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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 26, 1997
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CYTOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-19871 04-3078125
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
701 GEORGE WASHINGTON HIGHWAY
LINCOLN, RHODE ISLAND 02865
(Address of principal executive offices, including zip code)
(401) 288-1000
(Registrant's telephone number including area code)
TWO RICHMOND SQUARE
PROVIDENCE, RHODE ISLAND 02906
(Former name or address, if changed since last report)
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PAGE 1 OF 9 PAGES.
EXHIBIT INDEX ON PAGE 5.
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This report may contain certain forward-looking statements regarding,
among other things, CTI's results of operations, the progress of CTI's product
development and clinical programs, the need for, and timing of, additional
capital and capital expenditures, partnering prospects, the need for additional
intellectual property rights, effects of regulations, the need for additional
facilities and potential market opportunities. CTI's actual results may vary
materially from those contained in such forward-looking statements because of
risks to which CTI is subject such as risks of delays in research, development
and clinical testing programs, obsolescence of CTI's technology, lack of
available funding, competition from third parties, failure of CTI's
collaborators to perform, failure to consummate proposed transactions,
regulatory constraints, litigation and other risks to which CTI is subject. See
"Cautionary Factors Relevant to Forward-Looking Statements" filed herewith as
Exhibit 99 and incorporated herein by reference.
ITEM 2. ACQUISITION OF ASSETS
On September 26, 1997, CytoTherapeutics, Inc. ("CTI") announced the
closing of the merger of StemCells, Inc. ("StemCells") and a wholly-owned
subsidiary of CTI. Through the merger, CTI acquired StemCells in exchange for
1,580,000 newly issued shares of CTI's common stock, $.01 par value.
Simultaneously with the acquisition of StemCells, Richard M. Rose, M.D., became
President, Chief Executive Officer and a Director of CTI and Dr. Irving Weissman
became a Director of CTI.
Upon the consummation of the merger, CTI entered into consulting
arrangements with the principal scientific founders of StemCells including, Dr.
Weissman, of Stanford University, Fred Gage, Ph.D., of Salk Institute and David
Anderson, of the California Institute of Technology and the Howard Hughes
Medical Institute. Under the terms of the consulting arrangements, each of Drs.
Weissman, Gage and Anderson will join CTI's Scientific Advisory Board with Dr.
Weissman serving as the Chairman of the Scientific Advisory Board.
To attract and retain Drs. Rose, Weissman, Gage and Anderson, and to
move CTI's expanded stem cell program forward, CTI awarded these individuals
options to acquire a total of approximately one million six hundred thousand
shares of CTI common stock, at an exercise price of $5.25 per share;
approximately 94,000 of these options are excercisable immediately, 1.1 million
of these options vest and become exercisable only on the achievement of
specified milestones related to CTI's stem cell development program, such as
corporate partnering events, the initiation of clinical trials and regulatory
filings and approvals; and the remaining 500,000 options vest over eight years.
Conduct of the stem cells research following completion of the merger
will be conducted pursuant to the provisions of an agreement between CTI and
Drs. Weissman and Gage providing for a two year research plan. If the goals of
the research plan are accomplished, the stem cells research will continue to be
conducted under an extension of such Research Plan approved by a Research
Committee consisting of two persons chosen by Drs. Gage and Weissman, two
persons chosen by CTI and a fifth member appointed by Drs. Gage and Weissman,
subject to the reasonable approval of CTI. Increases in stem cells research
funding of not more than 25% a year approved by the Committee will be funded by
CTI as long as the goals of the Research Plan are being met, provided, however,
that CTI will retain the option of ceasing or reducing neural stem cell research
even if all Research Plan goals are being met by accelerating the vesting of all
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still-achievable performance-based options and ceasing or reducing non-neural
stem cell research even if all Plan goals are being met by affording the
scientific founders the opportunity to continue development of the non-neural
stem cell research by licensing the technology related to such research to the
founders in exchange for a payment to CTI equal to all funding for such
research, plus royalty payments.
ITEM 5. OTHER EVENTS
Construction of CTI's new headquarters and research and development
facility has recently been completed at a cost of approximately $7.5 million.
CTI is currently in negotiations regarding the possible sale and leaseback of
such facility. In addition, CTI is also involved in active discussions with a
group of potential investors regarding a possible investment in CTI's 50% owned
subsidiary, Modex Therapeutiques S.A., including the possible sale to such
investors of a portion of CTI's current ownership interest. As currently
anticipated, CTI would reduce its current ownership in Modex to a minority
position, receive cash, be relieved of certain future funding and milestone
obligations, expand the field of encapsulated products outside the central
nervous system which are exclusively licensed to Modex and enter into
arrangements to manufacture Modex products based on such licensed technology.
The two proposed transactions described above are the subject of
ongoing negotiations and no definitive agreements have been reached with respect
to either transaction; there can be no assurance that either transaction will be
completed or, if completed, will be completed on the terms described above.
ITEM 7. EXHIBITS
Exhibit 99 Cautionary Factors Relevant to Forward-Looking Statements
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SIGNATURES
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 hereunto duly authorized.
CYTOTHERAPEUTICS, INC.
By /s/ Frederic A. Eustis III
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Title: Executive Vice President
Date: October 2, 1997
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Exhibit Index Page
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Exhibit 99 Cautionary Factors Relevant to Forward-Looking 6
Statements
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EXHIBIT 99
CAUTIONARY FACTORS RELEVANT TO FORWARD-LOOKING STATEMENTS
CytoTherapeutics, Inc. (the "Company") wishes to caution readers that the
following important factors, among others, in some cases have affected and in
the future could affect the Company's results and could cause actual results and
needs of the Company to vary materially from forward-looking statements made by
the Company on the basis of management's current expectations. The business in
which the Company is engaged is rapidly changing, extremely competitive and
involves a high degree of risk, and accuracy with respect to forward-looking
projections is difficult. Cross-references in this Exhibit refer to the sections
of the Company's Annual Report on Form 10-K.
EARLY STAGE DEVELOPMENT; HISTORY OF OPERATING LOSSES -- Substantially all of the
Company's revenues to date have been derived, and for the foreseeable future
substantially all of the Company's revenues will be derived, from collaborative
agreements, research grants and income earned on invested funds. The Company
will incur substantial operating losses in the future as the Company conducts
its research, development, clinical trial and manufacturing activities. There
can be no assurance that the Company will achieve revenues from product sales or
become profitable.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING -- The development of
the Company's products will require the commitment of substantial resources to
conduct the time-consuming research, preclinical development and clinical trials
that are necessary for regulatory approvals and to establish production and
marketing capabilities if such approvals are obtained. The Company will need to
raise substantial additional funds to continue its product development efforts
and intends to seek such additional funds through partnership, collaborative or
other arrangements with corporate sponsors, public or private equity or debt
financings, or from other sources. Future cash requirements may vary from
projections based on changes in the Company's research and development programs,
progress in preclinical and clinical testing, the Company's ability to enter
into, and perform successfully under, collaborative agreements, competitive and
technological advances, the need to obtain proprietary rights owned by third
parties, facilities requirements, regulatory approvals and other factors. Lack
of necessary funds may require the Company to delay, reduce or eliminate some or
all of its research and product development programs or to license its potential
products or technologies to third parties. No assurance can be given that
funding will be available when needed, if at all, or on terms acceptable to the
Company.
UNCERTAINTIES OF CLINICAL DEVELOPMENT AND NEW MODE OF THERAPY -- None of the
Company's proposed products has been approved for commercial sale or entered
Phase III clinical trials. Even if the Company's proposed products appear to be
promising at an early stage of research or development such products may later
prove to be ineffective, have adverse side effects, fail to receive necessary
regulatory approvals, be difficult or uneconomical to manufacture or market on a
commercial scale, may be precluded from development by new regulations, be
adversely affected by government price controls or limitations on reimbursement,
be precluded from commercialization by proprietary rights of third parties or be
subject to significant competition from other products. There can be no
assurance that the Company will be able to demonstrate, as required, that its
implants, on a consistent basis and on a commercial scale, among other things:
(i) successfully isolate transplanted cells from the recipient's immune system;
(ii) remain biocompatible with the tissue into which they are implanted,
including, for certain implants, brain tissue; (iii) adequately maintain the
viability of cells contained within the membrane; (iv) safely permit the
therapeutic substances produced by the cells within the membrane to pass
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through the membrane into the patient in controlled doses for extended periods;
and (v) are sufficiently durable for the intended indication.
GOVERNMENT REGULATION -- The Company's research, preclinical development and
clinical trials, as well as the manufacturing and marketing of its potential
products, are subject to extensive regulation by governmental authorities in the
United States and other countries. The process of obtaining FDA and other
required regulatory approvals is lengthy, expensive and uncertain. There can be
no assurance that the Company or its collaborators will be able to obtain the
necessary approvals to commence or continue clinical testing or to manufacture
or market its potential products in anticipated time frames, if at all. In
addition, several legislative proposals have been made to reform the FDA. If
such proposals are enacted they may result in significant changes in the
regulatory environment the Company faces. These changes could result in
different, more costly or more time-consuming approval requirements for the
Company's products, in the dilution of FDA resources available to review the
Company's products or in other unpredictable consequences. See "Government
Regulation."
There has been increasing regulatory concern about the risks of cell
transplantation. Concern has focused on cells derived from cows (such as are
used in the Company's pain program) and cells from primates and pigs. The United
Kingdom has adopted a moratorium on xenotransplantation pending further research
and discussion and the EC Commission has introduced a ban on the use of
"high-risk material" from cattle and sheep in the Member States of the European
Union in the manufacture of pharmaceuticals (this ban would apparently not
include cells used in the Company's pain program). In addition, the FDA has
recently proposed guidelines which impose significant constraints on the conduct
of clinical trials utilizing xenotransplantation. Furthermore, the FDA has
published a "Proposed Approach to Regulation of Cellular and Tissue-Based
Products" which relates to use of human cells. The Company cannot presently
determine the effects of such actions nor what other actions may be taken.
Restrictions on the testing or use of cells (whether nonhuman or human) as human
therapeutics could materially adversely affect the Company's product development
programs and the Company itself. See "Government Regulation."
DEPENDENCE ON OUTSIDE PARTIES -- The Company's strategy for the research,
development, commercialization and marketing of its products contemplates that
the Company will enter into various arrangements with corporate sponsors,
pharmaceutical companies, universities, research groups and others. There is no
assurance that the Company will be able to enter into any additional
arrangements on terms acceptable to the Company, or successfully perform its
obligations under its existing or any additional arrangements. If any of the
Company's collaborators fails to perform its obligations in a timely manner or
terminates its agreement with the Company, the development or commercialization
of the Company's product candidate or research program under such collaborative
agreement may be adversely affected.
NEED FOR AND UNCERTAINTY OF OBTAINING PATENT PROTECTION -- Patent protection for
products such as those the Company proposes to develop is highly uncertain and
involves complex factual and evolving legal questions. No assurance can be given
that any patents issued or licensed to the Company will not be challenged,
invalidated or circumvented, or that the rights granted under such patents will
provide competitive advantages to the Company.
EXISTENCE OF THIRD PARTY PATENTS AND PROPRIETARY RIGHTS; NEED TO OBTAIN LICENSES
- -- A number of pharmaceutical, biotechnology and other companies, universities
and research institutions have filed patent applications or have been issued
patents relating to cell therapy and encapsulation and other technologies
potentially relevant to or required by the Company's expected products. The
Company cannot predict which, if any, of such applications will issue as patents
or the claims which might be allowed. The Company is aware of a number of
third-party
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patent applications and patents relating to cell encapsulation or claiming use
of genetically modified cells to treat disease, disorder or injury. In
particular, the Company is aware of a third-party U.S. patent which relates to
the use of cells for alleviating chronic pain in humans and of two issued U.S.
patents claiming certain methods for treating defective, diseased or damaged
cells in the mammalian CNS by grafting genetically modified cells. The Company
cannot predict the effect of existing patent applications and patents on future
unencapsulated products. In addition, the Company is aware of third-party
patents and patent applications claiming rights to the neurotrophic factors
(such as CNTF, NT 4/5, Neurturin, and CT-1) which the Company hopes to deliver
with its technology, and to the production of these factors through the use of
genetically modified cells. The Company expects to use genetically modified
cells to produce these factors for use in its products. The Company may also be
required to seek licenses in regard to other cell lines, the techniques used in
creating or obtaining such cell lines, the materials used in the manufacture of
its implants or otherwise. There can be no assurance that the Company will be
able to establish collaborative arrangements or obtain licenses to the foregoing
technology or to other necessary or desirable technology on acceptable terms, if
at all, or that the patents underlying any such licenses will be valid and
enforceable. See "Patents, Proprietary Rights and Licenses."
SOURCES OF CELLS AND OTHER MATERIALS -- The Company's potential products require
genetically engineered cell lines or living cells harvested from animal or human
sources. There can be no assurance that the Company will successfully identify
or develop sources of the cells required for its potential products and obtain
such cells in quantities sufficient to satisfy the commercial requirements of
its potential products. These supply limitations may apply, in particular, to
primary cells which must be drawn directly from animal or human sources, such as
the bovine adrenal chromaffin cells currently used in the Company's product for
the treatment of pain. As an alternative to primary cells, the Company is
developing products based on the use of genetically altered cells. Intellectual
property rights to important genetic constructs used in developing such cells,
including the constructs used to develop cells producing neurotrophic factors,
are or may be claimed by one or more companies, which could prevent the Company
from using such cells.
MANUFACTURING UNCERTAINTIES -- The Company's pilot manufacturing plant may not
have sufficient capacity to permit the Company to produce all the products for
all of the clinical trials it anticipates developing. In addition, the Company
has not developed the capability to commercially manufacture any of its proposed
products and is unaware of any other company which has manufactured any
membrane-encapsulated cell product on a commercial scale. There can be no
assurance that the Company will be able to develop the capability of
manufacturing any of its proposed products at a cost, consistency or in the
quantities necessary to make a commercially viable product, if at all.
COMPETITION -- Competitors of the Company are numerous and include major
pharmaceutical and chemical companies, biotechnology companies, universities and
other research institutions. Currently, several of these competitors market and
sell therapeutic products for the treatment of chronic pain, Parkinson's disease
and other CNS conditions. In addition, most of the Company's competitors have
substantially greater capital resources, experience in obtaining regulatory
approvals and, in the case of commercial entities, experience in manufacturing
and marketing pharmaceutical products, than the Company. A number of other
companies are attempting to develop methods of delivering therapeutic substances
within or across the blood brain barrier. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective than those being developed by the Company or that would
render the Company's technology and products obsolete or noncompetitive. See
"Competition."
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DEPENDENCE ON KEY PERSONNEL -- The Company is highly dependent on the principal
members of its management and scientific staff and certain of its outside
consultants. Vacancies have occurred and are likely to occur from time to time
among the Company's senior management and scientific staff. Loss of the
services of any of the Company's key employees or consultants or the continued
existence of such vacancies could have a material adverse effect on the
Company's operations. In addition, the Company's operations are dependent
upon its ability to attract and retain additional qualified scientific and
management personnel. There can be no assurance the Company will be able
to attract and retain such personnel on acceptable terms given the
competition among pharmaceutical, biotechnology and healthcare companies,
universities and research institutions for experienced personnel.
REIMBURSEMENT AND HEALTHCARE REFORM -- In both domestic and foreign markets,
sales of the Company's potential products will depend in part upon the
availability and amounts of reimbursement from third-party healthcare payor
organizations, including government agencies, private healthcare insurers and
other healthcare payors such as health maintenance organizations and
self-insured employee plans. There is considerable pressure to reduce the cost
of therapeutic products. There can be no assurance that reimbursement will be
provided by such payors at all or without substantial delay, or, if such
reimbursement is provided, that the approved reimbursement amounts will provide
sufficient funds to enable the Company to sell its products on a profitable
basis. See "Reimbursement and Healthcare Cost Control."
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