-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R/zNitoBfazt1l937CM6KHYHF1miKqDcU6BbRssPe7qUsaJaLCg7xWq684QgG4tN seVnQmTHXcYEnP8Q0b2eAg== /in/edgar/work/20000919/0000950135-00-004386/0000950135-00-004386.txt : 20000923 0000950135-00-004386.hdr.sgml : 20000923 ACCESSION NUMBER: 0000950135-00-004386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000919 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICINES CO/ MA CENTRAL INDEX KEY: 0001113481 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 043324394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-31191 FILM NUMBER: 725377 BUSINESS ADDRESS: STREET 1: ONE CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172259099 10-Q 1 b36769mce10-q.txt THE MEDICINES COMPANY 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 2000 Commission File Number 000-22347 The Medicines Company --------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 04-3324394 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) One Cambridge Center, Cambridge, MA 02142 ----------------------------------- ----- (Address of Principle Executive Offices) (Zip Code) Registrant's telephone number, including area code: (617) 225-9099 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 No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: As of September 15, 2000, there were 30,297,532 shares of Common Stock, $0.001 par value per share, outstanding. 2 THE MEDICINES COMPANY TABLE OF CONTENTS Part I. Financial Information....................................................................................1 Item 1 - Unaudited Consolidated Financial Statements...........................................................1 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................................................................7 Item 3 - Quantitative and Qualitative Disclosures About Market Risk...........................................11 Part II. Other Information......................................................................................12 Item 2 - Changes in Securities and Use of Proceeds............................................................12 Item 6 - Exhibits and Reports on Form 8-K.....................................................................12 SIGNATURE........................................................................................................13 EXHIBIT INDEX ...................................................................................................14
3 PART I. FINANCIAL INFORMATION ITEM 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2000 1999 ---- ---- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 11,184,759 $ 6,643,266 Marketable securities -- 539,274 Accrued interest receivable 340,788 55,225 Prepaid expenses and other current assets 861,292 154,967 ------------- ------------- Total current assets 12,386,839 7,392,732 Fixed assets, net 403,701 430,061 Other assets 177,568 168,605 ------------- ------------- Total assets $ 12,968,108 $ 7,991,398 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 10,911,698 $ 7,815,028 Accrued expenses 5,706,216 3,680,293 ------------- ------------- Total current liabilities 16,617,914 11,495,321 Convertible notes -- 5,776,319 Redeemable Convertible Preferred Stock, $1.00 par value; 37,550,000 shares authorized; 28,908,716 and 22,962,350 shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively, at redemption value (Liquidation value of $115,001,309 at June 30, 2000 and $86,167,821 at December 31, 1999) 114,240,173 85,277,413 Stockholders' deficit: Common stock, $.001 par value, 36,000,000 shares authorized; 981,525 and 833,400 shares issued and outstanding at June 30, 2000 and 982 834 December 31, 1999, respectively Additional paid-in capital 57,544,920 339,144 Deferred compensation (12,160,583) -- Deficit accumulated during the development stage (163,294,268) (94,925,028) Accumulated other comprehensive income, principally foreign currency translation 18,970 27,395 ------------- ------------- Total stockholders' deficit (117,889,979) (94,557,655) ------------- ------------- Total liabilities and stockholders' deficit $ 12,968,108 $ 7,991,398 ============= =============
See accompanying notes to unaudited consolidated financial statements. Page 1 4 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
Period Three Months ended June 30, Six Months ended June 30, July 31, 1996 --------------------------- --------------------------- (date of inception) 2000 1999 2000 1999 to June 30, 2000 ---- ---- ---- ---- ---------------- Operating expenses: Research and development $ 6,195,330 $ 10,039,402 $ 16,837,196 $ 17,246,602 $ 88,058,296 General and administrative 2,510,791 1,675,207 3,708,762 2,951,249 18,087,094 ------------ ------------ ------------ ------------ ------------- Total operating expenses 8,706,121 11,714,609 20,545,958 20,197,851 106,145,390 Loss from operations (8,706,121) (11,714,609) (20,545,958) (20,197,851) (106,145,390) Other income (expense): Interest income 181,890 345,130 285,725 691,308 3,175,351 Interest expense (11,883,389) -- (19,390,414) -- (19,617,104) ------------ ------------ ------------ ------------ ------------- Net loss (20,407,620) (11,369,479) (39,650,647) (19,506,543) (122,587,143) Dividends and accretion to redemption value of redeemable preferred stock (27,188,837) (1,436,114) (28,718,593) (2,872,228) (40,707,125) ------------ ------------ ------------ ------------ ------------- Net loss attributable to common stockholders $(47,596,457) $(12,805,593) $(68,369,240) $(22,378,771) $(163,294,268) ============ ============ ============ ============ ============= Basic and diluted net loss attributed to common stockholders per common share $ (68.65) $ (25.62) $ (106.56) $ (46.92) Unaudited pro forma basic and diluted net loss attributable to common stockholders per common share $ (0.38) $ (0.66) $ (0.96) $ (1.15) Shares used in computing net loss attributable to common stockholders per common share: Basic and diluted 693,339 499,921 641,582 476,984 Unaudited pro forma basic and diluted 22,270,246 17,105,523 21,040,410 16,945,298
See accompanying notes to unaudited consolidated financial statements. Page 2 5 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
Six Months Ended June 30, Period July 31, 1996 ------------------------- (date of inception) 2000 1999 to June 30, 2000 ---- ---- ---------------- Cash flows from operating activities: Net loss $ (39,650,647) $ (19,506,543) $(122,587,143) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 105,751 87,107 447,273 Amortization of discount on convertible notes 19,013,486 -- 19,115,160 Amortization of deferred stock compensation 607,320 -- 607,320 Changes in operating assets and liabilities: Accrued interest receivable (285,563) 443,709 (340,788) Prepaid expenses and other current assets (707,131) 74,161 (861,652) Other assets (9,582) -- (177,820) Accounts payable 3,099,635 693,344 10,913,557 Accrued expenses 2,271,875 3,469,805 5,949,976 ------------- ------------- ------------- Net cash used in operating activities (15,554,856) (14,738,417) (86,934,116) Cash flows from investing activities: Purchases of marketable securities -- -- (60,045,287) Maturities and sales of marketable securities 541,400 12,158,488 60,045,287 Purchase of fixed assets (82,052) (235,294) (852,118) ------------- ------------- ------------- Net cash provided by (used in) investing activities 459,348 11,923,194 (852,118) Cash flows from financing activities: Proceeds from issuance of convertible notes and warrants 13,348,779 -- 19,348,779 Proceeds from issuances of preferred stock, net 6,095,520 -- 79,395,347 Proceeds from issuances of common stock 203,947 -- 218,795 Repurchases of common stock (30) (73) (255) Dividends paid in cash -- -- (10,946) ------------- ------------- ------------- Net cash provided by (used in) financing activities 19,648,216 (73) 98,951,720 Effect of exchange rate changes on cash (11,215) 5,487 19,274 ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents 4,541,493 (2,809,809) 11,184,759 Cash and cash equivalents at beginning of period 6,643,266 8,987,745 -- ------------- ------------- ------------- Cash and cash equivalents at end of period $ 11,184,759 $ 6,177,936 $ 11,184,759 ============= ============= ============= Non-cash transactions: Dividends paid on preferred stock $ -- $ -- $ 8,212,178 ============= ============= ============= Supplemental disclosure of cash flow information: Interest paid $ 255,781 $ -- $ 285,016 ============= ============= =============
See accompanying notes to unaudited consolidated financial statements. Page 3 6 THE MEDICINES COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by The Medicines Company, also referred to as the Company, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments, including normal recurring accruals, considered necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ended December 31, 2000. 2. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE The following table sets forth the computation of basic and diluted, and unaudited pro forma basic and diluted, net loss per share for the three and six months ended June 30, 2000 and 1999. The unaudited pro forma basic and diluted net loss per share gives effect to the conversion of redeemable convertible preferred stock and accrued dividends and convertible notes and accrued interest as if converted at the date of original issuance.
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Basic and diluted Net loss $(20,407,620) $(11,369,479) $(39,650,647) $(19,506,543) Dividends and accretion to redemption value of redeemable preferred stock (27,188,837) (1,436,114) (28,718,593) (2,872,228) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $(47,596,457) $(12,805,593) $(68,369,240) $(22,378,771) ============ ============ ============ ============ Weighted average common shares Outstanding 880,057 839,778 856,168 864,641 Less: unvested restricted common shares outstanding (186,718) (339,857) (214,586) (387,657) ------------ ------------ ------------ ------------ Weighted average common shares used to compute net loss per share 693,339 499,921 641,582 476,984 ============ ============ ============ ============ Basic and diluted net loss per share $ (68.65) $ (25.62) $ (106.56) $ (46.92) ============ ============ ============ ============
Page 4 7 THE MEDICINES COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Unaudited pro forma basic and diluted Net loss $(20,407,620) $(11,369,479) $(39,650,647) $(19,506,543) Interest expense on convertible notes 11,981,079 -- 19,488,104 -- ------------ ------------ ------------ ------------ Net loss used to compute pro forma net loss per share $ (8,426,541) $(11,369,479) $(20,162,543) $(19,506,543) ============ ============ ============ ============ Weighted average common shares used to compute pro forma net loss per share 693,339 499,921 641,582 476,984 Weighted average number of common shares assuming the conversion of all redeemable convertible preferred stock and convertible notes and accrued interest at the date of original issuance 21,577,087 16,605,602 20,398,828 16,468,314 ------------ ------------ ------------ ------------ Weighted average common shares used to compute pro forma net loss per share 22,270,426 17,105,523 21,040,410 16,945,298 ============ ============ ============ ============ Unaudited pro forma basic and diluted pro forma net loss per share $ (0.38) $ (0.66) $ (0.96) $ (1.15) ============ ============ ============ ============
Options to purchase 1,916,780 and 859,743 shares of common stock outstanding as of June 30, 2000 and 1999, respectively, have not been included in the computation of diluted net loss per share as their effect would have been antidilutive. Outstanding warrants to purchase 3,269,564 shares of common stock as of June 30, 2000 were excluded from the computation of diluted net loss per share as their effect would have been antidilutive. During the three and six months ended June 30, 2000, the Company issued 1,036,892 and 1,611,329 options, respectively, at exercise prices below the estimated fair value of the Company's common stock as of the date of grant of such options, based on the estimated price of the Company's common stock in connection with the Company's initial public offering. The total deferred compensation associated with these options during the three and six months ended June 30, 2000 was approximately $8.9 million and $12.8 million, respectively. Included in the results of operations for the three and six months ended June 30, 2000 is compensation expense of approximately $457,000 and $607,000, respectively, associated with such options. Page 5 8 3. REDEEMABLE PREFERRED STOCK The Company issued 1,411,000 shares of Series IV Redeemable Convertible Preferred Stock (the "Series IV Preferred Stock") for net proceeds of $6,095,520 on May 17, 2000. In addition, on May 17, 2000, convertible notes in the aggregate principal amount of $19,348,779 and accrued interest were converted into 4,535,366 shares of Series IV Preferred Stock. The Series IV Preferred Stock carries terms and conditions similar to the Company's Series I, Series II, and Series III Redeemable Convertible Preferred Stock. The Series IV Preferred Stock is convertible into common stock at a 1-for-0.73 conversion rate and automatically converts upon the closing of the sale of shares of common stock in an underwritten public offering. The Series IV Preferred Stock issued on May 17, 2000 contained a beneficial conversion feature based on the estimated fair market value of common stock into which it is convertible. In accordance with EITF 98-5, the total amount of such beneficial conversion is approximately $25,450,000. The beneficial conversion is analogous to a dividend and was recognized in the period of issuance. In addition, in conjunction with the sale of the Series IV Preferred Stock, the Company received commitments of continued financial support totaling $15,238,800 from substantially all of its existing investors 4. SUBSEQUENT EVENTS In its initial public offering (the "IPO"), which was completed on August 11, 2000, the Company sold 6,000,000 shares of its common stock at a price of $16.00 per share. In addition on September 8, 2000, the underwriters of the IPO exercised their over-allotment option and purchased an additional 900,000 shares of common stock at the IPO price of $16.00 per share. The Company received approximately $101.4 million, net of underwriting discounts and commissions, and estimated expenses relating to the offering. Simultaneously with the initial closing of the IPO, 30,659,957 shares of Redeemable Convertible Preferred Stock then outstanding (including accrued dividends for the period August 1, 2000 to August 11, 2000) were converted into 22,381,735 shares of common stock. In addition, commitments of continued financial support totaling $15,238,800 received from substantially all of our existing investors terminated as a result of the closing of the IPO. In conjunction with the IPO, a reverse stock split of 0.73 shares for every one share of common stock then outstanding became effective. The accompanying financial statements and footnotes have been restated to reflect the reverse stock split. In September, the Company announced the start of a 350 patient, randomized clinical trial of its probiotic CTV-05 as an adjunct to standard antibiotic treatment of bacterial vaginosis. The trial is funded by National Institutes of Health, National Institute of Allergy and Infectious Disease ("NIH, NIAID") and jointly managed by The Medicines Company and NIH, NIAID. Page 6 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We acquire, develop and commercialize biopharmaceutical products in late stages of development. Our lead product, Angiomax(TM) (bivalirudin), directly blocks or inhibits the actions of thrombin, a key component in the formation and growth of blood clots. In May 2000, we received an approvable letter from the U.S. Food and Drug Administration (the "FDA") for the use of Angiomax in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Final approval of the New Drug Application (the "NDA") for Angiomax is contingent upon the satisfactory completion of conditions specified by the FDA. Development programs are underway for additional potential applications of Angiomax for the treatment of ischemic heart disease. Since our inception, we have incurred significant losses and, as of June 30, 2000, had a deficit accumulated during the development stage of $163.3 million. Most of our expenditures to date have been for research and development activities and general and administrative expenses. Research and development expenses represent costs incurred for product acquisition, clinical trials, activities relating to regulatory filings, and manufacturing development efforts. We generally outsource our clinical and manufacturing development activities to independent organizations to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. General and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with initial product marketing activities. We expect to continue to incur operating losses during fiscal 2000 and for the foreseeable future as a result of research and development activities attributable to new and existing products, and costs associated with the commercialization and launch of our products. We will need to generate significant revenues to achieve and maintain profitability. To date, we have had no revenues from any product sales, and we have not achieved profitability on a quarterly or annual basis. During the three and six months ended June 30, 2000, we recorded deferred stock compensation on the grant of stock options of approximately $8.9 million and $12.8 million, respectively, representing the difference between the exercise price of such options and the fair market value of our common stock at the date of grant of such options. The exercise prices of these options were below the estimated fair market value of our common stock as of the date of grant based on the estimated initial public offering price of our common stock. We amortize deferred stock compensation over the respective vesting periods of the individual stock options. We recorded an amortization expense for deferred compensation of approximately $457,000 and $607,000 for the three and six months ended June 30, 2000, respectively. We expect to record an amortization expense for deferred compensation as follows: approximately $3.0 million for the second half of 2000, approximately $4.3 million for Page 7 10 2001, approximately $4.0 million for 2002, approximately $3.9 million for 2003 and approximately $1.5 million for 2004. In May 2000, we sold shares of Series IV Redeemable Convertible Preferred Stock. The Series IV Redeemable Convertible Preferred Stock contained a beneficial conversion feature based on the estimated fair market value common stock into which it is convertible. The total amount of such beneficial conversion was approximately $25.5 million and has been reflected as a dividend in the period of issuance, the second quarter of 2000. Additionally, in the second quarter of 2000, we recorded approximately $11.7 million, the remaining discount associated with our convertible notes, as interest expense. We have not generated taxable income to date. At December 31, 1999, net operating losses available to offset future taxable income for federal income tax purposes were approximately $77.9 million. If not utilized, our federal net operating losses carryforwards will expire at various dates beginning in 2011 and ending 2019. We have not recognized the potential tax benefit of our net operating losses in our statements of operations. The future utilization of our net operating losses carryforwards may be limited pursuant to regulations promulgated under the Internal Revenue Code of 1986, as amended. RESULTS OF OPERATIONS Three Months Ended June 30, 2000 and 1999 Research and Development Expenses. Research and development expenses decreased 38% to $6.2 million for the three months ended June 30, 2000 from $10.0 million for the three months ended June 30, 1999. The decrease in research and development expenses of $3.8 million was primarily due to reduced development expenses resulting from our termination of the semilog manufacturing development program with Lonza AG, and to a reduction in development activity for IS-159. This reduction in costs was partly offset by development costs of CTV-05, a biotherapeutic drug that we exclusively licensed from GyneLogix in August 1999 and to the increased enrollment rate of our Angiomax HERO-2 phase 3 clinical trial for acute myocardial infraction during the period. General and Administrative Expenses. General and administrative expenses increased 47% to $2.5 million for the three months ended June 30, 2000 from $1.7 million for the three months ended June 30, 1999. The increase in general and administrative expenses of $836,000 was primarily due to an increase in marketing and selling expenses and corporate infrastructure costs arising from an increase in activity relating to the planned commercial launch of Angiomax. Interest Income and Interest Expense. Interest income decreased 47% to $182,000 for the three months ended June 30, 2000 from $345,000 for the three months ended June 30, 1999. The decrease in interest income of $163,000 was primarily due to the lower levels of cash and marketable securities available for investment during the period. Interest expense was $11.9 million for the three months ended June 30, 2000 and related to interest charges and amortization of discount on our convertible promissory notes issued in Page 8 11 October 1999 and March 2000. The notes were converted into preferred stock in May 2000 resulting in the acceleration of the remaining unamortized discount. Six Months Ended June 30, 2000 and 1999 Research and Development Expenses. Research and development expenses decreased 2% to $16.8 million for the six months ended June 30, 2000 from $17.2 million for the six months ended June 30, 1999. The decrease in research and development expenses of approximately $410,000 was primarily due to reduced development expenses from the termination of development of the semilog manufacturing process with Lonza AG, and a reduction of development activity for IS-159. This reduction in costs was partly offset by the completion of UCB Bioproduct's manufacture of $6.5 million of Angiomax bulk drug substance in March, the development costs of CTV-05, and to the increase enrollment rate of our Angiomax HERO-2 phase 3 clinical trial for acute myocardial infarction during the period. General and Administrative Expenses. General and administrative expenses increased 23% to $3.7 for the six months ended June 30, 2000 from $3.0 million for the six months ended June 30, 1999. The increase in general and administrative expenses of $758,000 was primarily due to an increase in marketing and selling expenses and corporate infrastructure costs arising from an increase in activity relating to the planned commercial launch of Angiomax. Interest Income and Interest Expense. Interest income decreased 62% to $286,000 for the six months ended June 30, 2000 from $691,000 for the six months ended June 30, 1999. The decrease in interest income of $405,000 was primarily due to the lower levels of cash and marketable securities available for investment during the period. Interest expense was $19.4 million for the six months ended June 30, 2000 and related to interest charges and amortization of discount on our convertible promissory notes issued in October 1999 and March 2000. The notes were converted into preferred stock in May 2000 resulting in the acceleration of the remaining unamortized discount. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations from inception through June 30, 2000 primarily through the private placement of equity, convertible debt securities and warrants. As of June 30, 2000, we had received net proceeds of $79.4 million from the private placement of equity securities, primarily redeemable convertible preferred stock, and $19.4 million from the issuance of convertible notes and warrants. As of June 30, 2000, we had $11.2 million in cash, cash equivalents and marketable securities, as compared to $7.2 million as of December 31, 1999. In August and September 2000, we received an additional $101.4 million in net proceeds, including the exercise of underwriters' over-allotment option, from the sale of our common stock in our initial public offering at a price of $16.00 per share. Page 9 12 For the six months ended June 30, 2000, we used net cash of $15.6 million in operating activities. This consisted of a net loss of $39.7 million, offset by an increase in accounts payable and accrued expenses of $5.4 million and non-cash amortization of discount on convertible notes of $19.0 million. We spent $459,000 for investing activities, which consisted principally of purchases of fixed assets, offset by proceeds from the maturity of marketable securities. We received $19.6 million from financing activities primarily relating to the issuance of convertible notes and preferred stock during the six months ended June 30, 2000. During 1999, we placed an order with UCB Bioproducts for the manufacture of Angiomax bulk drug substance. Under the terms of this purchase order, we are scheduled to receive material and make payments totaling $13.0 million in fiscal 2000. Manufacture of $6.5 million of this material was completed in the six months ended June 30, 2000 and was expensed during that period. All costs associated with the manufacture of Angiomax bulk drug substance and finished products will be expensed until FDA approval of Angiomax. We expect to devote substantial resources to continue our research and development efforts and to expand our sales, marketing and manufacturing programs associated with the commercialization and launch of our products. Our funding requirements will depend on numerous factors, including the progress, level and timing of our research and development activities, the cost, timing and outcomes of regulatory reviews, the establishment, continuation or termination of third party manufacturing or sales and marketing arrangements, the cost and effectiveness of our sales and marketing programs, the status of competitive products, our ability to defend and enforce our intellectual property rights and the establishment of additional strategic or licensing arrangements with other companies or acquisitions. We believe that our current cash, cash equivalents and marketable securities, together with the net proceeds of our initial public offering, will be sufficient to fund our operations for at least 12 months. If our existing resources and the proceeds of our initial public offering are insufficient to satisfy our liquidity requirements, or if we acquire additional product candidates, we may need to sell additional equity or debt securities. The sale of additional equity and debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned research, development and commercialization activities, which could harm our financial condition and operating results. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This quarterly report on Form 10-Q contains certain forward-looking statements. For this purpose any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates", "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth under the caption "Risk Factors" in our Prospectus filed with the Securities and Exchange Commission on August 8, 2000, which Risk Factors are expressly incorporated by reference herein. Page 10 13 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is confined to our cash, cash equivalents and marketable securities. We place our investments in high-quality financial instruments, primarily money market funds and corporate debt securities with maturities or auction dates of less than one year, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments. Most of our transactions are conducted in U.S. dollars. We do have certain development and commercialization agreements with vendors located outside the United States. Transactions under certain of these agreements are conducted in U.S. dollars, subject to adjustment based on significant fluctuations in currency exchange rates. Transactions under certain other of these agreements are conducted in the local foreign currency. If the exchange rate undergoes a change of 10%, we do not believe that it would have a material impact on our results of operations or cash flows. Page 11 14 PART II. OTHER INFORMATION ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS On August 11, 2000, the Company completed an initial public offering (the "IPO") of 6,000,000 shares of its common stock at a price to the public of $16.00 per share. The offer and sale of the shares in the offering were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1 (File No. 333-37404), which was declared effective on August 7, 2000. J.P. Morgan Securities Inc., FleetBoston Robertson Stephens Inc., and CIBC World Markets Corp. were the managing underwriters of the offering. Subsequently, the underwriters exercised their over-allotment option to purchase an additional 900,000 shares of common stock at the IPO price of $16.00 per share. The Company paid the underwriters approximately $7.7 million in underwriting discounts and commissions and incurred approximately $1.3 million in other expenses related to the offering. The net proceeds to the Company from the offering were approximately $101.4 million. The Company has used, and continues to expect to use, the proceeds from the sale of stock for general corporate purposes, including the commercial launch of Angiomax for use in patients with unstable angina undergoing angioplasty, product development activities and working capital. A portion of the proceeds may also be used for the acquisition of additional products. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits See the Exhibit Index on Page 14 for a list of exhibits filed as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by reference. b. Reports on Form 8-K None. Page 12 15 SIGNATURE Pursuant to the requirements 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. THE MEDICINES COMPANY Date: September 19, 2000 By: /s/ Peyton J. Marshall -------------------------------- Peyton J. Marshall Chief Financial Officer Page 13 16 Exhibit Index Exhibit Number Description - -------------- ----------- 27 Financial Data Schedule 99.1 Pages 7 through 13 of the Prospectus filed pursuant to Rule 424(b)(3) with the Securities and Exchange Commission on August 8, 2000. Page 14 EX-27 2 b36769mcex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 2000 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 11,184,759 0 0 0 0 12,386,839 835,240 (431,539) 12,968,108 16,617,914 0 0 114,240,173 982 (117,890,961) 12,968,108 0 0 0 0 20,545,958 (20,545,958) (19,390,414) (20,407,620) 0 0 0 0 0 (68,369,240) (106.56) (106.56)
EX-99.1 3 b36769mcex99-1.txt RISK FACTOR SECTION 1 EXHIBIT 99.1 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk and you may lose all or part of your investment. Please read "Special Note Regarding Forward-Looking Statements." RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY We are a development stage company with no revenues to date. We have incurred net losses since our inception, including net losses of approximately $34.7 million for the year ended December 31, 1999 and approximately $19.2 million for the three months ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of approximately $115.7 million. We expect to make substantial expenditures to further develop and commercialize our products and expect that our rate of spending will accelerate as the result of costs and expenses associated with increased clinical trials, regulatory approval and commercialization of products. As a result, we are unsure when we will become profitable, if at all. FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS Our operations to date have generated substantial and increasing needs for cash. Our negative cash flow from operations is expected to continue into the foreseeable future. The clinical development of Angiomax for additional indications, the development of our other product candidates and the acquisition and development of additional product candidates by us will require a commitment of substantial funds. Our future capital requirements are dependent upon many factors and may be significantly greater than we expect. We anticipate that our existing capital resources, together with the net proceeds from this offering, and interest earned on such proceeds, will enable us to maintain our current operations for at least the next 12 months. If our existing resources and the proceeds of this offering are insufficient to satisfy our liquidity requirements, if this offering is not completed or if we acquire any additional product candidates, we may be required to seek additional financing prior to that time. We intend to seek additional funding through collaborative arrangements and private or public financings, including equity financings. Such additional funding may not be available on acceptable terms, if at all. If additional funds are not available to us, we may need to delay or significantly curtail our acquisition, development or commercialization activities. OUR BUSINESS WILL BE VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX Other than Angiomax, our products are in clinical phases of development and are a number of years away from entering the market. As a result, if we obtain regulatory approval to market Angiomax, it will account for almost all of our revenues for the foreseeable future. The commercial success of Angiomax will depend upon its acceptance by physicians, patients and other key decision-makers as a therapeutic and cost-effective alternative to heparin and other products used in current practice. If Angiomax is not commercially successful, we will have to find additional sources of revenues or curtail or cease operations. IF WE FAIL TO OBTAIN FDA APPROVAL, WE CANNOT MARKET ANGIOMAX IN THE UNITED STATES We will not be able to market Angiomax in the United States until we receive the approval of the FDA. The process of obtaining FDA approval is lengthy and uncertain. In February 1998, the FDA accepted our filing of a new drug application, or NDA, seeking marketing approval for Angiomax. In May 2000, we received an approvable letter for the use of Angiomax in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Under the terms of the approvable letter, before the FDA will approve our NDA for Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection, and we must comply with other conditions. These conditions include adopting FDA-recommended modifications to the proposed labeling for Angiomax, making changes in documents describing our manufacturing and packaging of Angiomax and recruiting and assessing additional subjects in a study investigating the elimination of Angiomax in individuals with reduced kidney function. We have recruited and assessed the additional subjects for this study, and in July 2000 we submitted to the FDA our response to the approvable letter. The FDA conducted an inspection of the Angiomax manufacturing facility in June 2000. If our response to the approvable letter or the inspection results are 2 unsatisfactory or if we are unable to comply with the FDA's other conditions, we will not be able to obtain approval for Angiomax in a timely fashion, or at all. WE CANNOT EXPAND THE INDICATIONS FOR ANGIOMAX UNLESS WE RECEIVE FDA APPROVAL FOR EACH ADDITIONAL INDICATION. FAILURE TO EXPAND THESE INDICATIONS WILL LIMIT THE SIZE OF THE COMMERCIAL MARKET FOR ANGIOMAX We are developing Angiomax for use in the treatment of ischemic heart disease. The approvable letter we received in May 2000 covered the use of Angiomax for the treatment of patients with unstable angina undergoing coronary balloon angioplasty. One of our key objectives is to expand the indications for which the FDA will approve Angiomax. In order to do this, we will need to conduct additional clinical trials and obtain FDA approval for each proposed indication. If we are unsuccessful in expanding the approved indications for the use of Angiomax, the size of the commercial market for Angiomax will be limited. FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WILL PREVENT US FROM MARKETING ANGIOMAX ABROAD We intend to market our products in international markets, including Europe. In order to market our products in the European Union and many other foreign jurisdictions, we must obtain separate regulatory approvals. In February 1998 we submitted a Marketing Authorization Application, or MAA, to the European Agency for the Evaluation of Medicinal Products, or EMEA, for use in unstable angina patients undergoing angioplasty. Following extended interaction with European regulatory authorities, the Committee of Proprietary Medicinal Products, or CPMP, of the EMEA voted in October 1999 not to recommend Angiomax for approval in angioplasty. The United Kingdom and Ireland dissented from this decision. We have withdrawn our application to the EMEA and are in active dialog with European regulators to determine our course of action including seeking approval of Angiomax in Europe on a country-by-country basis. We may not be able to obtain approval from any or all of the jurisdictions in which we seek approval to market Angiomax. Obtaining foreign approvals may require additional trials and additional expense. THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS MAY BE TERMINATED OR DELAYED, AND THE COSTS OF DEVELOPMENT AND COMMERCIALIZATION MAY INCREASE, IF THIRD PARTIES WHO WE RELY ON TO MANUFACTURE AND SUPPORT THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS DO NOT FULFILL THEIR OBLIGATIONS Our development and commercialization strategy entails entering into arrangements with corporate and academic collaborators, contract research organizations, contract sales organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage our clinical trials and manufacture, market and sell our products. Although we manage these services, we do not have the expertise or the resources to conduct such activities on our own and, as a result, are particularly dependent on third parties in most areas. We may not be able to maintain our existing arrangements with respect to the commercialization of Angiomax or establish and maintain arrangements to develop and commercialize any additional products on terms that are acceptable to us. Any current or future arrangements for the development and commercialization of our products may not be successful. If we are not able to establish or maintain our agreements relating to Angiomax or any additional products on terms which we deem favorable, our financial condition would be materially adversely effected. Third parties may not perform their obligations as expected. The amount and timing of resources that third parties devote to developing, manufacturing and commercializing our products may not be within our control. Furthermore, our interests may differ from those of third parties that manufacture or commercialize our products. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive. If any third party that manufactures or supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to conduct its activities in a timely manner, such breach, termination or failure could: - - delay the development or commercialization of Angiomax, our other product candidates or any additional product candidates that we may acquire or develop; - - require us to undertake unforeseen additional responsibilities or devote unforeseen additional resources to the development or commercialization of our products; or - - result in the termination of the development or commercialization of our products. 2 3 WE ARE CURRENTLY DEPENDENT ON A SINGLE SUPPLIER FOR THE PRODUCTION OF ANGIOMAX BULK DRUG SUBSTANCE AND A DIFFERENT SINGLE SUPPLIER TO CARRY OUT ALL FILL-FINISH ACTIVITIES FOR ANGIOMAX Currently, we obtain all of our Angiomax bulk drug substance from one manufacturer, UCB Bioproducts S.A., and rely on another manufacturer, Ben Venue Laboratories, Inc., to carry out all fill-finish activities for Angiomax, which includes final formulation and transfer of the drug into vials where it is then freeze-dried and sealed. The FDA requires that all manufacturers of pharmaceuticals for sale in or from the United States achieve and maintain compliance with the FDA's current Good Manufacturing Practice, or cGMP, regulations and guidelines. There are a limited number of manufacturers that operate under cGMP regulations capable of manufacturing Angiomax. The FDA has inspected Ben Venue Laboratories for cGMP compliance for the manufacture of Angiomax and UCB Bioproducts for cGMP compliance in the manufacture of pharmaceutical ingredients generally. Ben Venue Laboratories and UCB Bioproducts have informed us that they have no material deficiencies in cGMP compliance. We do not currently have alternative sources for production of Angiomax bulk drug substance or to carry out fill-finish activities. In the event that either of our current manufacturers is unable to carry out its respective manufacturing obligations to our satisfaction, we may be unable to obtain alternative manufacturing, or obtain such manufacturing on commercially reasonable terms or on a timely basis. Any delays in the manufacturing process may adversely impact our ability to meet commercial demands for Angiomax on a timely basis and supply product for clinical trials of Angiomax. IF WE DO NOT SUCCEED IN DEVELOPING A SECOND GENERATION PROCESS FOR THE PRODUCTION OF BULK ANGIOMAX DRUG SUBSTANCE, OUR GROSS MARGINS MAY BE BELOW INDUSTRY AVERAGES We are currently developing with UCB Bioproducts a second generation process for the production of bulk Angiomax drug substance. This process involves limited changes to the early manufacturing steps of our current process in order to improve our gross margins on the future sales of Angiomax. If we cannot develop the process successfully or regulatory approval of the process is not obtained or is delayed, then our ability to improve our gross margins on future sales of Angiomax may be limited. CLINICAL TRIALS OF OUR PRODUCT CANDIDATES ARE EXPENSIVE AND TIME CONSUMING, AND THE RESULTS OF THESE TRIALS ARE UNCERTAIN Before we can obtain regulatory approvals for the commercial sale of any product which we wish to develop, we will be required to complete pre-clinical studies and extensive clinical trials in humans to demonstrate the safety and efficacy of such product. We are currently conducting four clinical trials of Angiomax for use in the treatment of ischemic heart disease. There are numerous factors which could delay our clinical trials or prevent us from completing these trials successfully. We or the FDA may suspend a clinical trial at any time on various grounds, including a finding that patients are being exposed to unacceptable health risks. The rate of completion of clinical trials depends in part upon the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. In particular, the patient population targeted by some of our clinical trials may be small. Delays in future planned patient enrollment may result in increased costs and program delays. In addition, clinical trials, if completed, may not show any potential product to be safe or effective. Results obtained in pre-clinical studies or early clinical trials are not always indicative of results that will be obtained in later clinical trials. Moreover, data obtained from pre-clinical studies and clinical trials may be subject to varying interpretations. As a result, the FDA or other applicable regulatory authorities may not approve a product in a timely fashion, or at all. OUR FAILURE TO ACQUIRE AND DEVELOP ADDITIONAL PRODUCT CANDIDATES WILL IMPAIR OUR ABILITY TO GROW As part of our growth strategy, we intend to acquire and develop additional pharmaceutical product candidates. The success of this strategy depends upon our ability to identify, select and acquire pharmaceutical products in late-stage development that meet the criteria we have established. Because we do not have, nor intend to establish, internal scientific research capabilities, we are dependent upon pharmaceutical and biotechnology companies and other researchers to sell or license product candidates to us. Identifying suitable product candidates and proposing, negotiating and implementing an economically viable acquisition is a lengthy and complex process. In addition, other companies, including those with substantially greater financial, marketing 3 4 and sales resources, may compete with us for the acquisition of product candidates. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all. IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT ARE IMPORTANT TO OUR BUSINESS We license commercialization rights to products and technology that are important to our business, and we expect to enter into additional licenses in the future. For instance, we acquired our first three products through exclusive licensing arrangements. See "Business -- License Agreements" for a description of the terms of these licenses. Under these licenses we are subject to commercialization and development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach these license agreements, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. In addition, upon the termination of the license we may be required to license to the licensor the intellectual property that we developed. OUR ABILITY TO MANAGE OUR BUSINESS EFFECTIVELY COULD BE HAMPERED IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS The biopharmaceutical industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on our ability to attract and retain qualified personnel for the acquisition, development and commercialization activities we conduct or sponsor. If we lose one or more of the members of our senior management, including our chief executive officer, Dr. Clive A. Meanwell, or other key employees or consultants, our business and operating results could be seriously harmed. Our ability to replace these key employees may be difficult and may take an extended period of time because of the limited number of individuals in the biotechnology industry with the breadth of skills and experience required to develop and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate such additional personnel. WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING, DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO The biopharmaceutical industry is highly competitive. Our success will depend on our ability to develop products and apply technology and our ability to establish and maintain a market for our products. Potential competitors in the United States and other countries include major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions. Many of our competitors have substantially greater research and development capabilities and experience, and greater manufacturing, marketing and financial resources than we do. Accordingly, our competitors may develop products or other novel technologies that are more effective, safer or less costly than any that have been competing or are being developed by us or may obtain FDA approval for products more rapidly than we are able. Technological development by others may render our products or product candidates noncompetitive. We may not be successful in establishing or maintaining technological competitiveness. BECAUSE THE MARKET FOR THROMBIN INHIBITORS IS COMPETITIVE, OUR PRODUCT MAY NOT OBTAIN WIDESPREAD USE We plan to position Angiomax as a replacement to heparin, which is widely-used and inexpensive, for use in patients with ischemic heart disease. Because heparin is inexpensive and has been widely used for many years, medical decision-makers may be hesitant to adopt our alternative treatment. In addition, due to the high incidence and severity of cardiovascular diseases, the market for thrombin inhibitors is large and competition is intense and growing. There are a number of thrombin inhibitors currently on the market, awaiting regulatory approval and in development, including orally administered agents. THE LIMITED RESOURCES OF THIRD-PARTY PAYORS MAY LIMIT THE USE OF OUR PRODUCTS In general, anticoagulant drugs may be classified in three groups: drugs that directly or indirectly target and inhibit thrombin, drugs that target and inhibit platelets and drugs that break down fibrin. Because each group of anticoagulants acts on different components of the clotting process, we believe that there will be continued clinical work to determine the best combination of drugs for clinical use. We expect Angiomax to be used with aspirin alone or in conjunction with other therapies. Although we do not plan to position Angiomax as a direct competitor to platelet inhibitors or fibrinolytic drugs, platelet inhibitors and fibrinolytic drugs may compete with Angiomax for the use of hospital financial resources. Many U.S. hospitals receive a fixed reimbursement amount per procedure for the angioplasties and other treatment therapies they 4 5 perform. Because this amount is not based on the actual expenses the hospital incurs, U.S. hospitals may have to choose among Angiomax, platelet inhibitors and fibrinolytic drugs. FLUCTUATIONS IN OUR OPERATING RESULTS COULD AFFECT THE PRICE OF OUR COMMON STOCK Our operating results may vary from period to period based on the amount and timing of sales of Angiomax to customers in the United States, the availability and timely delivery of a sufficient supply of Angiomax, the timing and expenses of clinical trials, the availability and timing of third-party reimbursement and the timing of approval for our product candidates. If our operating results do not match the expectations of securities analysts and investors as a result of these and other factors, the trading price of our common stock may fluctuate. RISKS RELATED TO OUR INDUSTRY IF WE DO NOT OBTAIN FDA APPROVALS FOR OUR PRODUCTS OR COMPLY WITH GOVERNMENT REGULATIONS, WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS AND MAY BE SUBJECT TO STRINGENT PENALTIES We do not have a product candidate approved for sale in the United States or any foreign market except New Zealand. We must obtain approval from the FDA in order to sell our product candidates in the United States and from foreign regulatory authorities in order to sell our product candidates in other countries. We must successfully complete our clinical trials and demonstrate manufacturing capability before we can file with the FDA for approval to sell our products. The FDA could require us to repeat clinical trials as part of the regulatory review process. Delays in obtaining or failure to obtain regulatory approvals may: - - delay or prevent the successful commercialization of any of our product candidates; - - diminish our competitive advantage; and - - defer or decrease our receipt of revenues or royalties. The regulatory review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical data, clinical data and supporting information must be submitted to the FDA for each additional indication to obtain such approvals, and we cannot be certain when we will receive these regulatory approvals, if ever. In addition to initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation, as we discuss in more detail in "Business--Government Regulation." Any approvals, once obtained, may be withdrawn if compliance with regulatory requirements is not maintained or safety problems are identified. Failure to comply with these requirements may also subject us to stringent penalties. WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN PATENT PROTECTION FOR OUR PRODUCTS, AND WE MAY INFRINGE THE PATENT RIGHTS OF OTHERS The patent positions of pharmaceutical and biotechnology companies like us are generally uncertain and involve complex legal, scientific and factual issues. Our success depends significantly on our ability to: - - obtain patents; - - protect trade secrets; - - operate without infringing the proprietary rights of others; and - - prevent others from infringing our proprietary rights. We may not have any patents issued from any patent applications that we own or license. If patents are granted, the claims allowed may not be sufficiently broad to protect our technology. In addition, issued patents that we own or license may be challenged, invalidated or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States are maintained in secrecy until patents issue, others may have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications. In all, we exclusively license 10 issued United States patents and a broadly filed portfolio of corresponding foreign patents and patent applications. We have not yet filed any independent patent applications. 5 6 We may not hold proprietary rights to some patents related to our product candidates. In some cases, others may own or control these patents. As a result, we may be required to obtain licenses under third-party patents to market some of our product candidates. If licenses are not available to us on acceptable terms, we will not be able to market these products. We may become a party to patent litigation or other proceedings regarding intellectual property rights. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. If any patent litigation or other intellectual property proceeding in which we are involved is resolved unfavorably to us, we may be enjoined from manufacturing or selling our products and services without a license from the other party, and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms, or at all. IF WE ARE NOT ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US We rely significantly upon unpatented proprietary technology, information, processes and know how. We seek to protect this information by confidentiality agreements with our employees, consultants and other third-party contractors, as well as through other security measures. We may not have adequate remedies for any breach by a party to these confidentiality agreements. In addition, our competitors may learn or independently develop our trade secrets. WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO OBTAIN INSURANCE AT ACCEPTABLE COSTS AND ADEQUATE LEVELS OR OTHERWISE PROTECT OURSELVES AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS Our business exposes us to potential product liability risks which are inherent in the testing, manufacturing, marketing and sale of human healthcare products. Product liability claims might be made by consumers, health care providers or pharmaceutical companies or others that sell our products. These claims may be made even with respect to those products that are manufactured in licensed and regulated facilities or that otherwise possess regulatory approval for commercial sale. These claims could expose us to significant liabilities that could prevent or interfere with the development or commercialization of our products. Product liability claims could require us to spend significant time and money in litigation or pay significant damages. We are currently covered, with respect to our commercial sales in New Zealand and our clinical trials, by primary product liability insurance in the amount of $20.0 million per occurrence and $20.0 million annually in the aggregate on a claims-made basis. This coverage may not be adequate to cover any product liability claims. As we commence commercial sales of our products, we may wish to increase our product liability insurance, and we will need to extend the coverage of our product liability insurance to cover our commercial sales of Angiomax in the United States. Product liability coverage is expensive. In the future, we may not be able to maintain or obtain such product liability insurance on reasonable terms, at a reasonable cost or in sufficient amounts to protect us against losses due to product liability claims. RISKS RELATING TO THE OFFERING OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL OF YOUR INVESTMENT Prior to this offering, there has been no public market for shares of our common stock. An active trading market may not develop following completion of this offering, and if it develops, may not be maintained. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters. This price may not be indicative of prices that may prevail later in the market. The market price of our common stock, like that of the common stock of many other biotechnology companies, may be highly volatile. The stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many biotechnology and pharmaceutical companies for reasons frequently unrelated, or disproportionate, to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. Factors that may have a significant effect on the market price of our common stock include announcements of technological innovations or new commercial products by us or our competitors, disclosure of results of clinical testing or regulatory proceedings, developments in patent or other proprietary rights, including as a result of any public policy concerns and public concern as to the safety of products developed by us. 6 7 OUR OFFICERS AND DIRECTORS, AND ENTITIES WITH WHICH THEY ARE AFFILIATED, MAY BE ABLE TO CONTROL THE OUTCOME OF MOST CORPORATE ACTIONS REQUIRING STOCKHOLDER APPROVAL After this offering, our directors and officers, and entities with which they are affiliated, will beneficially own, in the aggregate, approximately 69.4% of our outstanding common stock. Due to this concentration of ownership, these stockholders as a group will be able to elect the directors and officers of our company, control the management and affairs of our company and control most matters requiring a stockholder vote, including: - - the amendment of our organizational documents; or - - the approval of any merger, consolidation, sale or assets or other major corporate transaction. WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK Provisions of our certificate of incorporation and bylaws and of Delaware law could have the effect of delaying, deferring or preventing an acquisition of our company. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may authorize the issuance of up to 5,000,000 shares of "blank check" preferred stock, our stockholders may not take actions by written consent and may not call special meetings of stockholders, and our stockholders are limited in their ability to introduce proposals at stockholder meetings. THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS OFFERING. THIS MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK Sales of a substantial number of our common stock in the public market following this offering could adversely effect the market price of our common stock by causing the market price of our common stock to decline. This could impair our ability to raise capital in the future through the issuance of common stock. Within 180 days after the completion of this offering, assuming that this offering closed on July 31, 2000, 23,324,923 shares held by existing stockholders, which will be subject to "lock-up" agreements, will become available for sale and approximately 427,388 shares subject to options will be vested and exercisable and warrants to purchase 3,269,564 shares of common stock will be exercisable. Please see "Shares Eligible for Future Sale" for a complete description of the number of shares which will be available for future sale. 7 -----END PRIVACY-ENHANCED MESSAGE-----