before such
products may be marketed in the United States. The process of obtaining
approvals from the FDA can be costly, time-consuming and subject to
unanticipated delays. There can be no assurance that the FDA will grant
approvals of our proposed products, processes or facilities on a timely basis,
if at all. Any delay or failure to obtain such approvals would have a material
adverse effect on our business, financial condition and results of operations.
Moreover, even if regulatory approval is granted, such approval may include
significant limitations on indicated uses for which a product could be marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's operating procedures conform to cGMP requirements,
which must be followed at all times. In complying with those requirements,
manufacturers (including a drug sponsor's third-party contract manufacturers)
must continue to expend time, money and effort in the area of production and
quality control to ensure compliance. Domestic manufacturing establishments are
subject to periodic inspections by the FDA in order to assess, among other
things, cGMP compliance. To supply a product for use in the United States,
foreign manufacturing establishments must comply with cGMP and are subject to
periodic inspection by the FDA or by regulatory authorities in certain of such
countries under reciprocal agreements with the FDA.
Both before and after approval is obtained, a product, its manufacturer
and the holder of the NDA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the pre-clinical and clinical testing process, the approval process,
or thereafter (including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market and/or the imposition
of criminal penalties against the manufacturer and/or NDA holder. In addition,
later discovery of previously unknown problems may result in restrictions on
such product, manufacturer or NDA holder, including withdrawal of the product
from the market. Also, new government requirements may be established that could
delay or prevent regulatory approval of our products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, especially where no satisfactory alternative therapy exists. We
cannot predict the ultimate impact, however, of the FDA's accelerated approval
of procedures on the timing or likelihood of approval of any of our potential
products or those of any competitor. In addition, the approval of a product
under the accelerated approval procedures may be subject to various conditions,
including the requirement
12
to verify clinical benefit in post-marketing studies, and the authority on the
part of the FDA to withdraw approval under streamlined procedures if such
studies do not verify clinical benefit.
For marketing outside the United States, we will have to satisfy
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and diagnostic products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. We do not currently have any facilities or
personnel outside of the United States.
In addition to regulations enforced by the FDA, we are also subject to
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our resources.
COMPETITION
A.G.E.s have been shown to contribute to many of the disorders of aging
and diabetes, including cardiovascular, kidney and eye diseases. We are aware of
several companies that have research and development activities in the A.G.E.
field. Many companies are pursuing research and development of compounds for
cardiovascular and kidney diseases and the lowering of glucose levels.
Many of our potential competitors have substantially greater financial,
technical and human resources than ours and may be better equipped to develop,
manufacture and market products. In addition, many of these companies have
extensive experience in pre-clinical testing and human clinical trials. These
companies may develop and introduce products and processes competitive with or
superior to ours.
Our competition will be determined, in part, by the potential
indications for which our compounds are developed and ultimately approved by
regulatory authorities. For certain of our potential products, an important
factor in competition may be the timing of market introduction of our or our
competitors' products. Accordingly, the relative speed with which we can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are important competitive
factors. We expect that competition among products approved for sale will be
based on, among other things, product efficacy, safety, reliability,
availability, price and patent position. Our competitive position also depends
upon our ability to attract and retain qualified personnel, obtain protection or
otherwise develop proprietary products or processes and secure sufficient
capital resources.
We are competing in an industry in which technologies can become
obsolete over time, thereby reducing or eliminating the market for any
pharmaceutical product. For example, competitive drugs based on other
therapeutic mechanisms may be efficacious in treating cardiovascular disease or
diabetic complications. The development by others of non-A.G.E.-related
treatment modalities could render our products non-competitive. Therapeutic
approaches being pursued by others include curing cardiovascular disease or
diabetic complications via gene therapy or cell transplantation, as well as
pharmaceutical intervention with agents such as the aldose reductase inhibitors.
Angiotensin converting enzyme inhibitors, angiotensin receptor
blockers, calcium channel blockers, beta-blockers and diuretics are effective
treatments for essential hypertension, a disease characterized by increased
peripheral vascular resistance (essential hypertension closely related to
diastolic blood pressure). Systolic hypertension, characterized by increased
stiffness of the large arteries, is not usually associated with increased
peripheral vascular resistance. In the absence of any marketed products that
address the underlying pathology of systolic hypertension patients, treatments
approved for essential hypertension are currently being prescribed to treat
hypertension in these patients.
13
MEDICAL AND CLINICAL ADVISORS
Our Medical and Clinical Advisors consist of individuals with
recognized expertise in the medical and pharmaceutical science and related
fields who advise us about present and long-term scientific planning, research
and development. These advisors consult and meet with our management informally
on a frequent basis. All advisors are employed by employers other than us and
may have commitments to, or consulting or advisory agreements with, other
entities that may limit their availability to us. These companies may also be
competitors of ours. The advisors have agreed, however, not to provide any
services to any other entities that might conflict with the activities that they
provide us. Each member also has executed a confidentiality agreement for our
benefit.
The following persons are Medical and Clinical Advisors:
George L. Bakris, M.D., F.A.C.P., F.C.P., Professor of Preventive and
Internal Medicine, Vice Chairman, Department of Preventive Medicine and
Director, Hypertension/Clinical Research Center, Rush-Presbyterian/St.
Luke's Medical Center; immediate Past-President, American College of
Clinical Pharmacology.
Leslie Z. Benet, Ph.D., Professor, University of California San
Francisco, School of Pharmacy, Department of Biopharmaceutical
Sciences; Chairman of the Board, AvMax, Inc.; former Chairman,
Department of Biopharmaceutical Sciences of the University of
California San Francisco.
Edward D. Frohlich, M.D., Alton Ochsner Distinguished Scientist of the
Ochsner Clinic Foundation; Professor of Medicine and Physiology at
Louisiana State University; Clinical Professor of Medicine and Adjunct
Professor of Pharmacology at Tulane University; President, Society of
Geriatric Cardiology; Past-President, American Society for Clinical
Pharmacology and Therapeutics; Past-Chairman, Council for High Blood
Pressure Research (American Heart Association); immediate
Past-Editor-in-Chief of Hypertension journal.
Richard J. Glassock, M.D., M.A.C.P., Professor Emeritus, The David
Geffen School of Medicine at the University of California Los Angeles,
Past-President, National Kidney Foundation; Past-President, American
Society of Nephrology.
Norman K. Hollenberg, M.D., Ph.D., Assistant, Associate and Full
Professor, Peter Bent Brigham Hospital, Boston, Massachusetts; served
as an Editor of the New England Journal of Medicine.
EMPLOYEES
As of February 28, 2003, we employed 43 persons, 31 were engaged in
research and development and 12 were engaged in administration and management.
Seven of those employed held a Ph.D., M.D. or other advanced degree. We believe
that we have been successful in attracting skilled and experienced personnel.
Our employees are not covered by collective bargaining agreements, but all
employees are covered by confidentiality agreements. We believe that our
relationship with our employees is good.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS
Statements in this Form 10-K that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by us or our representatives are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "estimate"
or other expressions, which are predictions of or indicate future events and
trends and which do not relate to historical matters, identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they involve risks and uncertainties, and actual
results could differ materially from those currently anticipated due to a number
of factors, including those set forth in this section and elsewhere in this Form
10-K. These factors include, but are not limited to, the risks set forth below.
14
The forward-looking statements represent our judgment and expectations
as of the date of this Report. We assume no obligation to update any such
forward-looking statements.
IF WE DO NOT OBTAIN SUFFICIENT ADDITIONAL FUNDING TO MEET OUR NEEDS, WE MAY HAVE
TO CURTAIL OR DISCONTINUE THE RESEARCH, PRODUCT DEVELOPMENT, PRE-CLINICAL
TESTING AND CLINICAL TRIALS OF SOME OR ALL OF OUR PRODUCT CANDIDATES.
As of December 31, 2002, we had working capital of approximately
$13,786,000, including approximately $17,439,000 of cash, cash equivalents and
short-term investments. During 2002, we sold 6,164,285 shares of common stock,
raising net proceeds of approximately $21,575,000. Our cash used in operations
for the year ended December 31, 2002, 2001 and 2000 was approximately
$14,931,000, $9,032,000 and $8,986,000, respectively. We expect to utilize cash
to fund our operations at levels similar to those used in 2002 through the
expected completion date of the SAPPHIRE and SILVER trials in mid-2003, and
believe we have adequate cash and cash equivalents and short-term investments to
fund such trials. However, we do not believe we will have adequate cash at these
spending levels to complete the fiscal year. As a result, throughout 2003, we
will monitor our liquidity position and the status of our clinical trials.
Depending upon the results of any attempts made by us to raise additional funds
through the sale of additional equity securities, we may be required to
significantly reduce or curtail our research and product development activities
and other operations if our level of cash and cash equivalents fall below
pre-determined levels. We have the intent and ability to quickly and
significantly reduce the cash burn rate, if necessary, as we have limited fixed
commitments. We believe that such actions will enable us to fund our operations
through the first quarter of 2004.
We will require, over the long-term, substantial new funding to pursue
development and commercialization of ALT-711 and our other product candidates
and continue our operations. We believe that satisfying these capital
requirements over the long-term will require successful commercialization of our
product candidates. However, it is uncertain whether or not any products will be
approved or will be commercially successful. The amount of our future capital
requirements will depend on numerous factors, including the progress of our
research and development programs, the conduct of pre-clinical tests and
clinical trials, the development of regulatory submissions, the costs associated
with protecting patents and other proprietary rights, the development of
marketing and sales capabilities and the availability of third-party funding.
Because of our short-term and long-term capital requirements, we, as
stated above, may seek access to the public or private equity markets. This may
have the effect of materially diluting the current holders of our outstanding
stock. We may also seek additional funding through corporate collaborations and
other financing vehicles, potentially including off-balance sheet financing
through limited partnerships or corporations. There can be no assurance that
such funding will be available at all or on terms acceptable to us. If we obtain
funds through arrangements with collaborative partners or others, we may be
required to relinquish rights to certain of our technologies or product
candidates.
IF WE DO NOT SUCCESSFULLY DEVELOP ANY PRODUCTS, WE MAY NOT DERIVE ANY REVENUES.
We have not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. All of our product candidates
are still in research or clinical development. We may not succeed in the
development and marketing of any therapeutic or diagnostic product. To achieve
profitable operations, we must, alone or with others, successfully identify,
develop, introduce and market proprietary products. Such products will require
significant additional investment, development and pre-clinical and clinical
testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during pre-clinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. We may not be able to
undertake additional clinical trials. In addition, our product development
efforts may not be successfully completed, we may not obtain regulatory
approvals, and our products, if introduced, may not be successfully marketed or
achieve customer acceptance. We do not expect any of our products, including
ALT-711, to be commercially available for a number of years, if at all.
15
CLINICAL TRIALS REQUIRED FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND
TIME-CONSUMING, AND THEIR OUTCOME IS UNCERTAIN.
Before obtaining regulatory approvals for the commercial sale of any of
our products under development, we must demonstrate through pre-clinical studies
and clinical trials that the product is safe and effective for use in each
target indication. The length of time necessary to complete clinical trials
varies significantly and may be difficult to predict. Factors which can cause
delay or termination of our clinical trials include: (i) slower than expected
patient enrollment due to the nature of the protocol, the proximity of patients
to clinical sites, the eligibility criteria for the study, competition with
clinical trials for other drug candidates or other factors; (ii) lower than
expected retention rates of patients in a clinical trial; (iii) inadequately
trained or insufficient personnel at the study site to assist in overseeing and
monitoring clinical trials; (iv) delays in approvals from a study site's review
board; (v) longer treatment time required to demonstrate effectiveness or
determine the appropriate product dose; (vi) lack of sufficient supplies of the
product candidate; (vii) adverse medical events or side effects in treated
patients; (viii) lack of effectiveness of the product candidate being tested and
(ix) regulatory changes.
Even if we obtain positive results from pre-clinical or clinical trials
for a particular product, we may not achieve the same success in future trials
of that product. In addition, some or all of the clinical trials we undertake
may not demonstrate sufficient safety and efficacy to obtain the requisite
regulatory approvals, which could prevent the creation of marketable products.
Our product development costs will increase if we have delays in testing or
approvals, if we need to perform more or larger clinical trials than planned or
if our trials are not successful. Delays in our clinical trials may harm our
financial results and the commercial prospects for our products.
IF WE ARE UNABLE TO DERIVE REVENUES FROM PRODUCT SALES, WE MAY NEVER BE
PROFITABLE.
All of our revenues to date have been generated from collaborative
research agreements and financing activities, or interest income earned on these
funds. We have not received any revenues from product sales. We may not realize
product revenues on a timely basis, if at all.
At December 31, 2002, we had an accumulated deficit of approximately
$169,376,000. We anticipate that we will incur substantial, potentially greater,
losses in the future. Our products under development may not be successfully
developed and our products, if successfully developed, may not generate revenues
sufficient to enable us to earn a profit. We expect to incur substantial
additional operating expenses over the next several years as our research,
development and clinical trial activities increase. We do not expect to generate
revenues from the sale of products, if any, for a number of years. Our ability
to achieve profitability depends, in part, on our ability to enter into
agreements for product development, obtain regulatory approval for our products
and develop the capacity, or enter into agreements, for the manufacture,
marketing and sale of any products. We may not obtain required regulatory
approvals, or successfully develop, manufacture, commercialize and market
product candidates, and we may never achieve product revenues or profitability.
PRIOR STOCK OPTION REPRICING MAY HAVE AN ADVERSE EFFECT ON OUR FUTURE FINANCIAL
PERFORMANCE.
Based on the performance of our stock, we repriced certain employee
stock options on February 2, 1999, in order to bolster employee retention. As a
result of this repricing, options to purchase 1.06 million shares of stock were
repriced and certain vesting periods related to these options were modified or
extended. This repricing may have a material adverse impact on future financial
performance based on the Financial Accounting Standards Board ("FASB")
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation, An Interpretation of APB Opinion No. 25." This
interpretation requires us to record compensation expense or benefit, which is
adjusted every quarter, for increases or decreases in the fair value of the
repriced options based on changes in our stock price from the value at July 1,
2000, until the repriced options are exercised, forfeited or expire. The options
expire at various dates through January 2008.
IF WE ARE UNABLE TO FORM THE COLLABORATIVE RELATIONSHIPS THAT OUR BUSINESS
STRATEGY REQUIRES, THEN OUR PROGRAMS WILL SUFFER AND WE MAY NOT BE ABLE TO
DEVELOP PRODUCTS.
Our strategy for developing and deriving revenues from our products
depends, in large part, upon entering into arrangements with research
collaborators, corporate partners and others. We are seeking to establish these
relationships to provide the funding necessary for continuation of our product
development, but if such efforts may not be successful, our programs may suffer
and we may be unable to develop products.
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IF WE ARE ABLE TO FORM OUR COLLABORATIVE RELATIONSHIPS, BUT ARE UNABLE TO
MAINTAIN THEM, OUR PRODUCT DEVELOPMENT MAY BE DELAYED AND DISPUTES OVER RIGHTS
TO TECHNOLOGY MAY RESULT.
We may form collaborative relationships that will, in some cases, make
us dependent upon outside partners to conduct pre-clinical testing and clinical
trials and to provide adequate funding for our development programs. Such
corporate partners, if any, may have all or a significant portion of the
development and regulatory approval responsibilities. Failure of the corporate
partners to develop marketable products or to gain the appropriate regulatory
approvals on a timely basis, if at all, would have a material adverse effect on
our business, financial condition and results of operations.
In most cases, we will not be able to control the amount and timing of
resources that our corporate partners devote to our programs or potential
products. If any of our corporate partners breached or terminated its agreement
with us or otherwise failed to conduct its collaborative activities in a timely
manner, the pre-clinical or clinical development or commercialization of product
candidates or research programs could be delayed, and we would be required to
devote additional resources to product development and commercialization or
terminate certain development programs.
Disputes may arise in the future with respect to the ownership of
rights to any technology we develop with third parties. These and other possible
disagreements between us and collaborators could lead to delays in the
collaborative research, development or commercialization of product candidates,
or could require or result in litigation or arbitration, which would be
time-consuming and expensive and would have a material adverse effect on our
business, financial condition, results of operations and liquidity.
Any corporate partners we have may develop, either alone or with
others, products that compete with the development and marketing of our
products. Competing products, either developed by the corporate partners or to
which the corporate partners have rights, may result in their withdrawal of
support with respect to all or a portion of our technology, which would have a
material adverse effect on our business, financial condition, results of
operations and liquidity.
IF WE CANNOT SUCCESSFULLY DEVELOP A MARKETING AND SALES FORCE OR MAINTAIN
SUITABLE ARRANGEMENTS WITH THIRD PARTIES TO MARKET AND SELL OUR PRODUCTS, OUR
ABILITY TO DELIVER PRODUCTS MAY BE IMPAIRED.
We currently have no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any approved product, we
must either develop a marketing and sales force or, where appropriate or
permissible, enter into arrangements with third parties to market and sell our
products. We might not be successful in developing marketing and sales
capabilities. Further, we may not be able to enter into marketing and sales
agreements with others on acceptable terms, and any such arrangements, if
entered into, may be terminated. If we develop our own marketing and sales
capability, it will compete with other companies that currently have
experienced, well funded and larger marketing and sales operations. To the
extent that we enter into co-promotion or other sales and marketing arrangements
with other companies, revenues will depend on the efforts of others, which may
not be successful.
IF WE CANNOT SUCCESSFULLY FORM AND MAINTAIN SUITABLE ARRANGEMENTS WITH THIRD
PARTIES FOR THE MANUFACTURING OF THE PRODUCTS WE MAY DEVELOP, OUR ABILITY TO
DEVELOP OR DELIVER PRODUCTS MAY BE IMPAIRED.
We have no experience in manufacturing products for commercial purposes
and do not have manufacturing facilities. Consequently, we are dependent on
contract manufacturers for the production of products for development and
commercial purposes. The manufacture of our products for clinical trials and
commercial purposes is subject to cGMP regulations promulgated by the FDA. In
the event that we are unable to obtain or retain third-party manufacturing for
our products, we will not be able to commercialize such products as planned. We
may not be able to enter into agreements for the manufacture of future products
with manufacturers whose facilities and procedures comply with cGMP and other
regulatory requirements. Our current dependence upon others for the manufacture
of our products may adversely affect our profit margin, if any, on the sale of
future products and our ability to develop and deliver such products on a timely
and competitive basis.
17
IF WE ARE NOT ABLE TO PROTECT THE PROPRIETARY RIGHTS THAT ARE CRITICAL TO OUR
SUCCESS, THE DEVELOPMENT AND ANY POSSIBLE SALES OF OUR PRODUCT CANDIDATES COULD
SUFFER AND COMPETITORS COULD FORCE OUR PRODUCTS COMPLETELY OUT OF THE MARKET.
Our success will depend on our ability to obtain patent protection for
our products, preserve our trade secrets, prevent third parties from infringing
upon our proprietary rights and operate without infringing upon the proprietary
rights of others, both in the United States and abroad.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and our potential products are subject to this uncertainty.
Competitors may develop competitive products outside the protection that may be
afforded by the claims of our patents. We are aware that other parties have been
issued patents and have filed patent applications in the United States and
foreign countries with respect to other agents that have an effect on A.G.E.s.
or the formation of A.G.E. crosslinks. In addition, although we have several
patent applications pending to protect proprietary technology and potential
products, these patents may not be issued, and the claims of any patents, which
do issue, may not provide significant protection of our technology or products.
In addition, we may not enjoy any patent protection beyond the expiration dates
of our currently issued patents.
We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to maintain, develop and expand
our competitive position, which we seek to protect, in part, by confidentiality
agreements with our corporate partners, collaborators, employees and
consultants. We also have invention or patent assignment agreements with our
employees and certain, but not all, corporate partners and consultants. Relevant
inventions may be developed by a person not bound by an invention assignment
agreement. Binding agreements may be breached, and we may not have adequate
remedies for such breach. In addition, our trade secrets may become known to or
be independently discovered by competitors.
IF WE FAIL TO OBTAIN REGULATORY APPROVALS FOR OUR PRODUCTS, THE COMMERCIAL USE
OF OUR PRODUCTS WILL BE LIMITED.
Our research, pre-clinical testing and clinical trials of our product
candidates are, and the manufacturing and marketing of our products will be,
subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where we intend to test
and market our product candidates.
Prior to marketing, any product we develop must undergo an extensive
regulatory approval process. This regulatory process, which includes
pre-clinical testing and clinical trials and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and can require the expenditure of substantial resources. Data
obtained from pre-clinical and clinical activities is susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. In
addition, we may encounter delays or rejections based upon changes in FDA policy
for drug approval during the period of product development and FDA regulatory
review of each submitted NDA. We may encounter similar delays in foreign
countries. We may not obtain regulatory approval for the drugs we develop.
Moreover, regulatory approval may entail limitations on the indicated uses of
the drug. Further, even if we obtain regulatory approval, a marketed drug and
its manufacturer are subject to continuing review and discovery of previously
unknown problems with a product or manufacturer which may have adverse effects
on our business, financial condition and results of operations, including
withdrawal of the product from the market. Violations of regulatory requirements
at any stage, including pre-clinical testing, clinical trials, the approval
process or post-approval, may result in various adverse consequences, including
the FDA's delay in approving, or its refusal to approve a product, withdrawal of
an approved product from the market and the imposition of criminal penalties
against the manufacturer and NDA holder. None of our products has been approved
for commercialization in the United States or elsewhere. We may not be able to
obtain FDA approval for any products. Failure to obtain requisite governmental
approvals or failure to obtain approvals of the scope requested will delay or
preclude our licensees or marketing partners from marketing our products or
limit the commercial use of such products and will have a material adverse
effect on our business, financial condition, results of operations and
liquidity.
IF WE ARE NOT ABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES IN THE
DEVELOPMENT AND MARKETING OF CURES AND THERAPIES FOR CARDIOVASCULAR DISEASES,
DIABETES AND THE OTHER CONDITIONS FOR WHICH WE SEEK TO DEVELOP PRODUCTS, WE MAY
NOT BE ABLE TO CONTINUE OUR OPERATIONS.
We are engaged in pharmaceutical fields characterized by extensive
research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than ours are
attempting to develop products that would be competitive with our products.
Other companies may succeed
18
in developing products that are safer, more efficacious or less costly than any
we may develop and may also be more successful than us in production and
marketing. Rapid technological development by others may result in our products
becoming obsolete before we recover a significant portion of the research,
development or commercialization expenses incurred with respect to those
products.
Certain technologies under development by other pharmaceutical
companies could result in better treatments for cardiovascular disease, or
diabetes and its related complications. Several large companies have initiated
or expanded research, development and licensing efforts to build pharmaceutical
franchises focusing on these medical conditions. It is possible that one or more
of these initiatives may reduce or eliminate the market for some of our
products. In addition, other companies have initiated research in the inhibition
or crosslink breaking of A.G.E.s.
IF GOVERNMENTS AND THIRD-PARTY PAYERS CONTINUE THEIR EFFORTS TO CONTAIN OR
DECREASE THE COSTS OF HEALTHCARE, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR
PRODUCTS SUCCESSFULLY.
In certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. In the United
States, we expect that there will continue to be federal and state initiatives
to control and/or reduce pharmaceutical expenditures. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on
pharmaceutical pricing. Cost control initiatives could decrease the price that
we receive for any products we may develop and sell in the future and have a
material adverse effect on our business, financial condition and results of
operations. Further, to the extent that cost control initiatives have a material
adverse effect on our corporate partners, our ability to commercialize our
products may be adversely affected.
Our ability to commercialize pharmaceutical products may depend, in
part, on the extent to which reimbursement for the products will be available
from government health administration authorities, private health insurers and
other third-party payers. Significant uncertainty exists as to the reimbursement
status of newly approved healthcare products, and third-party payers, including
Medicare, are increasingly challenging the prices charged for medical products
and services. Third-party insurance coverage may not be available to patients
for any products developed by us. Government and other third-party payers are
attempting to contain healthcare costs by limiting both coverage and the level
of reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels are not provided by government and other third-party payers
for our products, the market acceptance of these products would be adversely
affected.
IF THE USERS OF THE PRODUCTS WE DEVELOP CLAIM THAT OUR PRODUCTS HAVE HARMED
THEM, WE MAY BE SUBJECT TO COSTLY AND DAMAGING PRODUCT LIABILITY LITIGATION,
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS.
The use of any of our potential products in clinical trials and the
sale of any approved products, including the testing and commercialization of
ALT-711 or other compounds, exposes us to liability claims resulting from the
use of products or product candidates. A claim, which was subsequently settled,
was made by a participant in one of our clinical trials, and additional claims
might be made directly by other such participants, consumers, pharmaceutical
companies or others. We maintain product liability insurance coverage for claims
arising from the use of our products in clinical trials. However, coverage is
becoming increasingly expensive, and we may not be able to maintain or acquire
insurance at a reasonable cost or in sufficient amounts to protect us against
losses due to liability that could have a material adverse effect on our
business, financial conditions and results of operations. We may not be able to
obtain commercially reasonable product liability insurance for any product
approved for marketing in the future and insurance coverage and our resources
may not be sufficient to satisfy any liability resulting from product liability
claims. A successful product liability claim or series of claims brought against
us could have a material adverse effect on our business, financial condition,
results of operations and liquidity.
IF WE ARE UNABLE TO ATTRACT AND RETAIN THE KEY PERSONNEL ON WHOM OUR SUCCESS
DEPENDS, OUR PRODUCT DEVELOPMENT, MARKETING AND COMMERCIALIZATION PLANS COULD
SUFFER.
We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these personnel could impede
the achievement of our development objectives. Furthermore, recruiting and
retaining qualified scientific personnel to perform research and development
work in the future will also be critical to our success. We may not be able to
attract and retain personnel on acceptable terms given the
19
competition between pharmaceutical and healthcare companies, universities and
non-profit research institutions for experienced scientists. In addition, we
rely on consultants to assist us in formulating our research and development
strategy. All of our consultants are employed outside of us and may have
commitments to or consulting or advisory contracts with other entities that may
limit their availability to us.
OUR OPERATIONS INVOLVE A RISK OF INJURY OR DAMAGE FROM HAZARDOUS MATERIALS, AND
IF AN ACCIDENT WERE TO OCCUR, WE COULD BE SUBJECT TO COSTLY AND DAMAGING
LIABILITY CLAIMS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our research and development activities involve the controlled use of
hazardous materials and chemicals. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of an accident, we could be held liable for any damages or fines that
result. Such liability could have a material adverse effect on our business,
financial condition, results of operations and liquidity.
ITEM 2. PROPERTIES.
We lease a 37,000 square foot building in Ramsey, New Jersey, which
contains our executive and administrative offices and research laboratory space.
The lease, which commenced on November 1, 1993, has a 10-year term. In addition,
the lease has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS.
On August 5, 2002, Lisa Weller, a former employee of ours, filed suit
against us in the Superior Court of New Jersey asserting claims for alleged
pregnancy, sex and handicap discrimination, wrongful termination and intentional
infliction of emotional distress, all arising from our termination of her
employment as an executive assistant. We removed the case to the United States
District Court for the District of New Jersey. In December 2002, we agreed to a
settlement with Ms. Weller under which we deny all liability in exchange for a
dismissal and release by Ms. Weller of any and all claims against us. The
settlement is currently being executed by both parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock has traded on the American Stock Exchange ("Amex")
since August 7, 2000, under the symbol "ALT."
2002 High Low
---- ---- ----
First Quarter.................... $ 5.90 $ 3.40
Second Quarter................... 3.84 1.77
Third Quarter.................... 2.25 1.38
Fourth Quarter................... 2.45 1.00
2001 High Low
---- ---- ----
First Quarter.................... $ 6.50 $ 3.15
Second Quarter................... 4.71 2.70
Third Quarter.................... 3.49 2.25
Fourth Quarter................... 4.93 2.33
As of February 28, 2003, there were 325 holders of the common stock. On
February 28, 2003, the last sale price reported on the Amex for the common stock
was $3.74 per share.
20
We have neither paid nor declared dividends on our common stock since
our inception and do not plan to pay dividends in the foreseeable future. Any
earnings that we may realize will be returned to finance our growth.
The market prices for securities of biotechnology and pharmaceutical
companies, including ours, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors, such as fluctuations in our operating results, announcements
of technological innovations or new therapeutic products by us or others,
clinical trial results, developments concerning agreements with collaborators,
governmental regulation, developments in patent or other proprietary rights,
public concern as to the safety of drugs developed by us or others, future sales
of substantial amounts of common stock by existing stockholders and general
market conditions, can have an adverse effect on the market price of the common
stock.
The information called for by Item 201(d) of Regulation S-K is provided
in response to Item 12 of this Annual Report on Form 10-K, which is incorporated
herein by reference.
21
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in
conjunction with the audited financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. The selected financial data, for
the five years ended December 31, 2002, has been derived from our audited
financial statements.
Year Ended December 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Investment income .......................... $ 410 $ 452 $ 570 $ 835 $ 1,321
Other income ............................... -- -- -- 600 --
------------ ------------ ------------ ------------ ------------
Total revenues ........................... 410 452 570 1,435 1,321
Expenses:
Research and development
(which includes non-cash variable stock
compensation (benefit)/expense in 2002,
2001 and 2000 of $(94), $165 and $353,
respectively) ............................. 14,992 8,461 6,375 10,598 24,592
Elimination of previously accrued
loss contingency .......................... -- -- -- -- (1,771)
General and administrative
(which includes non-cash variable stock
compensation (benefit)/expense in 2002,
2001 and 2000 of $(1,316), $657 and
$891, respectively) ....................... 2,946 4,761 5,313 4,357 4,842
Interest ................................... -- -- -- -- 4
------------ ------------ ------------ ------------ ------------
Total expenses ............................ 17,938 13,222 11,688 14,955 27,667
------------ ------------ ------------ ------------ ------------
Loss before income tax benefit ................ (17,528) (12,770) (11,118) (13,520) (26,346)
Income tax benefit ............................ 647 1,187 1,548 2,588 --
Total expenses .......................... ------------ ------------ ------------ ------------ ------------
Net loss ...................................... (16,881) (11,583) (9,570) (10,932) (26,346)
--
Preferred stock dividends ..................... 3,485 3,204 2,945 2,707 2,207
Common stock warrant deemed dividends ......... -- 210 -- -- --
------------ ------------ ------------ ------------ ------------
Net loss applicable to common
stockholders ................................ $ (20,366) $ (14,997) $ (12,515) $ (13,639) $ (28,553)
============ ============ ============ ============ ============
Basic/diluted net loss per share applicable to
common stockholders ......................... $ (0.64) $ (0.61) $ (0.63) $ (0.72) $ (1.57)
============ ============ ============ ============ ============
Weighted average common shares used in
computing basic/diluted net loss per share... 31,793 24,556 19,861 19,055 18,211
============ ============ ============ ============ ============
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments ...................... $ 17,439 $ 10,726 $ 9,955 $ 12,370 $ 24,132
Working capital ............................... 13,786 9,758 9,754 10,425 20,093
Total assets .................................. 18,099 13,233 13,389 15,021 27,652
Accumulated deficit ........................... (169,376) (149,009) (134,011) (121,496) (107,857)
Total stockholders' equity .................... 14,303 10,871 11,453 12,827 23,338
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
We are a product-based biopharmaceutical company primarily engaged in
the discovery and development of oral drugs to reverse or slow down diseases of
aging and complications of diabetes. Our product candidates represent novel
approaches to some of the largest pharmaceutical markets. Our lead compound is
in Phase 2b clinical development; several others are in earlier development
stages. These pharmaceutical candidates were developed as a result of our
research on the A.G.E. pathway, a fundamental pathological process and
inevitable consequence of aging that causes or contributes to many medical
disorders, including cardiovascular, kidney and eye diseases.
22
Our lead compound, ALT-711, is being developed initially for
cardiovascular indications, and two Phase 2a clinical trials in cardiovascular
compliance and in DHF have been successfully completed. Based on the positive
results of the trial in cardiovascular compliance, we have initiated two Phase
2b efficacy trials of ALT-711, the SAPPHIRE and SILVER trials in systolic
hypertension, for which data is expected to be reported concurrently about
mid-year 2003. We are also considering further clinical development in DHF and
related conditions.
As we continue clinical development of ALT-711, we will determine if it
is appropriate to retain development and marketing rights for one or several
indications in North America, while at the same time continuing to evaluate
potential corporate partnerships for the further development and ultimate
marketing of the compound in other territories throughout the world. We believe
that ALT-711 may address the cardiovascular, diabetes and primary care physician
markets.
A topical formulation of an A.G.E. Crosslink Breaker, ALT-744, is being
clinically evaluated in skin aging for cosmetic applications. We continue to
evaluate product development opportunities from among our A.G.E. Crosslink
Breaker compounds and other classes of compounds in our patent estate.
Since our inception in October 1986, we have devoted substantially all
of our resources to research, drug discovery and development programs. To date,
we have not generated any revenues from the sale of products and do not expect
to generate any such revenues for a number of years, if at all. We have incurred
an accumulated deficit of approximately $169,376,000 as of December 31, 2002,
and expect to incur operating losses, potentially greater than losses in prior
years, for a number of years.
We have financed our operations through proceeds from an initial public
offering of common stock in 1991, public offerings of common stock, private
placements of common and preferred equity securities, revenue from former
collaborative relationships, reimbursement of certain of our research and
development expenses by our collaborative partners, investment income earned on
cash balances and short-term investments and the sale of a portion of our New
Jersey State net operating loss carryforwards.
In December 2002, we completed a public offering of 1,714,285 shares of
common stock at $1.75 per share, which provided net proceeds of approximately
$2,965,000. In connection with this offering, certain previously issued warrants
were repriced pursuant to antidilution provisions connected to the warrants.
In January 2002, we completed a public offering of 4,450,000 shares of
common stock, which provided net proceeds of approximately $18,611,000.
In July 2001, we completed a public offering of 4,500,000 shares of
common stock, which provided net proceeds of approximately $9,410,000. In
connection with this offering, certain previously issued warrants were repriced
pursuant to antidilution provisions connected to the warrants.
In March 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, An Interpretation of APB
Opinion No. 25." The interpretation became effective on July 1, 2000, but in
some circumstances applies to transactions that occur prior to the effective
date. Under the interpretation, stock options that are repriced must be
accounted for as variable-plan arrangements until the options are exercised,
forfeited or expire. This requirement applies to any options repriced after
December 15, 1998. On February 2, 1999, we repriced certain stock options. The
total compensation (benefit)/expense resulting from the repricing and included
in net loss for the years ended December 31, 2002, 2001 and 2000, was
approximately $(1,409,000), $822,000 and $1,244,000, respectively. As of
December 31, 2002, there were approximately 590,000 repriced options
outstanding, which expire at various dates through 2008.
In 2002, 2001 and 2000, we sold $1,839,000, $6,243,000 and $14,129,000,
respectively, of our gross State net operating loss carryforwards and $578,000,
$802,000 and $590,000, respectively, of our State research and development tax
credit carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program (the "Program"). The Program allows qualified
technology and biotechnology businesses in New Jersey to sell unused amounts of
net operating loss carryforwards and defined research and development tax
credits for cash. The proceeds from the sale in 2002, 2001 and 2000 were
approximately $647,000, $1,187,000 and $1,548,000, respectively, and such
amounts were recorded as a tax benefit in the statements of operations.
23
Our business is subject to significant risks including, but not limited
to, (i) the ability to obtain funding, (ii) the risks inherent in our research
and development efforts, including clinical trials, (iii) uncertainties
associated with obtaining and enforcing our patents and with the patent rights
of others, (iv) the lengthy, expensive and uncertain process of seeking
regulatory approvals, (v) uncertainties regarding government healthcare reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties and (viii) dependence on
collaborative partners and other third parties. Even if our product candidates
appear promising at an early stage of development, they may not reach the market
for numerous reasons. Such reasons include the possibilities that the products
will prove ineffective or unsafe during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. These risks and others
are discussed under the heading "Forward-Looking Statements and Cautionary
Statements."
RESULTS OF OPERATIONS
Years Ended December 2002, 2001, 2000
Revenues
Total revenues for 2002, 2001 and 2000 were $410,000, $452,000 and
$570,000, respectively. Revenues were derived from interest earned on cash and
cash equivalents and short-term investments. The decrease in revenues in 2002
over 2001 and 2000 was attributed to decreased interest rates, partially offset
by larger investment balances.
Operating Expenses
Total expenses increased to $17,938,000 in 2002 from $13,222,000 in
2001, and from $11,688,000 in 2000, and in each year consisted primarily of
research and development expenses. Research and development expenses were
$14,992,000 in 2002, $8,461,000 in 2001 and $6,375,000 in 2000, and included
non-cash variable stock compensation (benefit)/expense of $(94,000), $165,000
and $353,000, respectively. Research and development expenses consisted
primarily of third-party expenses associated with pre-clinical and clinical
studies, manufacturing costs, including the development and preparation of
clinical supplies, personnel and personnel-related expenses and an allocation of
facility expense.
Research and development expenses increased in 2002 from 2001 by
$6,531,000, or 77.2%. This increase was primarily related to increased clinical
trial costs associated with the crosslink breaker program. In 2002,
approximately $6,631,000 of total research and development expenditures were
related to the Phase 2b SAPPHIRE and SILVER trials and the Phase 2a DIAMOND
trial. The 2002 results also included approximately $3,250,000 in personnel and
personnel-related costs, $683,000 in pre-clinical expenses and approximately
$1,872,000 of manufacturing costs. These manufacturing costs included finalizing
the development of manufacturing processes for the production of Phase 3
clinical trial supplies and potential commercialization of ALT-711, drug
stability studies and drug packaging. The Phase 2b SAPPHIRE and SILVER trials
completed enrollment in November 2002. The release of the data from these trials
is expected to be reported concurrently about mid-year 2003. The development and
successful commercialization of ALT-711 are subject to substantial risks, which
are described in this Report. For example, See "--Forward-Look Statements and
Cautionary Statements -- If we do not successfully develop any products, we may
not derive any revenues."
Research and development expenses increased in 2001 from 2000 by
$2,086,000, or 32.7%. This increase was primarily related to additional
manufacturing costs and expenditures for the crosslink breaker program.
Manufacturing costs were approximately $1,916,000 in 2001, which included the
production of supplies for the ongoing clinical programs (tableting and
packaging), drug stability studies and the development of manufacturing
processes for the production of Phase 3 clinical trial supplies. In 2001,
approximately $1,730,000 was spent on various pre-clinical and clinical programs
and the initiation of the Phase 2b SAPPHIRE and SILVER trials. The 2001 results
also included personnel and personnel-related costs of $2,554,000. In 2000,
approximately $1,769,000 was related to pre-clinical and clinical programs
including the Phase 2a trial, $1,859,000 was related to personnel costs and
$345,000 to manufacturing expense. The Phase 2a trial was completed in 2000, and
the data was released in 2001.
General and administrative expenses were $2,946,000 in 2002,
decreased from $4,761,000 in 2001 and from $5,313,000 in 2000. The changes in
general and administrative expenses consisted primarily of non-cash variable
stock compensation (benefit)/expense of $(1,316,000), $657,000 and $891,000 in
2002, 2001 and 2000,
24
respectively. Excluding the non-cash variable stock compensation, general and
administrative expenses were $4,262,000, $4,104,000 and $4,422,000 in 2002, 2001
and 2000, respectively. The increase in 2002 over 2001 is primarily related to
increased personnel costs.
At December 31, 2002, we had available federal net operating loss
carryforwards, which expire in various amounts from the years 2006 through 2022,
of approximately $152,365,000 and State net operating loss carryforwards, which
expire in the years 2004 through 2009, of approximately $106,771,000. In
addition, we had federal research and development credit carryforwards of
approximately $7,048,000 and State research and development tax credit
carryforwards of approximately $811,000. We had net losses of $16,882,000 in
2002, $11,584,000 in 2001 and $9,570,000 in 2000.
Net Loss
Included in our net loss in 2002, 2001 and 2000 was the sale of
approximately $1,839,000, $6,243,000 and $14,129,000, respectively, of our gross
State net operating loss carryforwards and approximately $578,000, $802,000 and
$590,000, respectively, of our State research and development tax credit
carryforwards. The proceeds from the sale in 2002, 2001 and 2000 were
approximately $647,000, $1,187,000 and $1,548,000, respectively.
Included in the net loss applicable to common stockholders for 2002,
2001 and 2000 were preferred stock dividends of approximately $3,485,000,
$3,204,000 and $2,945,000, respectively, and common stock deemed dividends of
$210,000 in 2001.
LIQUIDITY AND CAPITAL RESOURCES
We had cash, cash equivalents and short-term investments at December
31, 2002, of $17,439,000 compared to $10,726,000 at December 31, 2001. This is
an increase in cash, cash equivalents and short-term investments of $6,713,000
for the year ended December 31, 2002. This consisted of $21,697,000 of financing
activities related to public offerings of common stock and proceeds from stock
option exercises. In December 2002, we completed a public offering of 1,714,285
shares of common stock at $1.75 per share, which provided net proceeds of
approximately $2,964,500. In connection with this offering, certain previously
issued warrants were repriced pursuant to antidilution provisions connected to
the warrants. In January 2002, we completed a public offering of 4,450,000
shares of common stock, which provided net proceeds of approximately
$18,611,000. This was offset by $14,931,000 of cash used in operations, net of
$1,833,000 of cash received for the sales of our New Jersey State net operating
loss carryforwards, and consisted primarily of research and development
expenses, personnel and related costs, facility expenses and approximately
$45,000 of capital expenditures.
In 2002, 2001 and 2000, we sold $1,839,000, $6,243,000 and $14,129,000,
respectively, of our gross State net operating loss carryforwards and $578,000,
$802,000 and $590,000, respectively, of our State research and development tax
credit carryforwards under the State Program. The proceeds from the sale in
2002, 2001 and 2000 were $647,000, $1,187,000 and $1,548,000, respectively, and
such amounts were recorded as a tax benefit in the statements of operations. The
proceeds from the sale of the net operating loss carryforwards and the research
and development tax credit carryforwards sold in 2001 were received in January
2002, and the proceeds from the carryforwards sold in 2002 were received in
December 2002. As of December 31, 2002, we had State net loss carryforwards and
State research and development tax credit carryforwards available for sale of
approximately $107,582,000 and $85,100,000, respectively. The State renews the
Program annually and limits the aggregate proceeds to $10,000,000. We cannot be
certain if we will be able to sell any or all of these carryforwards under the
Program.
We expect to utilize our cash, cash equivalents and short-term
investments to fund our operations at levels similar to those used in 2002
through the expected completion date of the SAPPHIRE and SILVER trials in
mid-2003, and believe we have adequate cash and cash equivalents and short-term
investments to fund such trials. However, we do not believe we will have
adequate cash at these spending levels to complete the fiscal year. As a result,
throughout 2003, we will monitor our liquidity position and the status of our
clinical trials. Depending upon the results of any attempts made by us to raise
additional funds through the sale of additional equity securities, we may be
required to significantly reduce or curtail our research and product development
activities and other operations if our level of cash and cash equivalents fall
below pre-determined levels. We have the intent and ability to quickly and
significantly reduce the cash burn rate, if necessary, as we have limited fixed
commitments. We believe that such actions will enable us to fund our operations
through the first quarter of 2004.
25
We will require, over the long-term, substantial new funding to pursue
development and commercialization of ALT-711 and our other product candidates
and continue our operations. We believe that satisfying these capital
requirements over the long-term will require successful commercialization of our
product candidates. However, it is uncertain whether any products will be
approved or will be commercially successful. The amount of our future capital
requirements will depend on numerous factors, including the progress of our
research and development programs, the conduct of pre-clinical tests and
clinical trials, the development of regulatory submissions, the costs associated
with protecting patents and other proprietary rights, the development of
marketing and sales capabilities and the availability of third-party funding.
Because of our short-term and long-term capital requirements, we, as
stated above, may seek access to the public or private equity markets. This may
have the effect of materially diluting the current holders of our outstanding
stock. We may also seek additional funding through corporate collaborations and
other financing vehicles, potentially including off-balance sheet financing
through limited partnerships or corporations. There can be no assurance that
such funding will be available at all or on terms acceptable to us. If we obtain
funds through arrangements with collaborative partners or others, we may be
required to relinquish rights to certain of our technologies or product
candidates.
Our current priorities and the focus of our resources are the
evaluation and continued development of ALT-711 and determining the optimal
course for the development of other compounds in our patent estate. As we
continue clinical development of ALT-711, we will determine if it is appropriate
to retain development and marketing rights for one or several indications in
North America, while at the same time, continuing to evaluate potential
corporate partnerships for the further development and ultimate marketing of the
compound throughout the world. As described above, we believe that additional
development of this compound and other product candidates will require us to
find additional sources of funding.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of commitment to an exit or disposal plan. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
RELATED PARTY TRANSACTIONS
Since our inception, we have entered into certain collaborative
agreements with organizations with which Dr. Anthony Cerami, a former member of
our Board of Directors, was affiliated. These organizations included The Picower
Institute and The Rockefeller University. We paid patent maintenance fees for
technology licensed from these organizations of $1,450, $17,000 and $120,000 in
2002, 2001 and 2000, respectively. Although we have terminated our collaborative
relationship with The Picower Institute, we have a royalty obligation on all net
sales and other revenues associated with certain technologies developed, payable
to The Picower Institute's successor.
CRITICAL ACCOUNTING POLICIES
In December 2001, the United States Securities and Exchange Commission
issued a statement concerning certain views of the Commission regarding the
appropriate amount of disclosure by publicly held companies with respect to
their critical accounting policies. In particular, the Commission expressed its
view that in order to enhance investor understanding of financial statements,
companies should explain the effects of critical accounting policies as they are
applied, the judgments made in the application of these policies and the
likelihood of materially different reported results if different assumptions or
conditions were to prevail. We have since carefully reviewed the disclosures
included in our filings with the Commission, including, without limitation, our
Annual Report on Form 10-K for the year ended December 31, 2002, and
accompanying audited financial statements and related notes thereto, as well as
our definitive Proxy Statement for the 2003 Annual Meeting. We believe the
effect of the following accounting policy is significant to our results of
operations and financial condition.
We account for options granted to employees and directors in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. As such, compensation expense
is recorded on fixed stock grants only if the current fair value of the
underlying stock exceeds the exercise price of the option at the date of grant
and it is recognized on a straight-line basis over the vesting
26
period. Based on the performance of our stock, we repriced certain employee
stock options on February 2, 1999. As a result of this repricing, options to
purchase 1.06 million shares of stock were repriced and certain vesting periods
related to these options were modified or extended. FIN 44 requires us to record
compensation expense or benefit, which is adjusted every quarter, for increases
or decreases in the fair value of the repriced options based on changes in our
stock price from the value at July 1, 2000, until the repriced options are
exercised, forfeited or expire. As a result, net income applicable to common
stockholders and net loss per share to common stockholders may be subject to
volatility. Had we accounted for repricing of stock option grants in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," the expense
related to the vested options would have been recorded at the repricing date,
and the expense related to non-vested options would have been recorded over the
vesting period.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market risk for changes in interest rates relates
primarily to our investment in marketable securities. We do not use derivative
financial instruments in our investments. Our investments consist primarily of
debt instruments of the United States government, government agencies, financial
institutions and corporations with strong credit ratings. The table below
presents principal amounts and related weighted average interest rates as of
December 31, 2002 for our investment portfolio. There are no maturities after
2003, and our exposure is limited based on the short-term nature of these
investments.
Assets 2002
------ -----------
Cash equivalents:
Fixed rate......................... $14,452,413
Average interest rate.............. 1.32%
Short-term investments:
Fixed rate......................... $ 2,986,200
Average interest rate.............. 1.30%
Total investment securities.......... $17,438,613
Average interest rate.............. 1.31%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) The financial statements required to be filed pursuant to this Item
8 are appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Index to Financial Statements and
Schedules" on page 33.
(b) The unaudited quarterly financial data for the two-year period
ended December 31, 2002 is as follows:
Net Loss
Loss Before Applicable to
Income Tax Common Basic/Diluted
Revenues Expenses Benefit Stockholders Loss Per Share
-------- -------- ----------- -------------- ---------------
(in thousands, except per share amounts)
2002
----
First Quarter............. $ 136 $ 3,878 $ (3,742) $ (4,574) $ (0.15)
Second Quarter............ 117 4,961 (4,844) (5,703) (0.18)
Third Quarter............. 93 5,307 (5,214) (6,101) (0.19)
Fourth Quarter............ 64 3,792 (3,728) (3,988) (0.12)
------- -------- ---------- -------------- ------------
Total Year............. $ 410 $ 17,938 $ (17,528) $ (20,366) $ (0.64)
2001
----
First Quarter............. $ 153 $ 4,181 $ (4,028) $ (4,793) $ (0.21)
Second Quarter............ 101 2,407 (2,306) (3,096) (0.14)
Third Quarter............. 107 2,321 (2,214) (3,239) (0.13)
Fourth Quarter............ 91 4,313 (4,222) (3,869) (0.13)
------- -------- ---------- -------------- ------------
Total Year............. $ 452 $ 13,222 $ (12,770) $ (14,997) $ (0.61)
27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On May 30, 2002, we dismissed Arthur Andersen LLP ("Andersen") as our
principal independent accountants and engaged KPMG LLP ("KPMG") to serve as our
principal independent accountants for the fiscal year ending December 31, 2002.
Andersen's reports on our financial statements, as of and for the years
ended December 31, 2001 and 2000, did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the years ended December 31, 2001 and 2000 and the period from
December 31, 2001 to the date of dismissal of Andersen, (i) there were no
disagreements with Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to Andersen's satisfaction, would have caused
Andersen to make reference to the subject matter of the disagreement(s) in
connection with its report and (ii) there were no "reportable events," as such
term is defined in Item 304(a)(1)(v) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information called for by Item 10 is incorporated by reference from
the information under the caption "Election of Directors," "Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy
Statement for our 2003 Annual Meeting of Stockholders to be held on June 4,
2003.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by Item 11 is incorporated by reference from
the information under the caption "Executive Compensation" in our Proxy
Statement for our 2003 Annual Meeting of Stockholders to be held on June 4,
2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information concerning the number of
outstanding options, the weighted average exercise price of those securities and
the number of securities remaining to be granted under existing equity plans,
whether approved or not approved by security holders, as of December 31, 2002:
Number of Securities Weighted Average Number of Securities
To Be Issued Upon Exercise Price of Remaining Available
Exercise of Outstanding For Future Issuance
Outstanding Options, Options, Warrants Under Existing Equity
Plan Category Warrants and Rights and Rights Compensation Plans
----------------------------------------- -------------------- ----------------- --------------------
Equity compensation plans approved
by security holders................... 5,436,279 $3.08 2,773,097
Equity compensation plans not
approved by security holders.......... N/A N/A N/A
--------- ----- ---------
Total........................... 5,436,279 $3.08 2,773,097
========= ===== =========
The additional information called for by Item 12 is incorporated by
reference from the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in our Proxy Statement for our 2003 Annual
Meeting of Stockholders to be held on June 4, 2003.
28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is incorporated by reference from
the information under the caption "Certain Relationships and Related
Transactions" in our Proxy Statement for our 2003 Annual Meeting of Stockholders
to be held on June 4, 2003.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the filing date of this Annual
Report on Form 10-K, our Chief Executive Officer and our Vice President,
Finance, evaluated the effectiveness of our disclosure controls and procedures
as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Based upon that evaluation, the Chief Executive
Officer and the Vice President, Finance, have concluded that our current
disclosure controls and procedures are adequate and effective to ensure that
information required to be disclosed in the reports we file under the Exchange
Act is recorded, processed, summarized and reported on a timely basis.
(b) Changes in Internal Controls.
There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation by the Chief Executive Officer and
the Vice President, Finance.
PART IV
ITEM 15. FINANCIAL STATEMENTS, REPORTS ON FORM 8-K AND EXHIBITS.
(a) Financial Statements.
Our audited financial statements and the Independent Auditors'
Report are appended to this Annual Report on Form 10-K. Reference is made to the
"Index to Financial Statements" on page 33.
(b) Reports on Form 8-K.
On December 24, 2002, we filed a current report on Form 8-K,
dated December 20, 2002, announcing that we entered into a Stock Purchase
Agreement to sell 1,714,285 shares of common stock.
(c) Exhibits.
The exhibits required to be filed are listed on the "Exhibit
Index" attached hereto, which is incorporated herein by reference.
29
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 this 10th day of March
2003.
ALTEON INC.
By: /s/ Kenneth I. Moch
------------------------------------
Kenneth I. Moch
President 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 and in the capacities and on the dates indicated.
Signature Title Date
------------------------------ ----------------------------------------- ----------------
/s/ Kenneth I. Moch Chairman of the Board, March 10, 2003
------------------------------ President and Chief Executive Officer
Kenneth I. Moch (principal executive officer)
/s/ Elizabeth O'Dell Vice President, Finance, Secretary and Treasurer March 10, 2003
------------------------------ (principal accounting officer)
Elizabeth O'Dell
/s/ Edwin Bransome, Jr., M.D. Director March 10, 2003
-----------------------------
Edwin Bransome, Jr., M.D.
/s/ Marilyn G. Breslow Director March 10, 2003
------------------------------
Marilyn G. Breslow
/s/ Alan J. Dalby Director March 10, 2003
------------------------------
Alan J. Dalby
/s/ David McCurdy Director March 10, 2003
------------------------------
David McCurdy
/s/ Thomas A. Moore Director March 10, 2003
------------------------------
Thomas A. Moore
/s/ George M. Naimark, Ph.D. Director March 10, 2003
----------------------------
George M. Naimark, Ph.D.
/s/ Mark Novitch, M.D. Director March 10, 2003
------------------------------
Mark Novitch, M.D.
30
CERTIFICATIONS
I, Kenneth I. Moch, certify that:
1. I have reviewed this annual report on Form 10-K of Alteon
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements and other
financial information included in this annual report fairly
present, in all material respects, the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant, and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
"Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: March 10, 2003 /s/ Kenneth I. Moch
------------------------------------
Kenneth I. Moch
President and Chief Executive Officer
31
CERTIFICATIONS
I, Elizabeth O'Dell, certify that:
1. I have reviewed this annual report on Form 10-K of Alteon
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements and other
financial information included in this annual report fairly
present, in all material respects, the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant, and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
"Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were
significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: March 10, 2003 /s/ Elizabeth A. O'Dell
------------------------------------
Elizabeth A. O'Dell
Vice President, Finance
Secretary and Treasurer
32
Form 10-K - Item 14(a)(1)
Alteon Inc.
Index to Financial Statements
Page
----
Independent Auditors' Report - KPMG LLP............................................. 34
Report of Independent Public Accountants - Arthur Andersen LLP...................... 35
Financial Statements:
Balance Sheets at December 31, 2002 and 2001............................... 36
Statements of Operations for the years ended
December 31, 2002, 2001 and 2000........................................ 37
Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000........................................ 38
Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000........................................ 39
Notes to Financial Statements.............................................. 40
33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Alteon Inc.:
We have audited the accompanying balance sheet of Alteon Inc. as of December 31,
2002, and the related statements of operations, stockholders' equity and cash
flows for the year then ended. 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 audit. The balance sheets of Alteon
Inc., as of December 31, 2001 and 2000 and related statements of operations,
stockholders' equity and cash flows for the years then ended were audited by
other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements in their report dated January
22, 2002.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alteon Inc. as of December 31,
2002, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Short Hills, New Jersey
January 27, 2003
34
INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR ANDERSEN
LLP ("ANDERSEN"). THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN NOR HAS ANDERSEN
CONSENTED TO ITS INCLUSION IN THIS ANNUAL REPORT ON FORM 10-K. THE ANDERSEN
REPORT REFERS TO THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2000 AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR
THE YEAR ENDED DECEMBER 31, 1999, WHICH ARE NO LONGER INCLUDED IN THE
ACCOMPANYING FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Alteon Inc.:
We have audited the accompanying balance sheets of Alteon Inc. (a Delaware
corporation) as of December 31, 2001 and 2000, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alteon Inc. as of December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 22, 2002
35
ALTEON INC.
BALANCE SHEETS
ASSETS
December 31, December 31,
2002 2001
-------------- --------------
Current Assets:
Cash and cash equivalents.................................... $ 14,452,413 $ 4,249,439
Short-term investments....................................... 2,986,200 6,476,384
Other current assets......................................... 143,124 1,394,765
-------------- --------------
Total current assets....................................... 17,581,737 12,120,588
Property and equipment, net.................................. 517,623 1,109,676
Deposits and other assets.................................... -- 2,815
-------------- --------------
Total assets............................................... $ 18,099,360 $ 13,233,079
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................. $ 537,394 $ 307,153
Accrued expenses............................................. 3,258,729 2,054,980
-------------- --------------
Total current liabilities.................................. 3,796,123 2,362,133
-------------- --------------
Stockholders' Equity:
Preferred stock, $0.01 par value,
1,993,329 shares authorized, and 1,079 and 992 shares
of Series G and 3,241 and 2,980 shares of Series H
issued and outstanding, as of December 31, 2002 and
December 31, 2001, respectively............................ 43 40
Common stock, $0.01 par value,
80,000,000 shares authorized, and 33,600,841 and
27,314,846 shares issued and outstanding, as of
December 31, 2002 and December 31, 2001, respectively...... 336,008 273,148
Additional paid-in capital .................................. 183,341,416 159,596,934
Accumulated deficit.......................................... (169,375,594) (149,008,641)
Accumulated other comprehensive income....................... 1,364 9,465
-------------- --------------
Total stockholders' equity................................. 14,303,237 10,870,946
-------------- --------------
Total liabilities and stockholders' equity...................... $ 18,099,360 $ 13,233,079
============== ==============
The accompanying notes are an integral part of these balance sheets.
36
ALTEON INC.
STATEMENTS OF OPERATIONS
Year ended December 31,
--------------------------------------------------------
2002 2001 2000
------------- ------------- -------------
Revenues:
Investment income................................... $ 409,853 $ 451,518 $ 570,444
------------- ------------- -------------
Expenses:
Research and development
(which includes non-cash variable stock
compensation (benefit)/expense in
2002, 2001 and 2000 of $(93,516), $164,988
and $353,065, respectively)....................... 14,992,418 8,461,476 6,375,380
General and administrative
(which includes non-cash variable stock
compensation (benefit)/expense in
2002, 2001 and 2000 of $(1,315,635),
$657,295 and $890,604, respectively).............. 2,945,846 4,760,747 5,312,750
------------- ------------- -------------
Total expenses................................. 17,938,264 13,222,223 11,688,130
------------- ------------- -------------
Loss before income tax benefit......................... (17,528,411) (12,770,705) (11,117,686)
Income tax benefit.................................. 646,500 1,186,921 1,547,763
------------- ------------- -------------
Net loss............................................... (16,881,911) (11,583,784) (9,569,923)
Preferred stock dividends........................... 3,485,042 3,203,906 2,945,451
Common stock warrant deemed dividends............... --- 209,528 ---
------------- ------------- -------------
Net loss applicable to common stockholders............. $ (20,366,953) $ (14,997,218) $ (12,515,374)
============= ============= =============
Basic/diluted net loss per share applicable
to common stockholders ............................. $ (0.64) $ (0.61) $ (0.63)
============= ============= =============
Weighted average common shares used in computing
basic/diluted net loss per share.................... 31,793,466 24,555,885 19,860,847
============= ============= =============
The accompanying notes are an integral part of these statements.
37
ALTEON INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
-------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ---------- --------
Balances at
DECEMBER 31, 1999................. 3,357 $ 34 19,189,701 $191,897
Net loss........................ --- --- --- ---
Change in unrealized
gains/(losses)................. --- --- --- ---
Comprehensive loss..............
Issuance of Series G and H
preferred stock dividends...... 294 3 --- ---
Exercise of employee stock
options........................ --- --- 375,871 3,759
Private placement of common
stock and warrants............. --- --- 2,834,088 28,341
Compensation expense related to
variable plan employee
stock options.................. --- --- --- ---
Compensation expense
in connection with the issuance
of non-qualified stock options,
stock option modifications and
options granted to
non-employees.................. --- --- --- ---
----- ---- ---------- --------
DECEMBER 31, 2000................. 3,651 37 22,399,660 223,997
Net loss........................ --- --- --- ---
Change in unrealized
gains/(losses)................. --- --- --- ---
Comprehensive loss..............
Issuance of Series G and H
preferred stock dividends...... 321 3 --- ---
Exercise of employee stock
options........................ --- --- 415,186 4,151
Public offering of common
stock......................... --- --- 4,500,000 45,000
Compensation expense related
to variable plan employee
stock options................ --- --- --- ---
Common stock warrant deemed
dividends...................... --- --- --- ---
Compensation expense
in connection with the issuance
of non-qualified stock options,
stock option modifications and
options granted to
non-employees.................. --- --- --- ---
----- ---- ---------- --------
DECEMBER 31, 2001................. 3,972 40 27,314,846 273,148
Net loss........................ --- --- --- ---
Change in unrealized
gains/(losses)................. --- --- --- ---
Comprehensive loss..............
Issuance of Series G and H
preferred stock dividends...... 348 3 --- ---
Exercise of employee stock
options........................ --- --- 121,710 1,217
Public offerings of common
stock.......................... --- --- 6,164,285 61,643
Compensation benefit related to
variable plan employee stock
options........................ --- --- --- ---
Compensation expense
in connection with the issuance
of non-qualified stock options
to non-employees............... --- --- --- ---
----- ---- ---------- --------
DECEMBER 31, 2002 4,320 $ 43 33,600,841 $336,008
===== ==== ========== ========
Accumulated
Additional Other Total
Paid-in Accumulated Comprehensive Stockholders
Capital Deficit Income/(Loss) Equity
------------ ------------- ------------- --------------
Balances at
DECEMBER 31, 1999................. $134,129,513 $(121,496,049) $ 1,293 $ 12,826,688
------------
Net loss........................ --- (9,569,923) --- (9,569,923)
Change in unrealized
gains/(losses)................. --- --- (2,163) (2,163)
------------
Comprehensive loss.............. (9,572,086)
------------
Issuance of Series G and H
preferred stock dividends...... 2,945,448 (2,945,451) --- ---
Exercise of employee stock
options........................ 500,786 --- --- 504,545
Private placement of common
stock and warrants............. 6,103,151 --- --- 6,131,492
Compensation expense related to
variable plan employee
stock options.................. 1,243,669 --- --- 1,243,669
Compensation expense
in connection with the issuance
of non-qualified stock options
stock option modifications and
options granted to
non-employees.................. 318,698 --- --- 318,698
------------ ------------- ------------ ------------
DECEMBER 31, 2000................. 145,241,265 (134,011,423) (870) 11,453,006
------------
Net loss........................ --- (11,583,784) --- (11,583,784)
Change in unrealized
gains/(losses)................. --- --- 10,335 10,335
------------
Comprehensive loss.............. (11,573,449)
------------
Issuance of Series G and H
preferred stock dividends...... 3,203,903 (3,203,906) --- ---
Exercise of employee stock
options........................ 428,698 --- --- 432,849
Public offering of common
stock......................... 9,365,080 --- --- 9,410,080
Compensation expense related
to variable plan employee
stock options................ 822,283 --- --- 822,283
Common stock warrant deemed
dividends...................... 209,528 (209,528) --- ---
Compensation expense
in connection with the issuance
of non-qualified stock options,
stock option modifications and
options granted to
non-employees.................. 326,177 --- --- 326,177
------------ ------------- ------------ ------------
DECEMBER 31, 2001................. 159,596,934 (149,008,641) 9,465 10,870,946
------------
Net loss........................ --- (16,881,911) --- (16,881,911)
Change in unrealized
gains/(losses)................. --- --- (8,101) (8,101)
------------
Comprehensive loss.............. (16,890,012)
------------
Issuance of Series G and H
preferred stock dividends...... 3,485,039 (3,485,042) --- ---
Exercise of employee stock
options........................ 120,797 --- --- 122,014
Public offerings of common
stock.......................... 21,513,373 --- --- 21,575,016
Compensation benefit related to
variable plan employee stock
options........................ (1,409,151) --- --- (1,409,151)
Compensation expense
in connection with the issuance
of non-qualified stock options
to non-employees............... 34,424 --- --- 34,424
------------ ------------- ------------ ------------
DECEMBER 31, 2002 $183,341,416 $(169,375,594) $ 1,364 $ 14,303,237
============ ============= ============ ============
The accompanying notes are an integral part of these statements.
38
ALTEON INC.
STATEMENTS OF CASH FLOWS
Year ended December 31,
----------------------------------------------------
2002 2001 2000
-------------- -------------- -------------
Cash flows from operating activities:
Net loss.............................................. $ (16,881,911) $ (11,583,784) $ (9,569,923)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization......................... 637,162 636,565 765,601
Stock compensation expense............................ 34,424 326,177 318,698
Non-cash compensation expense related to
variable plan employee stock options............... (1,409,151) 822,283 1,243,669
Changes in operating assets and liabilities:
Other assets.......................................... 1,254,456 340,895 (1,486,677)
Accounts payable and accrued expenses................. 1,433,990 425,775 (257,844)
-------------- -------------- -------------
Net cash used in operating activities.............. (14,931,030) (9,032,089) (8,986,476)
-------------- -------------- -------------
Cash flows from investing activities:
Capital expenditures.................................. (45,109) (50,159) (62,377)
Purchases of marketable securities.................... (18,020,917) (16,743,570) (11,550,202)
Maturities of marketable securities................... 21,503,000 16,632,000 12,227,817
-------------- -------------- -------------
Net cash provided by/(used in) investing activities 3,436,974 (161,729) 615,238
-------------- -------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock............ 21,575,016 9,410,080 6,131,492
Net proceeds from exercise of employee stock
options............................................ 122,014 432,849 504,545
-------------- -------------- -------------
Net cash provided by financing activities......... 21,697,030 9,842,929 6,636,037
-------------- -------------- -------------
Net increase/(decrease) in cash and cash equivalents....... 10,202,974 649,111 (1,735,201)
Cash and cash equivalents, beginning of period............. 4,249,439 3,600,328 5,335,529
-------------- -------------- -------------
Cash and cash equivalents, end of period................... $ 14,452,413 $ 4,249,439 $ 3,600,328
============== ============== =============
The accompanying notes are an integral part of these statements.
39
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Alteon Inc. ("Alteon" or the "Company") is a product-based
biopharmaceutical company engaged in the discovery and development of oral drugs
to reverse or inhibit cardiovascular aging and diabetic complications. The
Company's product candidates represent novel approaches to some of the largest
pharmaceutical markets, such as cardiovascular and kidney diseases. The Company
conducts its business in one operating segment. Alteon's proprietary technology
focuses on Advanced Glycation End-products ("A.G.E.s"). A.G.E.s ultimately form
crosslinks with adjacent proteins, leading to a loss of flexibility and function
in body tissues, vessels and organs. All of the Company's products are in
research or development, and no revenues have been generated from product sales.
The Company's lead compound, ALT-711, is being developed initially for
cardiovascular indications, and two Phase 2a clinical trials in cardiovascular
compliance and in diastolic heart failure ("DHF") have been successfully
completed. Based on the positive results of the trial in cardiovascular
compliance, Alteon has initiated two Phase 2b efficacy trials of ALT-711 in
systolic hypertension, the SAPPHIRE (Systolic And Pulse Pressure Hemodynamic
Improvement by Restoring Elasticity) trial and the SILVER (Systolic Hypertension
Interaction with Left VEntricular Remodeling) and SILVER trial, for which data
is expected to be reported concurrently in mid-2003. The Company is also
considering further clinical development in DHF and related conditions.
A topical formulation of an A.G.E. Crosslink Breaker, ALT-744, is being
clinically evaluated in skin aging for cosmetic applications. The Company
continues to evaluate product development opportunities from its A.G.E.
Crosslink Breaker compounds and other classes of compounds in its patent estate.
The Company's business is subject to significant risks including, but
not limited to, (i) the ability to obtain funding, (ii) the risks inherent in
its research and development efforts, including clinical trials, (iii)
uncertainties associated with obtaining and enforcing its patents and with the
patent rights of others, (iv) the lengthy, expensive and uncertain process of
seeking regulatory approvals, (v) uncertainties regarding government healthcare
reforms and product pricing and reimbursement levels, (vi) technological change
and competition, (vii) manufacturing uncertainties and (viii) dependence on
collaborative partners and other third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will prove ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates are used for, but not limited to: accrued expenses, income
tax valuation allowances and assumptions utilized within the Black Scholes
options pricing model and the model itself. Accounting estimates require the use
of judgment regarding uncertain future events and their related effects and,
accordingly, may change as additional information is obtained.
40
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash and highly liquid investments
which have a maturity of less than three months at the time of purchase.
Short-term investments are considered available-for-sale and are recorded at
fair value, as determined by quoted market prices, with changes in fair value
recorded as a component of accumulated other comprehensive income/(loss). As of
December 31, 2002 and 2001, short-term investments were invested in debt
instruments of the United States government, government agencies, financial
institutions and corporations with strong credit ratings. They consisted of the
following:
December 31,
---------------------------------
2002 2001
------------ ------------
United States government agency funds.............. $ 2,986,200 $ 5,479,434
Corporate obligations.............................. --- 996,950
------------ ------------
$ 2,986,200 $ 6,476,384
============ ============
The cost of short-term investments was $2,984,836 and $6,466,919 at
December 31, 2002 and December 31, 2001, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the useful lives
of owned assets, which range from three to five years. Leasehold improvements
and equipment under capital leases are amortized using the straight-line method
over the shorter of the lease term or the useful life of the assets.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to the future undiscounted net
cash flows expected to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets and
would be charged to operations. Alteon adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" on January 1, 2002. The adoption of SFAS No. 144 had no
impact on the Company's policy regarding impairment of long-lived assets or its
results of operations, cash flows or financial position.
Research and Development
Expenditures for research and development are charged to operations, as
incurred.
Stock-Based Compensation
The Company accounts for employee stock-based compensation and awards
issued to non-employee directors under APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, under which no compensation
cost (excluding those options granted below fair market value) has been
recognized. Stock option awards issued to consultants and contractors are
accounted for in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." In March 2000, the Financial Accounting Standards Board ("FASB")
released Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation, An Interpretation of APB Opinion No. 25." The
interpretation became effective on July 1, 2000, but in some circumstances
applies to transactions that occurred prior to the effective date. Under the
interpretation, stock options that are repriced must be accounted for as
variable-plan arrangements until the options are exercised, forfeited or expire.
This requirement applies to any options repriced after December 15, 1998. (See
Note 8.)
41
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
If the Company had applied the fair value recognition provisions of
SFAS No. 123 to all of its option grants, the Company's pro forma net loss and
net loss per share applicable to common stockholders for 2002, 2001 and 2000
would be as follows:
Year Ended December 31,
--------------------------------------------------
2002 2001 2000
-------------- ------------- -------------
Net loss applicable to common stockholders, as reported.... $ (20,366,953) $ (14,997,218) $ (12,515,374)
Add: Variable non-cash stock compensation
(benefit)/expense.................................. (1,409,151) 822,283 1,243,669
Less: Total stock-based employee compensation
expense determined under fair value method......... (1,892,584) (2,029,445) (1,517,400)
-------------- ------------- -------------
Pro forma net loss applicable to common stockholders....... $ (23,668,688) $ (16,204,380) $ (12,789,105)
Net loss per share applicable to common stockholders:
Basic/diluted as reported.......................... $ (0.64) $ (0.61) $ (0.63)
Basic/diluted pro forma............................ $ (0.73) $ (0.64) $ (0.63)
The fair value of each stock option grant, for recognition or
disclosure purposes, is calculated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants in 2002,
2001 and 2000, respectively: risk free interest rates ranging from 1.29% to
5.15%, 2.79% to 5.02% and 5.24% to 6.64%, respectively; expected life of 5.75
years for employee grants and the contractual life for grants to consultants and
contractors; expected dividend yield of 0%; and expected volatility of 108.98%,
110.39% and 109.53%, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and net operating loss and tax credit carryforwards. A valuation allowance
is provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment date.
Deferred tax assets are recorded when they are more likely than not to be
realized.
Net Loss Per Share Applicable to Common Stockholders
Basic net loss per share is computed by dividing net loss applicable to
common stockholders by the weighted average number of shares outstanding during
the year. Diluted net loss per share is the same as basic net loss per share
applicable to common stockholders, since the assumed exercise of stock options
and warrants and the conversion of preferred stock would be antidilutive. The
amount of common stock equivalents excluded from the calculation as of December
31, 2002, 2001 and 2000, was 28,872,120, 15,135,350 and 15,148,365 shares,
respectively.
Recently Issued Accounting Standards
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. SFAS No. 146 will affect the types and timing of costs
included in restructuring programs, if any, but is not expected to have a
material impact on the Company's results of operations, cash flows or financial
position.
42
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- LIQUIDITY
The Company has devoted substantially all of its resources to research,
drug discovery and development programs. To date, it has not generated any
revenues from the sale of products and does not expect to generate any such
revenues for a number of years, if at all. As a result, Alteon has incurred
operating losses since inception, has an accumulated deficit of $169,375,594 at
December 31, 2002, and expects to incur operating losses, potentially greater
than losses in prior years, for a number of years.
The Company has financed its operations through proceeds from the sale
of common and preferred equity securities, revenue from collaborative
relationships, reimbursement of certain of our research and development expenses
by collaborative partners, investment income earned on cash and cash equivalent
balances and short-term investments and the sale of a portion of the Company's
New Jersey state net operating loss carryforwards.
As of December 31, 2002, the Company had working capital of
$13,785,614, including $17,438,613 of cash, cash equivalents and short-term
investments. During 2002, the Company sold 6,164,285 shares of common stock,
raising net proceeds of $21,575,016. (See Note 8.) The Company's cash used in
operations for the year ended December 31, 2002, 2001 and 2000 was $14,931,030,
$9,032,089 and $8,986,476, respectively. The Company expects to utilize cash to
fund its operations at levels similar to those used in 2002 through the expected
completion date of the SAPPHIRE and SILVER trials in mid-2003, and believes it
has adequate cash and cash equivalents and short-term investments to fund such
trials. However, it does not believe it will have adequate cash at these
spending levels to complete the fiscal year. As a result, throughout 2003, the
Company will monitor its liquidity position and the status of its clinical
trials. Depending upon the results of any attempts made by the Company to raise
additional funds through the sale of additional equity securities, Alteon may be
required to significantly reduce or curtail its research and product development
activities and other operations if its level of cash and cash equivalents fall
below pre-determined levels. The Company has the intent and ability to quickly
and significantly reduce the cash burn rate, if necessary, as it has limited
fixed commitments. The Company believes that such actions will enable Alteon to
fund its operations through the first quarter of 2004.
The Company will require, over the long-term, substantial new funding
to pursue development and commercialization of ALT-711 and its other product
candidates and continue its operations. The Company believes that satisfying
these capital requirements over the long-term will require successful
commercialization of its product candidates. However, it is uncertain whether
any products will be approved or will be commercially successful. The amount of
the Company's future capital requirements will depend on numerous factors,
including the progress of its research and development programs, the conduct of
pre-clinical tests and clinical trials, the development of regulatory
submissions, the costs associated with protecting patents and other proprietary
rights, the development of marketing and sales capabilities and the availability
of third-party funding.
Because of Alteon's short-term and long-term capital requirements, the
Company, as stated above, may seek access to the public or private equity
markets. This may have the effect of materially diluting the current holders of
the Company's outstanding stock. The Company may also seek additional funding
through corporate collaborations and other financing vehicles, potentially
including off-balance sheet financing through limited partnerships or
corporations. There can be no assurance that such funding will be available at
all or on terms acceptable to Alteon. If Alteon obtains funds through
arrangements with collaborative partners or others, the Company may be required
to relinquish rights to certain of its technologies or product candidates.
43
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
December 31,
----------------------------
2002 2001
----------- -----------
Laboratory equipment................................ $ 1,183,034 $ 1,183,034
Furniture and equipment............................. 699,020 686,560
Computer equipment.................................. 442,145 409,496
Leasehold improvements.............................. 5,215,069 5,215,069
----------- -----------
7,539,268 7,494,159
Less: Accumulated depreciation & amortization...... (7,021,645) (6,384,483)
----------- -----------
$ 517,623 $ 1,109,676
=========== ===========
Depreciation and amortization expense was $637,162, $636,565 and
$765,601 for the years ended December 31, 2002, 2001 and 2000, respectively.
NOTE 4 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
On November 6, 2002, Alteon entered into a new agreement, effective as
of April 15, 2002, with The Picower Institute for Medical Research ("Picower"),
which terminated their license agreement dated as of September 5, 1991. Pursuant
to this termination agreement, Picower assigned to Alteon all of its patents,
patent applications and other technology related to A.G.E.'s and Alteon agreed
to prosecute and maintain the patents and patent applications. Alteon will pay
Picower royalties on any sales of products falling within the claims of these
patents and patent applications until they expire or are allowed to lapse.
Effective as of August 5, 2002, Alteon entered into a letter agreement
with Yamanouchi Pharmaceutical Co, Ltd. ("Yamanouchi"), which terminated their
License Agreement dated as of June 16, 1989. Pursuant to the letter agreement,
for a period of fifteen years, (i) Alteon will pay Yamanouchi royalties on any
sales of pimagedine or pimagedine products in the territory covered by the
License Agreement and (ii) Alteon will have the option to purchase from
Yamanouchi all or any part of its common stock owned by Yamanouchi.
NOTE 5 -- OTHER DEVELOPMENT AGREEMENTS
Alteon has entered into a number of licensing and collaboration
agreements relating to the development and distribution of its A.G.E.-related
technology. Pursuant to an agreement with Rockefeller University, the Company
has exclusive, royalty-free, worldwide and perpetual rights to the technology
and inventions relating to A.G.E.s and other protein crosslinking, including
those relating to the complications of aging and diabetes. Alteon has also
entered into an exclusive licensing arrangement with Roche Diagnostics GmbH for
Alteon's technology for diagnostic applications, and the Company has also
entered into clinical testing and distribution agreements with Gamida for Life
which grant Gamida the exclusive right to distribute pimagedine, if successfully
developed and approved for marketing, in Israel, Bulgaria, Cyprus, Jordan and
South Africa. Alteon has a license and supply agreement with IDEXX Laboratories,
Inc. ("IDEXX") pursuant to which the Company licensed pimagedine to IDEXX as a
potential therapeutic in companion animals (dogs, cats and horses) and Alteon's
A.G.E. diagnostics technology for companion animal use. All of these agreements
will entitle Alteon to receive royalties on sales if any products covered by the
agreements are developed and sold.
In October 2000, Alteon entered into an agreement with HemoMax, LLC
("HemoMax") for the development of a novel technology designed to increase the
delivery of oxygen to tissues in the body through enhanced blood circulation. On
February 9, 2002, HemoMax advised Alteon that because of uncertainties regarding
its ability to receive patents adequate to support commercialization of the
technology, it has decided to cease operations and liquidate.
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or to
which the commercial partners have rights, may result in their withdrawal of
support with respect to
44
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
all or a portion of the Company's technology, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company has also entered into various arrangements with independent
research laboratories to conduct studies in conjunction with the development of
the Company's technology. The Company receives certain rights to inventions or
discoveries that may arise from this research.
NOTE 6 -- ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 31,
-----------------------------
2002 2001
----------- -----------
Clinical trial expense.............................. $ 2,706,678 $ 1,379,693
Professional fees................................... 204,723 191,000
Payroll and related expenses........................ 106,629 224,287
Rent expense........................................ 45,761 100,673
Patent fees......................................... 107,187 85,571
Other............................................... 87,751 73,756
----------- -----------
$ 3,258,729 $ 2,054,980
=========== ===========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases its headquarters and research facility under
non-cancelable operating leases. As of December 31, 2002, Alteon has no future
minimum rentals under operating leases in excess of one year as the current
facility lease term ends October 2003. This facility lease includes two,
five-year renewal options which are presently under negotiation.
Rent expense for each of the years in the three-year period ended
December 31, 2002, was $604,690, $599,655 and $586,294, respectively.
NOTE 8 -- STOCKHOLDERS' EQUITY
Common/Preferred Stock Issuances
In December 2002, Alteon completed a public offering of 1,714,285
shares of common stock at $1.75 per share, which provided net proceeds of
approximately $2,964,495. In connection with this offering, certain previously
issued warrants were repriced from $2.25 to $1.75 per share pursuant to
antidilution provisions connected to the warrants.
In January 2002, Alteon completed a public offering of 4,450,000 shares
of common stock at $4.25 per share, which provided net proceeds of $18,610,521.
In July 2001, Alteon completed a public offering of 4,500,000 shares of
common stock, which provided net proceeds of $9,410,080. In connection with this
offering, certain previously issued warrants were repriced from $3.40 to $2.25
per share pursuant to antidilution provisions connected to the warrants.
In September 2000, Alteon entered into an agreement with several
investors pursuant to which Alteon sold, in a private placement, an aggregate of
2,834,088 shares of common stock and warrants to purchase 1,133,636 shares of
common stock (the "Warrants") for net proceeds of $6,131,492. The adjusted
exercise price of the Warrants, as of December 31, 2002, is $1.75 per share,
while the term is seven years.
45
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In December 1997, the Company and Genentech, Inc. ("Genentech") entered
into a stock purchase agreement pursuant to which Genentech agreed to buy shares
of Common Stock, Series G Preferred Stock and Series H Preferred Stock. In
December 1997, Genentech purchased Common Stock and Series G Preferred Stock for
an aggregate purchase price of $15,000,000. On July 27, 1998 and October 1,
1998, Genentech purchased $8,000,000 and $14,544,000, respectively, of Series H
Preferred Stock. As of December 31, 2002, 2001 and 2000, respectively,
$3,485,042, $3,203,906 and $2,945,451 of Preferred Stockholder dividends were
recorded. Series G Preferred Stock and Series H Preferred Stock dividends are
payable quarterly in shares of preferred stock at a rate of 8.5%. Each share of
Series G Preferred Stock and Series H Preferred Stock is convertible, upon 70
days' prior written notice, into the number of shares of common stock
determined by dividing $10,000 by the average of the closing sales price of the
common stock, as reported on the American Stock Exchange, for the 20 business
days immediately preceding the date of conversion.
In connection with an April 1997 convertible preferred stock offering,
warrants to purchase 60,000 shares of common stock at an exercise price of
$4.025 per share were issued and all are still outstanding.
Stock Option Plan
The Company has established two stock option plans for its employees,
officers, directors, consultants and independent contractors. Options to
purchase up to 4,192,000 shares of the Company's common stock may be granted
under the first plan, and options to purchase up to 7,000,000 shares of the
Company's common stock may be granted under the second plan.
The plans are administered by a committee of the Board of Directors,
which may grant either non-qualified or incentive stock options. The committee
determines the exercise price and vesting schedule at the time the option is
granted. Options vest over various periods and may expire no later than 10 years
from date of grant. Each option entitles the holder to purchase one share of
common stock at the indicated exercise price. The plans also provide for certain
antidilution and change in control rights, as defined.
The following table summarizes the activity in the Company's stock
options:
Weighted Weighted
Average Average
Grant Date Grant Date
Options Exercise Price Fair Value
----------- -------------- ----------
Balance, December 31, 1999 .......... 5,075,196 $ 3.40
Granted at market price ............. 1,105,820 4.57 $ 2.54
Exercised ........................... (375,871) 1.34
Canceled (550,326) 1.12
--------- ------
Balance, December 31, 2000 .......... 5,254,819 $ 4.02
Granted at market price ............. 873,942 3.13 $ 1.78
Exercised ........................... (415,186) 1.04
Canceled ............................ (1,008,269) 8.53
--------- ------
Balance, December 31, 2001 .......... 4,705,306 $ 3.15
Granted at market price ............. 676,400 2.94 $ 1.62
Granted above market price .......... 250,000 1.95 1.06
Granted below market price .......... 10,000 0.01 4.37
Exercised ........................... (121,710) 1.02
Canceled ............................ (83,717) 4.25
--------- ------
Balance, December 31, 2002 5,436,279 $ 3.08
==========
Stock options exercisable at December 31, 2002, 2001 and 2000 were
3,836,930, 3,336,159 and 3,637,496, respectively, at weighted average grant date
exercise prices of $3.08, $2.95 and $4.35, respectively.
46
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information regarding stock options
outstanding at December 31, 2002:
Options Outstanding at Options Exercisable at
December 31, 2002 December 31, 2002
----------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life (Years) Price Exercisable Price
--------------------- ----------- ------------------------ --------- ----------- --------
$ 0.7810 - $ 1.0630 1,464,138 5.15 $ 0.9491 1,464,138 $ 0.9491
1.1250 - 2.6000 1,645,457 8.60 1.9369 695,943 1.5661
2.8750 - 4.6250 1,423,080 7.50 3.8314 867,078 3.7897
5.0000 - 15.0000 903,604 4.31 7.4294 807,771 7.4927
--------------------- --------- ---- --------- ----------- --------
$ 0.7810 - $ 15.0000 5,436,279 6.67 $ 3.0797 3,834,930 $ 3.0817
Included in options at December 31, 2002 are 1,406,667 options granted
to certain executives with option exercise prices ranging from $0.875 per share
to $4.380 per share, the fair value of the Company's common stock on the date of
grant. Such options vest upon the earlier of five years after grant or upon
achievement of certain Company milestones. Expenses recorded for options granted
to consultants totaled $34,424, $66,567 and $62,255 in 2002, 2001 and 2000,
respectively.
On February 2, 1999, the Company repriced certain stock options. In
accordance with FIN 44, the Company recognized a total non-cash stock
compensation (benefit)/expense resulting from the repricing for the years ended
December 31, 2002, 2001 and 2000 of $(1,409,151), $822,283 and $1,243,669,
respectively, which included research and development charges of $(93,516),
$164,988 and $353,065 and general and administrative charges of $(1,315,635),
$657,295 and $890,604, respectively. As of December 31, 2002, there were
approximately 589,899 repriced options outstanding, which expire on various
dates through January 2008.
NOTE 9 -- SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement plan under Section
401(k) of the Internal Revenue Code which allows eligible employees to annually
contribute a portion of their annual salary to the plan. In 1998, the Company
began making discretionary contributions at a rate of 25% of an employee's
contribution up to a maximum of 5% of the employee's base salary, as defined.
The Company made contributions of $54,024, $38,669 and $30,530 for the years
ended December 31, 2002, 2001 and 2000, respectively.
NOTE 10 -- RELATED PARTY TRANSACTIONS
Since the Company's inception, the Company has entered into certain
collaborative agreements with organizations with which Dr. Anthony Cerami, a
former member of the Company's Board of Directors, was affiliated. These
organizations included The Picower Institute and The Rockefeller University. The
Company paid patent maintenance fees for technology licensed from these
organizations of $1,449, $16,799 and $120,001 in 2002, 2001 and 2000,
respectively. Although the Company has terminated its collaborative relationship
with The Picower Institute, the Company has a royalty obligation on all net
sales and other revenues associated with certain technologies developed, payable
to The Picower Institute's successor.
NOTE 11 -- INCOME TAXES
At December 31, 2002, the Company had available federal net operating
loss carryforwards, which expire in the years 2006 through 2022, of
approximately $152,365,000 for income tax purposes and State net operating loss
carryforwards, which expire in the years 2004 through 2009, of approximately
$106,771,000. In addition, the Company has federal research and development tax
credit carryforwards of approximately $7,048,000 and State research and
development tax credit carryforwards of approximately $811,000. The amount of
federal net operating loss and research and development tax credit carryforwards
which can be utilized in any one period may become limited by federal income tax
regulations if a cumulative change in ownership of more than 50% occurs within a
three-year period.
47
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The components of the deferred tax assets and the valuation allowance
are as follows:
December 31,
-----------------------------------
2002 2001
------------ ------------
Net operating loss carryforwards................ $ 59,800,000 $ 51,300,000
Research and development credit................. 7,800,000 6,700,000
Other temporary differences..................... 1,200,000 4,100,000
------------ ------------
Gross deferred tax assets....................... 68,800,000 62,100,000
Valuation allowance............................. (68,800,000) (62,100,000)
------------ ------------
Net deferred tax assets......................... $ --- $ ---
============ ============
Given the Company's past history of incurring operating losses,
management believes that it is unlikely that any of the deferred tax assets will
be recoverable. As a result, a valuation allowance equal to the gross deferred
tax assets was established. In 2002, 2001 and 2000, the Company sold $1,839,000,
$6,243,000 and $14,129,000, respectively, of its gross State net operating loss
carryforwards and $578,000, $802,000 and $590,000, respectively, of its State
research and development tax credit carryforwards under the State of New
Jersey's Technology Business Tax Certificate Transfer Program (the "Program").
The Program allows qualified technology and biotechnology business in New Jersey
to sell unused amounts of net operating loss carryforwards and defined research
and development tax credits for cash. The proceeds from the sale of the
Company's carryforwards and credits in 2002, 2001 and 2000 were approximately
$647,000, $1,187,000 and $1,548,000, respectively, and such amounts were
recorded as a tax benefit in the statements of operations. The State of New
Jersey renews the Program annually and limits the aggregate proceeds to
$10,000,000. Due to the uncertainty at any time as to the Company's ability to
effectuate the sale of Alteon's available New Jersey net operating losses, and
since the Company has no control or influence over the Program, the benefits are
recorded once the agreement with the counterpart is signed and the sale is
approved by the State.
48
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
3.1 Restated Certificate of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to the Company's Report on Form 10-Q filed
on November 10, 1999, S.E.C. File Number 000-19529.)
3.2 Certificate of the Voting Powers, Designations, Preference and
Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series F Preferred
Stock Alteon Inc. (Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2000, S.E.C. File Number 001-16043.)
3.3 Certificate of Retirement dated September 10, 2000, of Alteon Inc.
(Incorporated by reference to Exhibit 3.1 to the Company's Report
on Form 10-Q filed on November 10, 1999, S.E.C. File Number
000-19529.)
3.4 Certificate of Designations of Series G Preferred Stock of Alteon
Inc. (Incorporated by reference to Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
S.E.C. File Number 000-19529.)
3.5 Certificate of Amendment of Certificate of Designations of Series G
Preferred Stock of Alteon Inc. (Incorporated by reference to
Exhibit 3.4 to the Company's Report on Form 10-Q filed on August
14, 1998, S.E.C. File Number 000-19529.)
3.6 Certificate of Designations of Series H Preferred Stock of Alteon
Inc. (Incorporated by reference to Exhibit 3.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
S.E.C. File Number 000-19529.)
3.7 Amended Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the
Company's Report on Form 10-Q filed on August 14, 1998, S.E.C. File
Number 000-19529.)
3.8 Certificate of Retirement dated November 20, 2000, of Alteon Inc.
(Incorporated by reference to Exhibit 3.8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, S.E.C.
File Number 001-16043.)
3.9 Certificate of Amendment to Restated Certificate of Incorporation
of Alteon Inc., dated June 7, 2001 (Incorporated by reference to
Exhibit 3.8 to the Company's Report on Form 10-Q filed on August
14, 2001, S.E.C. File Number 001-16043.)
3.10 By-laws, as amended.
4.1 Stockholders' Rights Agreement dated as of July 27, 1995, between
Alteon Inc. and Registrar and Transfer Company, as Rights Agent.
(Incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, S.E.C.
File Number 001-16043.)
4.2 Amendment to Stockholders' Rights Agreement dated as of April 24,
1997, between Alteon Inc. and Registrar and Transfer Company, as
Rights Agent. (Incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K filed on May 9, 1997, S.E.C.
File Number 000-19529.)
4.3 Registration Rights Agreement dated as of April 24, 1997, between
Alteon Inc. and the investors named on the signature page thereof.
(Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on May 9, 1997, S.E.C. File Number
000-19529.)
4.4 Form of Common Stock Purchase Warrant. (Incorporated by reference
to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on
May 9, 1997, S.E.C. File Number 000-19529.)
4.5 Amendment to Stockholders' Rights Agreement dated as of December 1,
1997, between Alteon Inc. and Registrar and Transfer Company, as
Rights Agent. (Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on December 10, 1997,
S.E.C. File Number 000-19529.)
4.6 Registration Rights Agreement dated September 29, 2000.
(Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on October 5, 2000, S.E.C. File Number
001-16043.)
4.7 Form of Series 1 Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 4.2 to the Company's Current Report on Form
8-K filed on October 5, 2000, S.E.C. File Number 001-16043.)
4.8 Form of Series 2 Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form
8-K filed on October 5, 2000, S.E.C. File Number 001-16043.)
4.9 Notice of Appointment, dated August 29, 2002, of The American Stock
Transfer & Trust Company as successor Rights Agent, pursuant to
Stockholders' Rights Agreement dated as of July 27, 1995.
(Incorporated by reference to Exhibit 4.4 of the Company's Report
on Form 10-Q filed on November 13, 2002, S.E.C. File Number
001-16043.)
10.1+ Amended and Restated 1987 Stock Option Plan. (Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, S.E.C. File Number
000-19529.)
10.2+ Amended 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2001, S.E.C. File Number 001-16043.)
10.3 Form of Employee's or Consultant's Invention Assignment,
Confidential Information and Non-Competition Agreement executed by
all key employees and consultants as employed or retained from time
to time. (Incorporated by Reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1, S.E.C. File Number
33-42574, which became effective on November 1, 1991.)
10.4 Lease Agreement dated January 11, 1993, between Ramsey Associates
and Alteon Inc. (Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2000, S.E.C. File No. 001-16043.)
10.5+ Employment Agreement dated as of October 21, 2000, between the
Alteon Inc. and Elizabeth O'Dell. (Incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, S.E.C. File Number 001-16043.)
10.6+ Alteon Inc. Change in Control Severance Benefits Plan.
(Incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, S.E.C.
File Number 001-16043.)
10.7 Preferred Stock Investment Agreement dated as of April 24, 1997,
between Alteon Inc. and the investors named on the signature page
thereof. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on May 9, 1997, S.E.C.
File Number 000-19529.)
10.8* License and Supply Agreement dated June 17, 1997, between IDEXX
Laboratories, Inc. and Alteon Inc. (Incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q filed on August
13, 1997, S.E.C. File Number 000-19529.)
10.9+ Amended and Restated Employment Agreement dated as of December 15,
1998, between Alteon Inc. and Kenneth I. Moch (Incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, S.E.C. File Number
000-19529.)
10.10+ Employment Agreement dated as of March 14, 2000, between Alteon
Inc. and Robert deGroof, Ph.D. (Incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q filed on May 12,
2000, S.E.C. File Number 001-16043.)
10.11 Common Stock and Warrants Purchase Agreement dated as of September
29, 2000, among Alteon Inc. and EGM Medical Technology Fund, L.P.,
EGM Technology Offshore Fund, Narragansett I, L.P., Narragansett
Offshore, Ltd., S.A.C. Capital Associates, LLC, SDS Merchant Fund,
LP and Herriot Tabuteau. (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed on October 5,
2000, S.E.C. File Number 001-16043.)
10.12+ Letter Agreement dated December 3, 2001, between Alteon Inc. and
Kenneth I. Moch amending Amended and Restated Employment Agreement
dated as of December 15, 1998. (Incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2001, S.E.C. File Number 001-16043.)
10.13 Stock Purchase Agreement dated January 4, 2002, between Alteon Inc.
and the Purchasers named therein. (Incorporated by reference to the
Company's Current Report on Form 8-K filed on January 7, 2002,
S.E.C. File Number 001-16043.)
10.14+ Employment agreement dated as of February 11, 2002, between Alteon
Inc. and Judith S. Hedstrom. Incorporated by reference to Exhibit
10.2 of the Company's Report on Form 10-Q filed on May 14, 2002,
S.E.C. File Number 001-16043.)
10.15 Stock Purchase Agreement dated December 20, 2002, between Alteon
Inc. and the Purchasers named therein. (Incorporated by reference
to Exhibit 10.1 of the Company's Current Report on Form 8-K filed
on December 24, 2002, S.E.C. File Number 001-16043.)
23.1 Consent of KPMG LLP.
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
--------------
* Confidentiality has been granted for a portion of this exhibit.
+ Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) to this Form 10-K.