We are a biotechnology company working to develop and deliver life-changing drug therapies for patients with serious and life-threatening medical
conditions. We are engaged in the discovery and development of therapeutic products aimed at treating patients with a wide array of severe disease states, including hematologic diseases, cancer, and autoimmune disorders. Since our incorporation in
January 1992, we have devoted substantially all of our resources to drug discovery, research, and product and clinical development. Since September 2005, we have formed a number of wholly-owned subsidiaries to support commercial and regulatory
operations. In July 2006, we acquired a manufacturing plant in Smithfield, Rhode Island for the future commercial production of our products.
In September 2006, we filed a Biologics License Application, or BLA, with the U.S. Food and Drug Administration, or FDA, and a European Marketing
Authorization Application, or MAA, in Europe, for Soliris™ (eculizumab) for the treatment of a rare, life-threatening blood disorder known as Paroxysmal Nocturnal Hemoglobinuria, or PNH. The Phase III clinical development program for
Soliris™ (eculizumab) in PNH is comprised of two Phase III clinical trials, known as TRIUMPH and SHEPHERD. The FDA agreed to the design of the protocols for these two trials under the Special Protocol Assessment, or SPA, process. TRIUMPH is a
placebo-controlled pivotal efficacy trial and SHEPHERD is an open-label, non-placebo controlled safety trial with efficacy secondary endpoints. In January 2006, we reported positive results from TRIUMPH, and the results were later published in the
September 2006 issue of the New England Journal of Medicine. All pre-specified, primary and secondary endpoints in the TRIUMPH trial were achieved with statistical significance. In December 2006, we reported positive results from SHEPHERD.
Soliris™ (eculizumab) appeared to be safe and well tolerated during the twelve month SHEPHERD trial, and all pre-specified primary and secondary efficacy endpoints in the SHEPHERD trial were achieved with statistical significance. Data from
TRIUMPH and SHEPHERD served as the primary basis for the BLA and MAA submitted in the United States and Europe, respectively.
In November
2006, we received priority review designation for the Soliris™ (eculizumab) BLA from the FDA. Priority review status is granted by the FDA to products that, if approved, would be a significant improvement over existing therapies. Similarly, in
August 2006, we announced that our Soliris™ (eculizumab) MAA was granted accelerated assessment by the European Medicines Agency, or EMEA, in Europe. Review under the Accelerated Assessment Procedure is provided by the EMEA for medicinal
products of major therapeutic interest and shortens the timeframe for review by that agency. The granting of priority review for our BLA and accelerated assessment for our MAA does not ensure or increase the likelihood that our applications for
regulatory approval of Soliris™ (eculizumab) will be approved. In November 2006, we also announced that the EMEA had validated the Soliris MAA allowing for commencement of the review process.
In addition to our Phase III PNH clinical program, we are conducting the following activities: (1) the EMBRACE Expanded Access Trial, (2) the
EXPLORE diagnostics trial and (3) a global Patient Registry for PNH patients. The EMBRACE trial (The Paroxysmal Nocturnal Hemoglobinuria Early Access Treatment Protocol) was initiated in December 2006 to provide the investigational agent
eculizumab in the United States to PNH patients in accordance with a Treatment Protocol authorized by the FDA. Treatment Protocols are designed to make promising investigational agents available for patients with serious or life-threatening diseases
for which there are no comparable or satisfactory alternative therapies, before general marketing is authorized. We initiated the EXPLORE trial in August 2006 to investigate the frequency and clinical characteristics of undiagnosed PNH patients who
have been diagnosed with other bone marrow failure diseases such as aplastic anemia and myelodysplasia. The global PNH Patient Registry involves the study of the natural history of PNH.
In addition to PNH, we are considering the evaluation of other potential indications for Soliris™ (eculizumab) as well as other formulations of
eculizumab for additional clinical indications, and we are actively pursuing development of other antibody product candidates in early stages of development. During 2006, we completed a final Phase III trial of another product candidate known as
pexelizumab with our partner for this product, Procter & Gamble Pharmaceuticals. After reviewing results from that trial, we along with Procter & Gamble Pharmaceuticals, have determined not to pursue further development of
pexelizumab.
To date, we have not received any revenues from the sale of our products. We have incurred operating
losses since our inception. As of December 31, 2006, we had an accumulated deficit of approximately $638 million. We expect to incur substantial operating losses for the next several years due to expenses associated with product research
and development, pre-clinical studies and clinical testing, regulatory activities, manufacturing development, scale-up and commercial-scale manufacturing, pre-commercialization activities, developing a sales and marketing force, and other
infrastructure support costs. We may need to obtain additional financing to cover these costs.
In November 2006, we sold 3.45 million
shares of our common stock in a registered offering at a price to the public of $43 per share resulting in proceeds of approximately $140 million, net of underwriting discount, fees and other expenses. We intend to use the net proceeds from this
offering for general corporate purposes.
The Immune System
The human immune system defends the body from attack or invasion by infectious agents or pathogens. This is accomplished through a complex system of
proteins and cells, primarily complement proteins, antibodies and white blood cells, each with a specialized function. Under normal circumstances, complement proteins, together with antibodies and white blood cells, act to protect the body by
removing:
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harmful micro-organisms;
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cells containing foreign proteins known as antigens; and
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disease-causing combinations of antigens and antibodies known as immune complexes. When activated by stimuli, the immune system triggers a series of enzymatic and biochemical reactions called the complement cascade that results in an
inflammatory response. This inflammatory response is one of the immune system’s weapons against foreign pathogens or otherwise diseased tissue. However, under certain circumstances, the complement cascade may be activated inappropriately to
direct an inflammatory response at healthy tissue, which may result in acute and chronic inflammatory conditions.
Hematologic, autoimmune,
or inflammatory diseases in which the complement cascade is activated include:
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PNH;
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transplantation;
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Myasthenia Gravis;
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autoimmune hemolytic anemias;
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Guillain-Barre syndrome;
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rheumatoid arthritis;
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autoimmune kidney disease;
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lupus;
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inflammatory skin and muscle disorders;
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multiple sclerosis;
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antiphospholipid syndrome; and
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asthma Product Development Programs
We have focused our product development programs on anti-inflammatory therapeutics for diseases for which we believe current treatments are either non-existent or inadequate. Our lead product candidate, eculizumab, is
a genetically altered antibody known as a C5 complement inhibitor, or a C5 Inhibitor, which is designed to selectively block the production of inflammation-causing proteins in the complement cascade. We believe that selective suppression of this
immune response may provide a significant therapeutic advantage relative to existing therapies. Although we believe C5 Inhibitors may be useful in the treatment of a variety of diseases and conditions resulting from aberrant complement response, we
are currently focusing our efforts on the development of our lead product candidate, Soliris™ (eculizumab), for the treatment of PNH.
Our pipeline programs are as follows:
Product Candidate
Indication
Clinical Trial
Status (a)
Soliris™ (eculizumab)
Paroxysmal Nocturnal Hemoglobinuria (PNH)
TRIUMPH
(Phase III)
Statistically significant positive results announced January 2006
SHEPHERD
(Phase III)
Statistically significant positive results announced December, 2006
Phase III
Extension study
Enrollment ongoing
Renal Transplantation
Pre-clinical research
Autoimmune diseases
Pre-clinical research
Eculizumab (nebulized)
Asthma
Pre-clinical research
Eculizumab
(Intravitreal)
Age-Related Macular Degeneration
Pre-clinical research
CD200 Mab
CLL, Multiple Myeloma
Pre-clinical research
DC-SIGN Mab
Cancer Vaccine
Pre-clinical research
C5 Inhibitors
Complement proteins are a series of inactive proteins circulating in the blood. When activated by stimuli, including those
associated with both acute and chronic inflammatory disorders, these inactive complement proteins are split by enzymes known as convertases into activated byproducts through the complement cascade.
Some of these byproducts, notably C3b, are helpful in fighting infections and inhibiting autoimmune disorders. However, the byproducts generated by the
cleavage of C5, known as C5a and C5b-9, generally cause harmful inflammation if inappropriately or over-activated. The inflammatory byproducts of C5 cause:
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lysis, or destruction, of red blood cells that are deficient in complement inhibitors;
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activation and destruction of muscle and other tissue cells;
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activation of white blood cells;
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attraction of white blood cells;
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production of inflammatory chemicals including tumor necrosis factor-alpha;
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activation of blood vessel-lining cells called endothelial cells, allowing leakage of white blood cells into tissue;
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activation of kidney cells; and
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initiation of cell suicide programs in heart cells The following diagram illustrates the complement cascade:
Because of the generally beneficial effects of the components of the complement cascade prior to C5 and the
greater inflammatory, destructive and disease-promoting effects of the cleavage products of C5, we have identified C5 as a potentially effective anti-inflammatory drug target. Our C5 Inhibitor, eculizumab, specifically and tightly binds to C5
blocking its cleavage into harmful byproducts, which we believe may inhibit subsequent damage from the inflammatory response.
In
laboratory and animal models of human disease, we have shown that the administration of a C5 Inhibitor, as compared to placebo, has demonstrated the following:
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prevention of lysis of red blood cells;
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prevention of inflammation during cardiopulmonary bypass;
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reduction of heart tissue damage during myocardial infarction;
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reduction of brain damage in cerebral ischemia, or reduced blood flow to brain tissue;
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enhancement of survival in a model of lupus;
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preservation of kidney function in nephritis, or inflammation of kidney tissue;
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prevention and amelioration of asthmatic attacks; and
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enhancement of survival in organ transplantation models. In addition, in human clinical trials, we have shown that C5 Inhibitors may be associated with:
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reduction of red blood cell destruction, improvement in anemia, amelioration of fatigue and reduction of blood clots in PNH patients;
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reduction of an objective measure of disease activity in rheumatoid arthritis patients; and
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reduction of the incidence of proteinuria in lupus patients. C5 Inhibitor Immunotherapeutic Product Candidates
We are developing our lead C5 Inhibitor
product candidate, Soliris™ (eculizumab), for the treatment of inflammation related to chronic hematologic disorders and autoimmune disorders. The initial indication for which we are pursuing development of Soliris™ (eculizumab) is PNH.
To date, eculizumab has been observed to be reasonably well tolerated in completed clinical trials in which over 900 individuals were
treated with eculizumab; 195 of these individuals were PNH patients enrolled in trials studying PNH. Our other C5 Inhibitor, pexelizumab, has been observed to be reasonably well tolerated in completed clinical trials in which over 10,000 individuals
were treated with either pexelizumab or placebo.
Lead Eculizumab Indication
Eculizumab is a humanized antibody that blocks complement activity for one to two weeks after a single dose at the doses currently tested, and is designed
for the chronic treatment of hematologic disorders such as PNH and autoimmune diseases. Results of the two Phase III clinical trials for Soliris™ (eculizumab) in PNH showed statistically significant achievement of all primary and secondary
endpoints. We have filed for authorization to market Soliris™ (eculizumab) for PNH patients with the FDA and the EMEA in the United States and Europe, respectively. We have retained full commercial rights to Soliris™ (eculizumab)
worldwide.
About Paroxysmal Nocturnal Hemoglobinuria or PNH
We are developing eculizumab for treatment of patients afflicted with the chronic hematologic disorder, Paroxysmal Nocturnal Hemoglobinuria, or PNH. PNH
is a life-threatening, rare acquired genetic deficiency blood disorder characterized by severe anemia and risk of blood clotting, or thrombosis. Patients with PNH have an acquired genetic deficiency in certain protective proteins on the surface of
their blood cells, allowing their own complement system to attack and destroy these blood cells. Patients with PNH may suffer from chronic hemolysis, or destruction of red blood cells caused by the C5 cleavage product C5b-9. This hemolysis is
believed to lead to further clinical complications including frequent bouts of hemoglobinuria or release of blood cell hemoglobin into the urine, abdominal pain, painful swallowing, high blood pressure in the lungs, disabling fatigue, and a poor
quality of life. The red blood cell destruction may be sufficiently large that recurrent blood transfusions are necessary to support normal red blood cell function. The hemolysis in patients with PNH may be associated with severe, life-threatening
blood clots. The prevalence, or number of affected patients at any one time, has not been definitively determined but can be estimated at approximately 8,000—10,000 total patients in North America and Western Europe. Approximately one-half of
the patients with PNH die from the disease within 10-15 years of diagnosis. Currently there is no U.S. Food and Drug Administration approved therapy for PNH. In 2003, the FDA and the European Medicines Agency, or EMEA, each granted Orphan Drug
Status for the development of eculizumab in PNH.
Clinical Trials—PNH
In September 2006, we submitted a Biologics License Application, or BLA, with the U.S. Food and Drug Administration, or FDA, and a European Marketing
Authorization Application, or MAA, in Europe, for Soliris™ (eculizumab) for the treatment of PNH. Data from two clinical trials that comprised the pivotal Phase III program, known as the TRIUMPH and SHEPHERD trials, served as the primary basis
for the BLA and MAA. In July 2004, we received written confirmation from the FDA indicating agreement with the protocol designs for the TRIUMPH and SHEPHERD trials. The agreement for the Phase III program was reached under the FDA’s Special
Protocol Assessment, or SPA, process, a procedure by which the FDA provides official evaluation and guidance on proposed protocols for pivotal Phase III clinical trials. Similarly, we have obtained protocol assistance from the EMEA with respect to
the pivotal Phase III PNH program in Europe. Prior to submission of the BLA and MAA for Soliris™ (eculizumab) in PNH, we also presented and discussed available Phase III results with the FDA and EMEA. In 2003, the FDA and the EMEA granted
Orphan Drug designation for the development of Soliris™ (eculizumab) in PNH. We retain all rights to eculizumab in all indications worldwide.
On January 26, 2006, we reported positive results with Soliris™ (eculizumab) in the pivotal Phase III TRIUMPH trial in PNH patients and published the trial results in the September 20, 2006 issue of the New England Journal of
Medicine. TRIUMPH is a double-blind, randomized, placebo-controlled multi-center pivotal Phase III trial, examining the effects of eculizumab on the co-primary endpoints of hemoglobin stabilization and blood transfusion requirement in hemolytic,
transfusion-dependent PNH patients during six months of therapy. The pre-specified co-primary endpoints in the TRIUMPH trial (median transfusion rate and hemoglobin stabilization) were each achieved with statistical significance. The median
transfusion rate was reduced from 10 units/patient with placebo to 0 units/patient with eculizumab (p<0.000000001). Hemoglobin stabilization was achieved by 49% of eculizumab patients as compared to 0% for placebo (p<0.0000001). Soliris™
(eculizumab) reduced intravascular hemolysis, as shown by the 85.8% lower median area under the curve for lactate dehydrogenase in the eculizumab group, as compared with the placebo group (58,587 vs. 411,822 U per liter × day; P<0.001).
Clinically and statistically significant improvements in fatigue were observed as measured by scores on the Functional Assessment of Chronic Illness Therapy-Fatigue instrument (P<0.001) and the fatigue subscale of the European Organization for
Research and Treatment of Cancer Quality of Life Questionnaire (EORTC QLQ-C30) (P<0.001). Treatment with Soliris™ (eculizumab) also significantly improved overall health and patient functioning as measured by the EORTC QLQ-C30 instrument
including global health status (P<0.001) and all five aspects of patient functioning: role (P<0.001), social (P=0.003), cognitive (P=0.002), physical (P<0.001) and emotional (P=0.008). Treatment also significantly reduced EORTC QLQ-C30
disease-related symptoms including pain (P=0.002), dyspnea (P<0.001), appetite loss (P<0.001), and insomnia (P=0.014). Additionally, Soliris™ (eculizumab) appeared to be well tolerated with an adverse event profile comparable to placebo.
The most frequent adverse events with Soliris™ (eculizumab) were headache, nasopharyngitis (or cold symptoms) and back pain. The study enrolled patients in the U.S., Canada, Europe, and Australia.
In December 2006, we reported positive results with Soliris™ (eculizumab) in the Phase III SHEPHERD trial in PNH Patients. SHEPHERD trial was an
open-label, twelve-month non-placebo controlled trial primarily aimed at generating additional safety data with eculizumab in 97 PNH patients in the United States, Canada, Europe, and Australia, and included a primary surrogate of efficacy and
additional efficacy endpoints. Results from the SHEPHERD trial showed that Soliris™ (eculizumab) appeared to be safe and well tolerated and provided clinically and statistically significant improvements in intravascular hemolysis, anemia,
fatigue and quality of life. Results from the SHEPHERD trial were presented in December 2006 at the 48th Annual Proceedings of the American Society of Hematology. Soliris™ (eculizumab) therapy in SHEPHERD improved
the intravascular hemolysis, as shown by a reduction in the median LDH area under the curve (-632,264 U/L W day; P<0.001). LDH levels during the study
were reduced 87% from a median of 2051 U/L at baseline to 269 U/L after 12 months of treatment (P<0.001). Clinically and statistically significant improvements in fatigue were observed as measured by change from baseline using the Functional
Assessment of Chronic Illness Therapy-Fatigue (FACIT-Fatigue) instrument (P<0.001) and the fatigue scale of the European Organization for Research and Treatment of Cancer Quality of Life Questionnaire (EORTC QLQ-C30) instrument, a standard
questionnaire developed to assess quality of life in cancer patients particularly suffering from severe fatigue and anemia (P<0.001). Treatment with Soliris™ (eculizumab) also significantly improved overall health and patient functioning as
measured by the EORTC QLQ-C30 instrument including the global health status scale (P<0.001) and all five aspects of patient functioning: role (P<0.001), social (P<0.001), cognitive (P<0.001), physical (P<0.001) and emotional
(P<0.001). Treatment also significantly improved 7 of 9 EORTC QLQ-C30 symptom scales and single item measures including pain (P<0.001), dyspnea (P<0.001), appetite loss (P<0.001), and insomnia (P<0.001). Clinically and statistically
significant improvements in anemia were also observed with eculizumab therapy as evidenced by the reduction in transfusion requirements from a median of 8.0 packed red cells in the 12 month pre-treatment period to 0.0 units during the 12 months of
treatment (P<0.001). Additionally, 51% of patients in SHEPHERD were transfusion independent for the entire 12 month treatment period (P<0.001). Other improvements in anemia included a 44% increase in the endogenous PNH red blood cell mass
(P<0.001) and an increase in hemoglobin levels from 9.2g/dl at baseline to 10.2g/dl after 12 months of treatment (P<0.001).
Prior to
SHEPHERD and TRIUMPH, we conducted a three-month, open-label study in 11 PNH patients, results of which were reported in the February 5, 2004 issue of the New England Journal of Medicine. Patients treated with Soliris™ (eculizumab)
experienced a substantial decrease in the destruction of PNH red blood cells, with the mean percentage of these cells increasing from 36.7 percent of the total population found in the body to 59.2 percent (P=0.005), and lactate dehydrogenase levels,
a biochemical marker of red blood cell destruction, falling from a mean of 3,111 IU per liter to a mean of 594 IU per liter (P=0.002). This reduction in PNH red blood cell destruction helped reduce the median patient transfusion rates from 1.8 units
per patient, per month, to 0.0 units per patient, per month (P=0.003). Episodes of hemoglobinuria were reduced by an average of 96 percent (P<0.001) and quality of life measurements, using EORTC QLQ C-30, substantially improved during treatment.
Soliris™ (eculizumab) appeared reasonably well tolerated in this trial. Adverse events reported for Soliris™ (eculizumab) or placebo were similar in type and frequency to those reported in other controlled trials of eculizumab. The most
common adverse events were headache, upper respiratory infection, muscle/joint aches, and influenza-like symptoms, and the severe adverse events were viral chest infection, dizziness and shivering. In the June 2005 issue of the journal Blood ,
we reported on the safety and sustained effects of Soliris™ (eculizumab) in a 52-week extension of our pilot open-label PNH trial in 11 patients. In this study, patients who received Soliris™ (eculizumab) continued to tolerate the drug
reasonably well and experienced reduced hemolysis resulting in an increase in PNH red blood cells, a reduction in the need for transfusion, and improvements in multiple quality of life measures. Reported adverse events occurring in three or more
patients were flu-like symptoms, sore throat, pain, nausea, bruising, cough, and upper respiratory infection. The adverse event profile for eculizumab-treated patients in this study was similar to that of placebo-treated patients in other patient
population trials of eculizumab.
Patients who have completed the TRIUMPH and SHEPHERD trials, as well as patients that have completed the
initial, open-label clinical trial, have been enrolled in an open-label extension trial to further evaluate safety data in PNH patients treated with Soliris™ (eculizumab).
Eculizumab in Pre-Clinical Research Programs
Renal Transplantation
Solid-organ transplantation is an effective form of therapy for the management of patients with end-stage kidney, heart, lung, or liver failure. The rejection of the donor organ is usually managed by treatment of the recipient with
immunosuppressive drugs that block the action of white blood cells to reject the donor organ. However, some potential transplant recipients have highly sensitized immune systems due to previous transplants, transfusions or pregnancies, or
incompatibility with the blood type of the donor. In these presensitized graft recipients, antibody-mediated rejection, or AMR, is a major impediment to successful transplantation.
In collaboration with investigators at the Multi-Organ Transplant Program, London Health Sciences Centre, London, Ontario, Canada, we reported in the May
2005 issue of the journal Transplantation that inhibition of terminal complement using an anti-C5 complement-blocking antibody successfully prevented AMR in a rodent model of transplantation. Furthermore, addition of anti-C5 antibody to
standard anti-cellular therapy resulted in a marked and significant increase in graft survival as compared to graft survival in animals treated with anti-cellular therapy alone. Importantly, AMR was prevented by anti-C5 antibody even in the presence
of high levels of circulating anti-donor antibodies.
These data are supported by other studies that demonstrate an important role for
terminal complement in antibody-mediated transplant rejection and suggest that complement blockade at C5 may be an effective therapy in patients who are either presensitized or who have received a blood type mismatched transplant organ. We are
currently in pre-clinical studies to evaluate solid-transplantation as an indication for eculizumab.
Asthma
Asthma is a chronic respiratory disease that results in bronchial inflammation and airway constriction that prompts asthma’s hallmark
symptoms—shortness of breath, chest tightness and wheezing.
In May 2005, we announced the results of a new animal model study that
showed that treatment with an anti-C5 complement blocking antibody significantly reduced bronchial inflammation and airway constriction. The study, conducted by our researchers, the Yale University School of Medicine, and the Brigham and
Women’s Hospital, was published in the June 2005 issue of the Journal of Clinical Investigation.
The study suggested that both C5a
and C5b-9 contribute to the initiation of airway inflammation and in immediate and sustained airway hyperreactivity. Importantly, the researchers found that animals given an anti-C5 blocking antibody—either systemically or when inhaled through
a nebulizer (a common asthma inhalation device)—showed substantial reductions in airway reactivity even in the face of ‘airway challenges’ with methacholine, a drug administered to confirm an asthma diagnosis.
The anti-C5 blocking antibody, unlike existing asthma therapies—high-dose inhaled and oral corticosteroids—blocked a wide range of inflammatory
mediators known to contribute to the severity and persistence of asthma, including white blood cells and inflammatory mediators from eosinophils and neutrophils. These data suggest a direct role for complement-mediated inflammation in the
pathogenesis of severe asthma. We are currently in pre-clinical studies to evaluate asthma as an indication for eculizumab.
Antibody Discovery Technology Platform
Combinatorial Human Antibody Library Technologies
In order to expand our pipeline of potential antibody therapeutics, in September 2000, we acquired Prolifaron, Inc., a privately held biopharmaceutical company and integrated this entity into Alexion as a wholly-owned
subsidiary, Alexion Antibody Technologies, Inc. or AAT. The AAT technology includes extensive research expertise and methodologies that we call Combinatorial Human Antibody Library Technologies or CoALT, in the area of creating fully human
antibodies from libraries containing billions of human antibody genes. During 2006, we decided to relocate CoALT and other AAT technologies to our expanded research and discovery groups in our Cheshire, Connecticut headquarters. As a result, we
initiated an integration plan with AAT to consolidate certain functions and operations, including the termination of all AAT personnel and possible disposal of equipment in that facility.
Our goal, through CoALT and related technologies, is to develop new fully human therapeutic antibodies addressing multiple disease areas, including
autoimmune and inflammatory disorders, cancer and infectious disease. These technologies involve, in part, the generation of diverse libraries of human antibodies derived from patients’ blood samples, and the screening of these libraries
against a wide array of potential drug targets. We believe that these technologies may be optimally suited to the rapid generation of novel, fully human and humanized, therapeutic antibodies directed at validated clinical targets. To date, we have
focused on identifying antibodies that may be therapeutically effective in different cancers, autoimmune or inflammatory disorders, and infectious diseases. In addition, we believe that these technologies could permit the pre-clinical validation of
new gene targets that are being identified by numerous groups from recent access to the human genome. We also believe that these technologies might identify therapeutic antibodies when the libraries are screened against certain of these new gene
targets.
Pre-Clinical Programs
Anti-CD200 Antibody
We are developing an antibody for the treatment of B-Chronic Lymphocytic Leukemia (B-CLL), an
incurable chronic cancer that results from expansion of B-lymphocytes and other myeloid tumors such as mulitple myeloma (MM). Our antibody binds to CD200, a molecule that is upregulated on the surface of B-CLL and MM tumor cells. CD200 normally acts
as a potent immunosuppressant by interacting with the CD200 Receptor on macrophages and thereby sending an inhibitory signal to the macrophage. We believe upregulation of CD200 on the CLL and MM cell surface allows the tumor to inhibit the
body’s immune response to the tumor. Our antibody targets CLL and MM cells and blocks the interaction of CD200 with the CD200 Receptor with the objective of enhancing the body’s immune response to these tumors. We have recently
demonstrated the potent anti-tumor activity of our anti-CD200 antibody in a model of CLL, which was published in the January 2006 issue of the Proceedings of the National Academy of Sciences and presented at the 2006 meeting of the American Society
for Clinical Oncology. Our anti-CD200 antibody drug candidates may have therapeutic application in patients suffering from B-CLL, MM and other blood and solid tumors with elevated CD200 expression.
Dendritic Cell Antibodies
We
are developing humanized antibodies to newly discovered cell surface proteins, DC-SIGN, found exclusively on human dendritic cells, a type of human immune cell, and a related receptor, L-SIGN. Under the
exclusive worldwide license agreement and research alliance with the University Medical Center of Nijmegen, The Netherlands, we received rights related to
these molecules and any associated therapeutic product candidates, including already identified monoclonal antibodies. These products may have broad therapeutic application in several clinical settings including different cancers and infectious
diseases, and in certain inflammatory disorders. This alliance broadens our interest in immune system modulation to also include human dendritic cells.
Dendritic cells have recently come to be appreciated as critical controllers of the immune system. In order for an immune response against foreign antigens to occur, these antigens must be displayed by so-called
antigen-presenting cells. While dendritic cells are an extremely rare immune cell type, they are the most potent of all the antigen presenting cells. Dendritic cells capture antigens in the peripheral tissues, process and display the antigen
fragments on their cell surface, and then migrate from the periphery to the T-cell areas of the lymphoid organs. There they attract resting T-cells and present their antigen load, thus activating the T-cells to begin an immune response. This process
appears to be controlled in part by the newly identified molecule DC-SIGN. We have recently demonstrated that our DC-SIGN antibody potently activates the immune system and exhibits significant anti-tumor activity in a model system. These results
were recently presented at the 2006 meeting of the American Society for Clinical Oncology
Anti-MBL Antibody
We are developing an antibody that blocks complement activation via the Lectin Pathway. This inflammatory pathway is initiated by the binding of a
specific protein, known as MBL, to targets on the surface of activated endothelial cells and may represent a major cause of inflammation and heart damage. Under a license agreement with The Brigham and Women’s Hospital, Inc., we received
exclusive worldwide rights to novel anti-inflammatory technologies and to associated therapeutic products, including a potent monoclonal antibody against MBL. The anti-MBL approach may have broad therapeutic application in patients suffering from
various vascular disorders as well as some chronic inflammatory conditions.
The CuraGen Corporation Agreement for Target Discovery
We completed a drug target discovery and validation program with CuraGen Corporation focused on oncology, the study of tumors
and/or cancers. This agreement enabled us and CuraGen to leverage our respective areas of expertise to discover and validate novel biologic and small molecule targets for use in developing pharmaceutical products.
Under the agreement, CuraGen applied its integrated functional genomic technologies to identify potential drug targets derived from our supplied research
materials, and will retain the rights to potential non-antibody protein therapeutics across all disease areas. We are using our CoALT antibody discovery platform to determine the therapeutic utility of the targets. We own preferential rights to
develop and commercialize some antibody and small molecule therapeutics against drug targets across all disease areas. CuraGen is eligible to receive licensing fees, development milestone payments and sales royalties from pharmaceutical products
stemming from this alliance. CuraGen retains the right to develop or out license some candidates from the program.
Other Pre-Clinical Programs
Anti-TPO Receptor Antibody
In December 2003, we and XOMA entered into a collaborative
agreement for the development and commercialization of a rationally designed human c-MPL agonist antibody to treat chemotherapy-induced thrombocytopenia. Thrombocytopenia is an abnormal blood condition in which the number of platelets is reduced,
potentially leading to bleeding complications. In November 2004, we and XOMA determined that the lead molecule in this c-MPL agonist antibody collaboration did not meet the criteria established in the program for continued development. We and XOMA
agreed not to continue with this joint development program and terminated the collaboration in April 2005. Under the terms of the agreement, we received a $1.5 million upfront non-refundable payment upon initiation of the collaboration. We recorded
the payment as a deferred research and development payment. During the quarter ended April 30, 2005, we recognized the remaining balance of approximately $1.3 million of the deferred payment as a reduction of research and development expense.
Strategic Alliance with Procter & Gamble
In January 1999, we entered into collaboration with P&G with respect to the joint development of pexelizumab in cardiovascular indications. In December 2001, we and P&G entered into a binding memorandum of
understanding, or MOU, pursuant to which we and P&G revised our January 1999 collaboration. During 2006, we announced that results from the final Phase III clinical trial of pexelizumab did not achieve its primary endpoint, and that this trial
and prior Phase III trials of pexelizumab will not be sufficient for filing for licensing approval. We have held discussions with P&G regarding the pexelizumab program, and we do not expect to continue development of pexelizumab with P&G or
in the indications studied with P&G.
Under the revised structure per the MOU, we and P&G share decision-making and responsibility
for all U.S. development and commercialization costs for pexelizumab, including clinical, manufacturing, marketing, and sales efforts. Prior to December 2001, P&G was generally funding all clinical development and manufacturing costs for
pexelizumab. The revised collaboration per the MOU provides that we and P&G each incur approximately 50% of all Phase III clinical trial, product development and manufacturing, and commercialization costs necessary for the potential approval and
marketing of pexelizumab in the U.S. and that we would receive approximately 50% of the gross margin on U.S. sales, if any. Under the MOU, P&G agreed to retain responsibility for future development and commercialization costs outside the U.S.
and we would receive royalties on sales outside the U.S., if any. We would be responsible for paying royalties and licensing fees on certain third party intellectual property worldwide, if such intellectual property were necessary in order to
commercialize pexelizumab. Additionally, as part of the MOU, we would receive milestone payments for achieving specified development steps, regulatory filings and approvals, but not for previously agreed sales milestones and we would generally
forego further research and development support payments from P&G.
Reimbursements received by us from P&G in connection with
P&G’s share of our services and related personnel are recorded as a reduction of research and development and market research expense. As part of the revised collaboration per the MOU, P&G funded 100% of the costs for the two acute
myocardial infarction, or AMI, Phase II clinical trials. We and P&G agreed, as per the MOU, that we share concurrently 50% of the ongoing U.S. pre-production and development manufacturing costs for pexelizumab as well as any future AMI or CABG
Phase III clinical trial costs.
P&G has the right to terminate the collaboration or sublicense its collaboration rights at any time.
If P&G terminates the collaboration, P&G is required to contribute its share of agreed to obligations and costs incurred
prior to termination, but may not be required to contribute towards costs incurred after termination. In the event that P&G were to terminate the
collaboration, all rights and the exclusive license to our intellectual property related to pexelizumab would revert to us. The MOU does not contemplate any payments to P&G in the event P&G were to terminate the collaboration; however,
P&G might seek to negotiate such a payment or might seek to sublicense its collaboration rights rather than terminate the collaboration.
Manufacturing
We obtain drug product to meet our requirements for clinical studies using both internal and third-party
contract manufacturing capabilities. We currently rely on a third-party contract manufacturer for our anticipated eculizumab commercial needs, and intend to equip and qualify our own manufacturing facility for anticipated eculizumab commercial needs
in the future. For both clinical requirements and anticipated commercial requirements, we have contracted and expect to continue contracting for product finishing, vial filling, and packaging through third parties.
In July 2006, we acquired a manufacturing plant in Smithfield, Rhode Island. We intend to equip and develop the plant in accordance with FDA and other
regulatory requirements to manufacture Soliris™ (eculizumab) and other product candidates. We have a pilot manufacturing plant suitable for the production and purification of certain of our product candidates for clinical studies. The pilot
manufacturing plant is currently being decommissioned and transferred to the Smithfield, Rhode Island plant.
Our most significant
agreement with a third party manufacturer is the Large-Scale Product Supply Agreement, or the Lonza Agreement, dated December 18, 2002 with Lonza Biologics PLC, or Lonza, relating to the manufacture of our product candidate eculizumab. The
Lonza Agreement was amended, or the Lonza Amendment, on April 9, 2004. Per the Lonza Agreement, we have remitted cash advances aggregating $13.5 million through December 31, 2006. If we terminate the Lonza Agreement we may be required
to pay for batches of product scheduled for manufacture up to 12 months following termination.
The amounts paid to Lonza in consideration
of the Lonza Agreement are accounted for as prepaid manufacturing costs within the accompanying balance sheet and are recognized as additional manufacturing costs as the batches are manufactured. On a quarterly basis, we evaluate our plans to
proceed with production under the Lonza Agreement, considering our commercialization plans for Soliris™ (eculizumab). In addition, we evaluate the prepaid manufacturing costs against estimated net realizable value, or NRV. If estimated NRV is
not positive, then all or a portion of the prepaid manufacturing cost may be recognized as an expense.
Sales and Marketing
We currently have established core marketing capabilities and have begun to establish sales and distribution capabilities. We are developing our own
specialized sales force and marketing organization to market Soliris™ (eculizumab) in the United States and in Europe. We will need to continue developing or will have to contract with others to obtain these capabilities to commercialize
Soliris™ (eculizumab) successfully. We may promote Soliris™ (eculizumab) in collaboration with marketing partners or rely on relationships with one or more companies with established distribution systems and direct sales forces, either in
the United States or in other countries.
Patents and Proprietary Rights
Patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements to our technologies that are considered important to the
development of our business. We also rely upon our trade secrets, know-how, and continuing technological innovations to develop and maintain our competitive position, as well as patents that we have licensed or may license from other parties.
We have filed several U.S. patent applications and international counterparts of certain of these applications. In addition, we
have in-licensed several additional U.S. and international patents and patent applications. As of January 31, 2007, we own or in-license over 77 U.S. patents and 61 U.S. patent applications. These patents and patent applications relate to
technologies or products in the C5 Inhibitor program, high throughput screening, vectors, cancer, the MBL program, recombinant antibodies, the dendritic cell program, and other technologies. We own or in-license 58 foreign patents and 167
pending foreign patent applications. We will owe royalties and other fees to the licensors of some of those patents and patent applications in connection with any future commercial manufacture and sale of our product candidates, including
eculizumab.
Our success will depend in part on our ability to obtain and maintain U.S. and international patent protection for our
products and development programs, to preserve our trade secrets and proprietary rights, and to operate without infringing on the proprietary rights of third parties or having third parties circumvent our rights. Because of the length of time and
expense associated with bringing new products through development and regulatory approval to the marketplace, the health care industry has traditionally placed considerable importance on obtaining patent and trade secret protection for significant
new technologies, products and processes. Significant legal issues remain to be resolved as to the extent and scope of patent protection for biotechnology products and processes in the United States and other important markets outside of the United
States. Accordingly, there can be no assurance that patent applications owned or licensed by us will issue as patents, or that any issued patents will afford meaningful protection against competitors. Moreover, once issued, patents are subject to
challenge through both administrative and judicial proceedings in the United States and in foreign jurisdictions. Such proceedings include interference proceedings before the U.S. Patent and Trademark Office and opposition proceedings before the
European Patent Office. Litigation may be required to enforce our intellectual property rights. Any litigation or administrative proceeding may result in a significant commitment of our resources and, depending on outcome, may adversely affect the
validity and scope of certain of our patent or other proprietary rights.
We are aware of broad patents owned by third parties relating to
the manufacture, use, and sale of recombinant humanized antibodies, recombinant humanized single-chain antibodies, recombinant human antibodies and recombinant human single-chain antibodies. Many of our product candidates are genetically engineered
antibodies, including recombinant humanized antibodies, recombinant humanized single chain antibodies, recombinant human antibodies, or recombinant human single chain antibodies. We have received notices from the owners of some of these patents in
which the owners claim that some of these patents may be infringed by the development and commercialization of some of our drug candidates, including eculizumab. We are also aware of other patents owned by third parties that might be claimed to be
infringed by the development and commercialization of some of our drug candidates, including eculizumab. We have acquired licenses to certain of these patents which we believe are relevant for the expeditious development and commercialization of
eculizumab and certain of our other products as currently contemplated. With regard to certain other patents, we have either determined in our judgment that the patents are invalid, that our products do not infringe the patents, or that we can
license such patents on commercially reasonable terms, or we have identified and are testing
various approaches which we believe should not infringe the patents and which should permit commercialization of our products. If our judgment is incorrect,
and we are unable to acquire a license to a necessary patent on commercially reasonable terms, our ability to commercialize our products, including eculizumab, could be significantly adversely affected or could be prevented.
It is our policy to require our employees, consultants and parties to collaborative agreements to execute confidentiality agreements upon the
commencement of employment or consulting relationships or collaborations with us. These agreements generally provide that all confidential information developed or made known during the course of the relationship with us is to be kept confidential
and not to be disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions resulting from work performed for us, utilizing our property or relating to our business and conceived or
completed by the individual during employment shall be our exclusive property to the extent permitted by applicable law.
Government Regulation
The pre-clinical studies and clinical testing, manufacture, labeling, storage, record keeping, advertising, promotion, export, and
marketing, among other things, of our proposed products, including Soliris™(eculizumab), are subject to extensive regulation by governmental authorities in the U.S. and other countries. In the U.S., pharmaceutical products are regulated by the
FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. We believe that Soliris™ (eculizumab) will be regulated by the FDA as a biologic. Biologics require the
submission of a Biologics License Application, or BLA, and approval by FDA prior to being marketed in the United States. Manufacturers of biologics may also be subject to state regulation. Failure to comply with FDA requirements, both before and
after product approval, may subject us and/or our partners, contract manufacturers, and suppliers to administrative or judicial sanctions, including FDA refusal to approve pending applications, warning letters, product recalls, product seizures,
total or partial suspension of production or distribution, fines and/or criminal prosecution.
The steps required before a biologic may be
approved for marketing in the U.S. generally include:
(1) pre-clinical laboratory tests and animal tests;
(2) submission to the FDA of an Investigational New Drug Application for human clinical testing, which must become effective before human
clinical trials may commence;
(3) adequate and well-controlled human clinical trials to establish the safety and efficacy
of the product;
(4) submission to the FDA of a BLA;
(5) FDA pre-approval inspection of product manufacturers; and
(6) FDA review and approval of BLA.
The testing and approval process requires substantial time, effort and financial resources, and we cannot assure you that any approval will be granted on a timely basis or at all, for Soliris™ (eculizumab) or any other product.
Pre-clinical studies include laboratory evaluation, as well as animal studies to assess the potential safety and efficacy of the product
candidate. Pre-clinical safety tests must be conducted in compliance with FDA
regulations regarding good laboratory practices. The results of the pre-clinical tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an Investigational New Drug Application, or IND, which must become effective before human clinical trials may be commenced. The IND will automatically become effective 30 days after receipt by the FDA, unless the
FDA before that time raises concerns about the drug candidate or the conduct of the trials as outlined in the IND. The IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. We cannot assure you that
submission of an IND will result in FDA authorization to commence clinical trials or that once commenced, other concerns will not arise.
Clinical trials involve the administration of the investigational product to healthy volunteers or to patients, under the supervision of qualified principal investigators. Each clinical study at each clinical site must be reviewed and
approved by an independent institutional review board, prior to the recruitment of subjects.
Clinical trials are typically conducted in
three sequential phases, but the phases may overlap and different trials may be initiated with the same drug candidate within the same phase of development in similar or differing patient populations.
Phase I studies are closely monitored and may be conducted in a limited number of patients, but are usually conducted in healthy volunteer subjects. The
drug is usually tested for safety and, as appropriate, for absorption, metabolism, distribution, excretion, pharmaco-dynamics and pharmaco-kinetics.
Phase II usually involves studies in a larger, but still limited patient population to evaluate preliminarily the efficacy of the drug candidate for specific, targeted indications; to determine dosage tolerance and
optimal dosage; and to identify possible short-term adverse effects and safety risks.
Phase III trials are undertaken to further evaluate
clinical efficacy of a specific endpoint and to test further for safety within an expanded patient population at geographically dispersed clinical study sites. Phase I, Phase II or Phase III testing might not be completed successfully within any
specific time period, if at all, with respect to any of our product candidates. Results from one trial are not necessarily predictive of results from later trials. Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an unacceptable health risk.
Under the “Special Protocol
Assessment” procedure, a sponsor may seek the FDA’s agreement on the design and size of a clinical trial intended to form the primary basis of an effectiveness claim. If the FDA agrees in writing, its agreement may not be changed after the
trial begins, except in limited circumstances. If the outcome of the trial is successful, the sponsor will ordinarily be able to rely on it as the primary basis for approval with respect to effectiveness. The Phase III clinical program for
Soliris™ (eculizumab) for the PNH indication was conducted pursuant to an SPA. There can be no assurance that the FDA will agree to the design and size of future clinical trials, and there can be no assurance that any trial will have a
successful outcome.
The results of the pre-clinical studies and clinical trials, together with other detailed information, including
information on the manufacture and composition of the product, are submitted to the FDA as part of a BLA requesting approval to market the product candidate. Under the Prescription Drug User Fee Act, as amended, the fees payable to FDA for reviewing
a BLA, as well as annual fees for commercial manufacturing establishments and for approved products, can be substantial. The BLA review fee alone can exceed $500,000, subject to certain limited deferrals, waivers and reductions that may be
available. Each BLA submitted to FDA for approval is typically reviewed for administrative completeness and reviewability within 45 to 60 days following submission
of the application. If found complete, the FDA will “file” the BLA, thus triggering substantive review of the application. The FDA may refuse to
file any BLA that it deems incomplete or not properly reviewable. In November 2006, we announced that the FDA has accepted our BLA for filing, thereby triggering the substantive review. The FDA’s established goals for the review of BLAs is six
months for priority applications and 10 months for regular applications. Also in November 2006, we announced that FDA has granted Priority Review for the Soliris™ (eculizumab) BLA. The FDA is not legally obligated, however, to complete its
review within these established goals and its review goals are subject to change from time to time. Further, the outcome of the review, even if generally favorable, typically is not an actual approval but an “action letter” that describes
additional work that must be done before the application can be approved. Before approving a BLA, the FDA may inspect the facilities at which the product is manufactured and will not approve the product unless current Good Manufacturing Practices,
or cGMP, compliance is satisfactory. The FDA may deny approval of a BLA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any
application may include many delays or never be granted. If a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, require that warning statements be included in the product labeling,
require that additional studies be conducted following approval as a condition of the approval, impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk management plan, or otherwise limit the scope
of any approval. To market for other indicated uses, or to make certain manufacturing or other changes requires FDA review and approval. Further post-marketing testing and surveillance to monitor the safety or efficacy of a product may be required.
Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing problems occur following initial marketing. Finally, new government requirements may be established that could delay or
prevent regulatory approval of Soliris™ (eculizumab) and our other products under development.
The U.S. Congress and regulatory
authorities, including the FDA, are considering whether an abbreviated approval process for so-called generic or “follow-on” biological products should be adopted. An abbreviated approval process is currently available for generic versions
of conventional chemical drug compounds, sometimes referred to as small molecule compounds, but not for biological products approved under the Public Health Service Act through a BLA. Currently, an applicant for a generic version of a small molecule
compound only has to reference in its application an approved product for which full clinical data demonstrating safety and effectiveness exist for the approved conditions of use; demonstrate that its product has the same active ingredients, dosage
form, strength, route of administration and conditions of use and is absorbed in the body at the same rate and to the same extent as the referenced approved drug; include certifications to patents listed with the FDA for the referenced approved
drug; and await the expiration of any non-patent exclusivity. Various proposals have been made to establish an abbreviated approval process to permit approval of generic or follow-on versions of biological products. It is unclear as to when, or if,
any such proposals may be adopted but any such abbreviated approval process could have a material impact on our business as follow-on products would be significantly less costly to bring to market and may be priced significantly lower than our
products would be.
Both before and after the FDA approves a product, the manufacturer and the holder or holders of the BLA for the product
are subject to comprehensive regulatory oversight. For example, quality control and manufacturing procedures must conform to cGMP requirements after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP.
Accordingly, manufacturers must continue to spend time, monies, and effort to maintain cGMP compliance.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which generally is a disease or condition that affects fewer than 200,000
individuals in the United States. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are publicly disclosed by
the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product which has an orphan drug designation subsequently receives the first FDA approval for the
indication for which it has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years, except in limited
circumstances. Soliris™ (eculizumab) was granted Orphan Drug designation for the PNH indication by the FDA in 2003.
Foreign Regulation
In addition to regulations in the United States, we are subject to a variety of foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above as well as additional country-specific regulations. Whether or not we obtain FDA
approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
For example, under European Union regulatory systems, we may submit marketing authorizations either under a centralized or decentralized procedure.
The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.
During November 2006, we announced that the European Medicines Agency, or EMEA, has validated our submission of a Marketing Authorization
Application, or MAA, for Soliris™ (eculizumab) that we had submitted in September 2006. This step commences the review process of the MAA. In addition, the EMEA has notified us that they will utilize their Accelerated Assessment Procedure for
review of the Soliris™ (eculizumab) MAA. Accelerated Assessment is given for medicinal products of major therapeutic interest and shortens the timeframe for review by the EMEA.
Reimbursement
Sales of pharmaceutical products depend in significant part on the availability of
coverage and the amount of reimbursement from government programs, including Medicare and Medicaid in the United States, and other third-party payers’. These health insurance programs may restrict coverage of some products. Many third-party
payers’ use formularies, under which only selected drugs are covered, variable co-payments that make drugs that are not preferred by the payor more expensive for patients, and utilization management controls, such as requirements for prior
authorization or failure on another type of treatment, before the payer will cover a
particular drug. Payers’ may especially impose these obstacles to coverage for higher-priced drugs, as Soliris™ (eculizumab) is likely to be.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company
placing the medicinal product on the market.
Since Soliris™ (eculizumab) will likely be too expensive for most patients to afford
without health insurance coverage, adequate coverage and reimbursement by third-party payers is essential to our ability to successfully commercialize Soliris™ (eculizumab).
Competition
Currently, many companies, including major pharmaceutical and chemical companies as well
as specialized biotechnology companies, are engaged in activities similar to our activities. Universities, governmental agencies and other public and private research organizations also conduct research and may market commercial products on their
own or through joint ventures. These companies and organizations are in the U.S., Europe and elsewhere. Many of these entities may have:
•
substantially greater financial and other resources;
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larger research and development staffs;
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lower labor costs; and/or
•
more extensive marketing and manufacturing organizations. Many of these companies and organizations have significant experience in pre-clinical testing, human clinical trials, product manufacturing, marketing, sales and distribution and other regulatory approval and
commercial procedures. They may also have a greater number of significant patents and greater legal resources to seek remedies for cases of alleged infringement of their patents by us to block, delay, or compromise our own drug development process.
We compete with large pharmaceutical companies that produce and market synthetic compounds and with specialized biotechnology firms in the
U.S., Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biotechnology companies have focused their developmental efforts in the human therapeutics area, and
many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or have made commercial arrangements with other biotechnology companies. A number of biotechnology and pharmaceutical companies are developing new
products for the treatment of the same diseases being targeted by us; in some instances, these products have already entered clinical trials or are already being marketed. Other companies are engaged in research and development based on complement
proteins.
Each of Adprotech Ltd., Avant Immunotherapeutics, Inc., Baxter International Inc., Tanox, Inc., XOMA Ltd., Novo Nordisk
A/S, and Archemix Corporation has publicly announced intentions to develop complement
inhibitors to treat diseases related to trauma, inflammation or certain brain or nervous system disorders. We are also aware that Abbott Laboratories Inc.,
Baxter International, Inc., Millenium Pharmaceuticals, Inc. and Neurogen Corporation have had programs to develop complement inhibitor therapies. We believe that our potential C5 Inhibitors differ substantially from those of our competitors due to
our compounds’ demonstrated ability to specifically intervene in the complement cascade, for potentially prolonged periods of time, at what we believe to be the optimal point so that the disease-causing actions of complement proteins generally
are inhibited while the normal disease-preventing functions of complement proteins generally remain intact as do other aspects of immune function.
Each of Cambridge Antibody Technology Group (a subsidiary of AstraZeneca PLC), Medarex, Amgen, Dyax Corporation, and MorphoSys AG has publicly announced intentions to develop therapeutic genetically altered human antibodies from libraries
of human antibody genes. Additionally, each of Amgen, Inc., and Medarex, Inc. has publicly announced intentions to develop therapeutic genetically altered human antibodies from mice that have been bred to include some human antibody genes.
Employees
As of December 31,
2006, we had 296 full-time employees, of which 188 were engaged in research, development, manufacturing, and clinical development, and 108 in administration, commercial and business development and finance. Doctorates are held by 73 of our
employees. Each of our employees is required to sign a confidentiality agreement. Our employees are not represented by any collective bargaining unit, and we regard the relationships with our employees as satisfactory.
Available Information
Our Web site address is
www.alexionpharm.com. On our Web site, we make available, free of charge, our annual and transition reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably
practical after we electronically file such material with or furnish it to the SEC. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.
Item 1A. RISK FACTORS.
You should carefully consider the following risk factors before you decide to invest in our Company and our business because these risk factors may have a
significant impact on our business, operating results, financial condition, and cash flows. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
If we continue to incur operating losses, we may be unable to continue our operations.
We have
incurred losses since we started our company in January 1992. As of December 31, 2006, we had an accumulated deficit of approximately $638 million. If we continue to incur operating losses and fail to become a profitable company, we may be
unable to continue our operations. Since we began our business, we have focused on research and development of product candidates. Although we have submitted for filing a BLA with the FDA in the United States and an MAA in Europe for Soliris™
(eculizumab), we have no products that are available for sale and do not know when we will have products available for sale, if ever. We expect to continue to operate at a net loss for at least the next several years as we continue our research and
development efforts, continue to conduct clinical trials and develop manufacturing, sales, marketing and distribution capabilities. Our future profitability depends on our receiving regulatory approval of our product candidates and our ability to
successfully manufacture and market approved drugs. The extent and the timing of our future losses and our profitability, if we are ever profitable, are highly uncertain.
If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development.
We believe that our existing cash, cash equivalents and marketable securities will provide sufficient capital to fund our operations and product
development for at least twelve months. We may need to raise additional capital before or after that time to complete the development and continue the commercialization of our product candidates. We are currently preparing for the commercialization
of Soliris™ (eculizumab) and conducting or evaluating several clinical trials. Funding needs may shift between projects and potentially accelerate and increase as we get closer to commercialization of Soliris™ (eculizumab) or if we
initiate new clinical trials for our product candidates.
Additional financing could take the form of public or private debt or equity
offerings, equity line facilities, bank loans, collaborative research and development arrangements with corporate partners and/or the sale or licensing of some of our property. The amount of capital we may need depends on many factors, including:
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the time and cost necessary to obtain regulatory approvals;
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the time and cost necessary to develop sales, marketing and distribution capabilities;
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the cost necessary to sell, market and distribute our products, if any are approved;
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the time and cost necessary to purchase or to further develop manufacturing processes, arrange for contract manufacturing or build manufacturing facilities and
obtain the necessary regulatory approvals for those facilities;
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changes in applicable governmental regulatory policies or requests by regulatory agencies for additional information or data;
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the existence, terms, maintenance, termination and status of collaborative arrangements and strategic partnerships, such as our collaboration with
Procter & Gamble, or P&G;
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the progress, timing and scope of our research and development programs;
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the progress, timing and scope of our preclinical studies and clinical trials;
•
any new collaborative, licensing or other commercial relationships that we may establish. We may not get funding when we need it or funding may only be available on unfavorable terms. If we cannot raise adequate funds to satisfy our capital
requirements, we may have to delay, scale-back or eliminate our research and development activities or future operations. We might have to license our technology to others. This could result in sharing revenues that we might otherwise retain for
ourselves. Any of these actions would harm our business.
We are significantly leveraged.
On December 31, 2006, we had outstanding $150,000,000 principal amount of 1.375% convertible senior notes. On July 11, 2006, our subsidiary
Alexion Manufacturing borrowed $26,000,000 to finance the purchase and construction of our Smithfield, Rhode Island manufacturing facility which may not be prepaid in whole or in part prior to July 11, 2009. The loan is guaranteed by us and
bears a fixed annual rate of 9.17%. Our 1.375% convertible senior notes and the mortgage loan remain outstanding, and the degree to which we are leveraged could, among other things:
•
make it difficult for us to make payments on our notes and our loan;
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make it difficult for us to obtain financing for working capital, acquisitions or other purposes on favorable terms, if at all;
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make us more vulnerable to industry downturns and competitive pressures; and
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limit our flexibility in planning for, or reacting to changes in, our business. Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors
affecting our operations, many of which are beyond our control.
Risks Related to Our Business
We depend heavily on the success of our lead product candidate, Soliris™ (eculizumab), which is still under development. If we do not obtain FDA approval of
Soliris™ (eculizumab), or if the FDA delays approval or narrows the indications for which we may market Soliris™ (eculizumab), our business will be materially harmed.
We recently submitted for filing a BLA to the FDA in the United States and an MAA in Europe for Soliris™ (eculizumab) for the treatment of PNH. In
the near term, our ability to generate revenues will depend on approval and successful commercialization of Soliris™ (eculizumab). The commercial success of Soliris™ (eculizumab) will depend on several factors, including the following:
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receipt of marketing approvals from the FDA and similar foreign regulatory authorities;
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establishing commercial manufacturing capabilities ourselves or through third-party manufacturers;
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successfully launching commercial sales of the product;
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the number of patients with PNH that may be treated with the product;
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acceptance of the product in the medical community; and
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acceptance of the product’s price by third-party payers. We may not receive required regulatory approvals on a timely basis or at all. The approval process can involve additional lengthy clinical testing and other costly and time-consuming procedures.
Several biotechnology companies have failed to obtain regulatory approvals because regulatory agencies were not satisfied with the structure or conduct
of clinical trials or the formatting or content of regulatory submissions. Similar problems could delay or prevent us from obtaining approvals. Furthermore, regulatory authorities, including the FDA, may not agree with our interpretations of our
clinical trial data, which could delay, limit or prevent regulatory approvals. In addition, before a product candidate is approved for marketing, we, or any third-party manufacturing our product, are subject to inspection of the manufacturing
facilities and the FDA will not approve the product for marketing if we or our third-party manufacturers are not in compliance with current good manufacturing practices.
Even if the FDA and similar foreign regulatory authorities do grant marketing approval for Soliris™ (eculizumab), they may narrow the indications for which we are permitted to market the product, may pose other
restrictions on the use or marketing of the product, or may require us to conduct additional post-marketing trials. A narrowed indication or other restrictions may limit the market potential for the product and obligation to conduct additional
clinical trials would likely result in increased expenditures and lower revenues. Even where the FDA or similar foreign regulatory agencies indicate they are prepared to grant marketing approval for Soliris™ (eculizumab), we may choose to
continue negotiating for broader indications with fewer restrictions, and such negotiations could cause a delay in marketing approval or could jeopardize the receipt of any marketing approval. If we are not successful in commercializing
Soliris™ (eculizumab), or are significantly delayed or limited in doing so, our business will be materially harmed and we may need to curtail or cease operations.
Inability to contract with third-party manufacturers on commercially reasonable terms, or failure or delay by us or our third-party manufacturers, in manufacturing our drug products in the volumes and quality
required, would have a material adverse effect on our business.
We have no experience or capacity for manufacturing drug products in
volumes that would be necessary to support commercial sales and we can provide no assurance that we will be able to do so successfully. We depend on a few outside suppliers for manufacturing. Our small, clinical-scale manufacturing plant cannot
manufacture enough of our product candidates for later stage clinical development or commercial supply. We do not have the capacity to produce more than one product candidate at a time in that plant. We acquired a commercial-scale manufacturing
plant in Smithfield, Rhode Island in July 2006. However, that plant is not currently equipped or approved by the FDA or other regulatory agencies to manufacture Soliris™ (eculizumab) or our other drug candidates. We expect that it will be at
least two years before the plant is capable of making product for commercial sale. We have no experience in developing commercial-scale manufacturing of the sort anticipated in Smithfield, Rhode Island. We can provide no assurance that we will be
able to develop the Smithfield, Rhode Island site into a plant capable of manufacturing our drug products under conditions required by the FDA or
foreign regulatory agencies on a timely basis, if at all. Our plant in Smithfield, Rhode Island will be subject to FDA inspection and approval before we can
begin manufacturing Soliris™ (eculizumab) there and will continue to be subject to ongoing FDA inspections thereafter. Our Smithfield, Rhode Island plant will also be subject to European regulatory inspection and approval before we can begin
manufacturing Soliris™ (eculizumab) there for European sales and will continue to be subject to ongoing European regulatory inspection thereafter.
We have executed a commercial-scale product supply agreement with Lonza for the long-term manufacture of eculizumab. The failure of Lonza to manufacture appropriate supplies of eculizumab on a timely basis, or at all,
may prevent or impede the commercialization of Soliris™ (eculizumab). If eculizumab is approved for sale, we expect that Lonza or we would be required to manufacture substantially more material than we have required for clinical and preclinical
trials. We and our outside manufacturers may experience higher manufacturing failure rates than in the past if and when we attempt to substantially increase production volume. If we experience interruptions in the manufacture of our products, our
drug development and commercialization efforts will be delayed. If any of our outside manufacturers stops manufacturing our products or reduces the amount manufactured, or is otherwise unable to manufacture our required amounts at our required
quality, we will need to find other alternatives, which is likely to be expensive and time consuming, and even if we are able to find alternatives they may ultimately be insufficient for our needs. As a result, our ability to conduct testing and
drug trials and our plans for commercialization would be materially adversely affected. Submission of products and new development programs for regulatory approval, as well as our plans for commercialization, would be delayed. Our competitive
position and our prospects for achieving profitability would be materially and adversely affected.
Manufacture of drug products, including
the need to develop and utilize manufacturing processes that consistently produce our drug products to their required quality specifications, is highly regulated by the FDA and other domestic and foreign authorities. Regulatory authorities must
approve the facilities in which our products are manufactured prior to granting market approval for any product candidate. Manufacturing facilities are also subject to ongoing inspections, and minor changes in manufacturing processes may require
additional regulatory approvals. We cannot assure you that we or our third-party collaborators will successfully comply with all of those requirements and regulations, which failure would have a materially adverse effect on our business.
Manufacture of our drug products is highly technical and only a few third-parties have the ability and capacity to manufacture our drug products for
our development and commercialization needs. We cannot assure you that these potential third-party collaborators will agree to manufacture our products on our behalf on commercially reasonable terms, if at all. If we do achieve agreement from one or
more third parties to manufacture our drug products, we cannot assure you that they will be able or willing to honor the terms of the agreements, including any obligations to manufacture the drug products in accordance with regulatory requirements
and to our quality specifications and volume requirements. Due to the highly technical requirements of manufacturing our drug products, our third-party collaborators and we may be unable to manufacture our drug products despite their and our
efforts.
Due to the nature of the current market for third-party commercial manufacturing, many arrangements require substantial penalty
payments by the customer for failure to use the manufacturing capacity for which it contracted. We could owe substantial penalty payments to Lonza if we were not to use the manufacturing capacity for which we contracted. Penalty payments under these
agreements typically decrease over the life of
the agreement, and may be substantial initially and de minims or non-existent in the final period. The payment of a substantial penalty would harm our
financial condition.
If we are unable to establish sales, marketing and distribution capabilities, or to enter into agreements with third parties to do
so, we will be unable to successfully market and sell future drug products.
We have no experience with marketing, sales and
distribution of drug products and have only recently established pre-commercial capability in those areas. If we are unable to establish capabilities to sell, market and distribute our products, either by developing our own capabilities or entering
into agreements with others, we will not be able to successfully sell Soliris™ (eculizumab) or our future drug products. In that event, we will not be able to generate significant revenues. We cannot guarantee that we will be able to hire the
qualified sales and marketing personnel we need. We may not be able to enter into any marketing or distribution agreements with third-party providers on acceptable terms, if at all.
If we are unable to obtain reimbursement for our future products from government health administration authorities, private health insurers and other organizations, our products may be too costly for regular use
and our ability to generate revenues would be harmed.
Soliris™ (eculizumab), if commercialized, is likely to be significantly more
expensive than traditional drug treatments. Our future revenues and profitability will be adversely affected if we cannot depend on governmental, private third-party payers and other third-party payers, including Medicare and Medicaid, to defray the
cost of Soliris™ (eculizumab) to the consumer. If these entities refuse to provide coverage and reimbursement with respect to Soliris™ (eculizumab) or determine to provide an insufficient level of coverage and reimbursement, Soliris™
(eculizumab) may be too costly for general use, and physicians may not prescribe it. Many third-party payers cover only selected drugs, making drugs that are not preferred by such payer more expensive for patients, and require prior authorization or
failure on another type of treatment before covering a particular drug. Third-party payers may be especially likely to impose these obstacles to coverage for higher-priced drugs, which we anticipate Soliris™ (eculizumab) to be.
In addition to potential restrictions on coverage, the amount of reimbursement for our products may also reduce our profitability and worsen our
financial condition. In the United States and elsewhere, there have been, and we expect there will continue to be, actions and proposals to control and reduce healthcare costs. Government and other third-party payers are challenging the prices
charged for healthcare products and increasingly limiting and attempting to limit both coverage and level of reimbursement for prescription drugs.
Since Soliris™ (eculizumab) will likely be too expensive for most patients to afford without health insurance coverage, if adequate coverage and reimbursement by third-party payers is not available, our ability to successfully
commercialize Soliris™ (eculizumab) may be adversely impacted. Any limitation on the use of Soliris™ (eculizumab) or any decrease in the price of Soliris™ (eculizumab) will have a material adverse effect on our ability to achieve
profitability.
Even where patients have access to insurance, their insurance co-payment amounts may be too expensive for them to afford.
We anticipate that Alexion will financially support charitable organizations whose mission is to assist patients in acquiring drugs such as Soliris™ (eculizumab). Those charitable organizations may assist patients who have no insurance coverage
for drugs or whose insurance coverage leaves them with prohibitive co-payment amounts or other expensive financial obligations. In addition, we anticipate that Alexion will provide
Soliris™ (eculizumab) without charge for related charitable purposes. We are not able to predict the financial impact of the support we may provide for
these and other charitable purposes; however, substantial support could have a material adverse effect on our ability to achieve profitability.
In certain foreign countries, pricing, coverage and level of reimbursement of prescription drugs are subject to governmental control and we may be unable to negotiate coverage, pricing, and reimbursement on terms that are favorable to us.
In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its
member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the
medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Our results of operation may suffer if we are unable to market our products in foreign
countries or if coverage and reimbursement for our products in foreign countries is limited.
If the testing or use of our products harms people, or is
perceived to harm patients even when such harm is unrelated to our products, our clinical trials may be adversely affected, our regulatory approval process could be delayed, negatively impacted or abandoned, any regulatory approvals could be revoked
or otherwise negatively impacted, and we could be subject to costly and damaging product liability claims.
The testing, manufacturing,
marketing and sale of drugs for use in humans exposes us to product liability risks. Side effects and other problems from using our products could cause serious adverse events and give rise to product liability claims against us. We might have to
withdraw or recall our products from the marketplace. Some of these risks are unknown at this time.
We have tested Soliris™
(eculizumab) in only a small number of patients. If our applications for marketing Soliris™ (eculizumab) are approved and more patients begin to use our product, new risks and side effects associated with Soliris™ (eculizumab) may be
discovered, and risks previously viewed as inconsequential could be determined to be significant. As a result, regulatory authorities may delay or revoke their approvals; we may be required to conduct additional clinical trials, make changes in
labeling of our product, reformulate our product or make changes and obtain new approvals for our and our suppliers’ manufacturing facilities. We may also experience a significant drop in the potential sales of our product if and when
regulatory approvals for Soliris™ (eculizumab) are obtained, experience harm to our reputation in the marketplace or become subject to lawsuits, including class actions. Any of these results could decrease or prevent any sales of Soliris™
(eculizumab) or substantially increase the costs and expenses of commercializing and marketing Soliris™ (eculizumab).
We may be sued
by people who participate in our trials or who use our products. Many patients who participate in our trials or use our products are already very ill. Any informed consents or waivers obtained from people who enroll in our trials or use our products
may not protect us from liability or litigation. Our product liability insurance may not cover all potential types of liabilities or may not cover covered types of liabilities completely. Moreover, we may not be able to maintain our insurance on
acceptable terms. In addition, negative publicity relating to the use of our product or to a product liability claim may make it more difficult, or impossible, for us to recruit patients for our clinical trials or to market and sell our products. As
a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.
Our clinical trials are often conducted with patients who have severe and advanced stages of disease when
they enter our trials. Patients involved in clinical trials such as ours often have known as well as unknown significant pre-existing health risks. During the course of a trial, patients may suffer adverse events, including death, for reasons that
may or may not be related to our products. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients or delay, negatively impact or end our opportunity to receive regulatory approval to
market our products. Even in a circumstance in which we do not believe that an adverse event is related to our product, the investigation into the circumstance may be time consuming or may be inconclusive. These investigations may delay our
regulatory approval process, impact and limit the type of regulatory approvals our products receive, or end our opportunity to receive regulatory approval. PNH patients in our trials sometimes have additional, pre-existing, potentially
life-threatening disease, including for example bone marrow failure.
Some patients who have participated in our PNH trials have died or
suffered potentially life-threatening diseases either during or after ending study-specified treatments. In particular, use of C5 Inhibitors, such as eculizumab, is associated with an increased risk for infection with Neisseria bacteria. Serious
cases of Neisseria infection can result in severe illness, including but not limited to brain damage, loss of limbs or parts of limbs, kidney failure, or death. PNH patients in our TRIUMPH and SHEPHERD trials all received vaccination against the
Neisseria bacteria prior to first administration of eculizumab; however, vaccination does not eliminate all risk of becoming infected with Neisseria bacteria. Some patients in our trials of eculizumab for the treatment of PNH and other diseases have
become infected with Neisseria bacteria, including PNH patients in the open-label extension trial E05-001 who had been vaccinated against Neisseria bacteria. Each such incident has been reported to appropriate regulatory agencies in accordance with
relevant regulations.
We are also aware of a potential risk for PNH patients who delay a dose of Soliris™ (eculizumab) or
discontinue their treatment of Soliris™ (eculizumab). Treatment with Soliris™ (eculizumab) blocks complement and allows complement-sensitive PNH red blood cells to increase in number. If treatment with Soliris™
(eculizumab) is thereafter delayed or discontinued, a greater number of red blood cells therefore would become susceptible to destruction when the patient’s complement system is no longer blocked. The rapid destruction of a larger number
of a patient’s red blood cells may lead to numerous complications, including death. Several PNH patients in our studies of Soliris™ (eculizumab) have received delayed doses or discontinued their treatment. In none of those
circumstances were complications from rapid destruction of a larger number of PNH red blood cells observed to be significant; however, we have not studied the delay or termination of treatment in enough patients to determine
that complications in the future are unlikely to occur. Determination of significant complications associated with the delay or discontinuation of Soliris™ (eculizumab) could have a material adverse effect on our ability to sell
eculizumab for PNH.
If we are unable to engage and retain third-party collaborators, our research and development efforts may be delayed.
We depend upon third-party collaborators to assist us in the development of our product candidates. If any of our existing
collaborators breaches or terminates its agreement with us or does not perform its development work under an agreement in a timely manner, or at all, we would experience significant delays in the development or commercialization of our product
candidates. We would also experience significant delays if we could not engage additional collaborators when required. In either event, we would be required to devote additional funds or other resources to these activities or to terminate them.
Either of these events would divert funds or other resources from other parts of our business.
We cannot assure you that:
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our current collaboration arrangements will continue in their current form;
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we will be able to negotiate acceptable collaborative agreements to develop or commercialize our product candidates;
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any arrangements with third parties will be successful; or
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current or potential collaborators will not pursue treatments for other diseases or seek other ways of developing treatments for our disease targets. If our competitors get to the marketplace before we do with better or cheaper drugs, our drugs may not be profitable to sell or to
continue to develop.
Each of Adprotech Ltd., Avant Immunotherapeutics, Inc., Tanox, Inc., XOMA, Ltd., Novo Nordisk A/S and Archemix
Corporation have publicly announced their intentions to develop drugs which target the inflammatory effects of complement in the immune system. We are also aware that Abbott Laboratories, Inc., Baxter International, Inc., Millennium Pharmaceuticals,
Inc. and Neurogen Corporation, have had programs develop complement inhibitor therapies. Each of AstraZeneca, MorphoSys AG and Dyax Corporation has publicly announced intentions to develop therapeutic human antibodies from libraries of human
antibody genes. Additionally, each of Amgen, Inc. and Medarex, Inc. has publicly announced intentions to develop therapeutic human antibodies from mice that have been bred to include some human antibody genes. These and other pharmaceutical
companies, many of which have significantly greater resources than we, may develop, manufacture, and market better or cheaper drugs than our product candidates. They may establish themselves in the marketplace even before we are able to finish our
clinical trials. Other pharmaceutical companies also compete with us to attract academic research institutions as drug development partners, including for licensing these institutions’ proprietary technology. If our competitors successfully
enter into such arrangements with academic institutions, we will be precluded from pursuing those unique opportunities and may not be able to find equivalent opportunities elsewhere.
If we fail to recruit and retain personnel, our research and product development programs may be delayed.
We are highly dependent upon the efforts of our senior management and scientific personnel, particularly Dr. Leonard Bell, M.D., our Chief Executive Officer and a member of our Board of Directors, David W. Keiser, our President, Chief
Operating Officer and a member of our Board of Directors, and Stephen P. Squinto, Ph.D., our Executive Vice President and Head of Research. There is intense competition in the biotechnology industry for qualified scientific and technical personnel.
Since our business is very science-oriented and specialized, we need to continue to attract and retain such people. We may not be able to continue to attract and retain the qualified personnel necessary for developing our business. We have
employment agreements with Dr. Bell, Mr. Keiser, and Dr. Squinto. None of our key personnel is nearing retirement age or to our knowledge, planning to retire. To our knowledge, there is no tension between any of our key personnel and
the Board of Directors. If we lose the services of our management and scientific personnel and fail to recruit other scientific and technical personnel, our research and product development programs will be materially and adversely affected.
In particular, we highly value the services of Dr. Bell, our Chief Executive Officer. The loss of his services could materially and
adversely affect our ability to achieve our objectives.
We are subject to environmental laws and potential exposure to environmental liabilities.
We are subject to various federal, state and local environmental laws and regulations that govern our operations, including the handling and disposal of
non-hazardous and hazardous wastes, including medical and biological wastes, and emissions and discharges into the environment, including air, soils and water sources. Failure to comply with such laws and regulations could result in costs for
corrective action, penalties or the imposition of other liabilities. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws
and regulations, a current or previous owner or operator of property may be liable for the costs of remediating its property or locations to which wastes were sent from its facilities, without regard to whether the owner or operator knew of, or
necessarily caused, the contamination. Such obligations and liabilities, which to date have not been material, could have a material impact on our business and financial condition.
We may expand our business through acquisitions that could disrupt our business and harm our financial condition.
Our business strategy includes expanding our products and capabilities, and we may seek acquisitions to do so. Acquisitions involve numerous risks, including:
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substantial cash expenditures;
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potentially dilutive issuance of equity securities;
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incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
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difficulties in assimilating the operations of the acquired companies;
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diverting our management’s attention away from other business concerns;
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risks of entering markets in which we have limited or no direct experience; and
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the potential loss of our key employees or key employees of the acquired companies. We cannot assure you that any acquisition will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an
acquired company or business. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions. We cannot assure you that we will be able to make the combination of our
business with that of acquired businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired business or companies may require a substantial capital investment by us. We may not have these
necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our capital stock, which could dilute current stockholders’ ownership interest in our company, or
securities convertible into our capital stock, which could dilute current stockholders’ ownership interest in our company upon conversion.
Our
ability to use net operating loss carry forwards to reduce future tax payments may be limited if there is a change in ownership of Alexion.
As of December 31, 2006, we had approximately $618 million of net operating loss carry forwards, or NOLs, available to reduce taxable income in future years. We believe that some of these NOLs are currently subject to an annual
limitation under section 382 of the Internal Revenue Code of 1986, as amended.
Our ability to utilize our NOLs may be further limited if we undergo an ownership change, as defined in
section 382, as a result of subsequent changes in the ownership of our outstanding stock. We would undergo an ownership change if, among other things, the stockholders, or group of stockholders, who own or have owned, directly or indirectly, 5% or
more of the value of our stock, or are otherwise treated as 5% stockholders under section 382 and the regulations promulgated there under, increase their aggregate percentage ownership of our stock by more than 50 percentage points over the lowest
percentage of our stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In the event of an ownership change, section 382 imposes an annual
limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs. The limitation imposed by section 382 for any post-change year would be determined by multiplying the value of our stock
immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Any unused limitation may be carried over to later years, and the limitation may under certain circumstances be increased by
built-in gains which may be present with respect to assets held by us at the time of the ownership change that are recognized in the five-year period after the ownership change. Our use of NOLs arising after the date of an ownership change would not
be affected.
Risks Related to Our Industry
We are subject to extensive government regulation, and, if we do not obtain and maintain regulatory approvals, we will not be able to sell our drug products.
We and our partners cannot sell or market our products without regulatory approval. If we or our partners do not obtain and maintain regulatory approval
for our products, the value of our company and our results of operations will be harmed. In the United States, we or our partners must obtain and maintain approval from the FDA for each indication for each drug that we intend to sell and for each
facility where such drug is manufactured. Obtaining FDA approval is typically a lengthy and expensive process, and approval is highly uncertain. Foreign governments also regulate drugs distributed outside the United States and facilities outside the
United States where such drugs are manufactured, and obtaining their approvals can also be lengthy, expensive and highly uncertain. The approval process varies from country to country and the requirements governing the conduct of clinical trials,
product manufacturing, product licensing, pricing and reimbursement vary greatly from country to country. In certain foreign jurisdictions we would be required to obtain pricing approvals prior to marketing our products. None of our product
candidates has received regulatory approval to be marketed and sold in the United States or any other country. We may not receive regulatory approval for any of our product candidates for at least the next several years, if ever.
We and our partners, contract manufacturers and suppliers are subject to rigorous and extensive regulation by the FDA, other federal and state agencies,
and governmental authorities in other countries. These regulations apply both before and after approval of our product candidates, if our product candidates are ever approved, and cover, among other things, testing, manufacturing, quality control,
labeling, advertising, promotion, and export of biologics. As a condition of approval for marketing our product, FDA, or governmental authorities in other countries may require us to conduct additional clinical trials. Our manufacturing and other
facilities and those of any third parties manufacturing our products will be subject to inspection prior to grant of marketing approval and subject to continued review and periodic inspections by the regulatory authorities. Any third party we would
use to manufacture our products for sale must also be licensed by applicable regulatory authorities. Failure to
comply with the laws, including statutes and regulations, administered by the FDA or other agencies could result in:
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administrative and judicial sanctions, including, warning letters;
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fines and other civil penalties;
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delays in approving or refusal to approve a product candidate;
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withdrawal of a previously granted approval;
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product recall or seizure;
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interruption of production;
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operating restrictions;
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injunctions; and
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criminal prosecution. The discovery
of previously unknown problems with a product or the facility used to produce the product could result in a regulatory authority imposing restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or
more of our products or services from the market.
We may be unable to obtain necessary regulatory approvals in the United States and
foreign countries on a timely basis, if at all, for any of our product candidates or maintain such approvals if obtained. Any delays in obtaining necessary regulatory approvals or failure to maintain them could prevent us from marketing our
products.
The FDA has granted orphan drug designation for eculizumab in the treatment of PNH and membranous nephritis. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the FDA review and approval process. If a product which has an orphan drug designation is the first drug of its type to receive FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years, except in limited circumstances.
If our drug trials are delayed or achieve unfavorable results, we will have to delay or may be unable to obtain regulatory approval for our products.
We must conduct extensive testing of our product candidates before we can obtain regulatory approval for our products. We need to conduct both
preclinical animal testing and clinical human trials. These tests and trials may not achieve favorable results. The FDA typically requires two well controlled clinical trials that demonstrate efficacy in order to obtain FDA approval to market a
product candidate. The special protocol assessment for our development of Soliris™ (eculizumab) for PNH provides for only a single efficacy trial and the FDA has indicated that the trials should provide compelling evidence of clinically
meaningful benefit in order to warrant consideration for marketing approval. The FDA has noted that a study that is merely statistically positive may not provide the evidence necessary to support filing or approval of a product candidate.
The FDA and other regulatory agencies may require additional information or data prior to and after acceptance of our BLA and MAA for
Soliris™ (eculizumab) for PNH. We may have to conduct additional lengthy clinical testing and other costly and time-consuming procedures. Inconclusive or negative final data from
our 12 month Phase III SHEPHERD trial would have a significant negative impact on our prospects. Even if we view the data as positive, the FDA may not agree
with our interpretations of our clinical trial data for Soliris™ (eculizumab) and may decide that our results are not adequate to support approval for marketing of Soliris™ (eculizumab). In those circumstances, we would not be able to
obtain regulatory approval on a timely basis, if ever. Even if approval is granted, the approval may require limitations on the indicated uses for which the drug may be marketed. In addition to the FDA and other regulatory agency regulations in the
United States, we are subject to a variety of foreign regulatory requirements governing human clinical trials, marketing and approval for drugs, and commercial sales and distribution of drugs in foreign countries. The foreign regulatory approval
process includes all of the risks associated with FDA approval as well as country-specific regulations. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign
countries before we can commence clinical trials or marketing of the product in those countries.
Completion of clinical trials does not guarantee
advancement to the next phase of development.
Completion of clinical trials does not guarantee that we will initiate additional trials
for our product candidates, that if the trials are initiated what the scope and phase of the trial will be or that they will be completed, or that if the trials are completed, that the results will provide a sufficient basis to proceed with further
trials or to apply for or receive regulatory approvals or to commercialize products. Results of trials could be inconclusive, requiring additional or repeat trials. If the results achieved in our clinical trials are insufficient to proceed to
further trials or to regulatory approval of our product candidates, our company could be materially adversely affected. Failure of a trial to achieve its pre-specified primary endpoint generally increases the likelihood that additional studies will
be required if we determine to continue development of the product candidate, reduces the likelihood of timely development of and regulatory approval to market the product candidate, and may decrease the chances for successfully achieving the
primary endpoint in scientifically similar indications.
There are many reasons why drug testing could be delayed or terminated.
For human trials, patients must be recruited and each product candidate must be tested at various doses and formulations for each clinical indication. In
addition, to ensure safety and effectiveness, the effect of drugs often must be studied over a long period of time, especially for the chronic diseases that we are studying. Unfavorable results or insufficient patient enrollment in our clinical
trials could delay or cause us to abandon a product development program. We may decide to abandon development of a product candidate at any time, or we may have to spend considerable resources repeating clinical trials or conducting additional
trials, either of which would increase costs and delay any revenue from those product candidates, if any.
Additional factors that can
cause delay, impairment or termination of our clinical trials or our product development efforts include:
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slow patient enrollment, including for example due to the rarity of the disease being studied;
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long treatment time required to demonstrate effectiveness;
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lack of sufficient supplies of the product candidate;
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disruption of operations at the clinical trial sites;
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adverse medical events or side effects in treated patients;
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the failure of patients taking the placebo to continue to participate in our clinical trials;
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insufficient clinical trial data to support effectiveness of the product candidates;
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lack of effectiveness of the product candidate being tested;
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lack of sufficient funds;
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inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner; or
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failure to obtain the necessary regulatory approvals for the product candidate or the approvals for the facilities in which such product candidate is manufactured. Risks Related to Intellectual Property
If we cannot protect the confidentiality and proprietary nature of our trade secrets, our business and competitive position will be harmed.
Our business requires using sensitive technology, techniques and proprietary compounds that we protect as trade secrets. However, since we are a small
company, we also rely heavily on collaboration with suppliers, outside scientists and other drug companies. Collaboration presents a strong risk of exposing our trade secrets. If our trade secrets were exposed, it would help our competitors and
adversely affect our business prospects.
In order to protect our drugs and technology more effectively, we need to obtain and maintain
patents covering the drugs and technologies we develop. We may obtain patents through ownership or license. Our drugs are expensive and time-consuming to test and develop. Without patent protection, competitors may copy our methods, or the chemical
structure or other aspects of our drugs. Even if we obtain and maintain patents, the patents may not be broad enough to protect our drugs from copycat products.
If we are found to be infringing on patents owned by others, we may be forced to pay damages to the patent owner and obtain a license to continue the manufacture, sale or development of our drugs and/or pay damages. If we cannot obtain a
license, we may be prevented from the manufacture, sale or development of our drugs.
Parts of our technology, techniques and
proprietary compounds and potential drug candidates, including those which are in-licensed, may be found to infringe patents owned by or granted to others. If we cannot resolve these conflicts, we may be liable for damages, be required to obtain
costly licenses or be stopped from manufacturing, using or selling our products or conducting other activities. For example, we are aware of broad patents owned by others relating to the manufacture, use and sale of recombinant humanized antibodies,
recombinant humanized single chain antibodies, recombinant human antibodies, and recombinant human single chain antibodies. Many of our product candidates, including our lead product candidate, eculizumab, are either genetically engineered
antibodies, including recombinant humanized antibodies, recombinant humanized single chain antibodies, recombinant human antibodies, or recombinant human single chain antibodies.
We have received notices from the owners of some of these patents claiming that their patents may be infringed by the development, manufacture or sale of
some of our drug candidates, including eculizumab. We are also aware of other patents owned by third parties that might be claimed to be infringed by the development and commercialization of some of our drug candidates, including eculizumab. In
respect to some of these patents, we
have obtained licenses, or expect to obtain licenses. However, with regard to other patents, we have either determined in our judgment that:
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we believe our products do not infringe the patents;
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we do not believe the patents are valid; or
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we have identified and are testing various modifications that we believe should not infringe the patents and which should permit commercialization of our product
candidates. Any holder of these patents or other patents covering similar technology could sue us for damages and seek
to prevent us from manufacturing, selling or developing our drugs. Legal disputes can be costly and time consuming to defend. If any patent holder successfully challenges our judgment that our products do not infringe their patents or that their
patents are invalid, we could be required to pay costly damages or to obtain a license to sell or develop our drugs. A required license may be costly or may not be available on acceptable terms, if at all. A costly license, or inability to obtain a
necessary license, could have a material adverse effect on our business.
There can be no assurance that we would prevail in a patent
infringement action; will be able to obtain a license to any third-party patent on commercially reasonable terms; successfully develop non-infringing alternatives on a timely basis; or license alternative non-infringing technology, if any exists, on
commercially reasonable terms. Any impediment to our ability to manufacture or sell approved forms of our product candidates could have a material adverse effect on our business and prospects.
Risks Related to Our Common Stock
If the trading price of our common stock continues to
fluctuate in a wide range, our stockholders will suffer considerable uncertainty with respect to an investment in our common stock.
The
trading price of our common stock has been volatile and may continue to be volatile in the future. Factors such as announcements of fluctuations in our or our competitors’ operating results or clinical or scientific results, fluctuations in the
trading prices or business prospects of our competitors and collaborators, changes in our prospects, particularly with respect to regulatory approval of Soliris™ (eculizumab), and market conditions for biotechnology stocks in general could have
a significant impact on the future trading