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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 0-19267
ALKERMES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2472830
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
64 Sidney Street, Cambridge, MA 02139-4234
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 494-0171
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share ("Common Stock")
3 3/4% Convertible Subordinated Notes Due 2007
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Based upon the last sale price of the Registrant's Common Stock on June 6,
2001, the aggregate market value of the 59,967,618 outstanding shares of voting
and non-voting common equity held by non-affiliates of the Registrant was
$2,056,889,297.
As of June 6, 2001, 63,303,238 shares of the Registrant's Common Stock were
issued and outstanding, and 382,632 shares of the Registrant's Non-Voting Common
Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Report on Form 10-K:
1) Definitive Proxy Statement to be filed within 120 days after March 31,
2001 for the Registrant's Annual Shareholders' Meeting to be held on
July 26, 2001 (Part III).
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PART I
ITEM 1. BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors. See "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Forward-Looking Statements."
GENERAL
Alkermes, Inc. (together with its subsidiaries, referred to as "we", "us"
or the "Registrant"), a Pennsylvania corporation organized in 1987, is a leader
in the development of products based on sophisticated drug delivery
technologies. We have several areas of focus, including: (i) controlled,
sustained-release of injectable drugs lasting several days to several weeks,
utilizing our ProLease(R) and Medisorb(R) technologies and (ii) the development
of pharmaceutical products based on our proprietary Advanced Inhalation Research
("AIR(TM)") pulmonary technology. Our first product, Nutropin Depot(TM) was
launched in the United States by our partner, Genentech, Inc. ("Genentech"), in
June 2000. Nutropin Depot is a long-acting form of Genentech's recombinant human
growth hormone using our ProLease technology. Our other technologies and product
candidates are in various stages of preclinical and clinical development.
OVERVIEW OF DRUG DELIVERY
Drug delivery technologies can improve the way a therapeutic drug is
administered to a patient. Products utilizing drug delivery technologies are
generally novel, cost-effective dosage forms that provide any of several
benefits, including control of drug concentration in the blood, improved safety
and efficacy, improved patient compliance and ease of use and expanded
indications. Drug delivery technologies can provide pharmaceutical companies
with a means of developing new products, as well as expanding existing drug
franchises. In addition, companies with patented drug delivery systems can apply
their technologies to off-patent or proprietary products to develop drugs for
their own account.
The drug delivery industry emerged to address the opportunities for
improved delivery of traditional pharmaceutical compounds. These compounds are
generally stable, small molecules manufactured by conventional synthetic
methods, for which oral or transdermal (through the skin) delivery could be
enabled or enhanced by drug delivery technologies. Technologies such as passive
transdermal systems (patches) and improved tablets and capsules have been
developed and successfully applied to a range of pharmaceutical products. In
addition, certain traditional small molecule pharmaceuticals are delivered by
means of encapsulation in polymeric microspheres.
With the advent of biotechnology, new opportunities in drug delivery have
arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. At the same time, the scientific tools of biotechnology have enabled new
approaches to drug delivery based on exploiting particular biological phenomena,
for example, utilizing the lung for systemic delivery of proteins and peptides.
Proteins and peptides present drug delivery challenges because they are
often large molecules which degrade rapidly in the bloodstream, have limited
ability to cross cell membranes and generally cannot be delivered orally. As a
result, many biopharmaceuticals must be administered by injection, often
multiple times per day or per week. Consequently, the methods of administration
of biopharmaceuticals
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can limit their clinical applications to certain disease states that warrant the
expense and inconvenience of frequent injection.
Delivery of drugs via the lungs also presents challenges. The effectiveness
of pulmonary dosage forms is often limited by the poor efficiency of pulmonary
devices and the difficulty of administering high doses of certain drugs.
Additionally, drugs that act systemically require deposition in the deep lung,
which can lead to the use of complicated and expensive devices.
BUSINESS STRATEGY
We are building a pharmaceutical company in logical steps, using our unique
drug delivery capabilities and technologies as the means to develop our first
commercial products. First with partners, then on our own. The key elements to
our strategy are:
Develop and Acquire Broadly Applicable Drug Delivery Systems and Apply Them
to Multiple Pharmaceutical Products. We develop or acquire drug delivery systems
that have the potential to be applied to multiple proteins, peptides and small
molecule pharmaceutical compounds to create new product opportunities.
Collaborate with Pharmaceutical and Biotechnology Companies to Develop and
Finance Product Candidates. We have entered into multiple collaborations with
pharmaceutical and biotechnology companies to develop product candidates
incorporating our technologies, to provide funding for product development
independent of capital markets and to share development risk. Currently, we are
collaborating with major pharmaceutical and biotechnology companies, including
Amylin Pharmaceuticals, Inc. ("Amylin"), Eli Lilly and Company ("Lilly"),
Genentech, GlaxoSmithKline, Janssen Pharmaceutica International ("Janssen"),
MedImmune, Inc. ("MedImmune") and Serono S.A. ("Serono").
Apply Drug Delivery Systems to Both Approved Drugs and Drugs in
Development. We are applying our drug delivery technologies to novel
applications and formulations of pharmaceutical products that have already been
approved by the United States Food and Drug Administration ("FDA") or other
regulatory authorities. In such cases, we and our partners can develop a novel
dosage form or application with the knowledge of a drug's safety and efficacy
profile and a body of clinical experience from which to draw information for the
design of clinical trials and for regulatory submissions. We are also applying
our technologies to pharmaceuticals in development that could benefit from one
of our delivery systems.
Establish Independent Product Development Capabilities and Infrastructure.
Based on the knowledge we assembled from our pharmaceutical partners, our
experienced scientists have built our in-house product development organization
that enables us to develop product candidates for our collaborators and for
ourselves. Our product development experience and infrastructure gives us
flexibility in structuring development programs and the ability to conduct both
feasibility studies and clinical development programs for our collaborators and
for ourselves.
Expand Our Pipeline with Additional Product Candidates for Our Own Account.
We are now developing product candidates for our own account by applying our
drug delivery technologies to certain off-patent pharmaceuticals. For example,
we are developing a Medisorb formulation of naltrexone for the treatment of
alcoholism and opiate abuse and a long-acting formulation of albuterol for the
treatment of asthma using our AIR technology. In addition, we may in-license or
acquire certain compounds to develop on our own.
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DRUG DELIVERY TECHNOLOGY
Our current focus is on the development of broadly applicable drug delivery
technologies addressing several important drug delivery opportunities, including
injectable sustained-release of proteins, peptides and small molecule
pharmaceutical compounds, the pulmonary delivery of both small molecules and
proteins and peptides and drug delivery to the brain across the blood-brain
barrier. We are applying delivery technologies to develop product candidates for
our collaborators and for our own account.
ProLease: injectable sustained-release of fragile proteins and peptides
ProLease is our proprietary technology for the stabilization and
encapsulation of fragile proteins and peptides in microspheres made of common
medical polymers. Our proprietary expertise in this field lies in our ability to
preserve the biological activity of fragile drugs over an extended period of
time and to manufacture these formulations using components and processes
believed to be suitable for human pharmaceutical use. ProLease is designed to
enable novel formulations of proteins and peptides by replacing frequent
injections with controlled, sustained-release over time. We believe ProLease
formulations have the potential to improve patient compliance and ease of use by
reducing the need for frequent self-injection, to lower costs by reducing the
need for frequent office visits and to improve safety and efficacy by reducing
both the variability in drug levels inherent in frequent injections and the
aggregate amount of drug given over the course of therapy. In addition, ProLease
may provide access to important new markets currently inaccessible to drugs that
require frequent injections or are administered orally.
The ProLease formulation process has been designed to assure stability of
fragile compounds during the manufacturing process, during storage and
throughout the release phase in the body. The formulation and manufacturing
process consists of two basic steps. First, the drug is formulated with
stabilizing agents and dried to create a fine powder. Second, the powder is
microencapsulated in the polymer at very low temperatures. Incorporation of the
drug substance as a stabilized solid under very low temperatures is critical to
protecting fragile molecules from degradation during the manufacturing process
and is a key element of the ProLease technology. The microspheres are suspended
in a small volume of liquid prior to administration to a patient by injection
under the skin or into a muscle. We believe drug release from the ProLease drug
delivery system can be controlled to last from a few days to several months.
Drug release from the microsphere is controlled by diffusion of the drug
through the microsphere and by biodegradation of the polymer. These processes
can be modulated through a number of formulation and fabrication variables,
including drug substance and microsphere particle sizing and choice of polymers
and excipients.
Our experience with the application of ProLease to a wide range of proteins
and peptides has shown that high incorporation efficiencies and high drug loads
can be achieved. Proteins and peptides incorporated into ProLease microspheres
have maintained their integrity, stability and biological activity for up to 30
days in in vitro experiments conducted on formulations manufactured at the
preclinical, clinical trial and commercial scale.
Medisorb: injectable sustained-release of traditional small molecule
pharmaceuticals
Medisorb is our proprietary technology for encapsulating traditional small
molecule pharmaceuticals in microspheres made of common medical polymers. Like
ProLease, Medisorb is designed to enable novel formulations of pharmaceuticals
by providing controlled, sustained-release over
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time. We believe Medisorb is suitable for encapsulating stable, small molecule
pharmaceuticals at a large scale. We believe that Medisorb formulations may have
superior features of safety, efficacy, compliance and ease of use for drugs
currently administered by frequent injection or administered orally. Drug
release from the microsphere is controlled by diffusion of the pharmaceutical
through the microsphere and by biodegradation of the polymer. These processes
can be modulated through a number of formulation and fabrication variables,
including drug substance and microsphere particle sizing and choice of polymers
and excipients.
The Medisorb drug delivery system uses manufacturing processes different
from the ProLease manufacturing process. The formulation and manufacturing
process consists of three basic steps. First, the drug is combined with a
polymer solution. Second, the drug/polymer solution is mixed in water to form
liquid microspheres (an emulsion). Third, the liquid microspheres are dried to
produce finished product. The microspheres are suspended in a small volume of
liquid prior to administration to a patient by injection under the skin or into
a muscle. We believe drug release from the Medisorb system can be controlled to
last from a few days to several months.
AIR: pulmonary drug delivery
The AIR technology is our proprietary pulmonary delivery system that
enables the delivery of both small molecules and macromolecules to the lungs.
Our proprietary technology allows us to formulate drugs into dry powders made up
of highly porous particles with low mass density. These particles can be
efficiently delivered to the deep lung by a small, simple inhaler. The AIR
technology is useful for small molecules, proteins or peptides and allows for
both local delivery to the lungs and systemic delivery via the lungs.
AIR particles can be aerosolized and inhaled efficiently with simple
inhaler devices because low forces of cohesion allow the particles to
deaggregate easily. AIR is developing a family of relatively inexpensive,
compact, easy to use inhalers. The AIR devices are breath activated and made
from injection molded plastic. The powders are designed to quickly discharge
from the device over a range of inhalation flow rates, which may lead to low
patient-to-patient variability and high lung deposition of the inhaled dose. By
varying the ratio and type of excipients used in the formulation, we believe we
can deliver a range of drugs from the device that may provide both immediate and
sustained release.
Cereport(R): drug delivery across the blood-brain barrier
Cereport is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability.
Cereport is a proprietary, synthetic analog of bradykinin developed by us to
increase transiently the permeability of the blood-brain barrier. Following
injection, Cereport increases permeability by triggering a brief relaxation of
the tight cellular junctions of the blood-brain barrier. During the time the
tight junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without Cereport. Preclinical and clinical data also suggest
that Cereport increases the uptake of pharmaceuticals in the region of brain
tumor and other pathology.
Cereport exerts a pharmacologic effect on the vasculature of the brain and
does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. Cereport is intended to be marketed as an independent
agent to increase the utility of other therapeutic and diagnostic compounds
given with it. In the clinical setting, Cereport is administered in conjunction
with the therapeutic or diagnostic agent. Timing of Cereport administration
relative to that of the therapeutic or diagnostic agent is determined on a
drug-by-drug basis to optimize barrier permeability during the time of peak drug
plasma concentrations.
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PRODUCT CANDIDATES IN DEVELOPMENT
The following table summarizes the primary indications, technology,
development stage and collaborative partner for our product candidates. This
table is qualified in its entirety by reference to the more detailed
descriptions appearing elsewhere in this Form 10-K. The results from preclinical
testing and early clinical trials may not be predictive of results obtained in
subsequent clinical trials and there can be no assurance that our or our
collaborators' clinical trials will demonstrate the safety and efficacy of any
product candidates necessary to obtain regulatory approval.
PRODUCT CANDIDATE INDICATION TECHNOLOGY STAGE(1) COLLABORATIVE PARTNER
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Nutropin Depot Growth Hormone ProLease Marketed Genentech
(hGH) Deficiency - Pediatric
RISPERDAL(R) Schizophrenia Medisorb Phase III Janssen
completed
Nutropin Depot Growth Hormone ProLease Phase II/III Genentech
(hGH) Deficiency - Adults
Albuterol Asthma AIR Phase II Alkermes
Cereport and Carboplatin Metastatic Brain Tumor Cereport Phase II Alkermes Clinical
completed Partners, L.P.
("Clinical
Partners")(2)
Cereport and Carboplatin Recurrent Malignant Cereport Phase II Clinical Partners(2)
Glioma completed
Medisorb Naltrexone Alcoholism and Medisorb Phase I/II Alkermes(3)
Opiate Abuse
Cereport and Carboplatin Pediatric Brain Tumor Cereport Phase I/II(4) Clinical Partners(2)
r-hFSH (recombinant Infertility ProLease Phase I Serono
human follicle completed
stimulating hormone)
Exendin-4 (AC2993) Diabetes Medisorb Phase I Amylin
Insulin Diabetes AIR Clinical phase Lilly
undisclosed
Multiple small molecule Respiratory Disease AIR Preclinical GlaxoSmithKline
products
hGH Growth Hormone AIR Preclinical Lilly
Deficiency
Monoclonal antibody RSV AIR Preclinical MedImmune
Others Various AIR, Medisorb Preclinical Undisclosed
and ProLease
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(1) See "Government Regulation" for definitions of "Phase I," "Phase II" and
"Phase III" clinical trials. "Phase I/II" clinical trials indicates that
the compound is being tested in humans for safety and preliminary
indications of biological activity in a limited patient population. "Phase
II/III" clinical trials indicates that the trial is being conducted in
patients and is testing the safety and efficacy of the compound.
"Preclinical" indicates that we or our partners are conducting formulation,
efficacy, pharmacology and/or toxicology testing of a compound in animal
models or biochemical assays.
(2) ALZA Corporation ("ALZA") has an option to obtain co-development and
worldwide marketing rights to Cereport pursuant to an agreement entered
into as of September 1997.
(3) This program has been funded in part with federal funds from the National
Institute on Alcohol Abuse and Alcoholism, National Institutes of Health.
(4) This clinical trial is being sponsored and conducted by the Pediatric
Branch of the National Cancer Institute.
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PROLEASE
Product Development Strategy. Our strategy is to generate multiple
partnered and proprietary product opportunities by applying ProLease technology
to the development of superior formulations of proteins and peptides that we
believe address significant market opportunities. We believe these formulations
have the potential to expand the utilization of these products and improve the
competitive advantage to us and our collaborators in major markets.
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, we, either on our own or pursuant
to a collaboration, conduct initial feasibility work to test various ProLease
formulations for a particular drug in vitro and in vivo. Second, following the
successful completion of the feasibility stage, preclinical development and
manufacturing scale-up activities directed toward the initiation of clinical
trials of the ProLease formulation are conducted in collaboration with a partner
or on our own. See "Collaborative Arrangements."
ProLease Recombinant Human Growth Hormone. We have developed a ProLease
formulation of Genentech's rhGH, known as Nutropin Depot, in collaboration with
Genentech. In December 1999, the FDA approved Nutropin Depot for use in growth
hormone deficient children and, in June 2000, Nutropin Depot was commercially
launched. This new formulation requires only one or two doses a month (which may
require more than one injection per dose) compared to current growth hormone
therapies, that require multiple doses per week. For instance, rhGH is currently
administered frequently, often daily, by subcutaneous injection. Growth hormone
deficiency ("GHD") results in short stature and potentially other developmental
defects. Genentech is the leading supplier of rhGH in the United States. rhGH is
approved for use in the treatment of children with growth hormone deficiency,
Turner's syndrome, chronic renal insufficiency and other indications and is
being tested in an additional indication in adults.
Genentech is marketing Nutropin Depot in the United States and has
announced its commitment to seek a partner for marketing Nutropin Depot outside
the United States. We are conducting the manufacturing operations that convert
Genentech's Nutropin bulk product into the long-acting dosage form.
The GHD market is highly competitive and we cannot assure you that the
marketing and sales of Nutropin Depot will be successful or that it will gain
significant market share. Additionally, we cannot assure you that we will be
able to continue to manufacture Nutropin Depot on a commercial scale or
economically, or that we will be able to derive significant revenues from sales
of Nutropin Depot. If we cannot continue to manufacture Nutropin Depot on a
commercial scale or economically or if we do not derive significant revenues
from Nutropin Depot, a material adverse effect on our business and financial
position could occur.
We and Genentech have also agreed to continue the clinical development for
Nutropin Depot in adults with growth hormone deficiency. This decision follows
completion of a Phase I trial of Nutropin Depot in growth hormone deficient
adults. We will conduct a Phase II/III clinical trial, funded by Genentech,
which we anticipate will commence in calendar year 2001.
r-hFSH (Recombinant Human Follicle Stimulating Hormone). We are developing
a ProLease formulation of r-hFSH with Serono. The product development program
for this product candidate was announced in January 2000 after the completion of
a feasibility study. This product candidate has successfully completed a Phase I
trial. Serono has decided to move forward with the development of the product
candidate. Serono is responsible for clinical studies for this program and will
be responsible for further clinical development, if any.
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Additional ProLease Formulations. We continue to develop ProLease
formulations of other undisclosed compounds pursuant to feasibility agreements
with several pharmaceutical and biotechnology companies and for our own account.
MEDISORB
Product Development Strategy. Our strategy is to generate multiple product
opportunities by applying our Medisorb technology to the development of superior
formulations of small molecule pharmaceutical products. We believe these
formulations have the potential to expand the utilization of these products and
improve the competitive advantage of our collaborators in major markets.
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, we, either on our own or pursuant
to a collaboration, conduct initial feasibility work to test various Medisorb
formulations for a particular drug in vitro and in vivo. Following the
successful completion of the feasibility stage, preclinical development and
manufacturing scale-up activities directed toward the initiation of clinical
trials of the Medisorb formulation are conducted in collaboration with a partner
or on our own. See "Collaborative Arrangements."
RISPERDAL. We are developing and manufacturing a Medisorb sustained-release
formulation of Janssen's anti-psychotic drug RISPERDAL. Janssen is an affiliate
of Johnson & Johnson. In February 2001, Janssen notified us of the positive
results of two multi-center Phase III clinical trials of an intra-muscular
("IM") injectable sustained-release formulation of RISPERDAL. With the
completion of the Phase III clinical trials, we and Janssen are preparing for
the expected submissions to regulatory agencies, including the FDA. We will
manufacture the Medisorb formulation of RISPERDAL for any future clinical trials
and commercial sales, if any. Janssen will continue to provide funding to us as
we continue the development of Medisorb RISPERDAL and as we prepare to be the
commercial manufacturer.
Naltrexone. We are developing and manufacturing a Medisorb formulation of
naltrexone, an FDA-approved drug used for the treatment of alcoholism and opiate
abuse and currently available in daily oral dosage form. In April 2001, we
announced the initiation of enrollment in the second, multi-center clinical
trial of Medisorb Naltrexone. The trial will test the safety, tolerability and
pharmacokinetics of repeated doses of Medisorb Naltrexone administered monthly
to alcohol-dependent patients. The clinical trial follows the successful
completion of a single-dose safety and pharmacokinetic clinical assessment of
the drug in normal volunteers conducted in the second half of calendar year
2000. We will manufacture Medisorb Naltrexone for both clinical trials and
commercial sales, if any.
AC2993 (synthetic Exendin-4). In May 2000, we signed a development and
license agreement with Amylin for the development of a Medisorb formulation of
AC2993, a drug being developed for use in the treatment of type 2 diabetes. Our
Medisorb formulation of AC2993 is currently in Phase I clinical trials. We will
manufacture the Medisorb formulation of AC2993 for both clinical trials and
commercial sales, if any.
Additional Medisorb formulations. We continue to develop Medisorb
formulations of other undisclosed compounds pursuant to feasibility agreements
with pharmaceutical and biotechnology companies and for our own account.
AIR
Product Development Strategy. Our strategy is to generate multiple product
opportunities by applying the AIR technology to the development of superior
pulmonary formulations of small molecules
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and proteins and peptides. We believe these formulations have the potential to
expand the utilization of these products and improve the competitive advantage
of our collaborators in major markets.
The product development plan for individual AIR formulations is expected to
proceed in several stages. First, we, either on our own or pursuant to a
collaboration, conduct initial feasibility work to test various AIR formulations
for a particular drug in vitro and in vivo. Following the successful completion
of the feasibility stage, preclinical development and manufacturing scale-up
activities directed toward the initiation of clinical trials of the AIR
formulation would be conducted in collaboration with a partner or on our own.
Albuterol. We have formulated and are currently conducting a Phase II
clinical trial for our proprietary AIR formulation of albuterol sulfate, which
is designed to provide both immediate and long-term relief from asthma symptoms.
We will manufacture the AIR formulation of albuterol for both clinical trials
and commercial sales, if any.
Lilly. In April 2001, we signed a development and license agreement with
Lilly to develop inhaled formulations of insulin including short- and
long-acting insulin and other potential products for the treatment of diabetes
based on our AIR pulmonary drug delivery technology. A short-acting formulation
is currently in clinical development. We will manufacture the formulations of
insulin for clinical trials and Lilly will manufacture such products for
commercial sales, if any.
GlaxoSmithKline. In May 2000, we signed a development and license agreement
with GlaxoSmithKline to develop certain product candidates for the treatment of
four designated fields of respiratory diseases based on our AIR pulmonary drug
delivery technology. This agreement followed the completion of a twelve-month
feasibility program with GlaxoSmithKline. We are currently in the preclinical
stage of development. We and GlaxoSmithKline each have certain rights and
obligations with regard to manufacturing any formulations for commercial sales,
if any.
Lilly. In February 2000, we signed a development and license agreement with
Lilly to develop an inhaled formulation of human growth hormone based on our AIR
pulmonary drug delivery technology. The agreement followed the completion of a
nine-month feasibility program conducted by the two companies. The formulation
is currently in the preclinical stage of development. We will manufacture the
formulation of human growth hormone for both clinical trials and commercial
sales, if any.
MedImmune. In June 2000, we signed a development and license agreement with
MedImmune to develop an AIR formulation of a monoclonal antibody for the
treatment of respiratory syncytial virus ("RSV"). The formulation is currently
in the preclinical stage of development. We will manufacture the formulation of
the monoclonal antibody for both clinical trials and commercial sales, if any.
Additional AIR Formulations. We continue to develop AIR formulations of
other undisclosed compounds pursuant to feasibility agreements with undisclosed
partners and for our own account.
CEREPORT
Product Development Strategy. Our strategy to date has been to advance
Cereport through clinical trials while establishing its safety, permeability
effects in humans and efficacy when used in combination with other drugs. To
support the clinical development of Cereport, we formed and transferred
substantially all of our rights to the Cereport technology to Clinical Partners,
which completed a $46.0 million unit offering in April 1992. We have the option
to purchase all of the limited partnership interests in Clinical Partners. As of
September 30, 1997, we entered into an agreement with ALZA pursuant to which
ALZA has an option to obtain exclusive worldwide commercialization rights to
Cereport, subject
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to the rights of Clinical Partners. See "Collaborative Arrangements -- Clinical
Partners" and "Collaborative Arrangements -- ALZA."
Clinical Trials. We have completed Phase II clinical trials of Cereport and
carboplatin in patients with recurrent malignant glioma and metastatic brain
tumors. The Pediatric Branch of the National Cancer Institute ("NCI") has
completed one study and is conducting two other studies of Cereport in pediatric
patients. The first study began in August 1996 and enrolled 25 patients. The
study was a non-controlled, open label Phase I/II clinical trial of intravenous
Cereport and carboplatin in pediatric brain tumor patients who have failed other
therapies. The study was completed in August 1999. The second study began in
June 1998 and is a Phase II multi-center study in pediatric brain tumor
patients. Ten centers are enrolling up to a total of 146 children over a two- to
four-year period. The third study began in April 2001 and is a Phase I/II
multi-center study in pediatric patients with brainstem glioma. Ten centers are
enrolling up to a total of 60 children over a two- to four-year period.
COLLABORATIVE ARRANGEMENTS
Our business strategy includes forming collaborations to provide
technological, financial, marketing, manufacturing and other resources. We have
entered into several corporate collaborations.
GENENTECH
In November 1996, Genentech exercised its option to obtain from us a
license for a ProLease formulation of rhGH. In April 1999, Alkermes and
Genentech amended and restated the license agreement to expand our collaboration
for Nutropin Depot, an injectable long-acting formulation of Genentech's
recombinant human growth hormone based upon our ProLease drug delivery system.
Nutropin Depot for pediatric use was launched in June 2000 by Genentech. Under
the agreement, we and Genentech have been conducting expanded development
activities, including clinical trials in an additional indication (adult growth
hormone deficiency), process development and manufacturing. We will be
responsible for conducting additional clinical trials and manufacturing for
Nutropin Depot for the adult indication and are to receive manufacturing
revenues and royalties on product sales in this indication, if any.
Genentech has the right to terminate the agreement for any reason upon six
months' written notice. In addition, either party may terminate the agreement
upon the other party's material default which is not cured within 90 days of
written notice, or upon the other party's insolvency or bankruptcy.
In April 2001, we executed a Manufacture and Supply Agreement with
Genentech for the manufacture and supply of Nutropin Depot to Genentech for
commercial sales. Pursuant to the terms of the agreement we are the sole
supplier and manufacturer of Nutropin Depot. The Manufacture and Supply
Agreement terminates on expiration of the license agreement. In addition, either
party may terminate the agreement upon a material breach by the other party
which is not cured within 90 days' written notice, upon 60 days' written notice
in the event of the other party's insolvency or bankruptcy or upon 90 days'
written notice in the event a force majure event occurs and continues for more
than six months.
In connection with the expanded collaboration in April 1999, Genentech
purchased 3,500 shares of our 1999 redeemable convertible exchangeable preferred
stock for an aggregate purchase price of $35 million. The proceeds from the sale
of our 1999 preferred stock were used to fund our expanded rhGH program for
calendar years 1999 and 2000. In February 2000, Genentech exercised its option
to convert the 1999 convertible preferred stock together with accrued and unpaid
dividends into 322,376 shares of our common stock and 382,632 shares of our
non-voting common stock.
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JANSSEN
Pursuant to a development agreement, we are collaborating with Janssen, an
affiliate of Johnson & Johnson, in the development of a sustained-release
formulation of RISPERDAL utilizing the Medisorb technology. In October 1996, we
announced the expansion of the development agreement. Under the development
agreement, we are responsible for production of Medisorb RISPERDAL for clinical
trials. Janssen is responsible for conducting clinical trials of Medisorb
RISPERDAL and securing all necessary regulatory approvals. Janssen has provided
development funding to us for the continued clinical development of Medisorb
RISPERDAL. Based upon positive results of two Phase III clinical trials, we are
working with Janssen towards filing a New Drug Application ("NDA") with the FDA
and other regulatory agencies. We will manufacture any such products for
commercial sale and will receive manufacturing revenues and royalties on sales,
if any.
Under related license agreements, Janssen and an affiliate have exclusive
worldwide licenses from us to manufacture, use and sell Medisorb RISPERDAL.
Under the license agreements, Janssen is required to pay us certain royalties
with respect to all Medisorb RISPERDAL sold to customers. Janssen can terminate
the development agreement or the license agreements upon 30 days' prior written
notice.
Pursuant to a manufacture and supply agreement, Janssen has appointed us as
the exclusive supplier of Medisorb RISPERDAL for commercial sales, if any. The
agreement terminates on expiration of the license agreements. In addition,
either party may terminate the agreement upon a material breach by the other
party which is not cured within 60 days' written notice or upon written notice
in the event of the other party's insolvency or bankruptcy. Janssen may
terminate the agreement upon 30 days' written notice prior to commencement of
commercial manufacturing and upon six-months' written notice after such event;
provided, however, Janssen cannot terminate the agreement without good cause
during the two-year period following commencement of commercial manufacturing
unless it also terminates the license agreements.
SERONO
Pursuant to a development agreement entered into in January 2000, we are
collaborating with Serono for the development of a ProLease formulation of
r-hFSH (recombinant human follicle stimulating hormone). Serono is to provide us
with research and development funding and milestone payments. We are responsible
for formulation and preclinical testing and Serono will be responsible for
conducting clinical trials and securing regulatory approvals and, together with
its affiliates, for the marketing of any products that result from the
collaboration. We will manufacture any such products for clinical trials and
commercial sale and will receive manufacturing revenues and royalties on sales,
if any.
Serono may terminate the development agreement for any reason, upon 90
days' written notice if such termination notice occurs prior to the first
commercial launch of a product under the development agreement, or upon six
months' written notice if such notice occurs subsequent to such event. In
addition, either party may terminate the development agreement upon a material
breach by the other party of such agreement which is not cured within 60 days'
written notice.
LILLY
hGH
In February 2000, we entered into a development and license agreement with
Lilly for the development of an inhaled formulation of human growth hormone
based on our AIR pulmonary drug delivery technology. Pursuant to the agreement
we are responsible for formulation and preclinical testing
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as well as development of a device to use in connection with any products. Lilly
has paid or will pay to us certain initial fees, research funding and milestone
payments upon achieving certain development and commercialization goals and we
will also receive royalty payments based on product sales, if any. Lilly has
exclusive worldwide rights to make, use and sell products resulting from such
development. Lilly will be responsible for obtaining all regulatory approvals
and marketing any products. We will manufacture any such products for clinical
trials and commercial sales and receive manufacturing revenues and royalties on
product sales, if any.
Lilly has the right to terminate the agreement upon 90 days' written notice
at any time prior to the first commercial launch of a product, or upon six
months' written notice at any time after such first commercial launch. In
addition, either party may terminate the agreement upon a material breach or
default by the other party which is not cured within 90 days' written notice.
Insulin
In April 2001, we entered into a development and license agreement with
Lilly for the development of inhaled formulations of insulin, including short-
and long-acting insulin and other potential products for the treatment of
diabetes, based on our AIR pulmonary drug delivery technology. Pursuant to the
agreement, we are responsible for formulation and preclinical testing as well as
development of a device to use in connection with any products. Lilly has paid
or will pay to us certain initial fees, research funding and milestone payments
upon achieving certain development and commercialization goals. Lilly has
exclusive worldwide rights to make, use and sell products resulting from such
development. Lilly will be responsible for obtaining all regulatory approvals
and marketing any insulin products. We will manufacture any such products for
clinical trials and Lilly will manufacture any such products for commercial
sales. We will receive certain royalties based upon such product sales, if any.
Lilly has the right to terminate the agreement upon 90 days' written notice
at any time prior to the first commercial launch of a product, or upon six
months' written notice at any time after such first commercial launch. In
addition, either party may terminate the agreement upon a material breach or
default by the other party which is not cured within 90 days' written notice.
GLAXOSMITHKLINE
In May 2000, following a twelve-month feasibility study, we entered into a
license agreement with GlaxoSmithKline for the use of our AIR technology in the
development of multiple product candidates for four respiratory disease
categories. Under the agreement, GlaxoSmithKline has exclusive worldwide rights
to products resulting from the collaboration in exchange for development
funding, milestones and royalties. GlaxoSmithKline is responsible for conducting
clinical trials, if any, obtaining regulatory approvals and marketing any
resulting products on a worldwide basis. We each have manufacturing rights for
commercial sales and we will receive certain manufacturing revenues and
royalties on product sales, if any.
GlaxoSmithKline has the right to terminate the agreement at any time with
60-days' written notice. In addition, either party may terminate the agreement
upon a material breach or default by the other party which is not cured within
90 days' written notice.
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AMYLIN
In May 2000, we entered into a development and license agreement with
Amylin for the development of a Medisorb formulation of AC2993 (synthetic
Exendin-4) for the treatment of type 2 diabetes.
Pursuant to the development agreement, Amylin has an exclusive, worldwide
license to the Medisorb technology for the development and commercialization of
injectable sustained-release formulations of exendins and other related
compounds that Amylin may develop. We will receive funding for research and
development and milestone payments comprised of cash and warrants for Amylin
common stock upon achieving certain development and commercialization goals and
will also receive a combination of royalty payments and manufacturing fees based
on any future product sales. We are initially responsible for developing and
testing several formulations, manufacturing for clinical trials, if any, and for
commercial sales of any products that may be developed pursuant to the
agreement. Amylin is responsible for conducting clinical trials, if any,
securing regulatory approvals and marketing any products resulting from the
collaboration on a worldwide basis.
Amylin may terminate the development agreement for any reason on 90 days'
written notice if such termination occurs before filing a NDA with the FDA or
six months' written notice after such event. In addition, either party may
terminate the development agreement upon a material default or breach by the
other party that is not cured within 90 days' written notice.
MEDIMMUNE
In June 2000, we entered into a development, license and supply agreement
with MedImmune for the development of an AIR formulation of a monoclonal
antibody for the treatment of RSV.
Pursuant to the agreement, MedImmune has an exclusive license to any
products produced under the agreement. We will receive certain fees, development
funding and milestone payments upon achieving certain development and
commercialization goals and will also receive manufacturing fees and royalties
on product sales, if any. We will be responsible for product formulation,
pulmonary delivery device development and manufacturing. MedImmune will be
responsible for clinical trials, if any, regulatory approvals and worldwide
marketing of any products resulting from the collaboration.
MedImmune may terminate the development agreement for any reason upon 90
days' written notice if such termination occurs prior to the filing of a
Biologics License Application ("BLA") or NDA with the FDA or six months' written
notice after such event. In addition, either party may terminate the development
agreement upon a material default or breach by the other party which is not
cured within a certain cure period ranging from 30 to 120 days.
CLINICAL PARTNERS
In April 1992, units consisting of limited partnership interests in
Clinical Partners and warrants to purchase our common stock were sold to
investors in a private placement. The proceeds of the $46.0 million private
placement were used to fund the further development and clinical testing of
Cereport for human pharmaceutical use in the United States, Canada and Europe.
Such funding was not sufficient to complete clinical trials and seek regulatory
approval of Cereport. Since the completion of funding from Clinical Partners,
which ended during the quarter ended June 30, 1996, we have used, and intend to
continue to use, our own resources to develop Cereport, but may seek alternative
sources of funding, including additional collaborators.
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Pursuant to a product development agreement, dated March 6, 1992, we
transferred substantially all of our rights related to Cereport to Clinical
Partners. We have an option to purchase all of the limited partnership interests
in Clinical Partners and thereby reacquire the transferred technology. We are
required to fund the development of Cereport to maintain our purchase option.
Clinical Partners may terminate the research program for any or all
products upon the affirmative vote of 75% of the directors of the general
partner of Clinical Partners, Alkermes Development Corporation II ("ADC II"),
one of our wholly owned subsidiaries, that such research is not feasible or is
not economical. Clinical Partners may terminate the marketing program for any or
all products upon the affirmative vote of 75% of the directors of ADC II based
on the directors' good faith business judgment. Clinical Partners may also
terminate the research or marketing program if we have materially breached the
agreement and not cured such breach within 30 days' written notice. Both parties
may terminate the research or marketing program upon mutual consent or upon the
insolvency or bankruptcy of the other party.
Clinical Partners has granted us an exclusive interim license to
manufacture and market Cereport for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of Cereport by the FDA, we
are obligated to make a payment to Clinical Partners equal to 20% of the
aggregate capital contributions of all limited partners. Additionally, we will
pay to Clinical Partners a 12% royalty on revenues from any sales of Cereport in
the United States and Canada and, in certain circumstances, a 10% royalty on
revenues from any sales of Cereport in Europe. The interim license will
terminate if we do not exercise the purchase option. We can exercise our
purchase option by making a payment to Clinical Partners equal to 80% of the
aggregate capital contributions of all limited partners in addition to paying
certain royalty payments.
The general partner of Clinical Partners is ADC II. One of the three
current members of the board of directors of ADC II is a person not affiliated
with us. The non-affiliated person was nominated by the sales agent for the
private placement. The sales agent has the right and will continue to have the
right to nominate at least half of the members of ADC II's board of directors
until ADC II or some other affiliate of Alkermes ceases to be the general
partner of Clinical Partners, Clinical Partners is terminated in accordance with
the terms of the limited partnership agreement or the sales agent's venture
capital investment partnership ceases to be a limited partner of Clinical
Partners.
ALZA
In October 1997, we, along with ALZA, announced that we had entered into an
agreement relating to the development and commercialization of Cereport. Under
the terms of the agreement, ALZA has the option to acquire exclusive, worldwide,
commercialization rights to Cereport, subject to the rights and obligations of
Clinical Partners. If ALZA chooses to exercise its option, ALZA will make
additional payments to cover costs associated with advanced clinical
development. If Cereport is commercialized successfully by ALZA, they will pay
us certain milestone payments. We would be responsible for the manufacturing of
Cereport and we would share approximately equally in profits from sales of the
product, if any.
MANUFACTURING
We currently have manufacturing facilities in Cambridge, Massachusetts and
Wilmington, Ohio. The manufacture of our product candidates for clinical trials
and commercial purposes is subject to current good manufacturing practices
("GMP") and other federal regulations. Prior to our manufacture of Nutropin
Depot, we had never operated an FDA-approved commercial manufacturing facility.
There can
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be no assurance that we will maintain the necessary approvals for commercial
manufacturing or obtain approvals for any additional facilities.
If we are not able to develop and maintain manufacturing capacity and
experience, or to continue to contract for manufacturing capabilities on
acceptable terms, our ability to supply product for commercial sales, clinical
trials and preclinical testing will be compromised. In addition, delays in
obtaining regulatory approvals might result, as well as delays of commercial
sales if approvals are not obtained on a timely basis. Such delays could
materially adversely affect our competitive position and our business, financial
condition and results of operations.
PROLEASE
ProLease manufacturing involves microencapsulation of drug substances
provided to us by our collaborators in small polymeric microspheres using
extremely cold processing conditions suitable for fragile molecules. The
ProLease manufacturing process consists of two basic steps. First, the drug is
formulated with stabilizing agents and dried to create a fine powder. Second,
the powder is microencapsulated in polymer at very low temperatures. Pursuant to
agreements with certain of our collaborators, we have the right to manufacture
ProLease products for commercial sale.
We have a commercial scale ProLease manufacturing facility of approximately
32,000 square feet in Cambridge, Massachusetts. The facility includes two
manufacturing suites, one of which is dedicated to the production of Nutropin
Depot at commercial scale. The facility has had a successful pre-approval
inspection by the FDA for the manufacture of Nutropin Depot and we are currently
manufacturing Nutropin Depot to supply product to Genentech for commercial sale.
We also have a clinical production facility that we have validated for
manufacturing in accordance with current GMP. The facility is being used to
manufacture product candidates incorporating our ProLease sustained-release
delivery system for use in clinical trials.
MEDISORB
The Medisorb manufacturing process is significantly different from the
ProLease process and is based on a method of encapsulating small molecule drugs
in polymers using a large-scale emulsification. The Medisorb manufacturing
process consists of three basic steps. First, the drug is combined with a
polymer solution. Second, the drug/polymer solution is mixed in water to form
liquid microspheres (an emulsion). Third, the liquid microspheres are dried to
produce finished product.
We operate a 50,000 square foot GMP manufacturing facility for commercial
scale Medisorb manufacturing in Wilmington, Ohio. We manufacture the Medisorb
formulation of RISPERDAL for Janssen at this facility. The facility has not been
inspected by the FDA or other foreign regulatory agencies. We are currently
expanding in Wilmington, Ohio for additional Medisorb manufacturing capacity.
AIR
The AIR manufacturing process uses spray drying. We take drugs provided by
our partners or purchased from generic manufacturers, combine the drugs with
certain excipients commonly used in other aerosol formulations and spray dry the
solution in commercial spray dryers. During the manufacturing process, solutions
of drugs and excipients are spray dried to form a free flowing powder and the
powder is filled and packaged into final dosage units. AIR has a manufacturing
facility which is part of our 46,000 square foot facility which AIR leases in
Cambridge, Massachusetts, where powders and final dosage units
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are prepared under current GMP for use in clinical trials. Our current
manufacturing facility and equipment have the capacity to produce commercial
scale quantities of certain product candidates. In addition, we have plans to
build an AIR manufacturing facility in Chelsea, Massachusetts. AIR's inhalation
devices are produced under current GMP at a contract manufacturer in the United
States.
CEREPORT
Cereport is a small peptide manufactured using standard synthetic
techniques. We rely on an independent European pharmaceutical company for the
manufacture and supply of Cereport. Scale-up of the Cereport manufacturing
process to support international clinical trials and commercial launch, if any,
has been completed. Other companies have been identified which could manufacture
and supply our requirements for Cereport.
MARKETING
We intend to market the majority of our ProLease, Medisorb and AIR products
through corporate partners. We have entered into development agreements, which
include sales and marketing arrangements, for ProLease product candidates with
Genentech and Serono, for Medisorb product candidates with Janssen and Amylin
and for AIR product candidates with Lilly, GlaxoSmithKline and MedImmune. For
our proprietary products, we will determine whether to market the products
ourselves or to find a marketing partner.
In October 1997, we entered into an agreement with ALZA pursuant to which
ALZA has an option to enter into a worldwide exclusive commercialization
agreement for Cereport. If Cereport is successfully commercialized by ALZA, they
will pay us certain milestone payments. Under the terms of the agreement, we are
responsible for the manufacture of Cereport, and we will share approximately
equally in profits from the sale of the product, if any.
We currently have no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any product candidate
approved by the FDA, we must either develop a marketing and sales force or enter
into arrangements with third parties to market and sell our products. There can
be no assurance that we will successfully develop such experience or that we
will be able to enter into marketing and sales agreements with others on
acceptable terms, if at all. If we develop our own marketing and sales
capability, we will compete with other companies that currently have experienced
and well-funded marketing and sales operations. To the extent we enter into
co-promotion or other sales and marketing arrangements with other companies, any
revenues received by us will be dependent on the efforts of others, and there
can be no assurance that such efforts will be successful.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid and
substantial technological change. We face, and will continue to face, intense
competition in the development, manufacturing, marketing and commercialization
of our product candidates from academic institutions, government agencies,
research institutions, biotechnology and pharmaceutical companies, including our
collaborators, and drug delivery companies. There can be no assurance that
developments by others will not render our product candidates or technologies
obsolete or noncompetitive, or that our collaborators will not choose to use
competing drug delivery methods. At the present time, we have no sales force or
marketing experience and we have only limited commercial manufacturing
experience. In addition, many of our competitors and potential competitors have
substantially greater capital resources, manufacturing and marketing experience,
research and development resources and production facilities than we do. Many of
these competitors also have significantly greater experience than we do in
undertaking
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preclinical testing and clinical trials of new pharmaceutical products and
obtaining FDA and other regulatory approvals.
With respect to ProLease and Medisorb, we are aware that there are other
companies developing sustained-release delivery systems for pharmaceutical
products. With respect to AIR, we are aware that there are other companies
marketing or developing pulmonary delivery systems for pharmaceutical products.
In many cases, there are products on the market or in development that may be in
direct competition with our product candidates. In addition, other companies are
developing new chemical entities or improved formulations of existing products
which, if developed successfully, could compete against our formulations of any
products we develop or those of our collaborators. These chemical entities are
being designed to have different mechanisms of action or improved safety and
efficacy. In addition, our collaborators may develop, either alone or with
others, products that compete with the development and marketing of our product
candidates.
With respect to Cereport, we believe that there are currently no products
approved by the FDA for increasing the permeability of the blood-brain barrier.
There are, however, many novel experimental therapies for the treatment of brain
tumors and central nervous system infections being tested in the United States
and Europe.
There can be no assurance that we will be able to compete successfully with
such companies. The existence of products developed by our competitors, or other
products or treatments of which we are not aware, or products or treatments that
may be developed in the future, may adversely affect the marketability of
products developed by us.
PATENTS AND PROPRIETARY RIGHTS
Our success will be dependent, in part, on our ability to obtain patent
protection for our product candidates and those of our collaborators,
maintaining trade secret protection and operating without infringing upon the
proprietary rights of others.
We have a proprietary portfolio of patent rights and exclusive licenses to
patents and patent applications. We have filed numerous United States and
international patent applications directed to composition of matter as well as
processes of preparation and methods of use, including applications relating to
permeabilizers, certain rights to which have been licensed to Clinical Partners
and to each of our delivery technologies. We own approximately 55 issued United
States patents. No United States patent issued to us that is currently material
to our business will expire prior to 2009. In the future, we plan to file
further United States and foreign patent applications directed to new or
improved products and processes. We intend to file additional patent
applications when appropriate and defend our patent position aggressively.
We have exclusive rights through licensing agreements with third parties to
approximately 26 issued United States patents, a number of United States patent
applications and corresponding foreign patents and patent applications in many
countries, subject in certain instances to the rights of the United States
government to use the technology covered by such patents and patent
applications. No issued United States patent to which we have licensed rights
and which is currently material to our business will expire prior to 2016. Under
certain licensing agreements, we currently pay annual license fees and/or
minimum annual royalties. During the fiscal year ended March 31, 2001, these
fees totaled $124,000. In addition, under all licensing agreements, we are
obligated to pay royalties on future sales of products, if any, covered by the
licensed patents.
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We know of several United States patents issued to other parties that
relate to our product candidates. One of those parties has asked us to compare
our Medisorb technology to that party's patented technology. Another such party
has asked a collaborative partner to substantiate how our ProLease microspheres
are different from that party's patented technology. The manufacture, use, offer
for sale, sale or importing of these product candidates might infringe on the
claims of these patents. A party might file an infringement action against us.
Our cost of defending such an action is likely to be high and we might not
receive a favorable ruling.
We also know of patent applications filed by other parties in the United
States and various foreign countries that may relate to some of our product
candidates if issued in their present form. If patents are issued to any of
these applicants, we may not be able to manufacture, use, offer for sale, or
sell some of our product candidates without first getting a license from the
patent holder. The patent holder may not grant us a license on reasonable terms
or it may refuse to grant us a license at all. This could delay or prevent us
from developing, manufacturing or selling those of our product candidates that
would require the license.
We try to protect our proprietary position by filing United States and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business. Because
the patent position of biopharmaceutical companies involves complex legal and
factual questions, enforceability of patents cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from others may not provide any protection
against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. And, if issued, they may not provide us with proprietary
protection or competitive advantages against competitors with similar
technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed. The laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States.
We also rely on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. We try to protect
this information by entering into confidentiality agreements with parties that
have access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreements and disclose our
confidential information or our competitors might learn of the information in
some other way. If any trade secret, know-how or other technology not protected
by a patent were to be disclosed to or independently developed by a competitor,
our business, results of operations and financial condition could be adversely
affected.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing facilities
are also regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application ("IND"),
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of
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subjects and are designed to provide information about both product safety and
the expected dose of the drug. Phase II trials are designed to provide
additional information on dosing and preliminary evidence of product efficacy.
Phase III trials are large-scale studies designed to provide statistical
evidence of efficacy and safety in humans. The results of the preclinical
testing and clinical trials of a pharmaceutical product are then submitted to
the FDA in the form of an NDA, or for a biological product in the form of a
Product License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria.
Prior to marketing, any product developed by us or our collaborators must
undergo an extensive regulatory approval process, which includes preclinical
testing and clinical trials of such product candidate to demonstrate safety and
efficacy. This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated which may result in delay or failure
to receive FDA approval. Similar delays or failures may be encountered in
foreign countries. Delays, increased costs and failures in obtaining regulatory
approvals would have a material adverse effect on our business, financial
condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
on an ongoing basis with GMP. Before approval of an NDA or PLA, the FDA will
perform a pre-approval inspection of the facility to determine its compliance
with GMP and other rules and regulations. In complying with GMP, manufacturers
must continue to expend time, money and effort in the area of production and
quality control to ensure full technical compliance. After the establishment is
licensed, it is subject to periodic inspections by the FDA.
The requirements which we must satisfy to obtain regulatory approval by
governmental agencies in other countries prior to commercialization of our
products in such countries can be as rigorous and costly as those described
above.
We are also subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, experimental use of
animals and use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with our research. Compliance with laws and regulations relating to
the protection of the environment has not had a material effect on capital
expenditures, earnings or our competitive position. However, the extent of
government regulation which might result from any legislative or administrative
action cannot be accurately predicted.
EMPLOYEES
As of June 6, 2001, we had approximately 415 employees. A significant
number of our management and professional employees have prior experience with
pharmaceutical, biotechnology or medical product companies. We believe that we
have been successful in attracting skilled and experienced scientific personnel;
however, competition for such personnel is intense. None of our employees are
covered by a collective bargaining agreement. We consider our relations with
employees to be good.
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MANAGEMENT
The following sets forth certain information with respect to the executive
officers of Alkermes:
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, who are elected to serve at the pleasure of the
Board of Directors, are as follows:
NAME AGE POSITION
---- --- --------
Richard F. Pops 39 Chief Executive Officer and Director
Robert A. Breyer 57 President and Director
David A. Broecker 40 Chief Operating Officer
Raymond T. Bartus 54 Senior Vice President, Preclinical Research and
Development
J. Duncan Higgons 46 Senior Vice President, Proprietary Products
James L. Wright 53 Senior Vice President, Research and
Development
James M. Frates 33 Vice President, Chief Financial Officer and
Treasurer
Michael J. Landine 47 Vice President, Corporate Development
Mr. Pops has been Chief Executive Officer and a Director since February
1991. Mr. Pops currently serves on the Board of Directors of Neurocrine
Biosciences, Inc., the Biotechnology Industry Organization (BIO), the
Massachusetts Biotechnology Council (MBC) and The Brain Tumor Society (a
non-profit organization).
Mr. Breyer has been President and a Director since July 1994 and served as
Chief Operating Officer from July 1994 to February 2001. From August 1991 to
December 1993, Mr. Breyer was President and General Manager of Eli Lilly Italy,
a subsidiary of Eli Lilly and Company.
Mr. Broecker has been Chief Operating Officer since February 2001. From
August 1985 to January 2001, he was employed at Eli Lilly and Company. During
his tenure at Eli Lilly, Mr. Broecker managed Eli Lilly's largest pharmaceutical
manufacturing facility outside of the United States, located in Kinsale,
Ireland, where as General Manager he led manufacturing operations for products
accounting for 50% of worldwide Eli Lilly sales. He also worked as a General
Manager in Eli Lilly's packaging and distribution operations in Germany, and
Director of Marketing for Advanced Cardiovascular Systems, now a part of
Guidant. Mr. Broecker holds a B.A. in Chemistry from Wabash College, an M.S. in
Chemical Engineering from M.I.T. and an M.B.A. in Marketing and Finance from
the University of Chicago.
Dr. Bartus has been Senior Vice President, Preclinical Research and
Development since December 1996. From November 1992 to December 1996, Dr. Bartus
served as our Senior Vice President, Neurobiology. He holds an M.S. in
Experimental Psychology and a Ph.D. in Physiological Psychology from North
Carolina State University.
Mr. Higgons has been Senior Vice President, Proprietary Products since
February 2001. From December 1994 to February 2001, Mr. Higgons served as Vice
President, Business Development of Alkermes.
Dr. Wright became Senior Vice President, Research and Development of
Alkermes in June 2001 and has been a Senior Vice President of AIR since
September 1999. From December 1994 to September 1999, Dr. Wright was Vice
President, Pharmaceutical Development of Alkermes. Dr. Wright received a B.A. in
Chemistry and Biology from the University of California, Santa Barbara and a
Ph.D. in Pharmacy from the University of Wisconsin.
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Mr. Frates has been Vice President, Chief Financial Officer and Treasurer
since July 1998. From June 1996 to July 1998, he was employed at Robertson,
Stephens & Company, most recently as a Vice President in Investment Banking.
Prior to that time he was employed at Robertson, Stephens & Company and at
Morgan Stanley & Co. In June 1996, he obtained his M.B.A. from Harvard
University.
Mr. Landine has been Vice President, Corporate Development since March
1999. From March 1988 until June 1998, he was Chief Financial Officer and
Treasurer of Alkermes. Mr. Landine is currently an advisor to Walker Magnetics
Group, an international manufacturer of industrial equipment.
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RISK FACTORS
OUR DELIVERY TECHNOLOGIES MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS
Each of our product candidates, except Nutropin Depot needs significant
additional research and development and requires FDA approval before it can be
marketed. Nutropin Depot has received FDA approval and was commercially launched
in June 2000. To be profitable, we must develop, manufacture and market our
products, either alone or by collaborating with others. It can take several
years for a product to be approved and we may not be successful in bringing
additional product candidates to the market. A new drug may appear promising at
an early stage of development or after clinical trials and never reach the
market, or it may reach the market and not sell, for a variety of reasons. The
drug may:
- be shown to be ineffective or to cause harmful side effects during
preclinical testing or clinical trials;
- fail to receive regulatory approval on a timely basis or at all;
- be difficult to manufacture on a large scale;
- be uneconomical;
- not be prescribed by doctors or accepted by patients;
- fail to receive a sufficient level of reimbursement from government or
third-party payors; or
- infringe on proprietary rights of another party.
If our technologies fail to generate product candidates that lead to the
successful development and commercialization of products, or if our partners
decide not to pursue our product candidates, our business and financial
condition will be materially adversely affected.
NUTROPIN DEPOT MAY NOT PRODUCE SIGNIFICANT REVENUES
Our first product, Nutropin Depot, was approved by the FDA in December 1999
and was commercially launched in June 2000. Genentech is responsible for
marketing the product, which faces significant competition from the currently
approved products that treat growth hormone deficiency. In addition, Genentech
has a number of daily injection formulations on the market, which may affect its
efforts related to Nutropin Depot. The revenues we receive from the sale of
Nutropin Depot may not be significant and depend on numerous factors outside of
our control, including Genentech's decisions on pricing and discounting,
Genentech's reliance on third-party marketing partners outside the United
States, the ability to obtain reimbursement from third-party payors, the market
size for the product and the reaction of companies that market competitive
products, as well as general market conditions. In addition, our costs to
manufacture Nutropin Depot may be higher than we anticipate if certain volume
levels are not achieved. If Nutropin Depot does not produce significant revenues
or if our manufacturing costs are higher than we anticipate, our business and
financial condition could be materially adversely affected.
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OUR MANUFACTURING EXPERIENCE IS LIMITED
We currently manufacture each of our product candidates, except for
Cereport. The manufacture of drugs for clinical trials and for commercial sale
is subject to regulation by the FDA under current GMP regulations and by other
regulators under other laws and regulations. We have manufactured product
candidates for use in clinical trials but we have only limited experience
manufacturing Nutropin Depot for commercial sale. We cannot assure you that we
can successfully manufacture our products under current GMP regulations or other
laws and regulations in sufficient quantities for commercial sale, or in a
timely or economical manner.
In October 1998, we completed construction of a new commercial
manufacturing plant for Nutropin Depot and future ProLease product candidates.
In 2000, we completed an expansion of our existing Medisorb manufacturing
facility. The only manufacturing facility that the FDA has inspected and
approved is for the manufacture of Nutropin Depot. We cannot guarantee that the
FDA or foreign regulatory agencies will approve any of our other facilities or,
once they are approved, that we will remain in compliance with current GMP.
We rely on an unrelated party to manufacture Cereport for use in clinical
trials. We expect to rely on the same party to manufacture Cereport for
commercial sale, if any. If we are unable to do so, or the manufacturer fails to
perform as required, we may be unable to secure an alternative manufacturer on
reasonable terms or in a timely manner.
If more of our product candidates progress to late stage development, we
will incur significant expenses in the expansion or construction of
manufacturing facilities and increases in personnel in order to manufacture
product candidates. The development of a commercial scale manufacturing process
is complex and expensive. We cannot assure you that we will be able to develop
this manufacturing infrastructure in a timely or economical manner, or at all.
If we fail to develop manufacturing capacity and experience, fail to
continue to contract for manufacturing on acceptable terms, or fail to
manufacture our product candidates economically on a commercial scale or in
accordance with current GMP, our development programs will be materially
adversely affected. This may result in delays in receiving FDA or foreign
regulatory approval for one or more of our product candidates or delays in the
commercial production of a product that has already been approved. Any such
delays could materially adversely affect our business and financial condition.
AS NUTROPIN DEPOT IS USED COMMERCIALLY, UNINTENDED SIDE EFFECTS, ADVERSE
REACTIONS OR INCIDENTS OF MISUSE MAY APPEAR
Until last year, the use of Nutropin Depot had been limited to clinical
trial patients under controlled conditions and under the care of physicians. We
cannot predict whether the commercial use of Nutropin Depot will produce
undesirable or unintended side effects that have not been evident in our
clinical trials to date. Additionally, incidents of product misuse may occur.
These events, among others, could result in additional regulatory controls.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our partners must demonstrate through preclinical testing and
clinical trials that our product candidates are safe and effective for use in
humans. We have incurred and will continue to incur substantial expense for, and
devote a significant amount of time to, preclinical testing and clinical trials.
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Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new drugs have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.
Clinical trials conducted by us, by our collaborators or by third parties
on our behalf may not demonstrate sufficient safety and efficacy to obtain the
requisite regulatory approvals for our product candidates. Regulatory
authorities may not permit us to undertake any additional clinical trials for
our product candidates.
Clinical trials of each of our product candidates involve a drug delivery
technology and a drug, either as a single formulation or, as in the case of
Cereport, as two products administered in conjunction with each other. This
makes testing more complex because the outcome of the trials depends on the
performance of our technology in combination with a drug.
We have other product candidates in preclinical development. We have not
submitted investigational new drug applications or begun clinical trials for
these product candidates. Our preclinical and clinical development efforts may
not be successfully completed. We may not file further investigational new drug
applications. We or our collaborators may not begin clinical trials as planned.
Completion of clinical trials may take several years or more. The length of
time can vary substantially with the type, complexity, novelty and intended use
of the product candidate. The commencement and rate of completion of clinical
trials may be delayed by many factors, including:
- the inability to recruit patients at the expected rate;
- the failure of clinical trials to demonstrate a product candidate's
efficacy;
- the inability to follow patients adequately after treatment;
- the inability to predict unforeseen safety issues;
- our inability to manufacture sufficient quantities of materials used
for clinical trials; and
- the potential for unforeseen governmental or regulatory delays.
If a product candidate fails to demonstrate safety and efficacy in clinical
trials, this failure may delay development of other product candidates and
hinder our ability to conduct related preclinical testing and clinical trials.
As a result of these failures, we may also be unable to find additional
collaborators or to obtain additional financing. Our business and financial
condition may be materially adversely affected by any delays in, or termination
of, our clinical trials.
THE FDA OR FOREIGN REGULATORY AGENCIES MAY NOT APPROVE OUR PRODUCT CANDIDATES
Approval from the FDA is required to manufacture and market pharmaceutical
products in the United States. Regulatory agencies in foreign countries have
similar requirements. The process that pharmaceutical products must undergo to
obtain this approval is extensive and includes preclinical testing and clinical
trials to demonstrate safety and efficacy and a review of the manufacturing
process to ensure
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compliance with current GMP. This process can last many years and be very costly
and still be unsuccessful. FDA or foreign regulatory approval can be delayed,
limited or not granted at all for many reasons, including:
- a product candidate may not be safe or effective;
- data from preclinical testing and clinical trials can be interpreted
by FDA or foreign regulatory officials in different ways than we
interpret it;
- the FDA or foreign regulatory agencies might not approve our
manufacturing processes or facilities;
- the FDA or foreign regulatory agencies may change their approval
policies or adopt new regulations; and
- a product candidate may not be approved for all the indications we
requested.
Most of our product candidates are drug delivery systems combined with a
drug in a single formulation to treat a specific condition. In most cases, the
FDA has already approved the drug used in these product candidates for treating
the condition targeted by the product candidate. In some cases, the drug used in
our product candidates has not been approved at all or has not been approved for
every indication we are targeting. Any delay in the approval process for any of
our product candidates will result in increased costs that could materially and
adversely affect our business and financial condition.
Regulatory approval of a product candidate is limited to specific
therapeutic uses for which the product has demonstrated safety and efficacy in
clinical testing. Approval of a product candidate could also be contingent on
post-marketing studies. In addition, any marketed drug and its manufacturer
continue to be subject to strict regulation after approval. Any unforeseen
problems with an approved drug or any violation of regulations could result in
restrictions on the drug, including its withdrawal from the market.
WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE
We have had net operating losses since being founded in 1987. At March 31,
2001, our accumulated deficit was $282.5 million. These losses principally
consist of the costs of research and development, the costs of acquiring rights
to research and development performed by others and general and administrative
expenses. The majority of revenues that we have received have come from
collaboration and development agreements and interest income. We expect to incur
substantial additional expenses over the next several years as our research and
development activities, including clinical trials, accelerate and as we continue
to manufacture Nutropin Depot or other future products for commercial sale. In
addition, we expect these costs to increase over prior years as we expand
development of our proprietary product candidates. Because we do not expect to
generate significant revenues from the sale of products, if any, for several
years, we anticipate that additional expenses will result in losses.
Our future profitability depends, in part, on:
- obtaining regulatory approval for additional product candidates;
- obtaining regulatory approval in foreign countries;
- entering into agreements to develop and commercialize products;
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- developing the capacity to manufacture and market products or entering
into agreements with others to do so;
- market acceptance of our products;
- the ability to obtain additional research and development funding from
collaborative partners; and
- the ability to achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, cannot provide
assurances that we will ever achieve significant revenues or profits. Even if we
do receive regulatory approval for additional products, we may not achieve
significant commercial success.
Our manufacturing facilities in Cambridge, Massachusetts and Wilmington,
Ohio require specialized personnel and are expensive to operate and maintain.
Any delay in the approval or market launch of future product candidates to be
manufactured in these facilities will require us to continue to operate these
expensive facilities and retain the specialized personnel, which may increase
our expected losses.
WE NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE
We believe that our liquid assets, anticipated funding from our
collaborators, and interest income will satisfy our capital and operating
requirements for the foreseeable future, but we cannot guarantee that this will
be the case. We will need to spend substantial amounts of money before we can be
profitable, if ever. The amount we will spend, and when we will spend it, will
depend, in part, on:
- how our research and development programs for proprietary and
collaborative product candidates, including clinical trials, progress;
- how much time and expense will be required to receive FDA and foreign
regulatory approvals for our product candidates;
- the cost of building, operating and maintaining manufacturing
facilities;
- how many product candidates we pursue, especially proprietary product
candidates;
- how much time and money we need to prosecute and enforce patent
rights;
- how competing technological and market developments affect our product
candidates;
- the cost of possible acquisitions of drug delivery technologies,
compounds or companies;
- the cost of obtaining licenses to use technology owned by others for
proprietary products and otherwise; and
- whether and how we choose to exercise our option to purchase the
limited partnership interests in Clinical Partners.
If we require additional funds to complete any of our programs, we may seek
funds through arrangements with collaborators, by issuing securities or through
debt financing. If we are unable to raise
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additional funds on terms that are favorable to us, we may have to cut back
significantly on one or more of our programs, give up some of our rights to our
technologies or product candidates or agree to reduced royalty rates from
collaborators.
WE RELY HEAVILY ON COLLABORATORS
Our arrangements with collaborators and licensors are critical to our
success in bringing our product candidates to the market. In some cases, we
depend on these parties to conduct preclinical testing and clinical trials and
to provide funding for our development programs. Most of our collaborators can
terminate their agreements with us for no reason and on limited notice. We
cannot guarantee that any of these relationships will continue. Failure to make
or maintain these arrangements or a delay in a collaborator's performance may
materially adversely affect our business and financial condition.
We cannot control our collaborators' performance or the resources they
devote to our programs. If a collaborator fails to perform, the research,
development or commercialization program on which it is working will be delayed.
If this happens, we may have to use funds, personnel, laboratories and other
resources that we have not budgeted, and consequently, we may not be able to
continue the program. The failure of a collaborator to perform or a loss of a
collaborator may materially adversely affect our business and financial
condition.
Disputes may arise between us and a collaborator and may involve the issue
of which of us owns the technology that is developed during a collaboration.
Such a dispute could delay the program on which the collaborator or we are
working. It could also result in expensive arbitration or litigation, which may
not be resolved in our favor.
A collaborator may choose to use its own or other technology to develop a
way to deliver its drug and withdraw its support of our product candidate.
Our collaborators could merge with or be acquired by another company or
experience financial or other setbacks unrelated to our collaboration that
could, nevertheless, adversely affect us.
None of our drug delivery systems can be commercialized as stand-alone
products but must be combined with a drug. To develop any new proprietary
product candidate using one of these drug delivery systems, we often must obtain
the drug from another party. We cannot assure you that we will be able to obtain
any such drugs on reasonable terms, if at all.
WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT OF PRODUCTS FOR OUR OWN ACCOUNT
In addition to our development work with collaborators, we are developing
proprietary product candidates for our own account and applying our drug
delivery technologies to off-patent drugs. Because we are funding the
development of such programs, there is a risk that we may not be able to
continue to fund all such programs to completion or to provide the support
necessary to perform the clinical trials, obtain regulatory approvals or market
any approved products on a worldwide basis. We expect the development of
products for our own account to consume more resources than our programs with
collaborators. If we are able to develop commercial products on our own, the
risks associated with these programs may be greater than those with our programs
with collaborators.
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WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS
Our product candidates are subject to extensive and rigorous domestic
government regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of pharmaceutical
products. If our products are marketed abroad, they will also be subject to
extensive regulation by foreign governments. Certain material changes to an
approved product, such as manufacturing changes or additional labeling claims,
are subject to further FDA review and approval. Any required approvals, once
obtained, may be withdrawn. Further, if we fail to comply with FDA and other
regulatory requirements at any stage during the regulatory process, we may be
subject to sanctions, including:
- delays, warning letters and fines;
- product recalls or seizures and injunctions on sales;
- refusal of the FDA to review pending market approval applications or
supplements to approval applications;
- total or partial suspension of production;
- withdrawals of previously approved marketing applications; and
- civil penalties and criminal prosecutions.
We are also subject to federal, state and local government regulation in
the conduct of our business, including regulations on employee safety and our
handling and disposal of hazardous and radioactive materials. Any new regulation
or change to an existing regulation could require us to implement costly capital
or operating improvements for which we have not budgeted. We cannot assure you
that these regulations will remain the same or that we will maintain compliance
with these regulations.
We and our contract manufacturer of Cereport also are required to comply
with the FDA current GMP regulations. GMP regulations include requirements
relating to quality control, quality assurance and maintenance of records and
documentation. Manufacturing facilities are subject to inspection by the FDA and
other foreign regulatory agencies and must be approved before we can use them in
commercial manufacturing of our products. We or our contract manufacturer may be
unable to comply with current GMP requirements and other FDA or foreign
regulatory requirements. If we or our contract manufacturer fail to comply, our
business and financial condition will be materially adversely affected.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS
We may be exposed to liability claims arising from the use of our product
candidates in clinical trials and the commercial sale of our product, Nutropin
Depot. These claims may be brought by consumers, our collaborators or parties
selling the products. We currently carry liability insurance for claims arising
from the use of our product candidates during clinical trials and the commercial
sale of our products in the amount of up to $10 million per occurrence and $10
million in the aggregate. However, we cannot provide any assurance that this
coverage will be sufficient to satisfy any liabilities that may arise. As our
development activities progress and we continue to have commercial sales, this
coverage may be inadequate; and we may be unable to get adequate coverage at an
acceptable cost or we may be unable to get adequate coverage at all. This could
prevent or limit our commercialization of our product
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candidates. Even if we are able to continue to carry insurance that we believe
is adequate, our financial condition may be materially adversely affected by a
product liability claim.
COMPETITION IN THE BIOTECHNOLOGY INDUSTRY
We can provide no assurance that we will be able to compete successfully
against the competitive forces discussed below in developing, marketing or
selling our products.
We face intense competition
We face intense competition from academic institutions, government
agencies, research institutions and biotechnology and pharmaceutical companies,
including other drug delivery companies. Some of these competitors are also our
collaborators. These competitors are working to develop and market other drug
delivery systems, vaccines and other methods of preventing or reducing disease,
and new small-molecule and other classes of drugs that can be used without a
drug delivery system.
There are other companies developing sustained-release drug delivery
systems and pulmonary delivery systems. In many cases, there are products on the
market or in development that may be in direct competition with our product
candidates. In addition, we know of new chemical entities that are being
developed that, if successful, could compete against our product candidates.
These chemical entities are being designed to work differently than our product
candidates and may turn out to be safer or to be more effective than our product
candidates. Among the many experimental therapies being tested in the United
States and Europe, there may be some that we do not now know of that may compete
with our drug delivery systems or product candidates. Our collaborators could
choose a competing drug delivery system to use with their drugs instead of one
of our drug delivery systems.
Many of our competitors have much greater capital resources, manufacturing
and marketing experience, research and development resources and production
facilities than we do. Many of them also have much more experience than we do in
preclinical testing and clinical trials of new drugs and in obtaining FDA and
foreign approvals. In addition, they may succeed in obtaining patents that would
make it difficult or impossible for us to compete with their products.
Rapid technological change could render our drug delivery systems obsolete or
noncompetitive
Major technological changes can happen quickly in the biotechnology and
pharmaceutical industries; and the development by competitors of technologically
improved or different products or drug delivery technologies may make our
product candidates or platform technologies obsolete or noncompetitive.
The competitive nature of our industry could adversely affect market acceptance
of our products
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidates that we develop will depend on a number of
factors, including:
- demonstration of their clinical efficacy and safety;
- their cost-effectiveness;
- their potential advantage over alternative treatment methods;
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- the marketing and distribution support they receive; and
- reimbursement policies of government and third-party payors.
Our product candidates, if successfully developed, will compete with a
number of drugs and therapies currently manufactured and marketed by major
pharmaceutical and other biotechnology companies. Our products may also compete
with new products currently under development by others or with products which
may cost less than our products. Physicians, patients, third-party payors and
the medical community may not accept or utilize our products. If our products do
not achieve significant market acceptance, our business and financial condition
will be materially adversely affected.
PATENT PROTECTION FOR OUR PRODUCTS IS IMPORTANT AND UNCERTAIN
The following factors are important to our success:
- receiving patent protection for our product candidates and those of
our collaborators;
- maintaining our trade secrets;
- not infringing on the proprietary rights of others; and
- preventing others from infringing our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We know of several United States patents issued to other parties that
relate to our product candidates. One of those parties has asked us to compare
our Medisorb technology to that party's patented technology. Another such party
has asked a collaborative partner to substantiate how our ProLease microspheres
are different from that party's patented technology. The manufacture, use, offer
for sale, sale or importing of these product candidates might infringe on the
claims of these patents. A party might file an infringement action against us.
Our cost of defending such an action is likely to be high and we might not
receive a favorable ruling.
We also know of patent applications filed by other parties in the United
States and various foreign countries that may relate to some of our product
candidates if issued in their present form. If patents are issued to any of
these applicants, we may not be able to manufacture, use, offer for sale, or
sell some of our product candidates without first getting a license from the
patent holder. The patent holder may not grant us a license on reasonable terms
or it may refuse to grant us a license at all. This could delay or prevent us
from developing, manufacturing or selling those of our product candidates that
would require the license.
We try to protect our proprietary position by filing United States and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business. Because
the patent position of biopharmaceutical companies involves complex legal and
factual questions, enforceability of patents cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from others may not provide any protection
against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. And, if issued, they may not provide us with proprietary
protection or competitive advantages against competitors with
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similar technology. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed. The laws of
certain foreign countries do not protect our intellectual property rights to the
same extent as do the laws of the United States.
We also rely on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. We try to protect
this information by entering into confidentiality agreements with parties that
have access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreements and disclose our
confidential information or our competitors might learn of the information in
some other way. If any trade secret, know-how or other technology not protected
by a patent were to be disclosed to or independently developed by a competitor,
our business and financial condition could be materially adversely affected.
WE HAVE ONLY LIMITED RIGHTS TO CEREPORT
We transferred to Clinical Partners substantially all of our rights to
certain technology that includes Cereport and then entered into an agreement
with Clinical Partners under which we perform research and development of
Cereport. Clinical Partners issued securities and used the proceeds from the
sale of those securities to fund our research and development of Cereport.
Funding provided by Clinical Partners was insufficient to complete clinical
trials and apply for FDA approval. Since June 1996, we have used our or ALZA's
funds to develop Cereport. So long as we continue this funding, we have an
option to purchase the limited partnership interests in Clinical Partners for
cash or our common stock. If this purchase option terminates, we will have no
rights to Cereport or the related technology in the United States or Canada.
If we exercise this purchase option, we must make a substantial cash
payment or issue a large number of shares of common stock. The exercise of the
option may require us to record significant charges to earnings for the purchase
of in-process research and development. If we acquire rights to the Cereport
technology under the option, we will still be obligated to pay royalties to the
limited partners.
WE HAVE NO MARKETING OR SALES EXPERIENCE
We currently have no experience in marketing or selling pharmaceutical
products. To achieve commercial success for any product that may be approved by
the FDA or foreign regulatory authorities, particularly products developed for
our own account, we must either develop a marketing and sales force or contract
with another party (including collaborators) to perform these services for us.
In either case, we will be competing with companies that have experienced and
well-funded marketing and sales operations. We may not be successful in
developing a marketing and sales force or in contracting with a third party on
acceptable terms to sell our products.
EFFORTS TO KEEP DOWN THE COST OF HEALTHCARE MAY THREATEN OUR PROFITABILITY
Third-party payors, which include governments and private health insurers,
are increasingly challenging the prices charged for medical products and
services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs of drugs that are not new but are being
used for newly approved purposes. Patients who use a product that we may develop
might not be reimbursed for its cost. If third-party payors do not provide
adequate coverage and reimbursement for our products, if and when they reach the
market, doctors may not prescribe them or patients may not use them.
The federal government and various state governments have considered
proposals to regulate the prices of prescription drugs, as is done in certain
foreign countries. We expect that there will be more
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proposals like these. If any of these proposals are enacted, we may receive a
lower price for our products, if and when they reach the market, than we
currently estimate. Lack of adequate reimbursement or the enactment of price
controls would have a material adverse effect on our business and financial
condition.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL
Our success depends on the services of key employees in executive and
research and development positions. The loss of the services of one or more of
these employees could have a material adverse effect on our business.
WE MAY ENCOUNTER DIFFICULTIES INTEGRATING FUTURE ACQUISITIONS
We may acquire novel technologies or compounds through acquisitions. We
cannot assure you that any such future acquisition will be successfully
integrated with our current businesses, will achieve revenues or will be
profitable. We may have difficulty assimilating the operations, technology and
personnel of any acquired businesses.
If we make significant acquisitions for stock consideration, our common
stock may be significantly diluted. If we make significant acquisitions for cash
consideration, we may be required to use a substantial portion of our available
cash.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK
We have not paid cash dividends on our common stock and do not expect to do
so in the foreseeable future.
WE MAY ISSUE MORE COMMON STOCK
As discussed above under "We need to spend substantial funds to become
profitable," we may issue additional equity securities to raise funds, thus
reducing the ownership share of the current holders of our common stock, which
may adversely affect the market price of the common stock. In addition, we must
issue common stock to certain security holders and other parties under the
circumstances described below. Any of these parties could sell all or a large
number of its shares, which could adversely affect the market price of our
common stock. Even if none of these sales happen, the perception by investors
that sales might occur could adversely affect the market price of our common
stock.
3 3/4% Convertible Subordinated Notes due 2007
In February 2000, we issued and sold $200 million aggregate principal
amount of 3 3/4% convertible subordinated notes due 2007 (the "3 3/4% notes").
The 3 3/4% notes carry certain redemption provisions and each holder may convert
its 3 3/4% notes into shares of common stock at any time prior to maturity. We
have already registered for resale shares of our common stock issuable on
conversion under the Securities Act of 1933. The 3 3/4% notes are convertible
into our common stock, at the option of the holder, at a price of $67.75 per
share, subject to adjustment upon certain events.
Convertible note held by Schering
In October 1998, we issued a promissory note in the principal amount of
approximately $6.0 million to Schering Corporation. We have the option to pay in
cash or convert the amount due on this note into our common stock. If we convert
the amount due into common stock, we may need to register the common stock under
the Securities Act of 1933. This note is due in October 2001.
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Stock options and awards
At March 31, 2001, we were obligated to issue 9,674,703 shares of common
stock upon the exercise of stock options and vesting of stock awards.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE
The realization of any of the risks described in these "Risk Factors" or
other unforeseen risks could have a dramatic and adverse effect on the market
price of our common stock. Additionally, market prices for securities of
biotechnology and pharmaceutical companies, including ours, have historically
been very volatile. The market for these securities has from time to time
experienced significant price and volume fluctuations for reasons that were
unrelated to the operating performance of any one company. In particular and in
addition to circumstances described elsewhere under "Risk Factors," the
following factors can adversely affect the market price of our common stock:
- announcements of technological innovations or new therapeutic products
by us or others;
- public concern as to the safety of drugs developed by us or others;
- general market conditions;
- success of our research and development programs;
- changes in government regulations or patent decisions; and
- developments of our corporate partners.
ANTI-TAKEOVER PROVISIONS MAY NOT BENEFIT SHAREHOLDERS
We are a Pennsylvania corporation. Anti-takeover provisions of Pennsylvania
law could make it more difficult for a person or group to acquire control of us,
even if the change in control would be beneficial to shareholders. Our articles
of incorporation and bylaws also contain certain provisions that could have a
similar effect. The articles provide that our board of directors may issue,
without shareholder approval, preferred stock having such voting rights,
preferences and special rights as the board of directors may determine. The
issuance of such preferred stock could make it more difficult for a third party
to acquire us.
ITEM 2. PROPERTIES
We lease and occupy approximately 153,000 square feet of laboratory,
manufacturing and office space in Cambridge, Massachusetts under several leases
expiring in the years 2002 to 2012. Additionally, we have entered into a new
lease in October 2000, for a new facility to be constructed adjacent to our
current headquarters for approximately 145,000 square feet of laboratory,
clinical manufacturing and office space. The term of this lease is scheduled to
commence in May 2002 and terminate in April 2012. Several of the leases contain
provisions permitting us to extend the term of such leases for up to two
ten-year periods. We have a GMP clinical suite at one of our Massachusetts
facilities, which is for the manufacture of product candidates incorporating the
ProLease delivery system. We operate a GMP manufacturing facility for our AIR
technology at another of our Massachusetts facilities. We also have a 32,000
square foot commercial scale ProLease manufacturing facility in Cambridge,
Massachusetts.
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During fiscal 2001, we entered into a new lease for a 91,000 square foot
building which we are developing as a commercial scale AIR manufacturing
facility in Chelsea, Massachusetts. The lease term is for fifteen years with an
option to extend the term of such lease for up to two five-year periods.
We own and occupy approximately 50,000 square feet of manufacturing, office
and laboratory space in Wilmington, Ohio. The facility contains a GMP production
facility designed for the production of Medisorb microspheres on a commercial
scale. During 2000, we completed an expansion of our Medisorb commercial
manufacturing facility in Wilmington, Ohio, to prepare for commercial scale
manufacture of Medisorb RISPERDAL. Additionally, we are currently planning to
construct a second facility in Wilmington, Ohio for commercial manufacturing. We
also lease and occupy approximately 30,000 square feet of laboratory and office
space in Blue Ash, Ohio under a lease expiring in 2003.
Alkermes Europe, Ltd., one of our wholly owned subsidiaries, leases and
occupies approximately 4,600 square feet of office space in Cambridge, England
under a lease expiring in the year 2002.
We believe that our current and planned facilities in Massachusetts and
Ohio are adequate for our current and near-term preclinical, clinical and
commercial operations.
ITEM 3. LEGAL PROCEEDINGS NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NOT APPLICABLE.
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PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
ALKS. We have 382,632 shares of our non-voting common stock issued and
outstanding. There is no established public trading market for our non-voting
common stock. Set forth below for the indicated periods are the high and low
sale prices for our common stock.
FISCAL 2001 FISCAL 2000
----------- -----------
HIGH LOW HIGH LOW
------ ------ ------ ------
1st Quarter $55.00 $21.56 $15.06 $10.81
2nd Quarter 49.38 29.00 19.94 11.38
3rd Quarter 43.50 25.69 28.75 14.19
4th Quarter 33.50 18.75 98.50 23.75
There were 496 shareholders of record for our common stock and one
shareholder of record for our non-voting common stock on June 6, 2001. No
dividends have been paid on the common stock to date and we do not expect to pay
cash dividends thereon in the foreseeable future.
3 3/4% Convertible Subordinated Notes due 2007
In February 2000, we issued and sold $200 million aggregate principal
amount of 3 3/4% Convertible Subordinated Notes due 2007 (the "3 3/4% Notes") to
Robertson Stephens, Adams, Harkness & Hill, Inc., ING Barings, J.P. Morgan &
Co., PaineWebber Incorporated, SG Cowen and U.S. Bancorp Piper Jaffray (the "3
3/4% Notes Initial Purchasers"). The underwriting commissions and discounts
totaled $6 million. The maturity date of the 3 3/4% Notes is February 15, 2007.
We are obligated to pay interest at a rate of 3 3/4% per year on each of
February 15 and August 15, which began on August 15, 2000.
The 3 3/4% Notes were issued and sold in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), to persons reasonably believed by the 3 3/4% Notes Initial
Purchasers to be "qualified institutional buyers" ("QIBs") as defined in Rule
144A under the Securities Act or institutional accredited investors or
sophisticated investors.
The 3 3/4% Notes are convertible into our common stock, at the option of
the holder, at a price of $67.75 per share, subject to adjustment upon certain
events.
The 3 3/4% Notes are redeemable by us in cash at any time prior to February
19, 2003 if our stock price exceeds $135.50 per share for at least 20 of the 30
trading days immediately prior to our delivery of the redemption notice. The 3
3/4% Notes are redeemable at any time on or after February 19, 2003 at
redemption prices of 102.14%, 101.61%, 101.07% and 100.54% for each of the years
2003, 2004, 2005 and 2006, respectively.
In certain circumstances, at the option of the holders, we may be required
to repurchase the 3 3/4% Notes. The required repurchase may be in cash or, at
our option, in common stock at 105% of the principal amount of the 3 3/4% Notes,
plus accrued and unpaid interest.
On February 29, 2000, we filed a registration statement on Form S-3 to
register the 3 3/4% Notes and the shares of common stock issuable upon
conversion thereof, which was declared effective on March 6, 2000.
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1999 Preferred Stock
On April 14, 1999, we issued and sold 3,500 shares of 1999 Redeemable
Convertible Exchangeable Preferred Stock, par value $.01 per share (the "1999
Preferred Stock"), to Genentech, Inc. for an aggregate purchase price of
$35,000,000.
The 1999 Preferred Stock was issued and sold in a transaction exempt from
the registration requirements of the Securities Act pursuant to Rule 506 of
Regulation D promulgated under the Securities Act. We reasonably believed that
Genentech, Inc. was and is an accredited investor, based on representations made
to us by Genentech and by our review of Genentech's filings with the SEC under
the Securities Exchange Act of 1934, as amended.
The 1999 Preferred Stock was convertible at Genentech's option. In February
2000, Genentech exercised its option to convert the 1999 Preferred Stock
together with accrued and unpaid dividends into 322,376 shares of common stock
and 382,632 shares of non-voting common stock.
On April 13, 2000, we filed a registration statement on Form S-3 to
register for resale the 705,008 shares of common stock issued upon conversion of
the 1999 Preferred Stock or issuable upon conversion of the non-voting common
stock, which was declared effective on April 25, 2000.
AIR Transaction
As of February 1, 1999, we issued 7,361,016 shares of our common stock (the
"AIR Shares") to the stockholders of Advanced Inhalation Research, Inc. ("AIR")
in connection with the merger of one of our wholly owned subsidiaries with and
into AIR. Each share of the common stock of AIR was converted into 2.3659508
shares of our common stock on the effective date of the merger. As of March 31,
2001, approximately 265,000 of the AIR Shares remain restricted under various
restricted stock purchase agreements and cannot be resold until such shares vest
over a four year period at different amounts for each shareholder.
The AIR Shares were issued in a transaction exempt from the registration
requirements of the Securities Act pursuant to Rule 506 of Regulation D
promulgated under the Securities Act to persons reasonably believed to be
accredited investors or investors who, alone or with their purchaser
representatives had such knowledge and experience in financial and business
matters that he or she was capable of evaluating the merits and risks of the
investment. The AIR Shares were issued to 34 purchasers.
On April 2, 1999, we filed a registration statement on Form S-3 to register
for resale the AIR Shares, which was declared effective on May 13, 1999.
Also in February 1999 and in connection with the merger, we assumed stock
options previously granted to certain persons by AIR. On April 2, 1999, we filed
a registration statement on Form S-3 to register 238,908 shares of our common
stock issuable upon exercise of such stock options, which was also declared
effective on May 13, 1999.
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ITEM 6. SELECTED FINANCIAL DATA
ALKERMES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
YEAR ENDED
MARCH 31,
---------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues (1) $ 78,467 $ 34,459 $ 43,716 $ 31,367 $ 19,827
---------------------------------------------------------------------------------
Research and development expenses 68,774 54,483 48,457 31,762 29,554
---------------------------------------------------------------------------------
Total expenses (2)(3) 95,336 102,506 84,772 43,949 38,625
---------------------------------------------------------------------------------
Net loss (2)(3) $ (16,869) $ (68,047) $ (41,056) $ (12,582) $ (18,798)
---------------------------------------------------------------------------------
Basic and diluted loss per common share $ (0.43) $ (1.52) $ (0.99) $ (0.27) $ (0.51)
---------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 55,746 51,015 49,115 46,038 36,577
---------------------------------------------------------------------------------
MARCH 31,
------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments $ 254,928 $ 337,367 $ 163,419 $ 194,257 $ 85,297
------------------------------------------------------------------------
Total assets 391,297 413,961 213,452 220,977 104,697
------------------------------------------------------------------------
Long-term obligations 211,825 222,792 28,417 12,933 10,914
------------------------------------------------------------------------
Shareholders' equity 148,410 167,967 156,206 181,455 79,151
------------------------------------------------------------------------
(1) Total revenues include research and development revenue under collaborative
arrangements and interest and other income.
(2) Includes noncash compensation (income) expense of ($2,488), $29,493,
$16,239, $2,183 and $173, respectively.
(3) Includes a $3,221 nonrecurring charge in fiscal 1999 for RingCap(TM) and
DST technologies licensed from ALZA Corporation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Alkermes, Inc. (together with our subsidiaries, "we" or "us") is a leader
in the development of products based on sophisticated drug delivery
technologies. We have several areas of focus, including: (i) controlled,
sustained-release of injectable drugs lasting several days to several weeks,
utilizing our ProLease(R) and Medisorb(R) technologies and (ii) the development
of pharmaceutical products based on our proprietary Advanced Inhalation
Research, Inc. ("AIR(TM)") pulmonary technology. Our first product, Nutropin
Depot(TM), was launched in the United States by our partner, Genentech, Inc.
("Genentech"), in June 2000. Nutropin Depot is a long-acting form of Genentech's
recombinant human growth hormone using our ProLease technology. Since our
inception in 1987, we have devoted substantially all of our resources to
research and development programs. We expect to incur substantial additional
operating losses over the next few years. At March 31, 2001, we had an
accumulated deficit of $282.5 million.
We have funded our operations primarily through public offerings and
private placements of debt and equity securities, bank loans and payments under
research and development agreements with collaborators. We generally develop our
product candidates in collaboration with others on whom we rely for funding,
development, manufacturing and/or marketing.
FORWARD-LOOKING STATEMENTS
Any statements herein or otherwise made in writing or orally by us with
regard to our expectations as to financial results and other aspects of our
business may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to our
future plans, objectives, expectations and intentions and may be identified by
words like "believe," "expect," "may," "will," "should," "seek," or
"anticipate," and similar expressions.
Although we believe that our expectations are based on reasonable
assumptions within the bounds of our knowledge of our business and operations,
our business is subject to significant risks and there can be no assurance that
actual results of our development and manufacturing activities and our results
of operations will not differ materially from our expectations. Factors which
could cause actual results to differ from expectations include, among others:
(i) we may be unable to continue to manufacture our first product, Nutropin
Depot, or to manufacture future products on a commercial scale or economically;
(ii) Nutropin Depot may not produce significant revenues and, in commercial use,
may have unintended side effects, adverse reactions or incidents of misuse;
(iii) our collaborators could elect to terminate or delay programs at any time;
(iv) even if clinical trials are completed and the data is submitted to the
United States Food and Drug Administration ("FDA") as a New Drug Application
("NDA") for marketing approval and to other health authorities as a marketing
authorization application, the NDA or marketing authorization application could
fail to be accepted, or could fail to receive approval on a timely basis, if at
all; (v) we and our collaborators may not be permitted by regulatory authorities
to undertake new or additional clinical trials for product candidates
incorporating our technologies, or clinical trials could be delayed; (vi) our
product candidates could be ineffective or unsafe during clinical trials; (vii)
disputes with collaborators or failure to negotiate acceptable new collaborative
arrangements for our technologies could occur; (viii) even if our product
candidates appear promising at an early stage of development, product candidates
could fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical, fail to achieve market
acceptance, be precluded from commercialization by proprietary rights of third
parties or experience substantial competition in the marketplace; (ix)
technological change in the biotechnology or pharmaceutical industries could
render our product candidates obsolete or noncompetitive; (x) difficulties
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or set-backs in obtaining and enforcing our patents and difficulties with the
patent rights of others could occur; (xi) we could incur difficulties or
set-backs in obtaining the substantial additional funding required to continue
research and development programs and clinical trials; and (xii) disputes with
Alkermes Clinical Partners, L.P. ("Clinical Partners") over rights to
Cereport(R) and related technology could occur.
RESULTS OF OPERATIONS
Our research and development revenue under collaborative arrangements was
$56.0 million, $22.9 million and $33.9 million for the fiscal years ended in
2001, 2000 and 1999, respectively. The increase in such revenue for fiscal 2001
as compared to fiscal 2000 was mainly the result of non-recurring milestone
revenues earned as a result of the launch of Nutropin Depot by our collaborative
partner, Genentech, in June 2000. Nutropin Depot is an injectable long-acting
formulation of Genentech's recombinant human growth hormone based on our
ProLease drug delivery system. In addition, there was an increase in funding
earned under other collaborative agreements. The decrease in such revenue for
fiscal 2000 as compared to fiscal 1999 was mainly a result of the decreased
funding earned under collaborative agreements related to our ProLease and
Medisorb technologies. Furthermore, the research and development funding from
Genentech decreased in connection with the expanded license agreement and the
sale of our convertible exchangeable preferred stock (the "1999 Preferred
Stock") to Genentech in April 1999 at a purchase price of $35 million (see Note
4 to the consolidated financial statements). We used the proceeds from the
issuance of the 1999 Preferred Stock to conduct expanded development activities
for Nutropin Depot.
Total operating expenses were $85.9 million for the fiscal year ended in
2001 compared to $98.9 million and $82.5 million for the fiscal years ended in
2000 and 1999, respectively. The decrease for fiscal 2001 as compared to fiscal
2000 was primarily related to a decrease in noncash compensation charges
partially offset by an increase in research and development expenses and general
and administrative expenses, which are discussed below. The increase for fiscal
2000 as compared to fiscal 1999 was primarily related to an increase in noncash
compensation charges, as well as an increase in research and development
expenses, which are discussed below. In addition, we incurred a $3.2 million
nonrecurring charge during fiscal 1999 for RingCap(TM) and dose sipping
technologies licensed from ALZA Corporation which are not yet commercially
viable.
Research and development expenses were $68.8 million for the fiscal year
ended in 2001 compared to $54.5 million and $48.5 million for the fiscal years
ended in 2000 and 1999, respectively. The increases for fiscal 2001 as compared
to fiscal 2000 and for fiscal 2000 as compared to fiscal 1999 were primarily the
result of an increase in salary and related benefits and other costs associated
with an increase in personnel as we advance our own and our collaborators'
product candidates through development, clinical trials and commercialization.
In addition, we had an increase in depreciation expense as a result of the
acquisition of fixed assets. There was also an increase in occupancy costs as we
expand our facilities in both Massachusetts and Ohio. The increase in research
and development expenses in fiscal 2000 as compared to fiscal 1999 was partially
offset by a decrease in clinical trial costs as we completed the Phase III
clinical trial for Nutropin Depot during fiscal 1999 and discontinued the Phase
III clinical trial of Cereport in April 1999.
General and administrative expenses were $19.6 million, $14.9 million and
$14.6 million for the fiscal years ended in 2001, 2000 and 1999, respectively.
The increase for fiscal 2001 as compared to fiscal 2000 was a result of
increased professional fees, consulting costs and an increase in amortization of
expenses associated with the sale of $200 million principal amount of our 3 3/4%
Subordinated Convertible Notes due 2007 (the "3 3/4% Notes"). There was also an
increase in occupancy costs as we expand our facilities in both Massachusetts
and Ohio. The increase for fiscal 2000 as compared to fiscal 1999 was the result
of increased salary, benefits and other costs relating primarily to an increase
in personnel. In
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addition, in fiscal 1999 we recorded one-time merger costs of $1.3 million in
connection with the acquisition of our subsidiary, AIR, which was accounted for
as a pooling of interests.
Noncash compensation (income) expense was ($2.4) million, $29.5 million and
$16.2 million for fiscal years ended 2001, 2000 and 1999, respectively. Noncash
compensation charges primarily relate to common stock issued and stock options
granted to certain employees, consultants and other individuals associated with
our subsidiary, AIR. Fluctuations in noncash compensation charges are primarily
a result of changes in the market value of our common stock, partially offset by
a reduction in the number of shares of common stock subject to future vesting.
As a result of fluctuations in our common stock price during fiscal 2001, we
recognized noncash compensation income for the year based on the calculation of
noncash compensation for consultants, as prescribed under the fair value method
of accounting.
Interest income was $22.4 million, $11.5 million and $9.8 million for the
fiscal years ended in 2001, 2000 and 1999, respectively. The increase for fiscal
2001 as compared to fiscal 2000 was primarily the result of the interest income
earned on the increase in average cash and investment balances mainly resulting
from the investment of the net proceeds from the sale of the 3 3/4% Notes.
Interest income also increased as a result of an increase in interest rates as
compared to the prior year. The increase for fiscal 2000 as compared to fiscal
1999 was the result of the interest income earned on the net proceeds from the
sale of the 1999 Preferred Stock to Genentech, as discussed above.
Interest expense was $9.4 million for the fiscal year ended in 2001
compared to $3.7 million and $2.3 million for the fiscal years ended in 2000 and
1999, respectively. The increase for fiscal 2001 as compared to fiscal 2000 was
primarily the result of interest costs related to the 3 3/4% Notes. The increase
for fiscal 2000 as compared to fiscal 1999 was primarily the result of an
increase in interest costs related to an increase in indebtedness.
We do not believe that inflation and changing prices have had a material
impact on our results of operations.
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QUARTERLY FINANCIAL DATA
(In thousands, except per share data)
Three Months Ended
---------------------------------------------------------
June 30, September 30, December 31, March 31,
2000 2000 2000 2001
---------------------------------------------------------
Revenues:
Research and development revenue under collaborative arrangements $ 28,967 $ 7,514 $ 9,689 $ 9,860
--------------------------------------------------------
Expenses:
Research and development 14,440 16,498 16,863 20,973
General and administrative 4,817 4,944 4,969 4,881
Noncash compensation expense (income) 3,149 (2,290) (1,644) (1,663)
--------------------------------------------------------
Total Expenses 22,406 19,152 20,188 24,191
--------------------------------------------------------
Net Operating Income (Loss) 6,561 (11,638) (10,499) (14,331)
Other Income (Expense):
Interest income 5,599 5,660 5,506 5,671
Interest expense (2,395) (2,308) (2,365) (2,331)
--------------------------------------------------------
Total Other Income 3,204 3,352 3,141 3,340
--------------------------------------------------------
Net Income (Loss) 9,765 (8,286) (7,358) (10,991)
Preferred Stock Dividends 1,868 1,867 2,095 1,437
--------------------------------------------------------
Net Income (Loss) Attributable to Common Shareholders $ 7,897 $(10,153) $ (9,453) $(12,428)
========================================================
Earnings (Loss) Per Common Share:
Basic $ 0.15 $ (0.19) $ (0.17) $ (0.21)
========================================================
Diluted $ 0.13 $ (0.19) $ (0.17) $ (0.21)
========================================================
Weighted Average Common Shares Used to
Compute Earnings (Loss) Per Common Share:
Basic 53,957 54,651 55,670 58,753
========================================================
Diluted 59,856 54,651 55,670 58,753
========================================================
Three Months Ended
---------------------------------------------------------
June 30, September 30, December 31, March 31,
1999 1999 1999 2000
---------------------------------------------------------
Revenues:
Research and development revenue under collaborative arrangements $ 5,763 $ 4,361 $ 7,013 $ 5,783
--------------------------------------------------------
Expenses:
Research and development 12,270 13,569 13,484 15,160
General and administrative 3,436 3,347 3,464 4,632
Noncash compensation expense 62 3,635 9,025 16,770
--------------------------------------------------------
Total Expenses 15,768 20,551 25,973 36,562
--------------------------------------------------------
Net Operating Loss (10,005) (16,190) (18,960) (30,779)
Other Income (Expense):
Interest income 2,460 2,481 2,482 4,116
Interest expense (743) (720) (725) (1,464)
--------------------------------------------------------
Total Other Income 1,717 1,761 1,757 2,652
--------------------------------------------------------
Net Loss (8,288) (14,429) (17,203) (28,127)
Preferred Stock Dividends 2,099 2,337 2,410 2,543
--------------------------------------------------------
Net Loss Attributable to Common Shareholders $(10,387) $(16,766) $(19,613) $(30,670)
========================================================
Basic and Diluted Loss Per Common Share $ (0.21) $ (0.33) $ (0.39) $ (0.58)
========================================================
Weighted Average Number of Common Shares Outstanding 50,079 50,414 50,809 52,767
========================================================
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were approximately
$254.9 million at March 31, 2001 as compared to $337.4 million at March 31,
2000. The decrease in cash and cash equivalents and short-term investments was
primarily the result of cash used to fund our operations, to make interest and
principal payments on our indebtedness, to acquire fixed assets and to pay
preferred stock dividends. In addition, in an effort to obtain higher interest
rates during the upcoming year, we have a larger amount of our total investment
portfolio invested for a period in excess of one year, therefore, long-term
investments total $73.4 million at March 31, 2001 compared to $20.1 million at
March 31, 2000. Notwithstanding the decrease in total cash and investments there
was an increase in interest income earned on the net proceeds from the sale of
the 3 3/4% Notes. There was also an increase in total cash and investments due
to the receipt of the net proceeds from the exercise of stock options, $5.0
million received from the sale of our common stock to our collaborative partner,
GlaxoSmithKline, in August 2000 and the non-recurring milestone payment received
as a result of the launch of Nutropin Depot.
In order to provide more flexibility with our investment portfolio, we have
begun to treat a portion of our short-term investments as "available-for-sale"
and have provided guidance to two of our three portfolio managers accordingly.
All of our short-term investments had previously been accounted for as
"held-to-maturity" as those were the instructions we had given to our portfolio
managers. During fiscal 2001, short-term investments with an amortized cost of
$119.4 million (which approximated fair market value) were designated as
"available-for-sale" securities. We invest in cash equivalents, U.S. Government
obligations, high-grade corporate notes and commercial paper. Our investment
objectives for all of our investments taken as a whole are, first, to assure
conservation of capital and liquidity, and second, to obtain investment income.
Investments classified as "held-to-maturity" include $67.6 million principal
amount of high-grade corporate notes and U.S. Government obligations with
maturities ranging from 13 months to 6 years.
CORPORATE AND COLLABORATIVE DEVELOPMENTS
The following are important corporate and collaborative developments since
December 2000. Because of our ongoing and expected research and development
activities on these projects, we expect to incur substantial additional research
and development expenses over the next few years.
- In January 2001, Genentech and Alkermes announced that they will
continue clinical development of Nutropin Depot in adults with growth
hormone deficiency. Genentech's decision to proceed to a Phase II/III
clinical trial follows the completion of a Phase I trial of Nutropin
Depot in growth hormone deficient adults. The clinical trial will be
funded by Genentech and conducted by us. It is expected to begin
during calendar year 2001.
- In February 2001, we announced that our partner, Janssen
Pharmaceutica, had completed two multi-center Phase III clinical
trials of an intra-muscular ("IM") injectable sustained-release
formulation of the anti-psychotic drug RISPERDAL(R) (risperidone). The
formulation is based on our Medisorb injectable sustained-release drug
delivery system and is designed to provide patients with prolonged
therapeutic benefit from a single administration. With the completion
of the Phase III clinical trials, Alkermes and Janssen are preparing
for the expected submissions to regulatory health authorities
including the FDA. Janssen will continue to provide funding to us as
we continue the development of Medisorb RISPERDAL.
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- In April 2001, we announced the initiation of enrollment in the second
clinical trial of Medisorb Naltrexone, our proprietary injectable
sustained-release formulation of naltrexone. The trial will test the
safety, tolerability and pharmacokinetics of repeated doses of
Medisorb Naltrexone administered monthly to alcohol-dependent
patients. The clinical trial follows the successful completion of a
single-dose safety and pharmacokinetic clinical assessment of the drug
in normal volunteers conducted in the second half of calendar year
2000. Naltrexone is an FDA-approved drug used for the treatment of
alcohol dependence and opiate abuse, and is currently available in a
daily oral dosage form. Medisorb Naltrexone is a formulation of
naltrexone based on our Medisorb injectable sustained-release drug
delivery technology and is designed to enhance patient compliance by
removing the need for daily dosing and providing therapeutic drug
levels consistently over a one-month period. We are funding the
development of Medisorb Naltrexone.
- In April 2001, we announced that we signed a broad, mutually exclusive
agreement with Eli Lilly and Company to develop inhaled formulations
of insulin, including short- and long-acting insulin, and other
potential products for the treatment of diabetes based on our AIR
pulmonary drug delivery system. The companies' decision to enter into
this agreement follows the analysis of data generated in ongoing human
clinical trials we conducted of inhaled insulin formulations and the
completion of a series of tests evaluating the performance of our
AIR(TM)inhaler. Under the terms of the agreement, we will receive
funding for product and process development activities, milestone
payments and royalties based on product sales. In exchange, Lilly will
receive exclusive worldwide rights to products resulting from the
collaboration. Lilly will be responsible for conducting clinical
trials, securing regulatory approvals, large-scale manufacturing and
marketing on a worldwide basis.
- In May 2001, Serono S.A. announced their intention to proceed with the
clinical development of a novel, long-acting formulation of
recombinant human follicle stimulating hormone (r-hFSH) for the
treatment of infertility. The new formulation is based on our ProLease
injectable sustained-release drug delivery technology and is designed
to provide patients with a single injection alternative to multiple
daily injections. The decision follows the successful completion and
analysis of data from a Phase I trial and triggered an undisclosed
milestone payment to us.
At March 31, 2001, we have approximately $209.0 million of net operating
loss ("NOL") carryforwards for United States federal income tax purposes and
approximately $14.3 million of research and development tax credits available to
offset future federal income tax, subject to limitations for alternative minimum
tax. The NOL and research and development credit carryforwards are subject to
examination by the tax authorities and expire in various years from fiscal years
2008 through 2027. Due to the uncertainty of realizing the future benefits of
the net deferred income tax assets, a full valuation allowance has been
established at March 31, 2001 and, therefore no benefit has been recognized in
the financial statements.
We have funded our operations primarily through public offerings and
private placements of debt and equity securities, bank loans and payments under
research and development agreements with collaborators. We expect to incur
significant additional research and development and other costs in connection
with collaborative arrangements and as we expand the development of our
proprietary product candidates, including costs related to preclinical studies,
clinical trials and facilities expansion. Therefore, we expect that our costs,
including research and development costs for our product candidates,
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will exceed revenues significantly for the next few years, which will result in
continuing losses from operations.
Capital expenditures were approximately $10.0 million for the year ended
March 31, 2001, principally reflecting equipment purchases and building
improvements. We expect our capital expenditures to increase significantly
during fiscal year 2002 as we expand our facilities in both Massachusetts and
Ohio. Our capital expenditures for equipment, facilities and building
improvements have been financed to date primarily with proceeds from bank loans
and the sales of debt and equity securities. Under the provisions of the
existing loans, Fleet National Bank has a security interest in certain of our
assets which secure the outstanding obligations under the loans.
We will continue to pursue opportunities to obtain additional financing in
the future. Such financing may be sought through various sources, including debt
and equity offerings, corporate collaborations, bank borrowings, lease
arrangements relating to fixed assets or other financing methods. The source,
timing and availability of any financings will depend on market conditions,
interest rates and other factors. Our future capital requirements will also
depend on many factors, including continued scientific progress in our research
and development programs (including our proprietary product candidates), the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing facilities and of
commercialization activities and arrangements and the cost of product
in-licensing and any possible acquisitions.
We believe that our current cash and cash equivalents and short-term
investments, combined with anticipated interest income and research and
development revenues under collaborative arrangements, will be sufficient to
meet our anticipated capital requirements through at least March 31, 2003.
We may need to raise substantial additional funds for longer-term product
development, including development of our proprietary product candidates,
regulatory approvals and manufacturing or marketing activities that we might
undertake in the future. There can be no assurance that additional funds will be
available on favorable terms, if at all. If adequate funds are not available, we
may be required to curtail significantly one or more of our research and
development programs and/or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or future products.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The standard was amended
in June 2000 by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities-an amendment of FASB Statement No. 133." The
standards are collectively referred to as SFAS No. 133. We adopted SFAS No. 133
on April 1, 2001 and the adoption did not have a material impact on our
financial position and results of operations.
44
45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We own financial instruments that are sensitive to market risks as part of
our investment portfolio. The investment portfolio is used to preserve our
capital until it is required to fund operations, including our research and
development activities. Our short-term investments and investments consist of
U.S. Government obligations, high-grade corporate notes and commercial paper. In
order to provide more flexibility with our investment portfolio, we have begun
to treat a portion of our short-term investments as "available-for-sale" and
have provided guidance to two of our three portfolio managers accordingly. All
of our short-term investments had previously been accounted for as
"held-to-maturity" as those were the instructions we had given to our portfolio
managers. During fiscal 2001 short-term investments with an amortized cost of
$119.4 million (which approximated fair market value) were designated as
"available-for-sale" securities. The amount of the short-term investment
portfolio that is "held-to-maturity" is comprised of investments that mature
within one year, are not callable by the issuer and have fixed interest rates.
Our investments are subject to interest rate risk, and could decline in value if
interest rates increase. Due to the conservative nature of our short-term
investments and investments we do not believe that we have a material exposure
to interest rate risk. Although our investments are subject to credit risk, our
investment policies specify credit quality standards for our investments and
limit the amount of credit exposure from any single issue, issuer or type of
investment.
Our "available-for-sale" marketable securities are sensitive to changes in
interest rates. Interest rate changes would result in a change in the fair value
of these financial instruments due to the difference between the market interest
rate and the rate at the date of purchase of the financial instrument. A 10%
decrease in year-end market interest rates would result in no material impact on
the net fair value of such interest-sensitive financial instruments.
The interest rates on our 3 3/4% Notes are fixed and, therefore, are not
subject to interest rate risk.
45
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2001 AND 2000
AND FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED MARCH 31, 2001 AND INDEPENDENT AUDITORS' REPORT
46
47
INDEPENDENT AUDITORS' REPORT
Board of Directors
Alkermes, Inc.
Cambridge, Massachusetts
The Board of Directors of Alkermes, Inc.:
We have audited the accompanying consolidated balance sheets of Alkermes, Inc.
and subsidiaries as of March 31, 2001 and 2000, and the related consolidated
statements of operations and comprehensive loss, shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alkermes, Inc. and subsidiaries as
of March 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
May 23, 2001
-47-
48
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
ASSETS 2001 2000
CURRENT ASSETS:
Cash and cash equivalents $ 5,923,282 $ 6,100,643
Short-term investments 249,004,850 331,266,720
Prepaid expenses and other current assets 16,678,373 8,474,083
------------- -------------
Total current assets 271,606,505 345,841,446
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 235,000 235,000
Building 4,888,469 3,538,935
Furniture, fixtures and equipment 43,432,360 35,845,461
Leasehold improvements 14,401,828 13,804,269
Construction in progress 562,331 --
------------- -------------
63,519,988 53,423,665
Less accumulated depreciation and amortization (27,200,590) (20,554,182)
------------- -------------
36,319,398 32,869,483
------------- -------------
INVESTMENTS 73,416,252 20,094,438
------------- -------------
OTHER ASSETS 9,955,060 15,155,738
------------- -------------
TOTAL ASSETS $ 391,297,215 $ 413,961,105
============= =============
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,414,327 $ 7,227,897
Accrued interest 2,158,087 979,497
Deferred revenue 8,523,326 8,655,062
Long-term obligations - current portion 10,966,626 5,625,000
------------- -------------
Total current liabilities 31,062,366 22,487,456
------------- -------------
LONG-TERM OBLIGATIONS 11,825,000 22,791,625
------------- -------------
CONVERTIBLE SUBORDINATED NOTES 200,000,000 200,000,000
------------- -------------
OTHER LONG-TERM LIABILITIES -- 715,029
------------- -------------
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY:
Capital stock, par value $.01 per share:
authorized, 4,550,000 shares; none issued
Convertible exchangeable preferred stock, par value $.01 per
share: authorized, 0 and 2,300,000 shares at March 31, 2001
and 2000, respectively; outstanding, 0 and 2,299,000 shares
at March 31, 2001 and 2000, respectively -- 22,990
Common stock, par value $.01 per share:
authorized, 160,000,000 shares; issued, 63,124,248 and
53,953,996 shares at March 31, 2001 and 2000, respectively 631,243 539,540
Non-voting common stock, par value $.01 per share:
authorized, 450,000 shares; issued, 382,632
shares at March 31, 2001 and 2000 3,826 3,826
Additional paid-in capital 427,129,226 427,577,936
Deferred compensation (1,024,303) (8,545,926)
Accumulated other comprehensive income 4,179,938 6,742,064
Accumulated deficit (282,510,081) (258,373,435)
------------- -------------
Total shareholders' equity 148,409,849 167,966,995
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 391,297,215 $ 413,961,105
============= =============
See notes to consolidated financial statements.
-48-
49
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS 2001 2000 1999
OF OPERATIONS
REVENUES:
Research and development revenue under
collaborative arrangements $ 56,029,865 $ 22,920,357 $ 33,892,107
------------ ------------ ------------
EXPENSES:
Research and development 68,773,691 54,482,672 48,456,824
General and administrative 19,611,284 14,878,753 14,556,102
Noncash compensation (income) expense - attributed
to research and development (2,447,663) 29,492,656 16,239,311
Purchase of in-process research and development -- -- 3,221,253
------------ ------------ ------------
Total expenses 85,937,312 98,854,081 82,473,490
------------ ------------ ------------
NET OPERATING LOSS (29,907,447) (75,933,724) (48,581,383)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and other income 22,436,856 11,538,884 9,823,479
Interest expense (9,398,724) (3,652,498) (2,298,466)
------------ ------------ ------------
Total other income 13,038,132 7,886,386 7,525,013
------------ ------------ ------------
NET LOSS (16,869,315) (68,047,338) (41,056,370)
PREFERRED STOCK DIVIDENDS 7,267,331 9,388,803 7,454,300
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(24,136,646) $(77,436,141) $(48,510,670)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON
SHARE $ (0.43) $ (1.52) $ (0.99)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 55,746,462 51,014,956 49,115,000
============ ============ ============
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
NET LOSS $(16,869,315) $(68,047,338) $(41,056,370)
Foreign currency translation adjustments (72,876) (17,813) (36,235)
Unrealized (loss) gain on marketable securities (2,489,250) 6,806,750 --
Carrying value adjustments -- -- 37,500
------------ ------------ ------------
COMPREHENSIVE LOSS $(19,431,441) $(61,258,401) $(41,055,105)
============ ============ ============
See notes to consolidated financial statements.
-49-
50
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
$3.25 CONVERTIBLE 1999 CONVERTIBLE
EXCHANGEABLE EXCHANGEABLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
BALANCE, APRIL 1, 1998 2,300,000 $23,000 -- $ -- 48,055,952 $480,560
Issuance of common stock -- -- -- -- 1,908,966 19,089
Noncash compensation -- -- -- -- -- --
Amortization of noncash compensation -- -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- -- --
Carrying value adjustments -- -- -- -- -- --
Net loss for year -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
--------- ------- ------ ---- ---------- --------
BALANCE, MARCH 31, 1999 2,300,000 23,000 -- -- 49,964,918 499,649
Issuance of common stock, net -- -- -- -- 1,692,850 16,928
Issuance of common stock in connection with
warrants exercised -- -- -- -- 1,755,002 17,550
Issuance of 1999 convertible exchangeable
preferred stock -- -- 3,500 35 -- --
Conversion of $3.25 convertible
exchangeable preferred stock (1,000) (10) -- -- 3,374 34
Conversion of 1999 convertible
exchangeable preferred stock -- -- (3,500) (35) 322,376 3,224
Conversion of note payable to corporate partner -- -- -- -- 215,476 2,155
Options and restricted awards canceled -- -- -- -- -- --
Noncash compensation -- -- -- -- -- --
Amortization of noncash compensation -- -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- -- --
Unrealized gain on marketable securities -- -- -- -- -- --
Net loss for year -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
--------- ------- ------ ---- ---------- --------
BALANCE, MARCH 31, 2000 2,299,000 22,990 -- -- 53,953,996 539,540
--------- ------- ------ ---- ---------- --------
OTHER COMPREHENSIVE
INCOME (LOSS)
-------------------
FOREIGN
NON-VOTING ADDITIONAL CURRENCY
COMMON STOCK PAID-IN DEFERRED TRANSLATION
SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENTS
BALANCE, APRIL 1, 1998 -- $ -- $316,352,629 $ (2,926,484) $ (10,638)
Issuance of common stock -- -- 7,001,953 -- --
Noncash compensation -- -- 23,245,026 (23,245,026) --
Amortization of noncash compensation -- -- -- 16,239,311 --
Cumulative foreign currency translation
adjustments -- -- -- -- (36,235)
Carrying value adjustments -- -- -- -- --
Net loss for year -- -- -- -- --
Preferred stock dividends -- -- -- -- --
------- ------ ------------ ------------ ------------
BALANCE, MARCH 31, 1999 -- -- 346,599,608 (9,932,199) (46,873)
Issuance of common stock, net -- -- 6,249,901 -- --
Issuance of common stock in connection with
warrants exercised -- -- 6,217,628 -- --
Issuance of 1999 convertible exchangeable
preferred stock -- -- 34,999,965 -- --
Conversion of $3.25 convertible
exchangeable preferred stock -- -- (24) -- --
Conversion of 1999 convertible
exchangeable preferred stock 382,632 3,826 157,445 -- --
Conversion of note payable to corporate partner -- -- 5,247,030 -- --
Options and restricted awards canceled -- -- (754,849) 754,849 --
Noncash compensation -- -- 28,861,232 (28,861,232) --
Amortization of noncash compensation -- -- -- 29,492,656 --
Cumulative foreign currency translation
adjustments -- -- -- -- (17,813)
Unrealized gain on marketable securities -- -- -- -- --
Net loss for year -- -- -- -- --
Preferred stock dividends -- -- -- -- --
------- ------ ------------ ------------ ------------
BALANCE, MARCH 31, 2000 382,632 3,826 427,577,936 (8,545,926) (64,686)
------- ------ ------------ ------------ ------------
OTHER COMPREHENSIVE
INCOME (LOSS)
-------------------
UNREALIZED
GAIN (LOSS) ON
MARKETABLE ACCUMULATED
SECURITIES DEFICIT TOTAL
BALANCE, APRIL 1, 1998 $ (37,500) $(132,426,624) $181,454,943
Issuance of common stock -- -- 7,021,042
Noncash compensation -- -- --
Amortization of noncash compensation -- -- 16,239,311
Cumulative foreign currency translation
adjustments -- -- (36,235)
Carrying value adjustments 37,500 -- 37,500
Net loss for year -- (41,056,370) (41,056,370)
Preferred stock dividends -- (7,454,300) (7,454,300)
------------- ------------- ------------
BALANCE, MARCH 31, 1999 -- (180,937,294) 156,205,891
Issuance of common stock, net -- -- 6,266,829
Issuance of common stock in connection with
warrants exercised -- -- 6,235,178
Issuance of 1999 convertible exchangeable
preferred stock -- -- 35,000,000
Conversion of $3.25 convertible
exchangeable preferred stock -- -- --
Conversion of 1999 convertible
exchangeable preferred stock -- -- 164,460
Conversion of note payable to corporate partner -- -- 5,249,185
Options and restricted awards canceled -- -- --
Noncash compensation -- -- --
Amortization of noncash compensation -- -- 29,492,656
Cumulative foreign currency translation
adjustments -- -- (17,813)
Unrealized gain on marketable securities 6,806,750 -- 6,806,750
Net loss for year -- (68,047,338) (68,047,338)
Preferred stock dividends -- (9,388,803) (9,388,803)
------------- ------------- ------------
BALANCE, MARCH 31, 2000 6,806,750 (258,373,435) 167,966,995
------------- ------------- ------------
(Continued)
51
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
$3.25 CONVERTIBLE 1999 CONVERTIBLE
EXCHANGEABLE EXCHANGEABLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
BALANCE, MARCH 31, 2000
(CARRIED FORWARD) 2,299,000 22,990 -- -- 53,953,996 539,540
Issuance of common stock -- -- -- -- 1,251,334 12,513
Issuance of common stock to
collaborative partner -- -- -- -- 160,030 1,600
Conversion and redemption of $3.25 convertible
exchangeable preferred stock (2,299,000) (22,990) -- -- 7,758,888 77,590
Noncash compensation -- -- -- -- -- --
Amortization of noncash compensation -- -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- -- --
Net loss for year -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
---------- -------- ---- ---- ----------- --------
BALANCE, MARCH 31, 2001 -- $ -- -- $ -- 63,124,248 $631,243
========== ======== ==== ==== =========== ========
OTHER COMPREHENSIVE
INCOME (LOSS)
-------------------
FOREIGN
NON-VOTING ADDITIONAL CURRENCY
COMMON STOCK PAID-IN DEFERRED TRANSLATION
SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENTS
BALANCE, MARCH 31, 2000
(CARRIED FORWARD) 382,632 3,826 427,577,936 (8,545,926) (64,686)
Issuance of common stock -- -- 4,601,681 -- --
Issuance of common stock to
collaborative partner -- -- 4,998,378 -- --
Conversion and redemption of $3.25 convertible
exchangeable preferred stock -- -- (79,483) -- --
Noncash compensation -- -- (9,969,286) 9,969,286 --
Amortization of noncash compensation -- -- -- (2,447,663) --
Cumulative foreign currency translation
adjustments -- -- -- -- (72,876)
Unrealized loss on marketable securities -- -- -- -- --
Net loss for year -- -- -- -- --
Preferred stock dividends -- -- -- -- --
------- ------ ------------ ----------- -----------
BALANCE, MARCH 31, 2001 382,632 $3,826 $427,129,226 $(1,024,303) $ (137,562)
======= ====== ============ =========== ===========
OTHER COMPREHENSIVE
INCOME (LOSS)
-------------------
UNREALIZED
GAIN (LOSS) ON
MARKETABLE ACCUMULATED
SECURITIES DEFICIT TOTAL
BALANCE, MARCH 31, 2000
(CARRIED FORWARD) 6,806,750 (258,373,435) 167,966,995
Issuance of common stock -- -- 4,614,194
Issuance of common stock to
collaborative partner -- -- 4,999,978
Conversion and redemption of $3.25 convertible
exchangeable preferred stock -- -- (24,883)
Noncash compensation -- -- --
Amortization of noncash compensation -- -- (2,447,663)
Cumulative foreign currency translation
adjustments -- -- (72,876)
Unrealized loss on marketable securities (2,489,250) -- (2,489,250)
Net loss for year -- (16,869,315) (16,869,315)
Preferred stock dividends -- (7,267,331) (7,267,331)
----------- ------------- ------------
BALANCE, MARCH 31, 2001 $ 4,317,500 $(282,510,081) $148,409,849
=========== ============= ============
See notes to consolidated financial statements. (Concluded)
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52
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (16,869,315) $ (68,047,338) $ (41,056,370)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 7,697,662 6,430,934 5,385,404
Noncash interest expense 509,229 776,347 758,126
Compensation relating to issuance of common stock and
grant of stock options and awards made (2,447,663) 29,492,656 16,239,311
Adjustments to other assets 270,064 (304,917) 250,500
Gain on sale of equipment -- -- (5,375)
Changes in assets and liabilities:
Prepaid expenses and other current assets (9,135,796) (1,794,651) 2,820,972
Accounts payable and accrued expenses 3,343,574 1,429,472 386,319
Deferred revenue (131,736) (932,871) 2,109,453
Other long-term liabilities (1,224,258) (79,591) (1,137,682)
------------- ------------- -------------
Net cash used by operating activities (17,988,239) (33,029,959) (14,249,342)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (10,019,024) (5,756,987) (24,064,521)
Purchases of available-for-sale short-term investments (158,203,910) -- --
Sales of available-for-sale short-term investments 103,348,135 -- --
Maturities (purchases) of held-to-maturity short-term investments, net 139,909,645 (176,963,500) 36,253,678
Purchases of held-to-maturity long-term investments, net (53,321,814) (11,658,371) (5,013,341)
Increase in other assets (521,456) (131,823) (2,638,025)
Disposal of equipment -- -- 5,375
------------- ------------- -------------
Net cash provided by (used by) investing activities 21,191,576 (194,510,681) 4,543,166
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 4,614,194 12,502,007 7,021,042
Proceeds from issuance of common stock to collaborative partner 4,999,978 -- --
Proceeds from issuance of 1999 convertible exchangeable preferred stock -- 35,000,000 --
Proceeds from issuance of convertible subordinated notes -- 200,000,000 --
Proceeds from issuance of long-term debt -- -- 20,000,000
Payment of preferred stock dividends (7,267,331) (9,224,343) (7,454,300)
Payment of long-term obligations (5,625,000) (7,200,000) (4,404,648)
Payment for redemption of $3.25 convertible exchangeable preferred stock (24,883) -- --
Payment of financing costs in connection with convertible subordinated notes -- (6,532,740) --
------------- ------------- -------------
Net cash (used by) provided by financing activities (3,303,042) 224,544,924 15,162,094
------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (77,656) (19,073) (40,436)
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (177,361) (3,014,789) 5,415,482
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,100,643 9,115,432 3,699,950
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,923,282 $ 6,100,643 $ 9,115,432
============= ============= =============
SUPPLEMENTARY INFORMATION:
Cash paid for interest $ 8,396,088 $ 2,029,011 $ 1,755,082
============= ============= =============
Noncash activities:
Conversion of $3.25 convertible exchangeable preferred stock to common stock $ 110,459,074 $ 50,000 $ --
============= ============= =============
Note payable and accrued interest converted to common stock $ -- $ 5,249,185 $ --
============= ============= =============
1999 preferred stock dividends exchanged for common stock $ -- $ 164,460 $ --
============= ============= =============
Deferred revenue and accrued interest converted to long-term obligations $ -- $ -- $ 5,983,292
============= ============= =============
See notes to consolidated financial statements.
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53
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
1. FORMATION OF THE COMPANY
Alkermes, Inc. (the "Company") is a leader in the development of products
based on sophisticated drug delivery technologies. The Company has several
areas of focus, including: (i) controlled, sustained-release of injectable
drugs lasting several days to several weeks, utilizing its ProLease(R) and
Medisorb(R) technologies and (ii) the development of pharmaceutical
products based on its proprietary Advanced Inhalation Research, Inc.
("AIR(TM)") pulmonary technology. The Company's first product, Nutropin
Depot(TM), was launched in the United States by its partner, Genentech,
Inc. ("Genentech"), in June 2000. Nutropin Depot is a long-acting form of
Genentech's recombinant human growth hormone using the Company's ProLease
technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Alkermes, Inc. and its wholly owned subsidiaries, Alkermes
Controlled Therapeutics, Inc. ("ACTI"), Alkermes Controlled Therapeutics
Inc. II ("ACT II"), Alkermes Investments, Inc., Alkermes Development
Corporation II ("ADC II"), Alkermes Europe, Ltd. and AIR. ADC II serves as
the one percent general partner of Alkermes Clinical Partners, L.P.
("Clinical Partners"), a limited partnership engaged in a research and
development project with the Company (see Note 8). ADC II's investment in
Clinical Partners is accounted for under the equity method of accounting,
for which the carrying value was zero at March 31, 2001 and 2000 (see Note
8). All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with accounting principles generally accepted in
the United States of America necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
payable and accrued expenses approximate fair value because of their
short-term nature. Marketable equity securities have been designated as
"available-for-sale" and are recorded as other assets in the consolidated
financial statements at fair value with any unrealized holding gains or
losses included as a component of shareholders' equity. The carrying
amounts of the Company's debt instruments with its bank and corporate
partner approximate fair value. The carrying amount of the Company's 3 3/4%
Convertible Subordinated Notes due 2007 (the "3 3/4% Notes") was
$200,000,000. The fair value of the 3 3/4% Notes was $171,159,000 at March
31, 2001. The fair value of the 3 3/4% Notes was determined from a quoted
market source.
-53-
54
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE - Basic and diluted net loss per share are computed
using the weighted average number of common shares outstanding during the
period. The Company accounts for earnings per share in accordance with the
provisions of SFAS No. 128, "Earnings per Share." Basic earnings per share
exclude any dilutive effect from stock options, warrants, convertible
exchangeable preferred stock and convertible subordinated notes. The
Company continues to be in a net loss position and, therefore, diluted
earnings per share is the same amount as basic earnings per share. Certain
securities were not included in the computation of diluted earnings per
share for the years ended March 31, 2001, 2000 and 1999 because they would
have an antidilutive effect due to net losses for such periods. These
securities include (i) options and awards to purchase 9,674,703, 7,706,790
and 6,684,432 shares of common stock in fiscal 2001, 2000 and 1999,
respectively; (ii) warrants to purchase zero, 1,800 and 911,844 shares of
common stock in fiscal 2001, 2000 and 1999, respectively; (iii) zero,
7,760,504 and 7,763,880 shares of common stock for conversion of the $3.25
convertible exchangeable preferred stock in fiscal 2001, 2000 and 1999,
respectively; and (iv) 2,952,030 shares of common stock for issuance upon
conversion of the 3 3/4% Notes in fiscal 2001 and 2000.
REVENUE RECOGNITION - Research and development contract revenues consist of
non-refundable research and development funding under collaborative
agreements with various corporate partners. Research and development
funding generally compensates the Company for formulation, preclinical and
clinical testing related to the collaborative research programs, and is
recognized as revenue at the time the research and development activities
are performed under the terms of the related agreements, when the corporate
partner is obligated to pay and when no future performance obligations
exist.
Fees for the licensing of product rights on initiation of collaborative
arrangements are recorded as deferred revenue upon receipt and recognized
as income on a systematic basis (based upon the timing and level of work
performed or on a straight-line basis if not otherwise determinable) over
the period that the related products or services are delivered or
obligations as defined in the agreement are performed. Revenue from
milestone or other upfront payments is recognized as earned in accordance
with the terms of the related agreements. These agreements may require
deferral of revenue recognition to future periods.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to operations as incurred.
NONCASH COMPENSATION (INCOME) EXPENSE - Noncash compensation (income)
expense primarily relates to equity transactions at the Company's
subsidiary, AIR. Noncash compensation expense has been recorded in
accordance with the intrinsic-value method prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," for common stock issued and stock options and awards granted to
employees. Stock or other equity-based compensation for nonemployees must
be accounted for under the fair value-based method as required by SFAS No.
123, "Accounting for Stock-Based Compensation," and Emerging Issues Task
Force ("EITF") No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." Under this method, the equity-based instrument
is measured at the fair value of the equity instrument on the date of
vesting. The measurement date is generally the issuance date for employees
and others and the vesting date for consultants. The resulting noncash
(income) expense has been recorded in the statements of operations upon
issuance or over the vesting period of the common stock, stock option or
award.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of
deferred tax assets and liabilities relating to the expected future tax
consequences of events that have been recognized in the consolidated
financial statements and tax returns (see Note 7).
CASH EQUIVALENTS - Cash equivalents, with purchased maturities of three
months or less, consist of money market accounts, mutual funds and an
overnight repurchase agreement. The repurchase agreement is fully
collateralized by U.S. Government securities.
INVESTMENTS - Debt securities that the Company has the positive intent and
ability to hold to maturity are reported at amortized cost and are
classified as "held-to-maturity." All other debt securities are classified
as "available-for-sale" and are recorded at fair value. Fair value was
determined based on quoted market prices. In order to provide more
flexibility with the Company's investment portfolio, during fiscal 2001,
the Company began to treat a portion of its short-term investments,
amounting to approximately $119,400,000 (which approximated fair market
value) as "available-for-sale."
All short-term investments and investments consist of U.S. Treasury and
other government securities, commercial paper and corporate notes.
Short-term investments classified as "held-to-maturity" have maturity dates
within one year from March 31, 2001. Investments classified as long-term
have maturity dates up to 69 months from March 31, 2001 and include
securities totaling $5,861,000 held as collateral under certain letters of
credit, lease and loan agreements.
Short-term investments and investments consist of the following:
AMORTIZED COST
DUE DUE AMORTIZED GROSS UNREALIZED AGGREGATE
UNDER 1 YEAR AFTER 1 YEAR COST GAINS LOSSES FAIR VALUE
March 31, 2001
Held-to-maturity securities:
U.S. Government
obligations $ 14,866,529 $ 49,177,530 $ 64,044,059 $ 420,188 $ -- $ 64,464,247
Corporate debt
securities 114,875,685 18,377,987 133,253,672 2,308,989 (17,552) 135,545,109
------------- ------------- ------------- ------------- --------- -------------
129,742,214 67,555,517 197,297,731 2,729,177 (17,552) 200,009,356
------------- ------------- ------------- ------------- --------- -------------
Available-for-sale securities:
U.S. Government
obligations 10,708,654 33,554,543 44,263,197 2,354,979 (1,541) 46,616,635
Corporate debt
securities 54,709,256 23,359,160 78,068,416 467,207 (28,887) 78,506,736
------------- ------------- ------------- ------------- --------- -------------
65,417,910 56,913,703 122,331,613 2,822,186 (30,428) 125,123,371
------------- ------------- ------------- ------------- --------- -------------
Total $ 195,160,124 $ 124,469,220 $ 319,629,344 $ 5,551,363 $ (47,980) $ 325,132,727
============= ============= ============= ============= ========= =============
March 31, 2000
Held-to-maturity securities:
U.S. Government
obligations $ 108,127,995 $ 7,759,114 $ 115,887,109 $ 270,728 $ (35,989) $ 116,121,848
Corporate debt
securities 223,138,725 12,335,324 235,474,049 1,407,865 (278,033) 236,603,881
------------- ------------- ------------- ------------- --------- -------------
Total $ 331,266,720 $ 20,094,438 $ 351,361,158 $ 1,678,593 $(314,022) $ 352,725,729
============= ============= ============= ============= ========= =============
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED) - The Company also has investments in marketable
equity securities (approximately $3,574,000 and $7,669,000 at March 31,
2001 and 2000, respectively) that are currently classified as
"available-for-sale" securities under the caption "other assets."
Unrealized gains (losses) are included in accumulated other comprehensive
income in shareholders' equity. This caption also includes nonmarketable
warrants to purchase securities. The warrants are recorded at the lower of
cost or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Depreciation and amortization are recorded using the straight-line
method over the following estimated useful lives of the assets: building -
25 years; furniture, fixtures and equipment - 3 to 7 years; or, in the case
of leasehold improvements, over the lease terms - 1 to 15 years.
OTHER ASSETS - Other assets consist primarily of unamortized debt offering
costs and purchased patents, which are being amortized over seven and five
years, respectively, and certain equity securities (see discussion in
"Investments" above).
DEFERRED REVENUE - SHORT-TERM - During fiscal 1998, the Company received a
$10,000,000 upfront payment from ALZA Corporation ("ALZA") to fund clinical
development of Cereport. This amount has been recorded as deferred revenue
and is being amortized based on actual costs incurred for the clinical
development of Cereport. In addition, the Company received prepayments for
research and development costs under collaborative research projects with
other corporate partners that are being amortized over the estimated term
of the agreements using the straight-line method. The Company has received
cash milestone payments that are creditable against future royalty payments
which are being recognized upon product sales of Nutropin Depot.
DEFERRED COMPENSATION - Deferred compensation is related to awards under
the Company's 1991 Restricted Common Stock Award Plan, compensatory stock
options and common stock and is amortized over vesting periods ranging from
one to five years.
401(k) PLAN - The Company's 401(k) Retirement Savings Plan (the "401(k)
Plan") covers substantially all of its employees. Eligible employees may
contribute up to 20% of their eligible compensation, subject to certain
Internal Revenue Service limitations. The Company matches a portion of
employee contributions. The match is equal to 50% of the first 6% of
deferrals and is fully vested when made. During fiscal 2001, 2000 and 1999,
the Company contributed approximately $632,000, $505,000 and $307,000,
respectively, to match employee deferrals under the 401(k) Plan.
RECLASSIFICATIONS - Certain reclassifications have been made in fiscal 2000
and 1999 to conform to the presentation used in fiscal 2001.
COMPREHENSIVE INCOME - Comprehensive income is composed of net income and
other comprehensive income. Other comprehensive income includes certain
changes in equity of the Company that are excluded from the net loss.
Specifically, other comprehensive income includes unrealized holding gains
and losses on the Company's "available-for-sale" securities and changes in
the cumulative foreign currency translation adjustments.
SEGMENTS - The Company's operations are treated as one operating segment
reporting to the chief operating decision-makers of the Company.
Accordingly, the segment disclosures contemplated by SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," are
not applicable.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard was amended in June 2000
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of SFAS No. 133." The standards are
collectively referred to as SFAS No. 133. The Company adopted SFAS No. 133
on April 1, 2001 and the adoption did not have a material impact on its
financial position and results of operations.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at March 31:
2001 2000
Accounts payable $5,831,589 $2,896,018
Accrued compensation 1,821,644 1,263,926
Accrued other 1,761,094 3,067,953
---------- ----------
$9,414,327 $7,227,897
========== ==========
4. SHAREHOLDERS' EQUITY
RESTRICTED STOCK PURCHASE AGREEMENTS/COMMON STOCK - During fiscal 1999, the
Company issued 7,361,016 shares of its common stock in conjunction with its
acquisition of AIR. Of these shares, 4,802,230 shares of common stock were
issued to key employees and consultants of AIR and are subject to
restricted stock purchase agreements. The Company assumed these restricted
stock purchase agreements entered into by AIR. The restricted stock vests
quarterly over a four-year period at different amounts for each
shareholder. At March 31, 2001 and 2000, approximately 4,537,000 and
3,332,000 shares of restricted stock, respectively, had vested. The
agreements state that if the consulting or employment relationship
terminates within four years of issuance, the Company shall have the right,
but not the obligation, to repurchase the nonvested shares from the
shareholder at the share price initially paid by the shareholder. During
fiscal 2000, the Company exercised its right to repurchase 83,602 shares of
non-vested restricted stock.
$3.25 PREFERRED STOCK - In March 1998, the Company completed a private
placement of 2,300,000 shares of its convertible exchangeable preferred
stock (the "$3.25 Preferred Stock") at $50.00 per share. Net proceeds to
the Company were approximately $110,500,000. The $3.25 Preferred Stock was
convertible at the option of the holder at any time, unless previously
redeemed or exchanged, into the Company's common stock at a conversion rate
of 3.3756 shares of common stock for each share of $3.25 Preferred Stock.
In February 2001, the Company called, without penalty, for redemption of
the then outstanding 1,768,200 shares of the $3.25 Preferred Stock. In
March 2001, the holders of 1,767,724 shares of the $3.25 Preferred Stock
converted their shares into 5,967,124 shares of the Company's common stock
prior to the redemption of the unconverted shares. The Company redeemed the
remaining shares that did not convert at a redemption price of $52.275 per
share plus accrued and unpaid dividends, or approximately $25,000. Prior to
February 2001, holders of 530,800 shares of $3.25 Preferred Stock converted
their shares into 1,791,764 shares of the Company's common stock. During
fiscal 2000, holders of the $3.25 Preferred Stock converted 1,000 shares
into 3,374 shares of common stock.
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4. SHAREHOLDERS' EQUITY (CONTINUED)
$3.25 PREFERRED STOCK (CONTINUED) - Dividends on the $3.25 Preferred Stock
were cumulative from the date of original issue and were paid quarterly,
commenced on June 1, 1998, and were paid each September 1, December 1,
March 1 and June 1 thereafter, at the annual rate of $3.25 per share. The
final dividend payment was made on March 1, 2001.
1999 PREFERRED STOCK - In April 1999, the Company amended its license
agreement with Genentech to expand its collaboration for Nutropin Depot, an
injectable long-acting formulation of Genentech's recombinant human growth
hormone based on the Company's ProLease drug delivery system. Under the
agreement, the companies have been conducting expanded development
activities, including clinical trials in an additional indication, process
and formulation development and manufacturing. The agreement included
milestone payments to reimburse the Company for its past research
expenditures incurred from January 1, 1999 through December 31, 2000 plus
an additional $5 million. The milestone payment for past research
expenditures was earned in June 2000 when Genentech launched Nutropin Depot
for sale in the United States.
The terms of the collaboration included the purchase by Genentech of $35
million (3,500 shares) of newly issued redeemable convertible exchangeable
preferred stock of the Company (the "1999 Preferred Stock"). The 1999
Preferred Stock was convertible at Genentech's option into shares of common
stock and non-voting common stock during any period after September 1, 1999
that the closing price of the Company's common stock was above $22.50 per
share for at least 10 consecutive trading days. In February 2000, Genentech
exercised its option to convert the 1999 Preferred Stock together with
accrued and unpaid dividends into 322,376 shares of voting and 382,632
shares of non-voting common stock.
Dividends on the 1999 Preferred Stock were paid quarterly through March
2000 at a floating three-month LIBOR rate.
5. LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consist of the following:
2001 2000
Notes payable to a bank, bearing interest at fixed rates
(6.97%-8.58%), payable in monthly or quarterly installments,
maturing in fiscal 2002 through 2004 $16,808,334 $22,433,333
Note payable to a corporate partner, bearing interest
(8.50% at March 31, 2001) at 2.5% above the one-year
LIBOR, maturing in fiscal 2002 5,983,292 5,983,292
----------- -----------
22,791,626 28,416,625
Less current portion 10,966,626 5,625,000
----------- -----------
$11,825,000 $22,791,625
=========== ===========
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5. LONG-TERM OBLIGATIONS (CONTINUED)
The bank notes listed above are secured by a building and real property
pursuant to a mortgage and certain of the Company's equipment pursuant to
security agreements. The loan is also secured by cash collateral (included
in long-term investments at March 31, 2001) having a minimum market value
of the lesser of $1,000,000 or the outstanding principal amount of the
loan. Under the terms of the loan agreement, the Company is required to
maintain a minimum unencumbered balance of cash and permitted investments
and a minimum ratio of unencumbered cash and net quick assets to total
liabilities as well as a minimum consolidated capital base.
In October 1998, the Company converted a prepayment of royalties from a
former corporate partner, plus accrued interest, to a promissory note in
the principal amount of $5,983,292 as a result of the discontinuation of a
collaboration. The principal amount of the note, together with interest, is
due in October 2001 and is payable in the Company's common stock or cash,
at the Company's option.
At March 31, 2001, the maturities of the long-term obligations are as
follows:
2002 $10,966,626
2003 4,025,000
2004 7,800,000
-----------
$22,791,626
===========
6. 3 3/4% CONVERTIBLE SUBORDINATED NOTES
In February 2000, the Company issued $200 million principal amount of its 3
3/4% Notes which are due in 2007. The 3 3/4% Notes are convertible into the
Company's common stock, at the option of the holder, at a price of $67.75
per share, subject to adjustment upon certain events. The 3 3/4% Notes bear
interest at 3 3/4% payable semi-annually, which commenced on August 15,
2000. The 3 3/4% Notes are redeemable by the Company in cash at any time
prior to February 19, 2003 if the Company's stock price exceeds $135.50 per
share for at least 20 of the 30 trading days immediately prior to the
Company's delivery of the redemption notice. The 3 3/4% Notes are also
redeemable at any time on or after February 19, 2003 at certain declining
redemption prices. In certain circumstances, at the option of the holders,
the Company may be required to repurchase the 3 3/4% Notes. The required
repurchase may be in cash or, at the option of the Company, in common
stock, at 105% of the principal amount of the 3 3/4% Notes, plus accrued
and unpaid interest. As a part of the sale of the 3 3/4% Notes, during
fiscal 2000, the Company incurred approximately $6,530,000 of offering
costs which were recorded as other assets and are being amortized over
seven years, the term of the 3 3/4% Notes. The net proceeds to the Company
after offering costs were approximately $193,470,000. The Company has
reserved 2,952,030 shares of its common stock for issuance upon conversion
of the 3 3/4% Notes.
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7. INCOME TAXES
At March 31, 2001, the Company has approximately $208,954,000 of net
operating loss ("NOL") carryforwards for United States federal income tax
purposes and approximately $14,250,000 of research and development tax
credits available to offset future federal income tax, subject to
limitations for alternative minimum tax. The NOL and research and
development credit carryforwards are subject to examination by the tax
authorities and expire in various years from 2008 through 2027.
The components of the net deferred income tax assets at March 31 are as
follows:
2001 2000
NOL carryforwards, federal and state $ 54,190,000 $ 46,049,000
Tax benefit from stock options 27,350,000 17,721,000
Tax credit carryforwards 19,130,000 14,670,000
Capitalized research and development
expenses, net of amortization 9,010,000 10,310,000
Alkermes Europe NOL carryforward 6,140,000 5,040,000
Other 2,410,000 1,952,000
Less valuation allowance (118,230,000) (95,742,000)
------------- -------------
$ -- $ --
============= =============
Tax benefits from stock options will be credited to additional paid-in
capital when realized.
The valuation allowance has been provided because of the uncertainty of
realizing the future benefits of the net deferred income tax assets. The
valuation allowance increased by $33,378,000 from March 31, 1999 to March
31, 2000.
8. RELATED-PARTY TRANSACTIONS
On April 10, 1992, the Company and Clinical Partners, a limited partnership
of which ADC II is the general partner, sold in a private placement (i) 920
Class A units, each unit consisting of one Class A limited partnership
interest in Clinical Partners and warrants to purchase shares of the
Company's common stock; and (ii) one Class B unit, consisting of one Class
B limited partnership interest in Clinical Partners and warrants to
purchase shares of the Company's common stock. At March 31, 2001, all
warrants were either exercised or expired.
The net proceeds of the offering were used primarily to fund the further
development and clinical testing of a family of molecules designated by the
Company as Receptor-Mediated Permeabilizers(TM) ("RMPs(TM)"), including
Cereport, for human pharmaceutical use in the United States and Canada.
Pursuant to the Product Development Agreement entered into in March 1992,
the Company licensed to Clinical Partners certain of its technology
relating to RMPs. Research and development of RMPs is being conducted by
the Company for Clinical Partners pursuant to the Product Development
Agreement. Since the funding was not sufficient to complete clinical trials
and seek regulatory approval of Cereport, Alkermes has used its own
resources, and intends to continue to use its own resources, to develop
Cereport. Alkermes has obtained and intends to continue to obtain such
resources through equity offerings, bank borrowings and collaborative
arrangements. The Company is required to fund the development of Cereport
to maintain its Purchase Option, as defined below, with the limited
partners.
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8. RELATED-PARTY TRANSACTIONS (CONTINUED)
Clinical Partners has granted the Company an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of an RMP product by
the United States Food and Drug Administration, the Company is obligated to
make a payment (approximately $8,300,000) to Clinical Partners equal to 20%
of the aggregate capital contributions of all partners. Additionally, the
Company will make royalty payments to Clinical Partners equal to 12% of
United States and Canadian revenues and 10% of European revenues, in
certain circumstances, from any sales of RMPs by the Company. The interim
license will terminate if the Company does not exercise the Purchase
Option.
The warrants were issued by the Company in consideration of the grant by
each limited partner to the Company of an option to purchase (the "Purchase
Option"), under certain circumstances, the limited partnership interests in
Clinical Partners held by such limited partner. Upon exercise of such
Purchase Option, each Class A limited partner will be entitled to receive
an initial payment, at the Company's option, of $40,000 in cash or
approximately $42,100 in the Company's common stock, as well as certain
additional royalty payments ranging from 4% to 12% of the Company's net
revenues (subject to certain limitations).
9. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into several collaborative agreements with
corporate partners (the "Partners") to provide research and development
activities relating to the Partners' products. In connection with these
agreements, the Company has granted certain licenses or the right to obtain
certain licenses to technology developed by the Company. In return for such
grants, the Company will receive certain payments upon the achievement of
certain milestones and will receive royalties on sales of products
developed under the terms of the agreements. Additionally, the Company has,
or may obtain, the right to manufacture and supply products developed under
certain of these agreements.
During fiscal 2001, 2000 and 1999, research and development revenue under
collaborative arrangements from Genentech amounted to 51%, 18% and 42% and
from Johnson & Johnson amounted to 21%, 41% and 37%, respectively, of
research and development revenues.
10. COMMITMENTS
LEASE COMMITMENTS - The Company leases certain of its offices, research
laboratories and manufacturing facilities under operating leases with
initial terms of one to fifteen years, expiring between 2002 and 2015.
Several of the leases contain provisions for extensions for up to ten
years. These lease commitments include a commitment for a building for new
corporate headquarters, which is expected to be completed during fiscal
2003. Total annual future minimum lease payments are as follows:
2002 $ 5,764,000
2003 12,220,000
2004 12,305,000
2005 11,867,000
2006 10,446,000
Thereafter 38,846,000
Rent expense charged to operations was approximately $6,213,000, $5,223,000
and $4,237,000 for the years ended March 31, 2001, 2000 and 1999,
respectively.
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10. COMMITMENTS (CONTINUED)
LICENSE AND ROYALTY COMMITMENTS - The Company has entered into license
agreements with certain corporations and universities that require the
Company to pay annual license fees and royalties based on a percentage of
revenues from sales of certain products and royalties from sublicenses
granted by the Company. Amounts paid under these agreements were
approximately $124,000, $165,000 and $127,000 for the years ended March 31,
2001, 2000 and 1999, respectively, and are included in research and
development expenses.
11. STOCK OPTIONS AND AWARDS
The Company's Stock Option Plans (the "Plans") include the Amended and
Restated 1989 Non-Qualified Stock Option Plan (the "1989 Plan"), the
Amended and Restated 1990 Omnibus Stock Option Plan, as amended (the "1990
Plan"), the 1992 Non-Qualified Stock Option Plan (the "1992 Plan"), the
1998 Equity Incentive Plan (the "1998 Plan") and the 1999 Stock Option Plan
(the "1999 Plan"), which provide for the granting of stock options to
employees, officers and directors of, and consultants to, the Company. In
addition, the Stock Option Plan for Non-Employee Directors (the "Director
Plan") provides for the granting of stock options to non-employee directors
of the Company. Non-qualified options to purchase up to 450,000 shares of
the Company's common stock may be granted under the 1989 Plan,
non-qualified and incentive options to purchase up to 6,500,000 shares of
the Company's common stock may be granted under the 1990 Plan,
non-qualified options to purchase up to 2,000,000 shares of the Company's
common stock may be granted under the 1992 Plan, non-qualified and
incentive stock options and restricted stock to purchase up to 1,156,262
shares may be granted under the 1998 Plan, non-qualified and incentive
options to purchase up to 7,400,000 shares may be granted under the 1999
Plan and non-qualified options to purchase up to 500,000 shares of the
Company's common stock may be granted under the Director Plan. The 1989
Plan terminated on July 18, 1999 and the 1990 Plan terminated on September
19, 2000. Unless sooner terminated, the 1992 Plan will terminate on
November 11, 2002, the 1998 Plan will terminate on April 1, 2008, the 1999
Plan will terminate on June 2, 2009 and the Director Plan will terminate on
March 18, 2006. The Company has reserved a total of 12,916,353 shares of
common stock for issuance upon exercise of options that have been or may be
granted under the Plans.
The Compensation Committee of the Board of Directors administers the Plans
and determines who is to receive options and the exercise price and terms
of such options. The Compensation Committee has delegated its authority to
the Compensation Sub-Committee to make grants and awards under the Plans to
"officers." The Board of Directors administers the Director Plan. The
option exercise price of stock options granted under the 1989 Plan, the
1990 Plan, the 1998 Plan, the 1999 Plan and the Director Plan may not be
less than 100% of the fair market value of the common stock on the date of
grant. Under the terms of the 1992 Plan, the option exercise price may be
below the fair market value, but not below par value, of the underlying
stock at the time the option is granted.
The 1989 Plan, the 1990 Plan and the 1992 Plan also provide that the
Compensation Committee may grant Limited Stock Appreciation Rights
("LSARs") with respect to all or any portion of the shares covered by stock
options granted to directors and executive officers. LSARs may be granted
with the grant of a non-qualified stock option or at any time during the
term of such option but may only be granted with the grant of an incentive
stock option. The grant of LSARs will not be effective until six months
after their date of grant. Upon the occurrence of certain triggering
events, including a change of control, the options with respect to which
LSARs have been granted shall become immediately exercisable and the
persons who have received LSARs will automatically receive a cash payment
in lieu of shares. At March 31, 2001, there are 117,000 LSARs outstanding
which have been granted under the 1990 Plan. No LSARs were granted during
fiscal 2001, 2000 or 1999.
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11. STOCK OPTIONS AND AWARDS (CONTINUED)
The Company has also adopted the 1991 Restricted Common Stock Award Plan
(the "Award Plan"). The Award Plan provides for the award to certain
eligible employees, officers and directors of, and consultants to, the
Company of up to a maximum of 500,000 shares of common stock. The Award
Plan is administered by the Compensation Committee. Awards generally vest
over five years. During fiscal 2001, 2000 and 1999, 2,500, 7,000 and zero
shares of common stock, respectively, were awarded under the Award Plan and
zero, 8,200 and 5,700 shares, respectively, ceased to be subject to
forfeiture and were issued. In addition, zero, zero and 4,000 shares were
canceled during the years ended March 31, 2001, 2000 and 1999,
respectively. At March 31, 2001, 2000 and 1999 there were awards for
62,100, 59,600 and 60,800 shares outstanding under the Award Plan,
respectively. The Award Plan will terminate on November 15, 2001, unless
sooner terminated by the Board of Directors.
The Company has elected to continue to follow APB No. 25 for accounting for
its employee stock options. Under APB No. 25, no compensation expense is
recognized with respect to the grant of any stock options to employees if
the exercise price of the Company's employee stock options equals the fair
market price of the underlying stock on the date the option is granted.
Pro forma information regarding net loss and basic and diluted loss per
common share in fiscal 2001, 2000 and 1999 has been determined as if the
Company had accounted for its employee stock options under the fair value
method prescribed by SFAS No. 123. The resulting effect on pro forma net
loss and basic and diluted loss per common share is not necessarily likely
to be representative of the effects on net loss and basic and diluted loss
per common share on a pro forma basis in future years, due to (i) grants
made prior to fiscal 1996 being excluded from the calculation and (ii) the
uncertainty regarding the magnitude of future grants. The fair value of
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: risk-free
interest rates ranging from 4.64% - 6.30% in fiscal 2001, 5.81% - 6.50% in
fiscal 2000 and 4.79% - 5.68% in fiscal 1999; dividend yields of 0% in
fiscal 2001, 2000 and 1999; volatility factors of the expected market price
of the Company's common stock of 70% in fiscal year 2001 and 67% in fiscal
years 2000 and 1999; and a weighted average expected life of 4 years in
fiscal years 2001, 2000 and 1999. Using the Black-Scholes option pricing
model, the weighted average fair value of options granted in fiscal 2001,
2000 and 1999 was $16.99, $9.38 and $3.95, respectively. For purposes of
pro forma disclosures, the estimated fair value of options is amortized to
pro forma expense over the vesting period of the option. Pro forma
information for the years ended March 31 is as follows:
2001 2000 1999
Net loss - as reported $ (24,136,646) $ (77,436,141) $ (48,510,670)
Net loss - pro forma (49,346,718) (87,469,415) (53,654,009)
Basic and diluted loss per common share -
as reported (0.43) (1.52) (0.99)
Basic and diluted loss per common share -
pro forma (0.89) (1.71) (1.09)
-63-
64
11. STOCK OPTIONS AND AWARDS (CONTINUED)
A summary of option activity under the 1989, 1990, 1992, 1998, 1999 and
Director Plans is as follows:
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF PER EXERCISE
SHARES SHARE PRICE
Balance, April 1, 1998 4,245,896 $ 0.28 - $14.38 $ 4.17
Granted 2,663,934 0.30 - 15.92 7.42
Exercised (136,816) 0.28 - 11.50 2.13
Canceled (149,382) 0.30 - 12.63 9.11
---------- --------------- -------
Balance, March 31, 1999 6,623,632 0.28 - 15.92 5.41
Granted 3,214,700 11.61 - 96.88 17.29
Exercised (1,768,252) 0.28 - 5.50 3.56
Canceled (422,890) 1.66 - 17.27 8.79
---------- --------------- -------
Balance, March 31, 2000 7,647,190 0.30 - 96.88 10.60
Granted 3,478,450 23.19 - 48.03 30.67
Exercised (1,250,434) 0.30 - 22.13 3.69
Canceled (262,603) 5.00 - 94.10 18.19
---------- --------------- -------
Balance, March 31, 2001 9,612,603 $ 0.30 - $96.88 $ 18.43
========== =============== =======
Options granted generally vest over four years, except options granted
under the Director Plan which vest after six months.
The following table summarizes information concerning outstanding and
exercisable options at March 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ---------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
$ 0.30 - $ 5.94 1,740,738 6.46 $ 4.52 958,300 $ 3.89
5.96 - 12.75 1,588,766 6.67 8.79 1,029,116 8.25
12.82 - 16.69 2,584,124 8.56 16.63 667,977 16.58
16.94 - 23.19 199,500 8.71 20.12 100,500 20.14
23.22 - 29.31 2,590,250 9.63 29.16 2,750 26.25
29.34 - 96.88 909,225 9.53 36.02 110,875 40.98
--------------- --------- ---- ------ --------- ------
$ 0.30 - $96.88 9,612,603 8.25 $18.43 2,869,518 $10.43
=============== ========= ==== ====== ========= ======
* * * * * *
-64-
65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) DIRECTORS. The information with respect to directors required by this
item is incorporated herein by reference to pages 2, 3 and 21 of our Proxy
Statement for our annual shareholders' meeting to be held on July 26, 2001 (the
"2001 Proxy Statement").
(b) EXECUTIVE OFFICERS. The information with respect to executive officers
required by this item is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to pages 8 through 17 of the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to pages 18 and 19 of the 2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to page 20 of the 2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of the Report:
(1) Consolidated Financial Statements of the Registrant and
Independent Auditors' Report thereon:
Consolidated Balance Sheets, March 31, 2001 and 2000.
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended March 31, 2001, 2000 and 1999.
Consolidated Statements of Shareholders' Equity for the
Years Ended March 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2001, 2000 and 1999.
65
66
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules have been omitted because of the absence of
conditions under which they are required or because the
required information is included in the financial statements
or the notes thereto.
(3) Exhibits
Exhibit No.
-----------
3.1 Third Amended and Restated Articles of Incorporation as filed with the Pennsylvania
Secretary of State on June 7, 2001.
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of February 11, 2001.
4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated by reference
to Exhibit 4 to the Registrant's Registration Statement on Form S-1, as amended (File
No. 33-40250).)
4.2 Specimen of Non-Voting Common Stock Certificate of Alkermes, Inc. (Incorporated
by reference to Exhibit 4.4 to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1999.)
4.3 Indenture, dated as of February 18, 2000, between Alkermes, Inc. and State Street
Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.6 to the
Registrant's Registration Statement on Form S-3, as amended (File No. 333-31354).)
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 4.2(c) to the Registrant's Registration Statement
on Form S-8 (File No. 33-44752).)+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as amended. (Incorporated
by reference to Exhibit 10.2 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1998.)+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by reference to Exhibit
4.2(a) to the Registrant's Registration Statement on Form S-8 (File No. 33-58330).)+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference to Exhibit 10.26
to the Registrant's Registration Statement on Form S-4, as amended (File No. 33-
54932).)+
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by reference to Exhibit
10.5 to the Registrant's Report on Form 10-K for the fiscal year ended March 31,
1996.)+
10.6 Alkermes, Inc. 1998 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.6
to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1999.)+
10.7 1999 Stock Option Plan.+
66
67
10.8 Lease, dated as of October 26, 2000, between FC88 Sidney, Inc. and Alkermes, Inc.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 2000.)
10.9 Lease, dated as of October 26, 2000, between Forest City 64 Sidney Street, Inc. and
Alkermes, Inc. (Incorporated by reference to Exhibit 10.4 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 2000.)
10.10 Lease, dated July 26, 1993, between the Massachusetts Institute of Technology and
Alkermes, Inc. (Incorporated by reference to Exhibit 10.8 to the Registrant's Report
on Form 10-K for the fiscal year ended March 31, 1997.)
10.10(a) First Amendment of Lease, dated June 9, 1997, between the Massachusetts Institute
of Technology and Alkermes, Inc. (Incorporated by reference to Exhibit 10.8(a) to the
Registrant's Report on Form 10-K for the fiscal year ended March 31, 1997.)
10.11 Product Development Agreement, dated as of March 6, 1992, between Alkermes
Clinical Partners, L.P. and the Registrant. (Incorporated by reference to Exhibit 10.21
to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.12 Purchase Agreement, dated as of March 6, 1992, by and among the Registrant and
each of the Limited Partners, from time to time, of the Partnership. (Incorporated by
reference to Exhibit 10.22 to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.13 Alkermes Clinical Partners, L.P. Agreement of Limited Partnership, dated as of
February 7, 1992. (Incorporated by reference to Exhibit 10.23 to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.13(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of September 29, 1992. (Incorporated by reference to Exhibit
10.22(a) to the Registrant's Registration Statement on Form S-4, as amended (File No.
33-54932).)
10.13(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of March 30, 1993. (Incorporated by reference to Exhibit
10.22(b) to the Registrant's Registration Statement on Form S-3, as amended (File No.
33-64964).)
10.14 Class A Note of Alkermes Development Corporation II, dated April 10, 1992, to
PaineWebber Development Corporation in the amount of $100.00. (Incorporated by
reference to Exhibit 10.24 to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.15 License Agreement, dated as of April 14, 1999, by and between Genentech, Inc. and
Alkermes Controlled Therapeutics, Inc. (Incorporated by reference to Exhibit 10.18 to
the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1999.)*
10.16 Manufacture and Supply Agreement, entered into April 5, 2001, by and between
Alkermes, Inc. and Genentech, Inc.**
67
68
10.17 Patent License Agreement, dated as of August 11, 1997, between Massachusetts
Institute of Technology and Advanced Inhalation Research, Inc., as amended.
(Incorporated by reference to Exhibit 10.25 to the Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1999.)*
10.18 Letter Agreement, dated September 27, 1996, by and among Fleet National Bank,
Alkermes Controlled Therapeutics, Inc., Alkermes Controlled Therapeutic Inc. II and
the Registrant. (Incorporated by reference to Exhibit 10.3 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.18(a) Loan Supplement and Modification Agreement, dated as of June 2, 1997, by and
among Fleet National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.27(a) to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.18(b) Second Loan Supplement and Modification Agreement, dated as of March 19, 1998,
by and among Fleet National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.29(b) to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1998.)
10.18(c) Third Loan Supplement and Modification Agreement, dated as of September 24, 1998,
by and among Fleet National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended September
30, 1998.)
10.19 Security Agreement, dated as of September 27, 1996, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutic Inc. II to Fleet
National Bank. (Incorporated by reference to Exhibit 10.4 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.20 Pledge Agreement, dated as of September 27, 1996, from the Registrant to Fleet
National Bank. (Incorporated by reference to Exhibit 10.5 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.21 Mortgage and Security Agreement, dated as of September 27, 1996, from Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.6 to the Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.22 Environmental Indemnity Agreement, dated as of September 27, 1996, from the
Registrant and Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1996.)
10.23 Promissory Note, dated September 27, 1996, from the Registrant and Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.8 to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
68
69
10.24 Promissory Note, dated June 2, 1997, from the Registrant, Alkermes Controlled
Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.35 to the Registrant's Report on
Form 10-K for the fiscal year ended March 31, 1997.)
10.25 Promissory Note, dated March 19, 1998, from the Registrant, Alkermes Controlled
Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.38 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1998.)
10.26 Promissory Note, dated September 24, 1998, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank ($11,000,000). (Incorporated by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-Q for the quarter ended September 30, 1998.)
10.27 Promissory Note, dated September 24, 1998, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank ($9,000,000). (Incorporated by reference to Exhibit 10.3 to the
Registrant's Report on Form 10-Q for the quarter ended September 30, 1998.)
10.28 Employment Agreement, entered into as of February 7, 1991, between Richard F.
Pops and the Registrant. (Incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, as amended (File No. 33-40250).)+
10.29 Employment Agreement, entered into as of June 13, 1994, by and between Robert A.
Breyer and the Registrant. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31, 1994.)+
10.30 Change in Control Employment Agreement, dated as of December 19, 2000, between
Alkermes, Inc. and Richard F. Pops. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended December 31, 2000.)+
10.31 Change in Control Employment Agreement, dated as of December 19, 2000, between
Alkermes, Inc. and each of Robert A. Breyer, Raymond T. Bartus, J. Duncan Higgons,
James L. Wright, James M. Frates and Michael J. Landine. (Form of agreement
incorporated by reference to Exhibit 10.2 to the Registrant's report on Form 10-Q
for the quarter ended December 31, 2000.)+
10.32 Employment Agreement, dated December 22, 2000 by and between David A.
Broecker and the Registrant.+
10.33 Change in Control Employment Agreement, dated as of June 27, 2001, between
Alkermes, Inc. and David A. Broecker. (Form of agreement incorporated by reference
to Exhibit 10.2 to the Registrant's report on Form 10-Q for the quarter ended
December 31, 2000.)+
21 Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
69
70
* Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted August 19, 1999. Such provisions have been
filed separately with the Commission.
** Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed June 29, 2001. Such
provisions have been filed separately with the Commission.
+ Constitutes a management contract or compensatory plan required to be filed
as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.
(b) Since the beginning of the quarter ended March 31, 2001, the
Registrant filed no reports on Form 8-K. After March 31, 2001,
the Registrant filed no reports on Form 8-K.
70
71
UNDERTAKING
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into Registrant's Registration Statements on Form S-8,
Nos. 33-44752, 33-58330, 33-97468, 333-13283, 333-50357, 333-71011, 333-89573,
333-89575, 333-48768 and 333-48772 and on Form S-3, Nos. 333-31354, 333-34702,
333-75645, 333-75649 and 333-50157.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
71
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALKERMES, INC.
June 29, 2001 By: /s/ Richard F. Pops
-------------------------------
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael A. Wall Director and Chairman of the June 29, 2001
------------------------------------ Board
Michael A. Wall
/s/ Richard F. Pops Director and Chief Executive Officer June 29, 2001
------------------------------------ (Principal Executive Officer)
Richard F. Pops
/s/ James M. Frates Vice President, Chief June 29, 2001
------------------------------------ Financial Officer and
James M. Frates Treasurer (Principal
Financial and Accounting
Officer)
/s/ Floyd E. Bloom Director June 29, 2001
------------------------------------
Floyd E. Bloom
/s/ Robert A. Breyer President and Director June 29, 2001
------------------------------------
Robert A. Breyer
/s/ John K. Clarke Director June 29, 2001
------------------------------------
John K. Clarke
/s/ Alexander Rich Director June 29, 2001
------------------------------------
Alexander Rich
/s/ Paul Schimmel Director June 29, 2001
------------------------------------
Paul Schimmel
72
73
EXHIBIT INDEX
3.1 Third Amended and Restated Articles of Incorporation as filed with the Pennsylvania
Secretary of State on June 7, 2001.
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of February 11, 2001.
4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated by reference
to Exhibit 4 to the Registrant's Registration Statement on Form S-1, as amended (File
No. 33-40250).)
4.2 Specimen of Non-Voting Common Stock Certificate of Alkermes, Inc. (Incorporated
by reference to Exhibit 4.4 to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1999.)
4.3 Indenture, dated as of February 18, 2000, between Alkermes, Inc. and State Street
Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.6 to the
Registrant's Registration Statement on Form S-3, as amended (File No. 333-31354).)
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 4.2(c) to the Registrant's Registration Statement
on Form S-8 (File No. 33-44752).)+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as amended. (Incorporated
by reference to Exhibit 10.2 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1998.)+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by reference to Exhibit
4.2(a) to the Registrant's Registration Statement on Form S-8 (File No. 33-58330).)+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference to Exhibit 10.26
to the Registrant's Registration Statement on Form S-4, as amended (File No. 33-
54932).)+
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by reference to Exhibit
10.5 to the Registrant's Report on Form 10-K for the fiscal year ended March 31,
1996.)+
10.6 Alkermes, Inc. 1998 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.6
to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1999.)+
10.7 1999 Stock Option Plan.+
10.8 Lease, dated as of October 26, 2000, between FC88 Sidney, Inc. and Alkermes, Inc.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 2000.)
10.9 Lease, dated as of October 26, 2000, between Forest City 64 Sidney Street, Inc. and
Alkermes, Inc. (Incorporated by reference to Exhibit 10.4 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 2000.)
74
10.10 Lease, dated July 26, 1993, between the Massachusetts Institute of Technology and
Alkermes, Inc. (Incorporated by reference to Exhibit 10.8 to the Registrant's Report
on Form 10-K for the fiscal year ended March 31, 1997.)
10.10(a) First Amendment of Lease, dated June 9, 1997, between the Massachusetts Institute
of Technology and Alkermes, Inc. (Incorporated by reference to Exhibit 10.8(a) to the
Registrant's Report on Form 10-K for the fiscal year ended March 31, 1997.)
10.11 Product Development Agreement, dated as of March 6, 1992, between Alkermes
Clinical Partners, L.P. and the Registrant. (Incorporated by reference to Exhibit 10.21
to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.12 Purchase Agreement, dated as of March 6, 1992, by and among the Registrant and
each of the Limited Partners, from time to time, of the Partnership. (Incorporated by
reference to Exhibit 10.22 to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.13 Alkermes Clinical Partners, L.P. Agreement of Limited Partnership, dated as of
February 7, 1992. (Incorporated by reference to Exhibit 10.23 to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.13(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of September 29, 1992. (Incorporated by reference to Exhibit
10.22(a) to the Registrant's Registration Statement on Form S-4, as amended (File No.
33-54932).)
10.13(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of March 30, 1993. (Incorporated by reference to Exhibit
10.22(b) to the Registrant's Registration Statement on Form S-3, as amended (File No.
33-64964).)
10.14 Class A Note of Alkermes Development Corporation II, dated April 10, 1992, to
PaineWebber Development Corporation in the amount of $100.00. (Incorporated by
reference to Exhibit 10.24 to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.15 License Agreement, dated as of April 14, 1999, by and between Genentech, Inc. and
Alkermes Controlled Therapeutics, Inc. (Incorporated by reference to Exhibit 10.18 to
the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1999.)*
10.16 Manufacture and Supply Agreement, entered into April 5, 2001, by and between
Alkermes, Inc. and Genentech, Inc.**
10.17 Patent License Agreement, dated as of August 11, 1997, between Massachusetts
Institute of Technology and Advanced Inhalation Research, Inc., as amended.
(Incorporated by reference to Exhibit 10.25 to the Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1999.)*
10.18 Letter Agreement, dated September 27, 1996, by and among Fleet National Bank,
Alkermes Controlled Therapeutics, Inc., Alkermes Controlled Therapeutic Inc. II and
75
the Registrant. (Incorporated by reference to Exhibit 10.3 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.18(a) Loan Supplement and Modification Agreement, dated as of June 2, 1997, by and
among Fleet National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.27(a) to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.18(b) Second Loan Supplement and Modification Agreement, dated as of March 19, 1998,
by and among Fleet National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.29(b) to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1998.)
10.18(c) Third Loan Supplement and Modification Agreement, dated as of September 24, 1998,
by and among Fleet National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutics Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended September
30, 1998.)
10.19 Security Agreement, dated as of September 27, 1996, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutic Inc. II to Fleet
National Bank. (Incorporated by reference to Exhibit 10.4 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.20 Pledge Agreement, dated as of September 27, 1996, from the Registrant to Fleet
National Bank. (Incorporated by reference to Exhibit 10.5 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.21 Mortgage and Security Agreement, dated as of September 27, 1996, from Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.6 to the Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.22 Environmental Indemnity Agreement, dated as of September 27, 1996, from the
Registrant and Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1996.)
10.23 Promissory Note, dated September 27, 1996, from the Registrant and Alkermes
Controlled Therapeutics Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.8 to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.24 Promissory Note, dated June 2, 1997, from the Registrant, Alkermes Controlled
Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.35 to the Registrant's Report on
Form 10-K for the fiscal year ended March 31, 1997.)
76
10.25 Promissory Note, dated March 19, 1998, from the Registrant, Alkermes Controlled
Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.38 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1998.)
10.26 Promissory Note, dated September 24, 1998, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank ($11,000,000). (Incorporated by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-Q for the quarter ended September 30, 1998.)
10.27 Promissory Note, dated September 24, 1998, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank ($9,000,000). (Incorporated by reference to Exhibit 10.3 to the
Registrant's Report on Form 10-Q for the quarter ended September 30, 1998.)
10.28 Employment Agreement, entered into as of February 7, 1991, between Richard F.
Pops and the Registrant. (Incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, as amended (File No. 33-40250).)+
10.29 Employment Agreement, entered into as of June 13, 1994, by and between Robert A.
Breyer and the Registrant. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31, 1994.)+
10.30 Change in Control Employment Agreement, dated as of December 19, 2000, between
Alkermes, Inc. and Richard F. Pops. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended December 31, 2000.)+
10.31 Change in Control Employment Agreement, dated as of December 19, 2000, between
Alkermes, Inc. and each of Robert A. Breyer, Raymond T. Bartus, J. Duncan Higgons,
James L. Wright, James M. Frates and Michael J. Landine. (Form of agreement
incorporated by reference to Exhibit 10.2 to the Registrant's report on Form 10-Q
for the quarter ended December 31, 2000.)+
10.32 Employment Agreement, dated December 22, 2000 by and between David A.
Broecker and the Registrant.+
10.33 Change in Control Employment Agreement, dated as of June 27, 2001, between
Alkermes, Inc. and David A. Broecker. (Form of agreement incorporated by reference
to Exhibit 10.2 to the Registrant's report on Form 10-Q for the quarter ended
December 31, 2000.)+
21 Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
* Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted August 19, 1999. Such provisions have been
filed separately with the Commission.
77
** Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed June 29, 2001. Such
provisions have been filed separately with the Commission.
+ Constitutes a management contract or compensatory plan required to be filed
as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.