Annual Reports
2009 Annual Report Shareholder Letter
Fellow Shareholders,
This past year was one of substantial progress for our company. We entered the year with three key priorities, and I am pleased to report that we made significant progress with all of them. With our lead development candidate, PEG-Interferon lambda, we entered into a very significant collaboration transaction with Bristol–Myers Squibb, completed Phase 1b testing and reported positive results and began Phase 2 testing on schedule in the fourth quarter. We have grown our RECOTHROM® business each quarter during the year and, as a result, expect to reach the point at which the product will start to generate net cash flow by the end of 2010. Finally, we strengthened the company's financial situation tremendously, through aggressive cost cutting, generation of over $200 million from new transactions in 2009, and the completion of a $91 million financing transaction in the first week of January 2010.
We enter 2010 well positioned to pursue our revised strategy adopted in late 2009 following a strategic review designed to identify the most compelling assets for investment. We will focus our resources over the near term on four assets: PEG-Interferon lambda, RECOTHROM, IL-21 and IL-31 mAb. In each of these assets, we believe we have the potential to generate substantial value in relation to the risk assumed and the capital investment required to reach important value inflection points. Furthermore, we own all or a substantial portion of the downstream commercial rights for these assets, which means that if we are successful, significant value will accrue to the company and to you, our shareholders.
PEG-Interferon lambda continues to generate enthusiasm based on its potential to become the interferon of choice in the treatment of chronic hepatitis C infection. The Phase 1b data presented in November 2009 strongly supported the target product profile of improved tolerability versus interferon alpha with comparable anti-viral activity. Our collaboration with Bristol-Myers Squibb has proceeded smoothly, evidenced by the start of Phase 2 testing on schedule in October 2009 and our receipt of $95 million in related milestone payments, bringing the total received in 2009 under the collaboration to $200 million. In 2010, we expect to present important data from Part A of the current Phase 2 study and initiate Part B of the study, which should provide substantial additional data flow in 2011. With Bristol-Myers Squibb as our partner, we believe we are in excellent position to maximize the opportunity for Interferon lambda, which represents a potential multi-billion dollar global market.
RECOTHROM continued to gain traction in the U.S. surgical hemostat market in 2009, with hospital demand growing by an average of 26% per quarter over the year. We expect continued growth in 2010 through the steady conversion of hospital purchases from bovine thrombin to RECOTHROM, which should allow us to begin generating positive cash flow from commercial operations before the end of the year. The restructuring of our RECOTHROM collaboration with Bayer in December 2009 allowed us to expand and strengthen our U.S. field force, lower our overall selling cost structure and improve the product profitability outlook. Further, with the reacquisition of product rights outside North America, we will seek new licensing partners to pursue approval and commercialization of RECOTHROM in Europe and other major markets.
With IL-21, we have now shown we have an active agent in the settings of metastatic melanoma and renal cell carcinoma. Positive data were presented in 2009 from Phase 2 studies in both indications, and final results of the melanoma study are expected in mid-2010. We have selected metastatic melanoma as the lead indication going forward because there is an attractive commercial opportunity, and we plan to initiate a larger, randomized melanoma study in the first half of 2010. We currently own worldwide rights to IL-21.
Our anti-IL-31 monoclonal antibody is early, but exciting. Our preclinical data point to a very specific role of IL-31 in atopic dermatitis. By blocking this cytokine with a monoclonal antibody, we may be able to interrupt the disease cycle and give relief to patients and their families. In 2010, we plan to manufacture drug for clinical use and initiate toxicology studies, which should enable an IND filing and start of clinical testing in 2011. Current therapies are limited to steroids and topical calcineurin inhibitors, which are largely ineffective in the over 5 million treated patients in the United States with this disease. The ultimate market for a safe and effective product could be substantial. We have worldwide rights to the product candidate, and we believe that there is potential to build significant value over the next several years.
Having high quality assets like these in our portfolio is of critical importance and so is having the financial resources to move them forward to reach key milestones. As a result of many actions taken in 2009, we are well positioned financially. The decision to focus on these four assets, and to discontinue work in other areas, will make our dollars go further. The change allowed us to reduce our workforce by 41% and that should save us approximately $40 million of costs annually. Also, we brought in $200 million from the PEG-Interferon lambda collaboration with Bristol-Myers Squibb and another $24 million related to the license of our rights to Novo Nordisk for a monoclonal antibody inhibiting IL-21. And in early January 2010, we completed an equity offering, raising over $90 million of net proceeds. With more than $260 million of pro forma cash as of the beginning of 2010, a reduced cost structure going forward, and the prospects for increasing RECOTHROM sales and cash generation, we are well situated financially to move our key assets forward to important milestones. Moreover, our financial strength should enable us to enter partnerships for products like IL-21 and IL-31 mAb from a position of strength when the timing is right, not out of financial need.
The year 2010 is shaping up to be an exciting one. We have a strong portfolio of assets, we have talented people to execute our plan and we have the financial resources needed to carry it out. Thank you for your continued support.
Doug E. Williams, Ph.D.
Chief Executive Officer
