FILING PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 333-41782
REGISTRATION NO. 333-
PROSPECTUS SUPPLEMENT NO. 10
(TO PROSPECTUS DATED AUGUST 22, 2000)
EPIX MEDICAL, INC.
2,575,000 SHARES
COMMON STOCK
Epix Medical, Inc. is offering 2,575,000 shares of its common stock, $.01
par value per share, through this prospectus supplement and the accompanying
prospectus at $12.50 per share. Our common stock is listed on the Nasdaq
National Market under the symbol "EPIX." The last reported sale price of the
common stock on the Nasdaq National Market on January 14, 2002 was $13.00 per
share.
Robertson Stephens, Inc. has agreed to act as placement agent for the sale
of up to 2,575,000 shares of our common stock. The placement agent is not
required to sell any specific number or dollar amount of shares of common stock,
but will use all reasonable efforts to arrange for the sale of all 2,575,000 of
the shares.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS.
------------------------
PER SHARE TOTAL
--------- -----------
Public Offering Price....................................... $12.50 $32,187,500
Commissions to Placement Agents............................. $ 0.75 $ 1,931,250
Proceeds to Epix Medical, Inc............................... $11.75 $30,256,250
(Before Expenses)
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determinted if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
------------------------
ROBERTSON STEPHENS
As Placement Agent
The date of this prospectus supplement is January 14, 2002.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
--------------------- --------
About this Prospectus....................................... S-1
The Offering................................................ S-1
Use of Proceeds............................................. S-1
Plan of Distribution........................................ S-2
Validity of Common Stock.................................... S-2
PROSPECTUS PAGE
---------- --------
Prospectus Summary.......................................... 3
The Company................................................. 3
The Offering................................................ 4
Risk Factors................................................ 5
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Dilution.................................................... 15
Business.................................................... 16
Plan of Distribution........................................ 36
Legal Matters............................................... 37
Experts..................................................... 37
Where You Can Find More Information......................... 37
Incorporation of Documents by Reference..................... 38
i
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the accompanying
prospectus and the information incorporated by reference in these documents
carefully before you invest. Such documents contain information you should
consider carefully before making your investment decision. See "Incorporation of
Documents by Reference" on page 38 of the accompanying prospectus. This
prospectus supplement may add, update or change information in the prospectus.
You should rely only on the information provided in this prospectus supplement,
the accompanying prospectus or documents incorporated by reference in the
accompanying prospectus. We have not authorized anyone to provide you with
different information.
THE OFFERING
Common stock offered................................. 2,575,000 shares
Common stock to be outstanding after the offering.... 16,811,852 shares
Use of proceeds...................................... For general corporate and business purposes.
See "Use of Proceeds."
Dividend policy...................................... We have never declared or paid any cash
dividends on our capital stock. We intend to
retain any future earnings to finance the
growth and development of our business and do
not anticipate paying any cash dividends in
the foreseeable future.
Nasdaq National Market symbol........................ EPIX
------------------------
We have 40,000,000 shares of authorized common stock and 1,000,000 shares of
authorized Preferred Stock. As of December 31, 2001, options to purchase
3,373,476 shares of our common stock and warrants to purchase 26,665 shares of
our common stock were outstanding.
USE OF PROCEEDS
We estimate the net proceeds from the sale of 2,575,000 shares of common
stock offered by this prospectus supplement and the accompanying prospectus will
be approximately $30,156,250, based upon an estimated offering price of $12.50
per share and after deducting the commission to be paid to the placement agents
and the estimated offering expenses payable by us. The net proceeds to Epix from
the sale of the shares of common stock offered by means of this prospectus
supplement and the accompanying prospectus will be used in the manner described
under "Use of Proceeds" on page 14 of the accompanying prospectus.
S-1
PLAN OF DISTRIBUTION
We are selling the shares of common stock through the placement agent.
Subject to the terms and conditions contained in the placement agency agreement
dated January 14, 2002, Robertson Stephens, Inc. has agreed to act as placement
agent for up to 2,575,000 shares of common stock. The placement agent is not
required to sell any specific number or dollar amount of shares, but has agreed
to use all reasonable efforts to arrange for the sale of all 2,575,000 of the
shares.
The placement agency agreement provides that the obligations of the
placement agent are subject to certain conditions precedent, including the
absence of any material adverse change in our business and the receipt of
certain certificates, opinions and letters from us and our counsel.
The placement agent proposes to arrange for the sale to one or more
purchasers of the shares of common stock offered pursuant to this prospectus
supplement and the accompanying prospectus. We will pay the placement agent a
commission equal to 6% of the gross proceeds of the sales of shares of common
stock.
The following table shows the per share and total commissions we will pay to
the placement agent in connection with the sale of the shares offered pursuant
to this prospectus supplement and the accompanying prospectus.
Per share....................................... $ 0.75
Total........................................... $1,931,250
It is expected that the sale of the 2,575,000 shares will be completed on
January 18, 2002. We estimate the total expenses of this offering which will be
payable by us, excluding the commissions, will be approximately $100,000.
We have agreed to indemnify the placement agent against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the placement agent may be required to make in respect
thereof.
In order to facilitate the offering of the common stock, the placement agent
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Any of these activities may maintain the
market price of our common stock at a level above that which might otherwise
prevail in the open market. The placement agent is not required to engage in
these activities and if commenced, may end any of these activities at any time.
Robertson Stephens and its respective affiliates have in the past and may in
the future perform financial services for us, for which they have received
customary fees.
This is a brief summary of the material provisions of the Placement Agency
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Placement Agency Agreement is on file with the SEC and
is incorporated by reference into the Registration Statement of which this
prospectus supplement forms a part. See "Where You Can Find More Information" on
page 37 of the accompanying prospectus.
VALIDITY OF COMMON STOCK
The validity of the shares of common stock we are offering will be passed
upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. of Boston,
Massachusetts, and for the placement agents certain legal matters related to
this offering will be passed upon by Testa, Hurwitz & Thibeault, LLP of Boston,
Massachusetts.
S-2
2,575,000 Shares
EPIX MEDICAL, INC.
Common Stock
------------------------
PROSPECTUS
SUPPLEMENT
------------------------
ROBERTSON STEPHENS
------------------------
January 14, 2002
------------------------
You should rely on the information contained in this prospectus supplement
and attached prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus supplement and
attached prospectus. We are offering to sell, and seeking offers to buy, common
shares only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus supplement and attached prospectus is
accurate only as of the date of this prospectus supplement and prospectus,
regardless of the time of delivery of this prospectus supplement and attached
prospectus or of any sale of our common shares.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common shares or possession or distribution of
this prospectus supplement and attached prospectus in that jurisdiction. Persons
who come into possession of this prospectus supplement and attached prospectus
in jurisdictions outside the United States are required to inform themselves
about and to observe any restrictions as to this offering and the distribution
of this prospectus supplement and attached prospectus applicable to that
jurisdiction.
PROSPECTUS
3,000,000 SHARES
EPIX MEDICAL, INC.
COMMON STOCK
------------------
This prospectus will allow us to issue common stock over time. This means:
- We will provide a prospectus supplement each time we issue common stock;
- The prospectus supplement will inform you about the specific terms of that
offering and also may add, update or change information contained in this
document;
- You should read this document and any prospectus supplement carefully
before you invest.
Our common stock is listed on the Nasdaq National Market under the symbol
"EPIX." On August 21, 2000 the last reported sale price of our common stock on
the Nasdaq National Market was $14.50 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August 22, 2000
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................... 3
THE COMPANY................................................. 3
THE OFFERING................................................ 4
RISK FACTORS................................................ 5
FORWARD-LOOKING STATEMENTS.................................. 14
USE OF PROCEEDS............................................. 14
DIVIDEND POLICY............................................. 14
DILUTION.................................................... 15
BUSINESS.................................................... 16
PLAN OF DISTRIBUTION........................................ 36
LEGAL MATTERS............................................... 37
EXPERTS..................................................... 37
WHERE YOU CAN FIND MORE INFORMATION......................... 37
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 38
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. WE URGE YOU TO READ THE ENTIRE PROSPECTUS,
INCLUDING THE MORE DETAILED FINANCIAL STATEMENTS, NOTES TO THE FINANCIAL
STATEMENTS AND OTHER INFORMATION INCORPORATED BY REFERENCE FROM OUR OTHER
FILINGS WITH THE SEC. INVESTING IN OUR COMMON STOCK INVOLVES RISK, THEREFORE,
CAREFULLY CONSIDER THE INFORMATION PROVIDED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE SIX.
OUR BUSINESS
We are a leading developer of targeted intravascular contrast agents
intended for use with magnetic resonance imaging, known as MRI, for the
diagnosis of human disease. Our principal product under development, MS-325, is
an injectable intravascular contrast agent intended to enhance the quality of MR
images and provide physicians with a superior method for diagnosing diseases
affecting the vasculature. MS-325 is a small molecule, which produces an MRI
signal because of the presence of gadolinium, a highly magnetically active
element favored by clinicians for enhancing MR images. This molecule is designed
with our proprietary technology to bind to albumin, the most common blood
protein. In MS-325 images using standard MRI techniques, the blood gives off a
strong magnetic signal and appears bright against the dark background of
surrounding tissue. Because of its affinity for albumin, MS-325 remains at high
concentrations in the bloodstream throughout the MRI exam and therefore provides
the image acquisition time and signal strength needed to obtain a high contrast,
high resolution image of the cardiovascular system. Like most currently
available non-specific contrast agents, MS-325 is designed to be excreted safely
through the kidneys over time.
We believe that MS-325 will simplify the diagnostic pathway for a number of
diseases and in many cases replace highly invasive and expensive X-ray
angiography, which is currently considered the definitive diagnostic exam for
assessing cardiovascular disease. We have entered into strategic alliances with
Schering Aktiengesellschaft, Mallinckrodt Inc. and Daiichi Radioisotope
Laboratories, Ltd. for the development, manufacture and commercialization of
MS-325 and other vascular contrast agents. We have also formed collaborations
with the three major MRI scanner manufacturers, General Electric Medical
Systems, Philips Medical Systems and Siemens to develop advanced imaging
techniques designed to facilitate the use of MS-325-enhanced MRI.
In June 1999, we initiated a Phase III clinical trial to determine the
efficacy of MS-325-enhanced MR angiography for the detection of aortoiliac
occlusive disease, a common peripheral vascular disease. The trial is designed
to compare the diagnostic accuracy of MS-325-enhanced MR angiography with that
of X-ray angiography. In June 1998, the Company completed a Phase II clinical
trial to test the safety and preliminary efficacy of MS-325 for the evaluation
of peripheral vascular disease in the carotid, iliac and femoral arteries. This
clinical trial favorably compared MS-325-enhanced MR angiography to conventional
X-ray angiography, the current reference standard. We are currently conducting
Phase II feasibility trials to test the safety and preliminary efficacy of
MS-325 for the evaluation of coronary artery disease and recently completed
enrollment of patients in Phase II trials for detection of malignant breast
lesions as well as female sexual arousal dysfunction. Through our pre-clinical
studies, we also intend to determine the potential utility of MS-325-enhanced
MRI for a wide variety of applications, including myocardial perfusion imaging,
low-field MR imaging, diagnosis or monitoring of muscular dystrophy, MRI-guided
stent placement, lymphatic imaging, migraine imaging and diagnosis of diabetic
angiopathy.
OUR COMPANY
We incorporated in Delaware in 1988 and commenced operations in 1992. Our
principal executive offices are located at 71 Rogers Street, Cambridge,
Massachusetts, 02142-1118 and our telephone number is (617) 250-6000. Our Web
site is located at http://www.epixmed.com. We do not intend for the information
contained in our Web site to be considered a part of this prospectus.
3
THE OFFERING
Common Stock offered in this prospectus...... 3,000,000 shares
Common Stock outstanding after the
offering................................... 15,999,244(1)
Use of Proceeds.............................. For discovery and development programs and
for other general corporate purposes.
Nasdaq National Market symbol................ EPIX
------------------------
(1) Based on 12,999,244 shares outstanding as of July 14, 2000.
4
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF FINANCIAL RISK. IN
DECIDING WHETHER TO INVEST, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS AS WELL AS OTHER INFORMATION IN THIS PROSPECTUS, INCLUDING INFORMATION
INCORPORATED BY REFERENCE FROM OTHER DOCUMENTS THAT WE FILE WITH THE SEC. IF ANY
OF THESE RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION, OPERATING
RESULTS OR CASH FLOWS COULD BE ADVERSELY AFFECTED. THIS COULD CAUSE THE TRADING
PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND HAVE NOT GENERATED REVENUES FROM
COMMERCIAL SALES OF OUR PRODUCTS.
We currently have no products for sale, and we can not guarantee that we
will ever have marketable products. All of our product candidates are in
research or development. To date, we have financed our operations through public
stock offerings, private sales of equity securities, equipment lease financings
and license payments from our strategic partners. To achieve profitable
operations, we, alone or with others, must successfully develop, obtain
regulatory approval for, introduce, market and sell products. We do not expect
to receive revenue from the sale of any of our product candidates for the next
several years. We can not assure you that we will successfully complete our
product development efforts, that we will obtain required regulatory approvals
in a timely manner, if at all, that we will be able to manufacture our product
candidates at an acceptable cost and with acceptable quality or that we can
successfully market any approved products.
WE ANTICIPATE FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.
Our future financial results are uncertain. We have experienced significant
losses since we commenced operations in 1992. Our accumulated net losses as of
December 31, 1999 were approximately $45.4 million and on March 31, 2000 they
were $50.6 million. These losses have resulted primarily from expenses
associated with our research and development activities, including preclinical
and clinical trials, and general and administrative expenses. We anticipate that
our research and development expenses will increase significantly in the future,
and we expect to incur substantial losses over at least the next several years.
We may never generate revenues from the sale of our products. Moreover, even if
we generate product revenues, we may not be able to achieve or sustain
profitability.
OUR FINANCIAL RESULTS FLUCTUATE QUARTERLY, WHICH COULD NEGATIVELY AFFECT OUR
STOCK PRICE.
Our results of operations have varied and will continue to vary
significantly from quarter to quarter and depend on, among other factors:
- the timing of fees and milestone payments that we receive from strategic
partners;
- whether we form new strategic alliances;
- the timing of expenditures in connection with research and development
activities, including clinical trials;
- the timing of product introductions and associated launch, marketing and
sales activities; and
- the timing and extent of product acceptance for different indications and
geographical areas of the world.
Fluctuations in our results of operations may cause us to fail to meet
investor expectations, resulting in a decline in the trading price of our stock
price. As a result, you may lose all or part of your investment.
5
FOR THE FORSEEABLE FUTURE, WE WILL DEPEND ON OUR ONLY PRODUCT, MS-325, FOR
REVENUES.
MS-325 is currently our only product candidate in human clinical trials and
we can not guarantee that any of our other development projects will yield a
product candidate suitable for entry into clinical trials. As a result, our
initial revenues and profits, if any, will be derived from sales of MS-325. If
MS-325 fails to achieve regulatory approval and market acceptance, our business,
financial condition and results of operations will be materially adversely
effected.
BECAUSE DEVELOPMENT OF OUR TARGETED CONTRAST AGENTS WILL INVOLVE A LENGTHY AND
COMPLEX PROCESS, WE ARE NOT CERTAIN THAT WE WILL BE ABLE TO COMMERCIALIZE ANY OF
OUR PRODUCTS CURRENTLY IN DEVELOPMENT.
Our product candidates are currently in research and development and will
require additional research and development, extensive clinical testing and
regulatory approval prior to any commercial sales. We cannot predict if or when
we will be able to commercialize any of our products under development. We must
complete clinical trials in the United States and demonstrate the safety and
efficacy of MS-325, currently in Phase III clinical trials, prior to obtaining
Food and Drug Administration approval. Our clinical trials may not be successful
and we may not complete them in a timely manner. We could report serious side
effects as the clinical trial proceeds. Our results from early clinical trials
may not predict results that we will obtain in large scale clinical trials, as a
number of companies have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. We may not conduct
additional Phase II or Phase III clinical trials for MS-325 and such trials, if
begun, may not demonstrate any efficacy or will be completed successfully in a
timely manner, if at all. The rate of completion of our clinical trials depends
upon, among other things, the rate of patient enrollment. Patient enrollment is
a function of many factors, including the size of the patient population, the
nature of the clinical protocol under which MS-325 will be studied, the
proximity of the patient to a clinical site and the eligibility criteria for the
study. Delays in planned patient enrollment may result in increased costs,
regulatory filing delays, or both. Furthermore, we, the FDA or other regulatory
authorities may alter, suspend or terminate clinical trials at any time. If we
do not successfully complete clinical trials, we will not have a product to
market.
IF MRI MANUFACTURERS DO NOT ENHANCE THEIR HARDWARE AND SOFTWARE, WE WILL NOT BE
ABLE TO MARKET OUR CONTRAST AGENTS FOR CARDIAC INDICATIONS.
Existing MRI scanners do not have the capability to perform coronary
angiography without improvements in current MRI hardware and software. The
success of cardiac applications of MS-325 therefore depends on advancements in
MRI hardware and software. Although several leading MRI manufacturers, academic
centers and others are developing advanced hardware and software, we do not know
when, or if, these techniques will enable MS-325 to provide clinically relevant
images in the cardiac indications that we are pursuing. If MRI manufacturers do
not enhance their scanners to perform coronary angiography, we will not be able
to market MS-325 for that application and the potential market for our products
will be substantially reduced.
IF MRI TECHNOLOGY BECOMES OBSOLETE, WE WILL NOT HAVE A MARKET FOR OUR PRODUCT
CANDIDATES.
Several well-established medical imaging modalities compete with MRI,
including X-ray angiography, computer assisted tomography, nuclear medicine and
ultrasound. Other companies are actively developing the capabilities of the
competing modalities to enhance their effectiveness in cardiovascular system
imaging. If developments by others render MS-325 or our future product
candidates obsolete or non-competitive, we will not have a market for our
product candidates.
6
IF THE MARKET DOES NOT ACCEPT OUR TECHNOLOGY AND PRODUCTS, WE MAY NOT GENERATE
SUFFICIENT REVENUES TO ACHIEVE OR MAINTAIN PROFITABILITY.
The commercial success of MS-325 and our other products, when and if
approved for marketing by the United States Food and Drug Administration, the
FDA, and corresponding foreign agencies, depends on their acceptance by the
medical community and third-party payors as clinically useful, cost-effective
and safe. While contrast agents are currently used in an estimated 35% to 45% of
all MRI exams, there are no FDA-approved targeted vascular agents in use.
Furthermore, clinical use of MRI for vascular imaging has been limited and use
of MRI for cardiac imaging has occurred mainly in research. Market acceptance,
and thus sales of our product candidates, will depend on several factors,
including
- safety;
- price;
- ease of administration;
- effectiveness; and
- the rate of adoption of up-to-date MRI technology.
Market acceptance will also depend on our ability and that of our strategic
partners to educate the medical community and third-party payors about the
benefits of diagnostic imaging with MRI enhanced with our product candidates
compared to imaging with other modalities. Our MRI contrast agents represent a
new approach to imaging the cardiovascular system and market acceptance both of
MRI as an appropriate imaging technique for the cardiovascular system and of our
product candidates is critical to our success. If our products do not achieve
market acceptance, we may not generate sufficient revenues to achieve or
maintain profitability.
OUR COMPETITORS HAVE GREATER FINANCIAL RESOURCES, SUPERIOR PRODUCTS,
MANUFACTURING CAPABILITIES OR MARKETING EXPERTISE, AND WE MAY NOT BE ABLE TO
COMPETE WITH THEM SUCCESSFULLY.
Medical technology is subject to intense competition and rapid technological
change. We have many competitors, including pharmaceutical, biotechnology and
chemical companies, a number of which, including our strategic partners, are
actively developing and marketing products that could compete with our product
candidates. Many of these competitors have substantially greater capital and
other resources than we have and may represent significant competition for us.
These companies may succeed in developing technologies and products that are
more effective or less costly than any of those that we may developed. In
addition, these companies may be more successful than we are in developing,
manufacturing and marketing products. Our strategic partners or customers may
choose to use competing technologies or products. As a result, we may not be
able to compete successfully in the future.
WE DEPEND ON EXCLUSIVELY LICENSED TECHNOLOGY FROM THE MASSACHUSETTS GENERAL
HOSPITAL AND IF WE LOSE THIS LICENSE, IT IS UNLIKELY WE COULD OBTAIN THIS
TECHNOLOGY ELSEWHERE.
Under the terms of a license agreement that we have with Massachusetts
General Hospital, we are the exclusive licensee to certain technology, including
patents and patent applications, which relate to our product candidates,
including MS-325. The license agreement imposes various commercialization,
sub-licensing, royalty and other obligations on us. If we fail to comply with
these and other requirements our license could convert from exclusive to
non-exclusive or terminate entirely. It is unlikely that we would be unable to
obtain this technology elsewhere. Any such event would have a material adverse
effect on our business, financial condition and results of operations.
7
WE DEPEND ON OUR STRATEGIC COLLABORATORS FOR SUPPORT IN PRODUCT DEVELOPMENT AND
THE REGULATORY APPROVAL PROCESS, AND, IF WE EXPERIENCE PROBLEMS WITH OUR
COLLABORATORS, WE MAY NOT GET REGULATORY APPROVAL.
We depend on strategic collaborators for support in product development and
the regulatory approval process as well as a variety of other activities
including manufacturing, marketing and distribution of our products in the
United States and abroad, when and if the FDA and corresponding foreign agencies
approve our product candidates for marketing. To date, we have entered into
several strategic alliances, including a collaboration agreement with
Schering AG, to develop and commercialize MS-325 worldwide, excluding Japan, and
other MRI vascular agents worldwide, a development and license agreement with
Daiichi for the development and commercialization of MS-325 in Japan and an
agreement with Mallinckrodt, Inc. (a Delaware corporation) and Mallinckrodt,
Inc. (a New York corporation) granting Mallinckrodt rights to enter into an
agreement with Schering AG to manufacture MS-325 for clinical development and
commercial use. We may not receive milestone payments from these alliances
should MS-325 fail to meet certain performance targets in clinical trials.
Further, our receipt of revenues from strategic alliances is affected by the
level of efforts of our collaborators. Our collaborators may not devote the
resources necessary to complete development, and commence marketing, of MS-325
in their respective territories, or they may not successfully market MS-325.
Schering AG, Mallinckrodt and Daiichi currently manufacture imaging agents for
other modalities that will compete against MS-325. Schering AG will be
responsible for setting the price of the product worldwide, except Japan, and
Daiichi will be responsible for setting the product price in Japan. However,
Schering AG or Daiichi may not set prices in a manner that maximizes revenues
for us. In addition, Daiichi may exercise its right to terminate our agreement
on short notice under certain circumstances. Our failure to receive milestone
payments, a reduction or discontinuance of efforts by our partners, or the
termination of these alliances would have a material adverse effect on our
business, financial condition and results of operations.
We may not successfully enter into additional strategic alliances for the
development and commercialization of future product candidates. In addition, any
future alliances may not be on terms favorable to us or may not be successful.
If we are unable to enter into future strategic alliances with capable partners
on commercially reasonable terms, we may delay the development and
commercialization of future product candidates and could possibly postpone them
indefinitely.
WE DEPEND ON PATENTS AND OTHER PROPRIETARY RIGHTS, AND IF THEY FAIL TO PROTECT
OUR BUSINESS, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The protection of our proprietary technologies is material to our business
prospects. We pursue a comprehensive patent program for our product candidates
in the United States and in other countries where we believe that significant
market opportunities exist. We own or have an exclusive license to patents and
patent applications on the critical aspects of our core technology as well as
many specific applications of this technology. However, the patent positions of
pharmaceutical and biopharmaceutical firms, including us, generally include
complex legal and factual questions. The issued patents that we own or license,
or any patents that we obtain in the future, may not effectively protect our
technology or provide a competitive advantage. In addition, any of our patents,
patent applications or licensed patents may be challenged, invalidated or
circumvented in the future.
Many of our competitors actively pursue patent protection for activities and
discoveries similar to our activities and discoveries. These competitors, many
of which have made substantial investments in competing technologies, could seek
to assert that our products or chemical processes infringe on their existing
patents and/or will not seek new patents that claim to cover aspects of our
technology. Furthermore, patent applications in the United States are maintained
in secrecy until patents are issued, and patent applications in foreign
countries are maintained in secrecy for a specified period after filing.
Publication of discoveries in the scientific or patent literature tends to lag
behind actual
8
discoveries and the filing of related patent applications. In addition, patents
issued and patent applications filed relating to pharmaceuticals are numerous.
Therefore, we may not be aware of all competitive patents, either pending or
issued, that relate to our products or processes used or those products or
processes that we propose to use. If our patents fail to protect our business,
we may not be able to compete effectively.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO OUR PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
The pharmaceutical and biotechnology industries are characterized by
extensive litigation regarding patents and other intellectual property rights.
We intend to protect and defend our intellectual property vigorously. We may
need to bring costly and time-consuming litigation to enforce our issued
patents, to protect our trade secrets and know-how, or to determine the
enforceability, scope and validity of the proprietary rights of others. We may
have to participate in interference proceedings declared by the U.S. Patent and
Trademark Office or by foreign agencies to determine the priority of inventions.
Any litigation surrounding these issues could result in extensive costs to us as
well as be a significant distraction for management. Such costs could have a
material adverse effect on our business, financial condition and results of
operations.
We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position. We
typically require our employees, consultants and advisors to execute
confidentiality and assignment of invention agreements in connection with their
employment, consulting or advisory relationships with us. These agreements could
be breached or we may not have adequate remedies for any breach. Furthermore,
our competitors could independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our proprietary
technology, and we might not be able to meaningfully protect our rights in
unpatented proprietary technology. Several of our management and scientific
personnel were formerly associated with other pharmaceutical and biotechnology
companies and academic institutions. In some cases, these individuals are
conducting research in similar areas with which they were involved prior to
joining us. As a result, we, as well as these individuals, could be subject to
claims of violation of trade secrets and similar claims.
Our commercial success will also depend on our ability to operate without
infringing upon the patents of others in the United States and abroad. There are
pending or issued patents, held by parties not affiliated with us, relating to
technologies we use in the development or use of certain of our contrast agents.
If any judicial or administrative proceeding upholds any third-party patents as
valid and enforceable, we could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the owners
of each such patent, or to redesign our products or processes to avoid
infringement.
EXTENSIVE GOVERNMENT REGULATION MAY DELAY OR PREVENT US FROM MARKETING MS-325 OR
OTHER PRODUCTS UNDER DEVELOPMENT.
We are subject to extensive U.S. and foreign governmental regulatory
requirements and lengthy approval processes for our product candidates. The
development and commercial use of our product candidates will be regulated by
numerous federal, state, local and foreign governmental authorities in the U.S.,
including the FDA and foreign regulatory agencies abroad. The nature of our
research and development and manufacturing processes requires the use of
hazardous substances and testing on certain laboratory animals. Accordingly, we
are subject to extensive federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and wastes, as
well as the use of and care for laboratory animals. Although we believe we are
in compliance with all such laws and maintain policies and procedures to ensure
that we remain in compliance, it is possible that accidents will happen that
9
would expose us to legal risk and/or financial loss. Furthermore, current laws
could change and new laws could be passed that may force us to change our
policies and procedures, an event which could impose significant costs on us.
The regulatory approval process for new MRI contrast agents, including
required preclinical studies and clinical trials, is lengthy and expensive.
Although some of our employees have experience in obtaining regulatory
approvals, we have only limited experience in filing or pursuing applications
necessary to gain regulatory approvals. Preclinical testing of our product
development candidates is subject to Good Laboratory Practices as prescribed by
the FDA and the manufacture of any products developed by us will be subject to
Good Manufacturing Practices as prescribed by the FDA. We may not obtain the
necessary FDA clearances and subsequent approvals in a timely manner, if at all.
We can not assure you as to the length of the clinical trial period or the
number of patients that will be required to be tested in the clinical trials in
order to establish the safety and efficacy of MS-325 or any of our future
product candidates. We may encounter unanticipated delays or significant costs
in our efforts to secure necessary approvals. We may not obtain regulatory
approval, even after the performance of clinical trials and the passage of time
and the expenditure of such resources, for MS-325 or any other product
candidates that we develop. Our analysis of data obtained from preclinical and
clinical activities is subject to confirmation and interpretation by regulatory
authorities, which could delay, limit or prevent FDA regulatory approval. Future
United States legislative or administrative actions also could prevent or delay
regulatory approval of our product candidates. Even if we obtain regulatory
approvals, they may include significant limitations on the indicated uses for
which we may market a product. A marketed product also is subject to continual
FDA and other regulatory agency review and regulation. Later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market, as well as possible civil or criminal
sanctions. Further, many academic institutions and companies conducting research
and clinical trials in the MRI contrast agent field are using a variety of
approaches and technologies. If researchers obtain any adverse results in
preclinical studies or clinical trials, it could adversely affect the regulatory
environment for MRI contrast agents generally. In addition, if we obtain
marketing approval, the FDA may require post-marketing testing and surveillance
programs to monitor the product's efficacy and side effects. Results of these
post-marketing programs may prevent or limit the further marketing of the
monitored product.
We and our strategic partners are also subject to numerous and varying
foreign regulatory requirements governing the design and conduct of clinical
trials and the manufacturing and marketing of our products. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above, and we may not obtain foreign regulatory
approvals on a timely basis, if at all.
IF WE DO NOT RAISE ADDITIONAL FUNDS NECESSARY TO FUND OUR OPERATIONS, WE MAY NOT
BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.
Since inception, we have funded our operations primarily through our public
offerings of Common Stock, private sales of equity securities, equipment lease
financings and license payments from our strategic partners. We believe that we
will need to raise substantial additional funds for research, development and
other expenses, through equity or debt financings, strategic alliances or
otherwise, prior to commercialization of any of our product candidates. Our
future liquidity and capital requirements will depend upon numerous factors,
including the following:
- the progress and scope of clinical trials;
- the timing and costs of filing future regulatory submissions;
- the timing and costs required to receive both United States and foreign
governmental approvals;
10
- the cost of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights;
- the extent to which our products gain market acceptance;
- the timing and costs of product introductions; the extent of our ongoing
research and development programs;
- the costs of training physicians to become proficient with the use of our
products; and
- the costs of developing marketing and distribution capabilities.
Additional financing may not be available on terms acceptable to us, or at
all. If we cannot fund our capital requirements, it would have a material
adverse effect on our business, financial condition and results of operations.
If adequate funds are not available, we may have to curtail operations
significantly or obtain funds by entering into arrangements with strategic
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets. To the extent
that we raise additional capital through the sale of equity or securities
convertible into equity, the issuance of such securities could result in
dilution to our existing stockholders.
WE HAVE A LIMITED MANUFACTURING CAPABILITY AND WE INTEND TO RELY ON OUTSOURCED
MANUFACTURING TO PRODUCE MS-325.
We do not have, nor do we currently have plans to develop, full-scale
manufacturing capability for MS-325. While we do manufacture small amounts of
MS-325 for research and development efforts, we intend to rely on Mallinckrodt
as the primary manufacturer of MS-325 for Phase III clinical trials, as well as
for any future human clinical trials and commercial use. In the event that
Mallinckrodt fails to fulfill its manufacturing responsibilities satisfactorily,
Schering has the right to purchase MS-325 from a third party or to manufacture
the compound itself. However, either course of action could materially delay the
manufacture and development of MS-325. Schering may not be able to find an
alternative manufacturer. In addition, Schering may not be able to manufacture
MS-325 in a timely manner. If we experience a delay in manufacturing, it could
result in a delay in the approval or commercialization of MS-325 and have a
material adverse effect on our business, financial condition and results of
operations.
IF THE SUPPLIERS FROM WHOM WE PURCHASE COMPONENTS OF MS-325 RAISE PRICES OR
REDUCE QUANTITIES, THE COST TO PRODUCE MS-325 COULD INCREASE SIGNIFICANTLY.
We currently procure the raw materials for the various components of MS-325
from a broad variety of vendors and, wherever possible, maintain relationships
with multiple vendors for each component. There are a number of components of
MS-325 for which the largest suppliers may have significant control over the
market price due to controlling market shares. If any one of our suppliers
decided to increase prices significantly or reduce quantities of components of
MS-325 available for sale to us, it could have a material adverse effect on our
ability to commercialize MS-325 and on our business, financial condition and
results of operations.
PRODUCT LIABILITY CLAIMS COULD INCREASE OUR COSTS AND ADVERSELY EFFECT OUR
RESULT OF OPERATIONS.
The clinical testing, manufacturing and marketing of our product candidates
may expose us to product liability claims, and we may experience material
product liability losses in the future. We currently have limited product
liability insurance for the use of our product candidates in clinical research,
but our coverage may not continue to be available on terms acceptable to us or
adequate for liabilities we actually incur. We do not have product liability
insurance coverage for the commercial sale of our products but intend to obtain
such coverage if and when we commercialize our product
11
candidates. However, we may not be able to obtain adequate additional product
liability insurance coverage on acceptable terms, if at all. A successful claim
brought against us in excess of available insurance coverage, or any claim or
product recall that results in significant adverse publicity against us, may
have a material adverse effect on our business and results of operations.
IF WE FAIL TO GET ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS AFTER THEY
ARE APPROVED FROM THIRD PARTY PAYORS IN THE U.S. AND ABROAD, WE WILL NOT BE ABLE
TO COMMERCIALIZE OUR PRODUCTS.
We could be adversely affected by changes in reimbursement policies of
governmental or private healthcare payors, particularly to the extent any such
changes affect reimbursement for procedures in which our product candidates
would be used. Failure by physicians, hospitals and other users of our products
to obtain sufficient reimbursement from third-party payors for the procedures in
which our products would be used or adverse changes in governmental and private
third-party payors' policies toward reimbursement for such procedures would have
a material adverse effect on our business, financial condition and results of
operations. If we obtain the necessary foreign regulatory approvals, market
acceptance of our product candidates in international markets would be
dependent, in part, upon the availability of reimbursement within prevailing
healthcare payment systems. Reimbursement and healthcare payment systems in
international markets vary significantly by country, and include both government
sponsored health care and private insurance. We intend to seek international
reimbursement approvals, although we can not assure you that any such approvals
will be obtained in a timely manner, if at all, and failure to receive
international reimbursement approvals could have an adverse effect on market
acceptance of our products in the international markets in which such approvals
are sought.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD HURT OUR ABILITY TO
COMPETE.
Our future business and operating results depend in significant part upon
the continued contributions of our key technical and senior management
personnel, many of whom would be difficult to replace and some of whom perform
important functions for us beyond those functions suggested by their respective
job title or description. Our future business and operating results also depend
in significant part upon our ability to attract and retain qualified management,
operational and technical personnel. Competition for this personnel is intense,
and we may not be successful in attracting or retaining such personnel. Although
we maintain key life insurance on the lives of some key officers, the loss of
any key employee, the failure of any key employee to perform in his or her
current position, or our inability to attract and retain skilled employees, as
needed, could have a material adverse effect on our business, financial
condition and results of operations.
RISKS RELATING TO THIS OFFERING
OUR STOCK PRICE IS VOLATILE. IT IS POSSIBLE THAT YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
The market prices of the capital stock of medical technology companies have
historically been very volatile, and the market price of the shares of our
common stock fluctuates. The market price of the shares of our common stock is
affected by:
- actual or anticipated fluctuations in our operating results;
- announcements of technological innovation or new commercial products by us
or our competitors;
- new collaborations entered into by us or our competitors;
- developments with respect to proprietary rights, including patent and
litigation matters;
- results of pre-clinical and clinical trials;
12
- conditions and trends in the pharmaceutical and other technology
industries;
- adoption of new accounting standards affecting such industries;
- changes in financial estimates by securities analysts; and
- general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stock of development stage companies. These broad market
fluctuations may adversely affect the market price of our common stock. In the
past, following periods of volatility in the market price of a particular
company's securities, shareholders have often brought class action securities
litigation against that company. Such litigation, if brought against us, could
result in substantial costs and a diversion of management's attention and
resources.
WE DO NOT HAVE AN EXACT PLAN FOR THE USE OF THE NET PROCEEDS OF THIS OFFERING
AND WILL THEREFORE HAVE BROAD DISCRETION AS TO THE USE OF THESE PROCEEDS, WHICH
WE MAY NOT USE EFFECTIVELY.
We may allocate the net proceeds from this offering in ways which you and
other stockholders may not approve. We have no exact plan with respect to the
use of the net proceeds of this offering and have not committed these proceeds
to any particular purpose apart from expenses of the business and general
working capital and possible future acquisitions. Accordingly, our management
will have broad discretion in applying the net proceeds of this offering and may
use the proceeds in ways with which you and our other stockholders may disagree.
We may not be able to invest these funds effectively which would adversely
affect our financial condition.
CERTAIN ANTI-TAKEOVER CLAUSES IN OUR CHARTER AND BY-LAW PROVISIONS AND IN
DELAWARE LAW MAY MAKE AN ACQUISITION OF US MORE DIFFICULT.
Our Restated Certificate of Incorporation authorizes the Board of Directors
to issue, without stockholder approval, up to 1,000,000 shares of preferred
stock with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of Preferred Stock or of rights to purchase Preferred Stock
could be used to discourage an unsolicited acquisition proposal. In addition,
the possible issuance of Preferred Stock could discourage a proxy contest, make
more difficult the acquisition of a substantial block of our Common Stock or
limit the price that investors might be willing to pay for shares of our Common
Stock. The Restated Certificate provides for staggered terms for the members of
the Board of Directors. A staggered Board of Directors and certain provisions of
our By-laws and of Delaware law applicable to us could delay or make more
difficult a merger, tender offer or proxy contest involving us. We, for example,
are subject to Section 203 of the General Corporate Law of Delaware which,
subject to certain exceptions, restricts certain transactions and business
combinations between a corporation and a stockholder owning 15% or more of the
corporation's outstanding voting stock for a period of three years from the date
the stockholder becomes an interested stockholder. These provisions may have the
effect of delaying or preventing a change of control of us without action by the
stockholders and, therefore, could adversely affect the price of our Stock.
13
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These statements can be identified by
the use of forward-looking terminology such as "may," "will," "could," "expect,"
"anticipate," "estimate," "continue" or other similar words. These statements
discuss future expectations, contain projections of results of operations or of
financial condition or state trends and known uncertainties or other
forward-looking information. Examples of forward-looking statements can be found
in the discussion set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on
Form 10-K for the year ended December 31, 1999 and under "Business" in the
Form 10-K, incorporated in this prospectus by reference. Such statements are
based on current expectations that involve a number of uncertainties including
those set forth in the risk factors above. When considering forward-looking
statements, you should keep in mind that the risk factors noted above and other
factors noted throughout this prospectus or incorporated by reference could
cause our actual results to differ significantly from those contained in any
forward-looking statement.
USE OF PROCEEDS
We intend to use the net proceeds of this offering, if any, for general
corporate and business purposes, general working capital and possible future
acquisitions. However, we have no present understandings, commitments or
agreements to enter into any potential acquisitions or to make any investments.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the amount and timing of the proceeds
from this offering, progress of our research, drug discovery and development
programs, the results of preclinical and clinical studies, the timing of
regulatory approvals, technological advances, determinations as to commercial
potential of our compounds and the status of competitive products. In addition,
expenditures will also depend upon the establishment of collaborative research
arrangements with other companies and other factors.
Further, we have not determined the amounts we plan to spend on any of the
areas listed above or the timing of these expenditures. As a result, our
management will have broad discretion to allocate the net proceeds from this
offering. Pending application of the net proceeds as described above, we intend
to invest the net proceeds of the offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future.
In addition, our current long-term debt agreement prohibits the payment of cash
dividends.
14
DILUTION
The pro forma net tangible book value of the common stock, which reflects
the purchase of 1,112,075 shares of our common stock by Schering Berlin Venture
Corporation on June 20, 2000 pursuant to a stock purchase agreement dated
June 9, 2000, as of March 31, 2000 was approximately $26.1 million, or $2.03 per
share. After giving effect to our sale of 3,000,000 shares of common stock in
this public offering at an assumed public offering price of $17.25 per share,
and after deducting the estimated underwriting discount and offering expenses,
the adjusted pro forma net tangible book value as of March 31, 2000 would have
been $77.8 million, or $4.91 per share.
The pro forma net tangible book value per share before this offering has
been determined by dividing the pro forma net tangible book value (total
tangible assets less total liabilities) by the pro forma number of shares of
common stock outstanding as of March 31, 2000. This offering will result in an
increase in net tangible book value per share of $2.88 to existing stockholders
and dilution in net tangible book value per share of $12.34 to new investors who
purchase shares in this offering. Dilution is determined by subtracting the pro
forma net tangible book value per share after this offering from the assumed
public offering price of $17.25 per share. The following table illustrates this
dilution:
Assumed public offering price............................... $17.25
Pro forma net tangible book value per share as of
March 31, 2000.......................................... $2.03
Increase attributable to new investors.................... 2.88
------
Pro forma net tangible book value per share after this
offering.................................................. 4.91
------
Dilution in pro forma net tangible book value to new
investors................................................. $12.34
======
The following table summarizes, as of March 31, 2000, on a pro forma basis
to reflect the June 9, 2000 sale of 1,112,075 shares of common stock to Schering
Berlin Venture Corporation, the differences between the total consideration paid
and the average price per share paid by the existing stockholders and the new
investors with respect to the number of shares of common stock purchased from us
based on an assumed public offering price of $17.25 per share:
SHARES TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------ -------- ---------
New investors........................... 3,000,000 18.94% $ 51,700,338 40.17% $17.23
Existing stockholders................... 12,843,488 81.06 $ 77,007,949 59.83% 6.00
---------- ----- ------------ ----- ------
Total................................. 15,843,488 100% $128,708,287 100% 8.12
========== ===== ============ ===== ======
These tables assume no exercise of stock options and warrants outstanding as
of March 31, 2000.
15
BUSINESS
CARDIOVASCULAR DISEASE BACKGROUND
The human cardiovascular system consists of the heart and a vast series of
arteries and veins that carry blood throughout the body. Cardiovascular disease,
a broad class of diseases affecting the heart and vasculature, is the number one
cause of death in the United States, with over 950,000 fatalities in 1998. One
out of every 2.4 deaths in the United States is attributed to cardiovascular
disease and it is estimated that over 58 million Americans suffer from some form
of this disease.
Atherosclerosis is one of the most common forms of cardiovascular disease.
This condition refers to the accumulation of fatty deposits, or plaques, in the
inner lining of blood vessels, resulting in a thickening or hardening of
affected vessels. As the disease progresses, the arteries can become weakened or
increasingly narrowed, thereby reducing blood flow to vital organs, including
the heart and brain. This condition is often characterized by the vascular
region in which it is diagnosed. Coronary artery disease, for example, refers to
disease in the coronary arteries, while peripheral vascular disease refers to
disease in the major vessels outside the coronary arteries: vessels of the head
and neck, the aorta, the renal arteries, and the large vessels of the pelvis,
legs and arms.
Recent research in cardiovascular disease has begun to highlight the
pervasive, or multi-focal nature, of this condition. Because the major risk
factors tend to affect all vascular regions, many patients have multiple
clinical manifestations of cardiovascular disease. Therefore, patients diagnosed
with cardiovascular disease in one vascular region are at high risk of having
similar disease in another vascular region. Clinicians have also begun to
realize the importance of characterizing atherosclerotic plaques once they have
been identified. We believe that the ability to characterize plaques may allow
physicians to identify those regions of cardiovascular disease which present the
most immediate threat to patients' health.
The consequences of cardiovascular disease can be extremely severe and often
include one or more of the following:
LIMB LOSS. Atherosclerotic blockages in the arteries of the pelvis and
legs--the iliac, femoral, popliteal, and tibial arteries--can lead to ischemia
(lack of oxygen) or infarction (death of tissue) in these areas. Complications
from atherosclerotic disease in these vessels include pain, limitations in
mobility, and amputation of the extremities. Each year approximately 100,000
amputations are performed in the United States primarily due to some form of
cardiovascular disease.
AORTIC ANEURYSM. The aorta is the main blood vessel that carries blood from
the heart to the rest of the body. Degenerative changes in the vessel wall often
result in the enlargement or bulging of the lower part this vessel, known as
abdominal aortic aneurysm. Individuals with this condition are at serious risk
that the aneurysm will rupture, causing life-threatening bleeding. There are an
estimated 200,000 cases of abdominal aortic aneurysm diagnosed each year in the
United States. Because this condition can be asymptomatic for many years, many
physicians have begun to consider the merits and cost-effectiveness of routine
screening programs for this disease.
HEART ATTACK. The coronary arteries supply blood to the heart muscle
(myocardium). When these arteries are narrowed or clogged due to atherosclerotic
buildup, the result can be chest pain (angina pectoris) or heart attack
(myocardial infarction). This condition, known as coronary artery disease, is
estimated to afflict 7 million Americans. Coronary artery disease is responsible
for a significant portion of the nearly 500,000 heart attack deaths each year,
making it the number one cause of death in the United States.
HYPERTENSION. The renal arteries are the vessels which carry blood to the
kidneys. Blockage of these arteries can result in kidney failure and in addition
is estimated to account for up to ten percent of all cases of hypertension.
Hypertension, or high blood pressure, refers to the constriction of blood
vessels, which causes the heart to work harder to supply blood to the body. This
condition, which
16
significantly elevates an individual's risk of heart attack or stroke, afflicts
approximately 50 million individuals in the United States. Early diagnosis can
be extremely helpful for patients with renovascular hypertension because it can
be treated with various revascularization procedures; however, X-ray
angiography, the current definitive diagnosis for this condition, carries
elevated risk for patients with renal impairment due to the toxicity of the
X-ray contrast dye.
ISCHEMIC STROKE. Blocked arteries in the head and neck can prevent areas of
the brain from receiving the necessary blood supply, potentially leading to
ischemic stroke. Individuals with atherosclerosis are at elevated risk of
suffering such blockages due to atherosclerotic buildup in these arteries or,
more commonly, from plaques originating in other areas which have broken off and
lodged in these vessels. Approximately 80% of the 600,000 strokes each year in
the United States are a result of atherosclerotic disease.
DIAGNOSING CARDIOVASCULAR DISEASE--THE LIMITS OF CURRENT PRACTICE
Cardiovascular disease is currently diagnosed using a number of different
imaging technologies, or modalities, including X-ray angiography, computed
tomography, ultrasound, intravascular ultrasound, nuclear medicine and magnetic
resonance imaging, or MRI. These modalities are often classified as either
"screening" or "definitive" according to their role in the diagnostic pathway.
Screening procedures are typically used early in the diagnostic evaluation to
rule out certain conditions and assist physicians in determining subsequent
diagnostic testing. These procedures tend to be relatively inexpensive and
non-invasive. Definitive diagnostic procedures, on the other hand, are relied
upon to give physicians the information required to make final diagnosis and
plan treatment. Because of the importance of this definitive information,
physicians are willing to resort to costlier, more invasive modalities.
SCREENING FOR PERIPHERAL VASCULAR DISEASE. A patient with peripheral
vascular disease may exhibit a wide range of symptoms including: leg pain;
gangrene; hypertension; stroke and transient ischemic attack, a brief episode of
cerebral ischemia usually characterized by blurred vision, slurred speech,
numbness or paralysis. The appropriate screening tests vary according to the
particular disease indication. In the work-up of peripheral vascular disease of
the lower limb, for example, ultrasound is often performed to confirm the
location of disease once it has been detected by non-imaging techniques. In
general, traditional screening modalities for peripheral vascular disease--most
commonly ultrasound and renal nuclear exams--tend to have poor image quality,
leading to exams which are frequently inconclusive.
SCREENING FOR CORONARY ARTERY DISEASE. Typically, a patient enters the
diagnostic pathway for coronary artery disease after experiencing chest pain or
shortness of breath. If the patient cannot be ruled out for this condition after
the initial work-up that includes a physical exam, patient history,
electrocardiogram and exercise stress test, then a cardiologist will often
perform a stress echocardiogram and/or a nuclear stress perfusion study.
STRESS ECHOCARDIOGRAMS use ultrasound to measure motion of the walls of
the heart under physical or pharmacological stress. In most cases, a lack of
blood flow to a particular area of the heart will be reflected in atypical
motion of the heart wall. The test is non-invasive and costs between $300
and $900. While a normal stress echocardiogram usually eliminates the
possibility of blockages which significantly decrease blood flow, the test
is often inconclusive and provides no information on the anatomy of the
coronary arteries. We estimate that over 1.6 million stress echocardiograms
were performed in the United States in 1998.
NUCLEAR STRESS PERFUSION STUDIES, which measure the flow of blood to
cardiac tissue, can be used either as the critical diagnostic test prior to
X-ray angiography or to confirm the impact on blood flow of an intermediate
blockage identified through X-ray angiography. These tests are non-
invasive, use small quantities of radiation and cost between $600 and
$1,400. A patient is injected
17
with a radioactive agent and then a radiation sensitive camera is used to
detect uptake of the agent in the heart muscle. A deficiency in blood flow
to particular regions of the heart is shown on the resultant images. While
the test can identify the effects of coronary artery disease, it provides no
information on the anatomy of the coronary arteries and it cannot determine
the location of blockages. We estimate that over 3.8 million nuclear stress
perfusion studies were conducted in the United States in 1998.
DEFINITIVE DIAGNOSIS OF PLAQUE BLOCKAGES. X-ray angiography is currently
considered to be the definitive diagnostic exam for imaging arterial anatomy in
patients with suspected peripheral vascular disease or coronary artery disease.
Invented in the 1920's, an X-ray angiogram involves the insertion of a catheter
through a puncture of the femoral artery in the patient's groin. Once the
catheter is placed in the relevant artery, X-ray contrast dye is injected into
the bloodstream and an image is acquired of that vascular region. X-ray
angiography does not always provide sufficient information for clinical
decision-making, particularly in the coronary arteries: while X-ray angiography
identifies the location of arterial blockages, in many cases it cannot
conclusively determine the impact of these blockages on blood flow. Therefore,
for many blockages, additional studies must be performed to enable the physician
to make a definitive diagnosis. Based on available procedure data, we estimate
that over 4.3 million X-ray angiograms were performed in the United States in
1998, of which approximately 2.1 million were coronary angiograms. X-ray
angiography has a number of undesirable characteristics for a diagnostic
modality including:
- Invasive procedure results in significant risk of serious complications
including limb loss, renal failure, and death;
- Exposure of patients to potentially harmful ionizing radiation;
- Separate exams are necessary to view both arteries and veins;
- Separate exams are necessary for each vascular region;
- Provides only 2-dimensional images;
- Relatively expensive ($1,000-$3,000 for peripheral angiograms,
$2,000-$6,000 for coronary angiograms);
- Cost and invasive nature limit patient post-procedure follow-up; and
- Inability to characterize plaques.
Another modality currently being investigated as a potential diagnostic tool
for imaging blood vessels is computed tomography, or CT, which is a modality
primarily used to image solid organs. Although it does not require an arterial
puncture, CT requires the use of large quantities of toxic X-ray contrast dye
and exposes patients to radiation, which limits the number of vascular regions
it can image in an exam. CT has shown limited success in imaging the coronary
arteries due to cardiac motion. A specialized form of CT, electron beam CT, is
approved in the United States for angiographic imaging but has had limited
impact on clinical practice due to the low number of electron beam CT scanners
installed and its use of toxic X-ray contrast dye and radiation. CT is also
being investigated for use in detecting calcium deposits in the coronary
arteries, which has been advocated as predictive of atherosclerotic disease in
that region. While extremely sensitive, this technique is limited by its high
level of false positives.
MRI has been established as the imaging modality of choice for a broad range
of applications, including brain tumors, knee injuries and many spinal
disorders. MRI is performed by placing a portion of the patient's body in a
magnetic field and applying safe, low-energy radio waves. The different organs
and tissues in the body respond uniquely to the electromagnetic field within the
MRI scanner, and these responses can be captured and converted into
high-resolution 3-dimensional images. A contrast agent is often injected into a
vein in the patient's arm prior to an MRI exam to amplify the
18
signal from the desired anatomical structure. It is estimated that contrast
agents are used in 35-40% of all MRI exams.
MR scanners are characterized by the strength of the magnetic field they
generate. Typical MRI scanners--those most commonly found in hospitals--generate
a relatively strong magnetic field and therefore require significant
infrastructure for installations. Low-field scanners, whose magnetic fields are
less than one-third the strength of traditional scanners, are often found in
out-patient settings due to the decreased cost and infrastructure requirements.
The trade-off for low-field MR scanners is that a decrease in the strength of
the magnetic field results in a decrease in the MR signal detected, which
typically results in reduced resolution.
MRI has not made a significant impact on the diagnosis of cardiovascular
disease to date with the exception of certain carotid artery studies.
Non-contrast agent MRI exams of the vascular system, which image blood flow
rather than anatomy, are often ineffective when used in patients with
cardiovascular disease because of the minimal or turbulent blood flow associated
with this condition. Even for the imaging of carotid arteries, where flow-based
MRI has had some clinical impact, the lack of direct anatomic data limits the
ability of MRI to provide a quantitative measurement of stenosis required for
accurate diagnosis. MRI exams using existing non-specific contrast agents are
limited by the rapid diffusion of the agents out of the vascular system, which
reduces the time during which an image can be acquired. Consequently, many
experts believe MRI contrast agents which remain in the bloodstream for extended
periods of time will be necessary to obtain sufficient contrast for widespread
use of MRI to image the vascular system.
PLAQUE CHARACTERIZATION. Recent research suggests that plaques associated
with regions of vessel wall inflammation may be at increased risk of rupture and
are consequently more likely to present immediate risk to patients. The one
modality currently used to characterize the content and/or shape of arterial
plaques is known as intravascular ultrasound, or IVUS. An IVUS exam requires the
insertion of a relatively large catheter (i.e., larger than an X-ray
angiographic catheter) equipped with an ultrasound transducer through an
arterial puncture in the femoral artery. These procedures, which are more
invasive then X-ray angiograms, are not commonly used in the United States due
to the elevated risk of complications.
In summary, the current process for diagnosing cardiovascular disease is a
complicated pathway which typically involves subjecting patients to risky and
invasive procedures before a definitive diagnosis can be rendered. We therefore
believe that there is significant clinical need for a highly accurate, non-
invasive exam which provides more comprehensive diagnostic information about the
cardiovascular system.
OUR APPROACH TO DIAGNOSING CARDIOVASCULAR DISEASE
Our principal product under development, MS-325, is an injectable
intravascular contrast agent intended to enhance the quality of MR images and
provide physicians with a superior method for diagnosing diseases affecting the
vasculature. Unlike most currently available MRI contrast agents, which are
non-specific and therefore leak rapidly out of the bloodstream, MS-325 binds
reversibly to albumin, the most common blood protein. Because of its affinity
for albumin, MS-325 remains at high concentrations in the bloodstream throughout
the MRI exam and, consequently, provides the image acquisition time and signal
strength needed to obtain a high contrast, high resolution image of the
cardiovascular system. These images are intended to provide sufficient
anatomical detail for definitive diagnosis and surgical planning.
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We believe that MS-325-enhanced MRI may facilitate several clinically
valuable diagnostic procedures:
MS-325-ENHANCED ANGIOGRAPHY
We believe that MS-325-enhanced MR angiography will be used to diagnose
cardiovascular disease and has the potential to replace a significant portion of
the estimated 4.3 million X-ray angiograms performed each year in the United
States. In particular, we believe MS-325-enhanced MR angiography has the
following advantages over conventional X-ray angiography:
SAFETY. X-ray angiography is an invasive, catheter-based procedure
which exposes patients to significant risk of serious complications due to
femoral puncture. MS-325-enhanced MR angiography, on the other hand, is a
non-invasive exam requiring only intravenous injection of MS-325.
NO IONIZING RADIATION. MR angiography with MS-325 involves only safe,
low-energy radio waves rather than potentially harmful ionizing radiation.
ARTERIAL AND VENOUS INFORMATION IN A SINGLE EXAM. MS-325-enhanced MRI
offers the ability to capture image data of both arteries and veins in a
single exam. Venographic imaging plays a crucial role in identifying veins
suitable to be harvested for use in bypass grafts as well as planning the
route for catheter-based interventional procedures. X-ray technology
requires separate exams to image arteries and veins.
WHOLE-BODY IMAGING. Whereas X-ray angiography captures data over a
limited vascular region, we expect MS-325-enhanced MR angiography to provide
clinicians with the ability to capture images of the entire vascular system.
We believe that a whole-body MR angiography exam with a single injection of
MS-325 will be particularly well suited for the diagnosis of cardiovascular
disease, given the systemic nature of this condition.
3-DIMENSIONAL IMAGES. MS-325-enhanced MR angiography captures
3-dimensional data which can be manipulated by physicians to get the best
possible view of the vessels in question. These 3-dimensional data sets will
allow physicians to spin, rotate, zoom in and "fly through" images in order
to identify cardiovascular disease.
COST-EFFECTIVENESS. Because it will be performed outside the surgical
setting, MS-325-enhanced MR angiography is likely to be significantly less
costly than X-ray angiography. We estimate that an MRI exam with MS-325 will
cost between approximately between $500 and $1,000, roughly one-third the
cost of an equivalent X-ray angiogram.
PATIENT MONITORING. After an intervention for cardiovascular disease
such as angioplasty or bypass graft, optimal patient management could
include follow-up exams, or re-looks, to determine the re-forming of
blockages, or restenosis, as well as proper functioning of grafts. Due to
the risk, discomfort and expense associated with X-ray angiography,
follow-up imaging currently is limited, which can lead to increased patient
management costs and poorer outcomes due to undiagnosed restenosis and other
complications. We estimate that there are currently over 2 million patients
who have undergone a coronary angioplasty procedure and over 2 million
patients who have undergone a coronary bypass graft who are potential
candidates for a periodic re-look. In addition, we believe that
MS-325-enhanced MRI may have potential utility to monitor the success of
treatments designed to affect the proliferation, or angiogenesis, of
microvessels.
PLAQUE CHARACTERIZATION. Angiographic images with MS-325-enhanced MRI
have demonstrated the ability to visualize the walls of arteries as well as
the interior, or lumen, of these vessels, potentially allowing precise
determination of plaque shape. We believe that MS-325-enhanced MR
angiography may allow clinicians to identify regions of inflammation in
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vessel walls due to the elevated concentration of albumin in these areas. We
therefore believe that MS-325-enhanced MR angiography may potentially help
clinicians identify those plaques whose shape and proximity to vessel wall
inflammation make them more likely to pose health risks to patients.
LOW-FIELD MR ANGIOGRAPHY
We believe that the extended blood residence time of MS-325 will prove
particularly beneficial in facilitating the use of low-field MRI scanners for
diagnosing cardiovascular disease. These scanners, which account for
approximately 25% of the installed base of MRI scanners, pose several potential
advantages over traditional scanners: they are relatively inexpensive, they use
open configurations for improved patient comfort, they can be portable, they are
compatible with nearby electronic equipment, and they can enable MRI for
patients with pacemakers. However, low-field scanners do not currently provide
the resolution required for clinically useful vascular studies. Because of its
high signal at low magnetic field strengths, MS-325 may enable low-field MRI
scanners to perform high-resolution imaging of the vasculature. This would
potentially allow relatively inexpensive MRI exams to be performed in
out-patients settings, such as physician offices and free-standing imaging
centers.
INTEGRATED CARDIAC EXAM
We believe that MS-325, coupled with anticipated advances in software and
hardware for MRI equipment, will enable physicians to use MRI to perform a
non-invasive, integrated cardiac exam for the diagnosis of coronary artery
disease. Such a procedure would be designed to provide information on coronary
artery anatomy, including location of arterial blockages, as well as cardiac
perfusion and cardiac function data, in one sitting early in the diagnostic
work-up. Because the procedure is intended to provide physicians with more
comprehensive diagnostic information at an earlier stage of the diagnostic
work-up, physicians would be able to make a more informed diagnosis, and
therefore arrange for appropriate patient treatment, sooner than would otherwise
be possible, thereby potentially achieving better patient outcomes at a lower
cost. Of the estimated 6.75 million patients in the United States who enter the
diagnostic pathway for coronary artery disease each year, we believe that over
half would be candidates for such an integrated cardiac exam.
OTHER CARDIOVASCULAR APPLICATIONS
We are currently investigating the potential utility of MS-325-enhanced MRI
for a number of additional applications related to cardiovascular disease,
including myocardial perfusion imaging and MRI-guided stent placement. In
addition, we intend to initiate a preclinical study to assist physicians in
identifying healthy veins that can be harvested for bypass surgery.
BEYOND CARDIOVASCULAR MRI--ADDITIONAL APPLICATIONS
We believe MS-325-enhanced MRI will find significant clinical utility beyond
the diagnosis of cardiovascular disease. Because of its potential for
high-resolution imaging of the vasculature, for example, MS-325 is being
investigated for possible use in diagnosing several conditions involving damaged
or abnormal microvessels. In addition, as a marker of albumin, MS-325-enhanced
MRI may play a role in diagnosing conditions which result in regions of atypical
albumin concentration. We are pursuing applications for MS-325 beyond
cardiovascular disease in order to fully leverage the broad diagnostic potential
of this technology.
BREAST CANCER
Although inexpensive and widely used as a screening tool, mammography yields
inconclusive results in up to 10% of all exams. In addition, mammography fails
to detect tumors in approximately 10% of all asymptomatic women who suffer from
this disease. While MRI promises improved image
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quality and detection when compared with mammography, it is not widely used
today for breast cancer diagnosis. We believe that MS-325 has potential utility
as part of a non-invasive imaging procedure that would assist physicians in
identifying breast cancer in patients who have had sub-optimal or indeterminate
mammograms. We estimate that there are currently as many as 1.9 million such
mammograms performed each year in the United States. In addition, we believe
that MS-325 is particularly well suited for imaging with the lower-field or open
MRI scanners, allowing cost-effective detection of breast cancer lesions in
high-risk women where early detection with high sensitivity imaging is required.
Based on the guidelines used by the National Cancer Institute in the Breast
Cancer Prevention Trial, more than 25 million women in the United States are
characterized as being at high risk of developing breast cancer. We also believe
that MS-325-enhanced MRI in open scanners may provide the potential for
real-time imaging of biopsies and interventions.
FEMALE SEXUAL AROUSAL DYSFUNCTION
Clinicians have begun to recognize the role of compromised vasculature in
many patients with sexual dysfunction. We have undertaken a Phase II feasibility
trial, in conjunction with Pfizer Inc., to assess the potential utility of
MS-325-enhanced MRI in diagnosing female sexual arousal dysfunction by
monitoring pelvic blood volume in women. It is estimated that 30 million or more
women in the United States suffer from some form of sexual dysfunction.
OTHER NON-CARDIOVASCULAR APPLICATIONS
Further applications currently being investigated in preclinical studies
include: detection of glioma and ocular melanoma, diagnosis/monitoring of
muscular dystrophy, lymphatic imaging, migraine imaging and diagnosis of
diabetic angiopathy.
DEVELOPMENT PROGRAMS
MS-325
BACKGROUND
Our lead product candidate, MS-325, is a targeted intravascular contrast
agent intended for use with MRI. MS-325 is a small molecule which produces an
MRI signal by containing gadolinium, a highly magnetically active element
favored by clinicians for enhancing MR images. This molecule is designed with
our proprietary technology to bind to albumin, the most common blood protein. In
MS-325 images using standard MRI techniques, the blood gives off a strong
magnetic signal and appears bright against the dark background of surrounding
tissue. Because of its affinity for albumin, MS-325 remains at high
concentrations in the bloodstream throughout the MRI exam and therefore provides
the image acquisition time and signal strength needed to obtain a high contrast,
high resolution image of the cardiovascular system. Like most currently
available non-specific contrast agents, MS-325 is designed to excrete safely
through the kidneys over time.
LEAD INDICATION--AORTOILIAC OCCLUSIVE DISEASE
In June 1999, we initiated a Phase III clinical trial to determine the
efficacy of MS-325-enhanced MR angiography for the detection of aortoiliac
occlusive disease, a common peripheral vascular disease. Evaluation for
aortoiliac occlusive disease is a critical component of two common procedures
performed on the peripheral vascular system: abdominal aortography, particularly
for the identification of abdominal aortic aneurysm, and leg arteriography, also
known as peripheral run-off, for the detection of atherosclerosis. The trial, a
multi-center, comparative, two-arm study with a target enrollment of 600
patients, is designed to compare the diagnostic accuracy of MS-325-enhanced MR
angiography with that of X-ray angiography. This trial is expected to include up
to 50 clinical sites worldwide.
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In June 1998, we completed a Phase II clinical trial to test the safety and
preliminary efficacy of MS-325 for the evaluation of peripheral vascular disease
in the carotid, iliac and femoral arteries. This Phase II trial was conducted at
seven clinical sites and involved the blinded administration of MS-325 at
several dosing levels in a total of 81 patients. In the trial, MS-325-enhanced
MR angiography was compared to conventional X-ray angiography, the current
reference standard, to determine the location and degree of plaque blockages.
The results for identification of plaque blockages, combining all doses,
indicate that MS-325 demonstrated 82% accuracy, 80% sensitivity and 82%
specificity in the peripheral vasculature relative to X-ray angiography. In this
study, MS-325 was well tolerated by patients at all dose levels, with no severe
side effects reported.
CORONARY ARTERY DISEASE
We are currently conducting a Phase II feasibility trial to test the safety
and preliminary efficacy of MS-325 for the evaluation of coronary artery
disease. This trial is being conducted at multiple sites and is expected to
enroll up to 105 patients. As with the completed Phase II peripheral vascular
disease trial, MS-325-enhanced MR angiography is being compared to X-ray
angiography, the current reference standard, to determine the location and
degree of plaque blockages. Clinical use of MR angiography for imaging the
coronary arteries is particularly difficult at present due to the problem of
cardiac motion which results from both the beating of the heart and respiration.
We have joined with several leading MRI manufacturers, academic centers and
other research organizations to develop hardware and software solutions to the
problem of cardiac motion. Promising early images from this study have been
obtained which indicate that MS-325 may increase coronary vessel contrast.
BREAST CANCER
In March 2000, we completed enrollment for a 45-patient multi-center
Phase II feasibility trial designed to test the safety and preliminary efficacy
of MS-325-enhanced MRI for detecting malignant breast lesions in women with
breast abnormalities. In this trial, MS-325-enhanced MRI was evaluated on 20
patients using low field MRIs and 25 patients using high field MRIs. Although
the analysis of the data from the complete patient group is not yet complete,
data from a sub-population of the twenty patients using low field MRIs showed
marked and persistent contrast enhancement in both benign and malignant lesions
demonstrating that MS-325 provides a strong signal enhancement of breast lesions
and enables high quality imaging at field strengths associated with open MR and
lower field magnetic resonance systems. We believe that MS-325 has potential
utility as part of a non-invasive imaging procedure that would assist physicians
in identifying breast cancer in patients who have had mammograms that do not
yield conclusive information or who are at high risk of developing breast
cancer.
FEMALE SEXUAL AROUSAL DYSFUNCTION
In September 1998, we undertook a Phase II feasibility trial in 16 patients
with Pfizer to explore the efficacy of MS-325-enhanced MRI in the diagnosis of
female sexual arousal dysfunction. Preliminary results from this trial indicate
that MS-325-enhanced MRI is able to measure changes in pelvic blood volume
during sexual arousal. We believe that this technique may prove useful in
assessing how different diseases affect sexual response in women as well as
examining the effects of potential treatments in restoring impaired sexual
response.
ADDITIONAL APPLICATIONS
We are currently conducting preclinical studies to determine the potential
utility of MS-325-enhanced MRI for a wide variety of applications. Applications
currently being investigated include: myocardial perfusion imaging, low-field MR
imaging, diagnosis/monitoring of muscular dystrophy, MRI-guided stent placement,
lymphatic imaging, migraine imaging and diagnosis of diabetic
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angiopathy. We intend to initiate preclinical studies to identify veins suitable
to be harvested for use in bypass grafts as well as planning the route for
catheter-based interventional procedures and the detection of glioma and ocular
melanoma.
EP-862 PROTOTYPE CLOT IMAGING AGENT
BACKGROUND
Thromboembolic disease refers to a class of relatively common disorders
involving the formation of blood clots or, thrombi, in the veins and arteries.
The most common form of this disease, deep vein thrombosis, or DVT, is
characterized by the presence of thrombi in the deep veins of the leg and calf.
This disease afflicts approximately 2 million Americans each year. The most
severe consequences of DVT tend to occur when a thrombus dislodges from the
vessel wall to form an embolus, which can then pass to and obstruct arteries in
the lung. This condition, known as pulmonary embolism, or PE, affects an
estimated 600,000 patients each year in the United States. In addition, blood
clots in the carotid artery can lead to stroke, while clots in the coronary
arteries can result in heart attack. We estimate that blood clots are
responsible for over 400,000 deaths each year in the United States.
The current method for diagnosing DVT involves a series of venous ultrasound
exams typically followed by X-ray venography. The ultrasound procedure, while
non-invasive, is effective primarily for diagnosing DVT in the thighs. It is
ineffective for a significant portion of the patient population who may be
asymptomatic and those who have clots forming below the knee, in the pelvis and
in the vena cava. It is estimated that over 2.1 million ultrasound procedures
are performed each year in the United States to detect DVT. The X-ray
venography, which represents the current gold standard for diagnosis, requires
the injection of X-ray contrast dye into the foot and carries a significant risk
of complications, including the formation of new clots. The diagnosis of PE
presents an even greater challenge for clinicians. In fact, research suggests
that this diagnosis is missed more than 50% of the time. The primary diagnostic
technique for PE, a nuclear scan, is indeterminate in a large number of
patients. Nearly 1 million such exams were performed in the United States in
1998. In the event of an indeterminate exam, the clinician must either infer the
diagnosis from the presence/absence of DVT or must perform a pulmonary
angiogram. Pulmonary angiography is a highly invasive catheter-based procedure
which subjects the patient to significant risk of morbidity and mortality. Clots
in the carotid and coronary arteries are diagnosed in much the same way as
atherosclerotic blockages, with X-ray angiography providing definitive diagnosis
in most patients.
DEVELOPMENT PROGRAM
We are seeking to develop a targeted contrast agent that would enable MRI to
illuminate blood clots. Such a product could potentially change the diagnostic
work-up for many of the conditions associated with thromboembolic disease,
including PE and DVT. We believe that the use of this new approach could lead to
better medical outcomes due to earlier and more definitive diagnosis. Early
diagnosis is especially important for clots in the thigh, pelvis and vena
cava:because of their increased likelihood of migrating to the lungs once inside
the pulmonary vasculature, these clots can be fatal. We believe that such a
contrast agent could eliminate the need for the CT, ultrasound and nuclear
medicine studies currently used to identify thrombotic disease, and could
potentially provide a non-invasive but clinically equivalent alternative to
pulmonary angiography. We further believe that our proprietary technology
platform could enable MRI to differentiate old and new clot formation,
potentially identifying those clots that pose the most risk to patients.
EP-862, our prototype clot-imaging agent is based on a family of highly
specific peptides that bind to fibrin, the dominant protein inside clots. The
selected peptide is linked to a proprietary gadolinium group, which for the
first time, will provide a sufficiently strong signal to allow imaging of clots
during MRI exams. In November 1999, we announced that EP-862 had been shown in
preclinical testing to
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detect sub-millimeter blood clots in an animal model. EP-862 is being further
optimized for clot imaging before human studies are initiated.
OUR BUSINESS STRATEGY
Our objective is to become a worldwide leader in MRI contrast agents by
pursuing a strategy based on commercializing MS-325 and developing new
applications for our proprietary technology platform. Our key business
objectives are to:
ESTABLISH THE SAFETY AND CLINICAL UTILITY OF MS-325 FOR MULTIPLE
CARDIOVASCULAR IMAGING INDICATIONS. In June 1999, we initiated a Phase III
clinical trial to determine the efficacy of MS-325-enhanced MR angiography
for the detection of aortoiliac occlusive disease. We continue to enroll
patients in our Phase II feasibility trial to assess the safety and
preliminary efficacy of MS-325-enhanced MR angiography for the evaluation of
coronary artery disease. In each of these clinical trials, we compared
MS-325-enhanced MR angiography to X-ray angiography, the current reference
standard for these indications. In addition, we are currently conducting
preclinical studies for such applications as myocardial perfusion imaging
and MRI-guided stent placement.
ESTABLISH THE CLINICAL UTILITY OF MS-325 BEYOND CARDIOVASCULAR
IMAGING. We are committed to leveraging the unique diagnostic properties of
MS-325 across as many clinical applications as possible. We are therefore
seeking to establish the clinical utility of MS-325-enhanced MRI in
diagnosing many conditions other than cardiovascular disease. We recently
completed enrollment for a Phase II feasibility study designed to evaluate
the safety and efficacy of MS-325-enhanced MRI in identifying malignant
breast lesions in women with breast abnormalities. We have also undertaken a
Phase II feasibility trial, in conjunction with Pfizer Inc., to assess the
potential utility of MS-325-enhanced MRI in diagnosing female sexual arousal
dysfunction by monitoring pelvic blood volume in women. We are currently
conducting preclinical studies to evaluate the potential use of
MS-325-enhanced MRI for such applications as: diagnosis/monitoring of
muscular dystrophy, lymphatic imaging, migraine imaging and diagnosis of
diabetic angiopathy.
DEVELOP EP-862 FOR THROMBOEMBOLIC DISEASE IMAGING. We are currently
developing thrombosis-specific MRI contrast agents based on its proprietary
technology platform. In November 1999, we announced that our prototype clot
imaging agent, EP-862, had been shown in preclinical testing to detect
sub-millimeter blood clots.
MAXIMIZE THE VALUE OF STRATEGIC ALLIANCES. At the end of June 2000, we
had established collaborations with Schering AG, Mallinckrodt, Daiichi,
General Electric Medical Systems, Philips Medical Systems, Siemens, and
Pfizer. We entered into these alliances, and will seek to enter into future
strategic alliances with pharmaceutical, imaging agent and MRI equipment
industry leaders, in order to obtain access to resources and infrastructure
to leverage our strengths.
STRATEGIC ALLIANCES
Our strategy includes entering into alliances with leaders in the
pharmaceutical, diagnostic imaging and MRI equipment industries to facilitate
the development, manufacture, marketing, sale and distribution of our products.
To date, we have formed strategic alliances with Schering AG, Mallinckrodt,
Daiichi, General Electric Medical Systems, Philips Medical Systems, Siemens, and
Pfizer.
CO-DEVELOPMENT, SALES & MARKETING
SCHERING AG
In June 2000, we entered into a strategic collaboration agreement pursuant
to which we granted Schering AG an exclusive license to co-develop and market
MS-325 worldwide, exclusive of Japan.
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Generally, both of us will share equally in MS-325 costs and profits. Under the
agreement, we will assume responsibility for completing clinical trials and
filing for Food and Drug Administration approval in the United States and
Schering AG will lead clinical activities for the product outside the United
States. In addition, we granted Schering AG an exclusive option to develop and
market a cardiovascular MRI blood pool agent from our pipeline. In connection
with this strategic collaboration, Schering AG paid an up front fee of $10
million and made a $20 million dollar equity investment in us at $17.98 per
share. We may receive up to an additional $20 million under this agreement in
milestones. Under the agreement, we also have the option to participate in the
development and marketing of two Schering AG products currently in clinical
trials, SHU555C and Gadomer-17. Schering AG will fund the development costs of
SHU555C. We can obtain a royalty from the worldwide sales of SHU555C through the
payment of an upfront fee upon certain conditions related to the marketing
approval of SHU555C and MS-325. We also have the exclusive rights to worldwide
co-development and profit-sharing for Gadomer-17. After completion of
Schering AG-funded Phase II studies, we may exercise this right through payment
of an up-front fee and milestone payments. We will share the development costs
and profits of Gadomer-17 equally with Schering AG. Our agreement will remain in
effect as long as Schering AG is selling our products in any area to which they
are entitled to distribution. The agreement may be terminated by either party
upon thirty days notice if there is a material breach of the contract or if
either party fails to meet certain milestones. In addition, Schering AG may
terminate the agreement at any time on a region-by-region basis or in its
entirety, upon six months written notice to us; and we may terminate the
agreement with respect to development of MS-325 in the European Union at any
time after June 9, 2001 upon ninety days written notice to Schering AG, if
Schering AG has failed to meet its obligations in connection with the regulatory
approval of MS-325 in the European Union.
DAIICHI
In March 1996, we entered into a development and license agreement with
Daiichi pursuant to which we granted Daiichi an exclusive license to develop and
commercialize MS-325 in Japan. Under this arrangement, Daiichi will assume
primary responsibility for clinical development, regulatory approval, marketing
and distribution of MS-325 in Japan. We retained the right and obligation to
manufacture MS-325 for development activities and commercial sale under the
agreement. However, Daiichi may, under certain circumstances, elect to formulate
MS-325 purchased from us into a final product. The agreement imposes certain
development due diligence obligations on both parties and marketing due
diligence obligations on Daiichi. The agreement may be terminated by Daiichi
upon 30 days prior written notice if Daiichi determines in its reasonable
opinion that MS-325 lacks clinical efficacy, presents serious side effects or
otherwise exhibits unacceptable properties. In connection with this strategic
alliance, we received an up-front fee from Daiichi in the amount of $3.0 million
and earned a $900,000 milestone payment in June 1997. Daiichi will be required
to make future payments to us up to an aggregate amount of $2.4 million upon the
achievement of certain MS-325 development milestones. Daiichi also made a
$5.0 million equity investment in us and is required to make royalty payments to
us on net sales of MS-325 in Japan.
MANUFACTURING
MALLINCKRODT
In June 2000, we amended our strategic collaboration with Mallinckrodt to
grant Mallinckrodt a non-exclusive, worldwide license to manufacture MS-325 for
clinical development and commercial use in accordance with a manufacturing
agreement entered into in June 2000 between Mallinckrodt and Schering AG, and to
enable us to enter into the agreement with Schering AG. In connection with this
amendment, we paid Mallinckrodt an up-front fee of $10 million and may pay up to
an additional
26
$5 million in milestones. We will also pay Mallinckrodt a share of operating
margins in the US and a royalty on gross profits outside the US.
MRI EQUIPMENT MANUFACTURERS
To date, we have formed collaborations with the three major MRI scanner
manufacturers, General Electric Medical Systems, Philips Medical Systems and
Siemens, to develop advanced imaging techniques designed to facilitate the use
of MS-325-enhanced MRI. We believe it is extremely important to collaborate with
equipment manufacturers to develop MRI techniques capable of taking full
advantage of the unique properties of MS-325 to diagnose cardiovascular disease.
GENERAL ELECTRIC MEDICAL SYSTEMS
In January 1998, we announced the formation of a collaboration with General
Electric Medical Systems to accelerate the development of cardiovascular MRI. In
particular, the collaboration focuses on reducing the effects of cardiac motion
on MR images, providing user-friendly computer tools as a means of visualizing
arteries and veins in 3-dimensional space, and optimizing MRI sequences for
intravascular MRI contrast agents, including MS-325. Under the terms of this
non-exclusive agreement, research is performed at several centers in addition to
our facilities, including General Electric's corporate research facility in
Schenectady, NY; General Electric Medical Research in Milwaukee, WI; the
National Institute of Health and several academic centers.
PHILIPS MEDICAL SYSTEMS
In November 1998, we agreed with Philips Medical Systems to collaborate in
advancing the development of contrast-based cardiovascular MRI technologies.
Under the terms of this non-exclusive collaboration agreement, the companies
will combine their resources to optimize imaging technology and improve
3-dimensional visualization of arteries and veins in patients undergoing MR
angiography. Research and development is to be carried out at several
international Philips research centers, as well as at our facilities.
SIEMENS
In September 1999, we announced a non-exclusive collaboration with Siemens
to optimize MR imaging technology and improve visualization of arteries and
veins in patients undergoing MR angiography. The collaboration will also focus
on expanding the use of MRI in diagnosing cardiovascular disease and providing
user-friendly tools for easy visualization of the cardiovascular system in
3-dimensional space. Research and development will be carried out at our
facilities and at Siemens' Iselin, NJ facilities.
NEW APPLICATIONS
PFIZER
In September 1998, we and Pfizer entered into an exclusive agreement to
explore the potential utility of MS-325-enhanced MRI in the diagnosis of female
sexual arousal dysfunction. As part of this collaboration, we and Pfizer
undertook a Phase II feasibility trial to explore the efficacy of
MS-325-enhanced MRI in the detection and monitoring of female sexual arousal
dysfunction. Under the terms of this collaboration, Pfizer has full
responsibility for funding the trial. Pfizer currently markets
Viagra-Registered Trademark- for erectile dysfunction in men.
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TECHNOLOGY PLATFORM
Our product candidates are small molecule chelates (soluble metal-organic
complexes) containing a magnetically active metal element, gadolinium, which
elicits a strong MRI signal. The design of these molecules derives from the
unique and highly complex intersection of chemistry, pharmacology, and
biophysics. Our compounds must be safe, excretable from the body, and display a
useful distribution pattern in the body. At the same time, these agents must
elicit the strongest possible effect on the local magnetic properties of tissue.
Our scientists specialize in discovering and patenting useful ways to combine
these two disparate areas of investigation. Specifically, we believe our ability
to design targeted MRI contrast agents is a result of our expertise in three
areas:
TARGETING
We develop metal complexes that are engineered to bind to particular
proteins and receptor molecules in the body. This binding causes increased
concentration and retention of the contrast agent in the specific tissues and
fluids that contain the targeted receptor molecules. The challenge in designing
such agents is two-fold: one must both choose the best target--the protein or
cell type that most precisely characterizes the relevant disease state--and
identify a targeting region that binds to that target without binding to other
molecules in the body. The targeting region of MS-325, for example, is designed
to bind selectively to albumin, the most common blood protein, which keeps the
agent localized within the bloodstream. For EP-862, we have used combinatorial
chemistry technology to select a family of highly specific peptides which bind
to fibrin, the dominant protein inside clots, without binding to fibrinogen, a
similar, but far more common protein in blood. We have considerable expertise in
peptide synthesis and in labeling the peptides with strongly enhancing clusters
of gadolinium.
MRI SIGNAL GENERATION
A key part of our biophysical technology platform is receptor-induced
magnetic enhancement, or RIME. RIME was developed by Dr. Randall Lauffer, our
founder and Chief Scientific Officer, while at Massachusetts General Hospital,
and is now exclusively licensed by us under patents held by the Massachusetts
General Hospital. The binding of a RIME agent to its receptor reduces the rate
at which the agent rotates, in solution. This reduction in rotation rate leads
to a complex magnetic effect whereby the agent's signal-enhancing
characteristics are substantially increased, resulting in a stronger signal
during MR scans. For MS-325, RIME effects result in an up to 10-fold increase in
signal relative to non-specific gadolinium agents. We also have technology for
the synthesis of discrete, compact clusters of gadolinium chelates to increase
the signal from a single targeting molecule. This involves challenges in both
chemistry and biophysics to maintain the RIME effect.
IMAGE ACQUISITION AND 3-D VISUALIZATION
We have also developed significant expertise in the translation of raw MRI
data into clinically useful 3-dimensional images. MRI is the most flexible of
the major medical imaging modalities. The hardware and software of most MRI
scanners allow an enormous range of acquisition methods, and, increasingly,
methods for displaying and interpreting the resulting medical images. Through
our research and development, extensive academic collaborations and industrial
partnerships, we have built a deep understanding of the relationships between
the contrast agent biophysics, scanner engineering, and medical practice. Our
expertise allows us not only to create the best images for the agents we have
already designed, but is critical for optimizing the usefulness of future MRI
agents.
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COMPETITION
The healthcare industry is characterized by extensive research efforts and
rapid technological change, and there are many companies that are working to
develop products similar to ours. There are currently no FDA-approved targeted
vascular contrast agents for use with MRI. However, there are a number of
non-specific MRI agents approved for marketing in the United States and in
certain foreign markets that are likely to compete with MS-325 if approved for
MR angiography. Magnevist-Registered Trademark- by Schering-AG,
Dotarem-Registered Trademark- by Guerbet, S.A., Omniscan-Registered Trademark-
by Nycomed Imaging ASA ("Nycomed"), ProHance-Registered Trademark- by Bracco
S.p.A. ("Bracco") and OptiMARK-Registered Trademark- by Mallinckrodt are all
such products. We are aware of three competing agents under clinical
development, Nyomed's NC100150, Schering AG's Gadomer-17 and SHU555C, that are
being evaluated for use in MR angiography. We believe two additional MRI
contrast agents, Bracco's B-22956/1 and Advanced Magnetics' Code 7228 may be in
preclinical testing for this indication. We are aware of no MRI contrast agent
other than EP-862 that is being developed for use in imaging blood clots. We can
not assure you that our competitors will not succeed in the future in developing
products that are more effective than any that are being developed by us. We
believe that our ability to compete within the MRI contrast agent market is
dependent on a number of factors, including the success and timeliness with
which we complete FDA trials, the breadth of applications, if any, for which our
products receive approval, and the effectiveness, cost, safety and ease of use
of our products in comparison to the products of our competitors. Our success
will also be based on physician acceptance of MRI as a primary imaging modality
for certain cardiovascular and other applications.
We have many competitors, including pharmaceutical, biotechnology and
chemical companies. A number of competitors, including two of our strategic
partners, are actively developing and marketing products that, if
commercialized, would compete with our product candidates. Many of these
competitors have substantially greater capital and other resources than we do
and may represent significant competition for us. Such companies may succeed in
developing technologies and products that are more effective or less costly than
any of those that may be developed by us, and such companies may be more
successful than us in developing, manufacturing and marketing products.
Furthermore, there are several well-established medical imaging modalities that
currently compete, and will continue to compete, with MRI, including X-ray
angiography, CT, nuclear medicine and ultrasound. Other companies are actively
developing the capabilities of the competing modalities to enhance their
effectiveness in cardiovascular system imaging. For example, we are aware of at
least one radiopharmaceutical agent, Schering AG's AcuTect, which has been
approved for imaging acute venous thrombosis. Several other nuclear medicine
agents, including Draxis Health's FibrImage and Schering AG's P748, are in
clinical testing for DVT and PE, respectively. We believe another
radiopharmaceutical under clinical development by Schering AG, P-773, is being
investigated for use in imaging atherosclerotic plaque. In addition, while no
ultrasound contrast agent has yet been approved for myocardial perfusion
imaging, several of these agents are undergoing clinical testing for this
indication, including Molecular Biosystems' Optison, DuPont's Definity, Alliance
Pharmaceutical's Imagent, Nycomed's Sonazoid, and Sonus Pharmaceuticals'
Echogen. Finally, we are aware of one ultrasound agent, ImaRx's MRX-408, under
preclinical development for imaging DVT. We cannot guarantee that we will be
able to compete successfully in the future or that developments by others will
not render MS-325, EP-862 or our future product candidates obsolete or
non-competitive or that our collaborators or customers will not choose to use
competing technologies or products.
PATENTS AND PROPRIETARY RIGHTS
We consider the protection of our proprietary technologies to be material to
our business prospects. We pursue a comprehensive patent program in the United
States and in other countries where we believe that significant market
opportunities exist.
29
We own or have exclusively licensed patents and patent applications on the
critical aspects of our core technology as well as many specific applications of
this technology. Our patents and applications covering RIME technology consist
of the following:
- Seven U.S. patents exclusively licensed from MGH as well as their cognate
patents and applications in foreign countries.
- Two U.S. patents owned by us as well as their cognate patents and
applications in foreign countries.
- Seven applications in prosecution on seven different subject matters as
well as their cognate patents and applications in foreign countries.
Our two U.S. patents which broadly cover RIME technology, albumin binding
with metal chelates, and liver targeting metal chelates, have been issued a
patent in Europe similar to those United States patents, and have received
notice of allowance for a similar patent application in Japan. These two United
States patents were involved in an interference proceeding with an application
owned by Mallinckrodt, but the interference was terminated in our favor. Our
Japanese patent application has been opposed by several parties. The sole issue
in these proceedings is whether the Japanese Patent Office should have granted
and/or allowed patents to us. The Japanese Patent Office has issued a final
rejection of the Japanese patent application. A Notice of Appeal was filed in
the Japanese Patent Office on May 9, 1999, but the case has not yet been
assigned to an Examiner.
In addition, third parties have sought, in an Italian court, a declaration
of non-infringement of our European patent. Those third parties seek transborder
application of a non-infringement declaration in those European countries where
our European patent is in force. The third parties also seek to invalidate the
Italian portion of the patent. The complaint was filed on February 23, 1999 in
the Court of Milan, Italy. There is no potential liability, other than court
costs, to us in this suit. This case is in the early pretrial stage. The parties
had previously sued the General Hospital Corporation (hereinafter "the
Hospital"), the assignee of the patent, in Italy seeking to invalidate the
Italian portion of the same patent. The complaint was filed on October 20, 1998
in the Court of Milan, Italy. The sole issue in this case is whether the Italian
portion of the patent is valid. This case was consolidated with the second
Italian action, discussed above. The same parties have also sued the Hospital in
the United Kingdom (Patents Court, London) seeking a declaration of invalidity
of the UK portion of the Hospital's patent. The appeals court in the United
Kingdom has affirmed a stay of the proceedings pending the final outcome of the
Opposition Proceedings in the European Patent Office. There is no potential
liability to us, except court and legal costs in this case. On May 9, 2000, the
European Patent Office maintained the validity of the European patent in a
slightly amended form. On May 7, 2000, we granted to Schering AG, one of the
opposing parties, a worldwide, royalty-bearing license to the European patent.
The remaining opposing parties can elect to appeal the May 9, 2000 decision. In
addition, we and the Hospital have continued two patent infringement actions in
Europe. In these actions, in France and Germany, we and the Hospital seek to
enforce the European patent against the same parties seeking non-infringement
and invalidity judgments. We, together with the Hospital, seek both injunctive
relief and damages in these actions. In Germany, the case is stayed pending a
decision on jurisdiction in Italy. In France, the case is in the early pretrial
stage. These oppositions, appeals relating thereto and the European proceedings,
will likely take several years to finally resolve.
While we believe that we will prevail in these proceedings, there can be no
assurance as to the scope of the claims that will be maintained, if any, or the
ultimate benefit, if any, of those claims to us in protecting our products.
We have exclusively licensed five additional patents in the United States.
These patents have counterpart patent applications pending in Japan and Europe.
We have also received an additional United States patent covering novel metal
chelates and have a counterpart parent application pending
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in Japan. Finally, we have patent applications pending in the United States,
Japan and Europe covering various aspects of our RIME technology. We have
received a patent in the United States covering the process by which MS-325 is
manufactured (U.S. Patent Number 5,919,967; granted July 6, 1999; expires
June 11, 2017). Our patent protection for MS-325 currently extends to 2006 in
the United States and Europe. If the currently pending patent applications
issue, this protection will be extended until 2015. Protection for the
manufacturing process in the United States is already extended until 2017, and
will be extended until 2016 in Europe and Japan if the currently pending patent
applications issue. In addition, during 1999 and early 2000 we filed four new
patent applications for additional products and processes involving compounds,
compositions, and methods for imaging.
An issued patent grants to the owner the right to exclude others from
practicing inventions claimed therein. In the United States, a patent filed
before June 8, 1995 is enforceable for 17 years from the date of issuance or
20 years from the deemed date of filing the underlying patent applications,
whichever is longer. Patents based on applications filed from June 8, 1995
expire 20 years from the deemed date. The General Agreement on Tariffs and Trade
provides that patents whose applications were filed on or after June 8, 1995 are
effective for 20 years from filing. This new rule is generally regarded as
unfavorable to pharmaceutical companies, where the time period between patent
filing and commercialization of the patented product may be extended many years
because of the lengthy development cycle and regulatory process.
The patent positions of pharmaceutical and biopharmaceutical firms involve
complex legal and factual questions. There can be no assurance that our issued
patents, or any patents that may be issued in the future, will effectively
protect our technology or provide a competitive advantage. There can be no
assurance that any of our patents or patent applications will not be challenged,
invalidated or circumvented in the future.
Our commercial success will also depend on our ability to operate without
infringing upon the patents of others in the United States and abroad. If any
third-party patents are upheld as valid and enforceable in any judicial or
administrative proceeding, we could be prevented from practicing the subject
matter claimed in such patents, or would be required to obtain licenses from the
patent owners of each such patent, or to redesign our products or processes, to
avoid infringement. There can be no assurance that such licenses would be
available or, if available, would be available on terms acceptable to us or that
we would be successful in any attempt to redesign our products or processes to
avoid infringement. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have a material
adverse effect on our business, financial condition and results of operations.
There may be pending or issued patents, held by parties not affiliated with
us, relating to technologies used by us in the development or use of certain of
our product candidates. There can be no assurance that our current or future
activities will not be challenged, that additional patents will not be issued
containing claims materially constraining our proposed activities, that we will
not be required to obtain licenses from third parties, or that we will not
become involved in costly, time-consuming litigation regarding patents in the
field of contrast agents, including actions brought to challenge or invalidate
our own patent rights. At the same time, we are aware of certain products under
development by others which we believe may infringe certain of our exclusively
licensed patents. We have commenced and/or expect to commence litigation in
various European countries against other third parties for infringing our
European patent. These litigations will likely take several years to finally
resolve. We are pursuing license or cross-license arrangements with or, if
necessary and appropriate, are continuing infringement proceedings against,
these parties. In this regard, on May 7, 2000, we granted to Schering AG a
worldwide royalty-bearing license to our patents covering Schering AG's
development project, eovist injection, an MRI contrast agent for imaging the
liver. Also on May 7, 2000, Schering AG granted us a non-exclusive
royalty-bearing license to its Japanese patents, 1,932,626,
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1,968,413 and its Japanese Application, WO99/16474. We have agreed to withdraw
our invalidation claim of Shering AG's Japanese patent, 1,932,626 in the
Japanese Patent Office pursuant to this license agreement. While we believe that
we will prevail in these litigations, there can be no assurance as to the
outcome or the scope of any injunctive or monetary relief we may recover. We
also intend to pursue license or cross-license arrangements with or, if
necessary and appropriate, infringement proceedings against, these parties upon
their seeking final regulatory approval for the marketing and sale of any such
products.
Many of our competitors are continuing to actively pursue patent protection
for activities and discoveries similar to ours. There can be no assurance that
these competitors, many of which have substantially greater resources than us
and have made substantial investments in competing technologies, will not in the
future seek to assert that our products or chemical processes infringe their
existing patents and/or will not seek new patents that claim to cover aspects of
our technology. Furthermore, patent applications in the United States are
maintained in secrecy until patents issue, and patent applications in foreign
countries are maintained in secrecy for a specified period after filing.
Publication of discoveries in the scientific or patent literature tends to lag
behind actual discoveries and the filing of related patent applications. In
addition, patents issued and patent applications filed relating to
biopharmaceuticals are numerous. Therefore, there can be no assurance that we
are aware of all competitive patents, either pending or issued, that relate to
products or processes used or proposed to be used by us.
We and MGH have entered into a license agreement pursuant to which MGH has
granted us an exclusive worldwide license to the patents and patent
applications, which relate to our only product candidate, MS-325. The MGH
license imposed certain due diligence obligations with respect to the
development of products covered by the license, all of which have been fulfilled
to date. The MGH license requires us to pay royalties on our net sales of
MS-325. We must also pay MGH a percentage of all royalties received from our
sublicensees. Accordingly, we will be required to make payments to MGH on
profits generated under the Schering collaboration, if any, and on royalties
received from Daiichi under our license agreement, if any. Our failure to comply
with these requirements could result in the conversion of the license from being
exclusive to non-exclusive in nature or termination of the license agreement
itself. Any such event would have a material adverse effect on our business,
financial condition and results of operations.
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation may be necessary to enforce any patents issued to us and/or determine
the scope and validity of others' proprietary rights. We may have to participate
in interference proceedings declared by the United States Patent and Trademark
Office or by foreign agencies to determine the priority of inventions. Any
involvement in litigation surrounding these issues could result in extensive
costs to us as well as be a significant distraction for management. Such costs
could have a material adverse effect on our business, financial condition and
results of operations.
We also rely upon trade secrets, technical know-how, and continuing
technological innovation to develop and maintain our competitive position. We
typically require our employees, consultants, and advisors to execute
confidentiality and assignment of invention agreements in connection with their
employment, consulting or advisory relationships with us. These agreements
require disclosure and assignment to us of ideas, developments, discoveries and
inventions made by employees, consultants and advisors. There can be no
assurance, however, that these agreements will not be breached or that we will
have adequate remedies for any breach. Furthermore, no assurance can be given
that competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our
proprietary technology, or that we can meaningfully protect our rights in
unpatented proprietary technology.
32
We intend to vigorously protect and defend our intellectual property. Costly
and time-consuming litigation brought by us may be necessary to enforce our
issued patents, to protect our trade secrets or know-how owned by us, or to
determine the enforceability, scope, and validity of the proprietary rights of
others.
MANUFACTURING
We currently manufacture, as part of our ongoing development efforts, small
non-GMP (good manufacturing practices as promulgated by the FDA) batches of
MS-325 in our laboratories located in Cambridge, Massachusetts. MS-325 for use
in preclinical and Phase I and II clinical trials has been manufactured in
accordance with GMP by outside contractors. As part of its strategic alliance
with the Company, Mallinckrodt will serve as primary manufacturer for MS-325
thereafter worldwide except for Japan and, possibly, for Japan. If Mallinckrodt
is unable to produce MS-325 in adequate amounts and at a reasonable cost or to
comply with any applicable regulations, including GMP, it could have a material
adverse effect on our business, financial condition and results of operations.
Furthermore, should Mallinckrodt fail to fulfill its manufacturing
responsibilities satisfactorily, Schering AG could be forced to manufacture the
compound itself, or to find an alternative manufacturer. We can not assure you
that Schering AG would be able to find such an alternative manufacturer or
manufacture MS-325 in a timely manner. If we experience a delay in manufacturing
it could result in a delay in the approval or commercialization of MS-325. We
currently procure the raw materials for the various components of MS-325 from a
broad variety of vendors and, wherever possible, maintain relationships with
multiple vendors for each component. There are a number of components of MS-325
for which the largest suppliers may have significant control over the market
price due to controlling market shares. If any one of our suppliers decided to
increase prices significantly or reduce quantities of any component of MS-325
available for sale to us, it could have a material adverse effect on our ability
to commercialize MS-325 and on our business, financial condition and results of
operations. See "--Strategic Alliances."
GOVERNMENT REGULATION
The manufacture and commercial distribution of our product candidates are
subject to extensive governmental regulation in the United States and other
countries. Pharmaceuticals, including contrast-imaging agents for use with MRI,
are regulated in the United States by the FDA under the Food, Drug and Cosmetic
Act ("FD&C Act") and require FDA approval prior to commercial distribution.
Pursuant to the FD&C Act, pharmaceutical manufacturers and distributors must be
registered with the FDA and are subject to ongoing FDA regulation, including
periodic FDA inspection of their facilities and review of their operating
procedures. Noncompliance with applicable requirements can result in failure to
receive approval, withdrawal of approval, total or partial suspension of
production, fines, injunctions, civil penalties, recalls or seizure of products
and criminal prosecution, each of which would have a material adverse effect on
our business, financial conditions and results of operations.
In order to undertake clinical trials and market pharmaceutical products for
diagnostic or therapeutic use in humans, the procedures and safety standards
established by the FDA and comparable agencies in foreign countries must be
followed. In the United States, a company seeking approval to market a new
pharmaceutical must obtain FDA approval of a new drug application ("NDA").
Before an NDA may be filed, however, a certain procedure is typically followed.
This includes: (i) performance of preclinical laboratory and animal studies;
(ii) submission to the FDA of an application for an investigational new drug
application ("IND"), which must become effective before human clinical trials
may commence; (iii) completion of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the pharmaceutical for its
intended use; (iv) submission to the FDA of an NDA; and (v) approval of the NDA
by the FDA prior to any commercial sale or shipment of the agent.
33
Preclinical studies include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the preclinical studies and the protocol for the
proposed clinical trial are submitted to the FDA as part of an IND, and unless
the FDA objects, the IND will become effective 30 days following its receipt by
the FDA.
Clinical trials under the IND are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
pharmaceutical into humans, the pharmaceutical is tested for safety, dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology in
healthy adult subjects. Phase II involves a detailed evaluation of the safety
and efficacy of the agent in a range of doses in patients with the disease or
condition being studied. Phase III clinical trials typically consist of
evaluation of safety and efficacy in a larger patient population and at more
institutions.
The process of completing clinical testing and obtaining FDA approval for a
new product is likely to take a number of years. When the study for a particular
indication as described in the IND is complete, and assuming that the results
support the safety and efficacy of the product for that indication, an NDA is
submitted to the FDA. The NDA approval process can be expensive, uncertain and
lengthy. Although the FDA is supposed to complete its review of an NDA within
180 days of the date that it is filed, the review time is often significantly
extended by the FDA, which may require more information or clarification of
information already provided in the NDA. During the review period, an FDA
advisory committee likely will be asked to review and evaluate the application
and provide recommendations to the FDA about approval of the pharmaceutical. In
addition, the FDA will inspect the facility at which the pharmaceutical is
manufactured to ensure compliance with GMP and other applicable regulations.
Failure of the third-party manufacturers to comply or come into compliance with
GMP requirements could significantly delay FDA approval of the NDA. The FDA may
grant an unconditional approval of an agent for a particular indication or may
grant approval conditioned on further post-marketing testing and/or surveillance
programs to monitor the agent's efficacy and side effects. Results of these
post-marketing programs may prevent or limit the further marketing of the agent.
In addition, further studies and a supplement to the initially approved NDA will
be required to gain approval for the use of an approved product in indications
other than those for which the NDA was approved initially.
After an NDA is approved, we would continue to be subject to pervasive and
continuing regulation by the FDA, including record keeping requirements,
reporting of adverse experience from the use of the agent and other requirements
imposed by the FDA. FDA regulations also require FDA approval of an NDA
supplement for certain changes if they affect the safety and efficacy of the
pharmaceutical, including, but not limited to, new indications for use, labeling
changes, the use of a different facility to manufacture, process or package the
product, changes in manufacturing methods or quality control systems and changes
in specifications for the product. Failure by us to receive approval of an NDA
supplement could have a material adverse effect on our business, financial
condition and results of operations.
The advertising of most FDA-regulated products is subject to FDA and Federal
Trade Commission jurisdiction, but the FDA has sole jurisdiction over
advertisements for prescription drugs. We are and may be subject to regulation
under state and Federal law regarding occupational safety, laboratory practices,
handling of chemicals, environmental protection and hazardous substance control.
We also will be subject to other present and possible future local, state,
federal and foreign regulation. Failure to comply with regulatory requirements
could have a material adverse effect on our business, financial condition and
results of operations.
Approval and marketing of pharmaceutical products outside of the United
States are subject to regulatory requirements that vary widely from country to
country. In the European Union ("EU"), the general trend has been towards
coordination of common standards for clinical testing of new agents, leading to
changes in various requirements imposed by each EU country. The level of
regulation in the
34
EU and other foreign jurisdictions varies widely. The time required to obtain
regulatory approval from comparable regulatory agencies in each foreign country
may be longer or shorter than that required for FDA approval. In addition, in
certain foreign markets we may be subject to governmentally mandated prices for
our products.
Our research, development and manufacturing processes require the use of
hazardous substances and testing on certain laboratory animals. As a result, we
are also subject to federal, state, and local laws, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and waste as well as the
use of and care of laboratory animals. These laws and regulations are all
subject to change. We cannot predict what impact, if any, such changes might
have on our business, financial condition or results of operations.
REIMBURSEMENT
We expect that sales volumes and prices of our products will be dependent in
large measure on the availability of reimbursement from third-party payors and
that individuals seldom would be willing or able to pay directly for all the
costs associated with procedures which in the future may incorporate the use of
our products. Most of these third-party payors provide coverage for MRI for some
indications when it is medically necessary, but the amount that a third-party
payor will pay for MRI may not include a separate payment for a contrast imaging
agent that is used with MRI. Reimbursement rates vary depending on the procedure
performed, the third-party payor, the type of insurance plan and other factors.
Third-party payors carefully review and increasingly challenge the prices
charged for procedures and medical products. In the past few years, the amounts
paid for radiology procedures in particular have come under careful scrutiny and
have been subject to decreasing reimbursement rates. In addition, an increasing
percentage of insured individuals are receiving their medical care through MCOs
which monitor and often require preapproval of the services that a member will
receive. Many MCOs are paying their providers on a capitated basis which puts
the providers at financial risk for the services provided to their patients by
paying them a predetermined payment per member per month. The percentage of
individuals, including Medicare beneficiaries, covered by MCOs is expected to
grow in the United States over the next decade. We believe that the managed care
approach to healthcare and the growth in capitated arrangements and other
arrangements under which the providers are at financial risk for the services
that are provided to their patients will facilitate the market acceptance of our
products, as we believe that the use of our products will significantly lower
the overall costs and improve the effectiveness of managing patient populations.
We can not assure you, however, that our products will be available, will lower
costs of care for any patients or that providers will choose to utilize them
even if they do, or if reimbursement will be available.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans and labor
unions. We may need to seek international reimbursement approvals, although we
can not assure you that any such approvals will be obtained in a timely manner
or at all. Failure to receive international reimbursement approvals could have a
material adverse effect on market acceptance of our product candidates in the
international markets in which such approvals are sought.
We believe that reimbursement in the future will be subject to increased
restrictions such as those described above, both in the United States and in
foreign markets. We believe that the overall escalating cost of medical products
and services has led to, and will continue to lead to, increased pressures on
the health care industry, both foreign and domestic, to reduce the cost of
products and services, including products offered by the Company. We can not
assure you, in either the United States or foreign markets, that third party
reimbursement will be available or adequate, that current reimbursement amounts
will not be decreased in the future or that future legislation, regulation, or
35
reimbursement policies of third-party payors will not otherwise adversely affect
the demand for our product candidates or our ability to sell our product
candidates on a profitable basis, particularly if MRI exams enhanced with our
contrast agents are more expensive than competing vascular imaging techniques
that are equally effective. The unavailability or inadequacy of third-party
payor coverage or reimbursement could have a material adverse effect on our
business, financial condition and results of operations.
PROPERTIES
We lease a total of 17,050 square feet of space at 71 Rogers Street and
adjacent locations, and 13,310 square feet at 161 First Street, all in
Cambridge, Massachusetts. The current lease at 71 Rogers Street and adjacent
locations runs until December 31, 2002, and we have an option to extend the
lease for an additional three or five years. During 1999, we extended our lease
at 161 First Street through December 31, 2002. We believe that our current
facilities and currently available space are adequate to meet our requirements
for the foreseeable future.
EMPLOYEES
As of June 30, 2000 we employed 78 persons on a full-time basis, of which 64
were involved in research and development and 14 in administration and general
management. Twenty-three of our employees hold Ph.D. or M.D. degrees. We believe
that our relations are good with all of our employees. None of our employees are
a party to a collective bargaining agreement.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
PLAN OF DISTRIBUTION
We may offer the common stock:
- directly to purchasers;
- to or through underwriters;
- through dealers, agents or institutional investors; or
- through a combination of such methods.
Regardless of the method used to sell the common stock, we will provide a
prospectus supplement that will disclose:
- the identity of any underwriters, dealers, agents or investors who
purchase the common stock;
- the material terms of the distribution, including the number of shares
sold and the consideration paid;
- the amount of any compensation, discounts or commissions to be received by
the underwriters, dealers or agents;
- the terms of any indemnification provisions, including indemnification
from liabilities under the federal securities laws; and
- the nature of any transaction by an underwriter, dealer or agent during
the offering that is intended to stabilize or maintain the market price of
the common stock.
36
LEGAL MATTERS
The validity of the issuance of the common stock offered in this prospectus
is being passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., Boston, Massachusetts.
EXPERTS
The financial statements of EPIX Medical, Inc. included in EPIX Medical,
Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1999, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying a fee for the
copying cost. Please call the SEC at 1-800-SEC-0330 for more information about
the operation of the public reference room. Our SEC filings are also available
to the public at the SEC's web site at "http://www.sec.gov." In addition, our
stock is listed for trading on the Nasdaq National Market. You can read and copy
reports and other information concerning us at the offices of the National
Association of Securities Dealers, Inc. located at 1735 K Street, Washington,
D.C. 20006.
This prospectus is only part of a Registration Statement on Form S-3 that we
have filed with the SEC under the Securities Act of 1933 and therefore omits
certain information contained in the Registration Statement. We have also filed
exhibits and schedules with the Registration Statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may:
- inspect a copy of the Registration Statement, including the exhibits and
schedules, without charge at the public reference room or
- obtain a copy from the SEC upon payment of the fees prescribed by the SEC.
37
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be a part of this prospectus and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the sale of all of the shares of common stock. The documents we are
incorporating by reference are:
- Our Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000;
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999;
- Our Form 8-K filed on June 29, 2000;
- Our Definitive Proxy Statement filed on March 31, 2000
You may request a copy of these filings at no cost by writing or telephoning
our Chief Executive Officer at the following address and phone number:
EPIX Medical, Inc.
71 Rogers Street
Cambridge, Massachusetts 02142
(617) 250-6000
This prospectus is part of a Registration Statement that we filed with the
SEC. You should rely only on the information incorporated by reference in or
provided in this prospectus and the Registration Statement. We have not
authorized any other person to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.
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