Valentis 2000 annual report

Valentis 2000 Annual Report Valentis is developing a broad array of products, technologies and intellectual property for the delivery of biopharmaceuticals. These are designed to improve the safety, efficacy and dosing characteristics of genes, proteins, peptides, antibodies and replicating and non-replicating viruses. Financial Highlights (in thousands, except per share data) Year Ended June 30, 2000 1999 1998 1997 Statement of Operations Data: Collaborative research and development revenue Research and development grant revenue Total revenue Operating expenses: Research and development General and administrative Acquired in-process research and development Amortization of goodwill and other intangible assets Total operating expenses Loss from operations Interest income (expense), net Net loss Basic and diluted net loss per share Shares used in computing basic and diluted net loss per share Balance Sheet Data: Cash, cash equivalents and investments Working capital Total assets Long-term debt Accumulated deficit Total stockholders’ equity 2 $ 5,251 338 5,589 $ 3,430 699 4,129 $ 8,083 $ 5,793 – 8,083 13,611 3,561 1,500 – 5,793 8,598 2,417 27,332 7,322 14,347 5,016 54,017 (48,428) 773 $ (47,655) $(1.80) 26,452 $ 37,672 21,991 60,308 2,697 (120,921) 44,404 17,806 5,063 26,770 819 50,458 (46,329) 1,649 $ (44,680) $ (2.90) 15,430 $ 39,137 15,461 64,427 5,459 (73,266) 45,930 – 18,672 (10,589) 2,211 $ (8,378) $ (0.83) 10,088 $ 48,426 20,966 55,901 2,464 (28,586) 50,282 – – 11,015 (5,222) 275 $ (4,947) $ (4.40) 1,126 $ 24,269 21,629 29,978 1,487 (20,208) 25,223 3 A Year of Progress Over the past year, we have transformed Valentis from a combination of three companies rich in intellectual property and technologies to a wellintegrated company focused on the development of products. We now have a diversified pipeline of products targeting large markets in preclinical and clinical development. Our challenge going forward is to ensure the expeditious development of our products with the greatest potential shareholder value by carefully managing our financial and technical resources. Through our mergers, we have assembled what we believe is the broadest array of delivery technologies and intellectual property for the delivery of biopharmaceuticals. Biopharmaceuticals are protein-based products, in contrast to traditional pharmaceuticals which are chemical-based. We strongly believe biopharmaceuticals will be the growth area in therapeutics for many years to come as the field is being driven by the success of genomics research, the largest biological mission in our lifetime. The more near-term products coming from genomics research should continue to be proteins, antibodies and gene medicines, and their success will provide Valentis with a steady stream 4 of potential products to which we can apply our delivery technologies. The focus on delivery technologies enables us to create both novel therapeutics and improved versions of currently marketed therapies, creating a nicely diversified portfolio. Our technologies for the delivery of gene medicines involve the use of lipid or polymer delivery systems and proprietary expression systems. Our most advanced products are gene medicines in the oncology area and, through a collaboration with Roche, we are developing a series of cancer immunotherapeutics. These are gene medicines injected directly into tumors to turn on the patient’s immune system for a systemic immune response both to the primary tumor as well as to the sites where the tumor has spread. Following these products into clinical trials will be a systemically administered immunotherapeutic. With this product, our strategy is to localize the production of a known efficacious protein to the site where it is needed and to spare the rest of the body from its commonly associated adverse effects. In the cardiovascular area, we are focusing on gene medicines that stimulate angiogenesis, or new blood vessel formation. 5 Valentis is the near-term beneficiary of genomics research. Genomics Research Delivery Technologies Proteins Antibodies Gene Medicines A Year of Progress Our target is vascular disease, the largest cause of morbidity and mortality in the western world. The therapeutic strategy is to create new blood vessels to replace those that are diseased and restore blood flow to deprived areas of the heart or the extremities. We intend to move our proprietary Del-1 gene into clinical trials this fiscal year. In the hematology area, our lead product is the EPO gene plus our proprietary GeneSwitch™. Our goal with this product is essentially to create a type of oral protein therapy. A second area in which we believe we can improve both the safety and efficacy of biopharmaceuticals is through PEGylation. Valentis’ novel technology allows us to attach polyethylene glycol (PEG) chains directly to biologic materials. Our proprietary approach is differentiated in that it results in a minimal loss of bioactivity and does not use couplers which can cause safety issues. PEGylation enables us to hide proteins, viruses and antibodies from the immune system, keeping them in circulation much longer, improving both the safety and efficacy of those therapies. Our business model is to develop numerous product candidates and then partner them by the time we 8 have demonstrated evidence of efficacy in humans. This requires us to continually evaluate our product development priorities and weigh the benefits of early-stage license deals against funding our own product candidates through Phase II testing. We can continue to pursue multiple product opportunities because we do not invest a large portion of our resources in late-stage clinical tests for any one product candidate. Fiscal 2000 was a year of progress for Valentis, during which we began turning the technologies of the three merged companies into products. We could not have accomplished all that we have without the hard work and support of our employees, management, corporate collaborators and stockholders. Thank you all. I believe that together we have laid a tremendous foundation upon which our future success will be built. Benjamin F. McGraw III President, Chief Executive Officer and Chairman of the Board 9 Valentis currently has a rich portfolio of gene medicines in development. Cancer IL-2 + chemo IL-2 + SEB IFN- α + IL-12 IV IL-2 BRCA-1 AntiAngiogenesis genes Cardiovascular Del-1 VEGF-165 eNOS Hematology EPO + GeneSwitch™ Factor VIII Factor IX Gene Medicine Products Valentis is developing a broad technology platform consisting of several in vivo, non-viral, or plasmid-based, gene delivery systems based on two broad classes of delivery materials: lipids and polymers. Valentis’ gene delivery systems, containing cationic lipids combined with neutral lipids, enhance the entry of genes into tumor cells after intratumoral administration. Valentis is using these lipid-based gene delivery systems in several gene medicines for the treatment of cancer. In addition, Valentis’ academic collaborators have used lipid gene delivery systems in a clinical trial for cystic fibrosis and in trials of the VEGF-165 gene. Valentis has also developed gene delivery systems based on polymers. Our preclinical and clinical data indicate that our polymers provide a safe and effective means of delivering genes to both muscle and tumors and have produced therapeutically relevant protein levels that persist for as long as twelve months in animal studies. We are using our proprietary PINC™ (Protective, Interactive, Non-Condensing) gene delivery system in the development of our hematology gene medicines and in two gene medicines intended for the treatment of cancer. 12 Cardiovascular Gene Medicines. VEGF-165. In March 1998, a vascular endothelial growth factor (“VEGF”) gene medicine employing Valentis’ proprietary cationic lipid gene delivery system became the subject of two physician-initiated Phase II clinical trials: one for treating peripheral vascular disease (PVD) and one for treating coronary artery disease (CAD). In both trials there are three treatment groups: the VEGF delivered by our lipid, by an adenovirus or a placebo. Dr. Seppo YläHerttuala of the A.I. Virtanen Institute of the University of Kuopio, Finland, is conducting the trials and Valentis is providing its proprietary DOTMA cationic lipid gene delivery system for study with the Institute’s plasmids encoding VEGF-165. In November 1999, interim results from Dr. Ylä-Herttuala’s PVD trial showed that the patients receiving the lipid- and viral-delivered VEGF-165 gene demonstrated evidence of angiogenesis (blood vessel formation). There was no evidence of angiogenesis in the placebo group in the trial. To date, more than 100 patients with either PVD or CAD have been treated with the plasmid-based VEGF-165 therapy. Results from both trials should be released by mid 13 Cardiovascular Gene Medicines VEGF-165 Coronary artery disease, Peripheral vascular disease Phase II Del-1 Coronary artery disease, Peripheral vascular disease IND eNOS Restenosis Preclinical Gene Medicine Products In March 2000, Valentis and Eurogene Ltd. initiated a clinical trial of a VEGF-165 gene medicine incorporated into Eurogene’s local collar-reservoir delivery device and a Valentis proprietary cationic lipid gene delivery system. The collar-reservoir device enables the gene to be delivered locally via the adventitial (outside) surface of the blood vessels. This trial should be completed in mid 2001. Del-1. Del-1 is a unique angiogenic factor that promotes vascular growth and inhibits endothelial cell death. It has a distinct mechanism of action from other known angiogenic factors such as members of the VEGF and fibroblast growth factor (FGF) families. In June 2000, Valentis announced that its Del-1 gene medicine elicited development of new blood vessels in preclinical animal studies in rabbits and mice. Valentis scientists reported that the effects of a single administration to muscle of the Del-1 gene medicine on development of new blood vessels in rabbit and mouse models were similar to those obtained with a VEGF-165 gene medicine, which was used as a comparator in both studies. Acute toxicities observed with the VEGF-165 gene medicine in dose-response 16 2001. studies were not observed with the Del-1 gene medicine at similar doses, suggesting that the Del-1 gene medicine may have safety advantages over VEGF-165. Both the Del-1 and VEGF-165 gene medicines used in these studies incorporate Valentis’ proprietary PINCTM polymer gene delivery technology. Locally administered gene medicines, such as Del-1, provide for sustained, localized expression at the target site, with minimal systemic exposure. This delivery system mimics natural processes that drive angiogenesis and overcomes two major short-comings associated with systemic delivery of recombinant angiogenic proteins: systemic toxicity and a short half-life. The Company plans to initiate a Phase IIa clinical trial for a Del-1 gene medicine for the treatment of peripheral vascular disease in the first quarter 2001 with a coronary artery disease trial to follow. eNOS. In August 2000, The Company and Eurogene, Ltd. announced a collaboration to develop a Nitric Oxide Synthase (NOS) gene medicine for the prevention or treatment of restenosis following bypass graft surgery. Product development will combine Valentis’ proprietary gene delivery and expression technologies 17 Del-1 gene medicine angiogenesis demonstrated in PVD Untreated Treated Del-1 Gene Medicine Products and Eurogene’s extravascular delivery collar to deliver and express the gene encoding the intracellular enzyme, eNOS, into a product for which the initial indication will be the inhibition of stenosis following bypass graft surgery. Under the collaboration, Valentis and Eurogene will share research and development costs and potential revenues. The Company projects that a jointly developed eNOS gene medicine could enter clinical trials within a year following successful preclinical studies. Cancer Gene Medicines. Cytokines. Valentis’ most advanced programs are in the field of cancer immunotherapy. Three single cytokine genes, IL-2, IL-12 and IFN-α as well as combinations of IL-2 plus chemotherapy and IL-12 plus IFN-α, are being tested under the agreement the Company has with Roche Holdings Ltd. In October, 2000, Valentis initiated a Phase IIa clinical study of a gene medicine that combines the IL-12 and IFN-α genes. The trial is being conducted under the direction of Shelly McQuone, MD at the University of Pennsylvania, and is designed to determine safety, tolerability and efficacy of the cytokine combination gene medicine for patients with squamous cell carcinoma of the head 20 and neck. Up to 40 patients will be enrolled in the study. Concurrently, Valentis also announced the publication of results from preclinical studies with this same cytokine combination demonstrating a synergistic increase in anti-tumor response against colon and renal cell carcinoma. Valentis also has Phase IIa clinical tests ongoing for the single cytokine products as well as a Phase IIb clinical trial of the combination of IL-2 and chemotherapy, all for head and neck cancer. The results from the single cytokine safety programs are expected to be released in the fourth quarter 2000. Results from the IL-2 plus chemotherapy trial are expected in the third quarter 2001. In addition to the programs sponsored by Roche, results from a physician-sponsored Phase IIa clinical study of a gene medicine that combines the IL-2 and Superantigen-B (SEB) genes in Valentis’ delivery system were released in October 2000. The study concluded that treatment with this combination gene medicine for melanoma generated systemic levels of tumor-specific immune cells and no significant toxicity at any dose level tested. Valentis began the study under an IND submitted to the FDA in April 1998 for evaluation 21 Cancer Gene Medicines IL-2 IFN-α IL-12 IL-2+chemotherapy IL-12 + IFN-α IL-2 + Superantigen B IV IL-2 BRCA-1 Anti-angiogenesis genes Phase IIa Phase IIa Phase IIa Phase IIb Phase IIa Phase IIa IND Preclinical Preclinical Gene Medicine Products of its proprietary non-viral gene-based cancer immunotherapeutic. The dose-ranging study examined the safety of the two-gene combination in Valentis’ proprietary lipid-based formulation, which was injected directly into tumors. The principal investigator for this trial was Dr. Pat Walsh from the University of Colorado Health Sciences Center. The costs of the trial were supported in part by a clinical grant from the National Cancer Institute. Preclinical studies with this gene medicine on dogs with advanced cases of spontaneously occurring oral melanoma resulted in tumor regression and increased survival rates. Specifically, direct administration of this gene medicine resulted in a systemic immune response to the tumors in the mouth, and in some cases, their sites of metastasis. Based on these data, Valentis believes that this product may have applications in the treatment of other solid tumors such as breast, prostate and head and neck cancers. Cancer of the skin is the most common of all cancers. Melanoma accounts for about 4% of skin cancer cases, but causes about 79% of skin cancer deaths. The number of people in the world who develop melanoma is 24 increasing each year. In the United States, the number has more than doubled in the past 20 years, and the American Cancer Society estimates that about 47,700 new melanomas will be diagnosed in the US during 2000, a rise of eight percent over last year. Melanoma results when pigment cells in the skin become cancerous. If melanoma spreads, the cancer cells can be transferred to other organs, such as the lymph nodes, lungs, liver or brain. Among Caucasians, who are at greatest risk for the disease, the incidence of melanoma tripled between 1980 and 2000. Other Cancer Gene Medicines. Under a 1997 agreement with Lilly, Valentis is developing a gene medicine administered via direct injection or into the intraperitoneal cavity using BRCA-1, a gene that has been identified as a putative tumor suppressor in breast and ovarian cells. Preclinical work is complete and the parties are currently evaluating the data to determine the efficacy of the BRCA-1 gene. The results of that analysis will determine the future of the program. Valentis has conducted preclinical research into a number of other gene medicine approaches to cancer including anti-angiogenesis. We are conducting 25 IV IL-2 gene medicine efficacy in an animal tumor model IV IL-2 Target Cell Untreated Lung Treated Lung Gene Medicine Products research with other genes to determine whether using gene medicines to deliver genes that cut off the blood supply to tumors will shrink or eliminate both the primary tumor as well as any sites of metastasis. We are also researching whether systemic intravenous delivery of a cytokine will have an effect on controlling cancer and if a gene medicine product can minimize the side effects occurring from traditional radiation and chemotherapy regimens. Hematology Gene Medicines. EPO +GeneSwitch™ In January 2000, Valentis introduced the PINC™ polymer muscle delivery system to provide high levels of cell transfection initially for a gene medicine that incorporates the erythropoeitin (EPO) gene. The gene medicine is administered into muscle tissue that is then treated with electroporation, the application of an electrical current through the site of injection. This increases the uptake of the gene into the muscle cells and results in more than a one hundredfold increase in protein production. Valentis’ GeneSwitch™ gene regulation system is also incorporated to provide precise control over the level and duration of gene expression. The GeneSwitch™ is turned on by administration of 28 an orally bio-available drug in a dose-dependent manner. Because the muscle is used to produce therapeutic proteins that are secreted into the bloodstream, this delivery system is also applicable to any protein for which long-term systemic administration is desired. We believe the resulting products will provide long-term expression of therapeutic proteins at controllable levels with low manufacturing costs, the ability to redose, and storage under normal conditions. In small animal studies using our EPO gene medicine under the control of Valentis’ proprietary GeneSwitch™ technology, our researchers administered plasmids encoding EPO and the GeneSwitch™ to mice. Upon administration of the small molecule inducer, a dose-dependent increase in EPO protein was detected in the blood. Several cycles of increased hematocrit levels were achieved throughout the one-year study. The experiment demonstrated that the GeneSwitch™ technology could control both the level and duration of the therapeutic protein being expressed. 29 Controlled drug-dependent regulation of hEPO and hematocrit in mice for 6 months EPO + GeneSwitch™ Anti-progestin 500 hEPO (mU/mL) % HCT 400 300 200 100 0 60 55 50 45 40 35 0 Gene dose 20 40 60 80 100 120 140 160 180 200 Days PEGylation Products Valentis, through its PolyMASC subsidiary, has developed a number of proprietary applications of its PEGylation technologies. PolyMASC’s unique PEGylation technology allows for the gentle coupling of polyethylene glycol (“PEG”) molecules directly to proteins (protoMASCTM), antibodies (antiMASCTM) and viruses (viraMASCTM) in a manner that retains the biological activity of the material. These PEG molecules can protect the biopharmaceutical from degradation and attack by the immune system. With PEGylation, both recognition by antibodies (antigenicity) and stimulation of immune responses (immunogenicity) are reduced. This can yield products with improved safety, efficacy and dosing regimens. The PolyMASC technology enables direct, linkerless attachment of PEG molecules to the target biopharmaceutical. The company’s technology employs proprietary tresyl chloride chemistry to produce tresyl monomethoxyPEG (“TMPEG”). Valentis has developed a proprietary position on TMPEG itself, on methods for the biological optimization of TMPEG with the therapeutic, and on scale-up and manufacturing of the compound. The company’s patented 32 technique is called Molecule Altering Structural Chemistry (“MASC”). While the company’s efforts have been focused on PEG, the technology can be applied to other polymers and carrier systems. The main advantage of the PolyMASC system is that it enables preserved biological activity. The PolyMASC technology has yielded manufacturing improvements, reduced toxicities and reduced purification requirements. Additionally, PolyMASC developed and has a patent for LipoMASCTM, a process for coating liposomes (hollow lipid droplets), which leads to significantly improved tumor localization and has application in the delivery of anti-cancer agents. This research area is not being pursued internally and is in the process of being licensed. PolyMASC has corporate collaborations with Transkaryotic Therapies, Bayer International, Flemington Pharmaceuticals and Viragen to develop PEGylated versions of proteins. PolyMASC’s collaboration with Onyx Pharmaceuticals is for the development of a PEGylated version of the CI-1042 virus. 33 The advantages of PEGylation technologies The addition of polymer chains masks the surface of the biopharmaceutical. Better Efficacy Biopharmaceutical Product Improved Safety More Convenient Dosing PEG Chain Corporate Information Stockholder Information Officers Benjamin F. McGraw, III, Pharm.D. President and Chief Executive Officer Bennet Weintraub Chief Financial Officer Tyler Martin M.D. Vice President Clinical Development and Regulatory Affairs Alain Rolland, Pharm.D., Ph.D. Vice President Research and Development Margaret M. Snowden Vice President Legal Affairs and Intellectual Property Gillian E. Francis, M.B., B.S., D.Sc., M.Sc Managing Director PolyMASC Pharmaceuticals Directors Benjamin F. McGraw, III, Pharm.D. President and Chief Executive Officer Valentis, Inc. and Chairman of the Board of Directors Patrick G. Enright Diaz & Altschul Group. LLC Raju Kucherlapati, Ph.D. Albert Einstein College of Medicine Bert O’Malley, M.D. Baylor College of Medicine Arthur M. Pappas A.M. Pappas and Associates Stanley T. Crooke, M.D., Ph.D. Isis Pharmaceuticals Gillian E. Francis, M.B., B.S., D.Sc., M.Sc. PolyMASC Pharmaceuticals Mark McDade Corixa Corporation Valentis Corporate Headquarters 863A Mitten Road Burlingame, CA 94010-1303 Tel 650.697-1900 Fax 650.652-1990 www.valentis.com The Woodlands Center 8301 New Trails Drive The Woodlands, TX 77381-4248 Tel 281.364-1150 Fax 281.364-0858 Independent Auditors Ernst & Young LLP SEC Form 10-K A copy of the Form 10-K filed with the Securities and Exchange Commission can be obtained free of charge by writing the Company at: 863A Mitten Road Burlingame, CA 94010-1303 Attn: Investor Relations Closing Common Stock Prices Valentis, Inc. common stock is listed on the Nasdaq National market System under the symbol VLTS. The Company’s common stock began trading on September 15, 1997. The following table presents the quarterly high and low closing sales prices as quoted by NASDAQ. High 1998 First Quarter 14.00 Second Quarter 8.88 Third Quarter 8.00 Fourth Quarter 6.94 1999 First Quarter 6.75 Second Quarter 5.56 Third Quarter 7.00 Fourth Quarter 10.00 2000 First Quarter 18.81 Second Quarter 11.75 Third Quarter 11.00 Low 8.88 6.38 4.25 4.00 4.06 3.38 3.66 3.38 8.84 7.13 7.62 As of September 20, 2000, there were approximately 635 stockholders of record. Statements in this Annual Report that are not strictly historical are “forward looking” statements as defined in the Private Securities Litigation Reform Act of 1995. There can be no assurance that Valentis will be able to develop commercially viable gene-based therapeutics or PEGylated products, that any of its programs will be partnered with a pharmaceutical partner, that necessary regulatory approvals will be obtained, or that any clinical trial will be successful. The actual results may differ from those projected in the forward-looking statement due to risks and uncertainties that exist in the Company’s operations and business environment. These are described more fully in the Valentis Annual Report on Form 10-K for the period ended June 30, 2000 and Quarterly Report on Form 10-Q for the period ended September 30, 2000, each as filed with the Securities and Exchange Commission. PolyMASC Pharmaceuticals Fleet Road London, NW3 2EZ United Kingdom Tel 44-0-207-284-3141 Fax 44-0-207-284-2212 Transfer Agent Fleet National Bank c/o Equiserve Limited Partnership PO Box 8040 Boston, MA 02266-8040 Tel 781-575-3120 www.equiserve.com Corporate Counsel Latham & Watkins Menlo Park, CA Annual Meeting Tuesday, December 12, 2000 10:00am Valentis, Inc. 863A Mitten Road Burlingame, CA 94010 Valentis, Inc. 863A Mitten Road Burlingame, CA 94010-1303 Tel 650 697-1900 Fax 650 652-1990 www.valentis.com Design: Cahan & Associates, San Francisco Portrait Photography: Robert Schlatter 1566 AR 00