Craig R. Smith, M.D.
Chairman, President and
Chief Executive Officer
Obtained regulatory approvals for GLIADEL
Wafer in 8 countries
Increased sales of GLIADEL Wafer to hospitals by 62%
Initiated a multinational Phase III clinical trial of GLIADEL Wafer to expand the labeled indication to first line therapy
Selected a lead neuroimmunophilin compound for clinical study
Received a $1 million milestone payment from Amgen for initiation of a GLP toxicology study of NIL-A
Expanded our polymer product line by developing PACLIMER™ to be studied for use in the treatment of ovarian cancer
Selected a lead NAALADase inhibitor for clinical study
Demonstrated efficacy of NAALADase and PARP inhibitors in various animal models of disease including stroke, heart attack, chronic pain and peripheral neuropathy
Our goal at Guilford is to rapidly develop scientific discoveries into new medicines, in the areas of neurology and drug delivery for cancer. Guilford is building the infrastructure to discover new drugs and develop them through the early stages of clinical development with the intent of demonstrating preliminary evidence of safety and effectiveness. We then plan to license our products to large pharmaceutical companies for the later stages of development and commercialization. As we grow and accumulate the necessary financial resources, we intend to retain increasing development and commercialization rights to our programs. Ultimately, we hope to become a fully integrated pharmaceutical company. We believe this business model will allow us to develop a diverse product pipeline, reduce our product development risk and provide near term cash flow while affording Guilford the opportunity to benefit financially from future product sales.
We have already achieved some success with this strategy. In 1996 we licensed worldwide development and commercialization rights for GLIADEL
Wafer to Rhône-Poulenc Rorer (RPR). Guilford has received over $40 million in rights and milestone payments, receives 35% of product sales and may receive up to an additional $35 million if GLIADEL Wafer is launched in major European markets and is approved for use in first line therapy. RPR is also paying a substantial portion of the cost of a Phase III trial to expand the market potential for the product. In 1997 we licensed the rights to our FKBP-neuroimmunophilin program to Amgen. Guilford has received over $40 million in rights, research, equity and milestone payments and is eligible to receive future milestone, equity and other payments.These agreements have allowed us to build a strong balance sheet and devote our energies to developing new products. At year end, we reported $128 million in cash and equivalents on our balance sheet. Most of our expenditures for 1998 were invested in building our infrastructure and advancing our NAALADase, PARP, PACLIMER™ and DOPASCAN
Injection programs, with the expectation that these programs will contribute revenues from partnering activity over the next one to two years. In the longer term, if these development programs are successful, royalty revenues should increase substantially.Several specific developments in 1998 are worth noting. First, GLIADEL
Wafer sales to hospitals grew by 62%. Over 90% of these sales were made in the U.S. During 1998, RPR obtained health authority approvals in France and Canada as well as in several smaller international markets. The French approval led to regulatory submissions and current review in most of the remaining major European markets. Growing U.S. sales and expansion of the global market should provide momentum for the product over the next few years. At the same time, RPR and Guilford have launched a multinational Phase III clinical trial to expand the indication for GLIADEL Wafer from second line to first line therapy. If successful, this trial should expand the market potential for GLIADEL Wafer substantially.Second, we have expanded our product line in oncology by completing the development of a prototype drug delivery product containing paclitaxel (Taxol
). This product is an injectable powder we intend to evaluate for ovarian, lung and other cancers. Paclitaxel is the most commercially successful cancer chemotherapeutic drug available. By developing a product that can target the drug to the site of the cancer and deliver the drug for a longer time, we hope to reduce the side effects and increase the effectiveness of paclitaxel in certain clinical conditions. We plan to enter clinical development in 1999 or early 2000.Third, our collaboration with Amgen produced a lead clinical candidate this past year. The compound, known as NIL-A, has successfully completed the steps necessary to begin clinical testing and Amgen has informed Guilford that it intends to begin clinical testing soon. Our intellectual property in this field is an important asset and was significantly expanded this past year with the receipt of a number of new patents. Scientific progress was also substantial. Our prototype neuroimmunophilin compounds were tested and found to be effective in several preclinical models of acute and chronic neurological disorders, including Parkinson’s disease, memory loss, and optic nerve damage. These results were reported at several scientific meetings during the year and have generated considerable interest in this promising field.
Fourth, Guilford scientists designed neuroprotective compounds that are effective in preclinical models of stroke, peripheral neuropathy and pain as well as chronic disorders like amyotrophic lateral sclerosis (Lou Gehrig’s disease) and Parkinson’s disease. In 1998 we selected a drug candidate for clinical testing from our NAALADase program and synthesized many promising PARP inhibitors that will undergo preclinical testing this year. Both of these programs are available for licensing and have attracted the interest of several large pharmaceutical companies.
Finally, we made considerable progress this past year in building the infrastructure and establishing the processes to run an efficient and productive enterprise. We hired vice presidents of Clinical Research, Regulatory Affairs, Process and Chemical Development, and Intellectual Property. Each of these senior executives comes to Guilford with extensive industry experience and a record of outstanding accomplishment. They will be vital to the future ability of our company to create intellectual property and then rapidly develop it into new products. We also began construction of a new 73,000 square foot leased research and development facility adjacent to our current facility that will house our medicinal chemistry, product development and analytical laboratories. Many of the scientists who are scheduled to occupy this new facility are currently working in multiple leased labs that are remote from our main facility and are expensive to maintain. By consolidating our operations in one facility we hope to improve productivity and coordination among our scientific staff.
We encountered several challenges last year that led us to take action. First, the market for small biotechnology companies deteriorated significantly in 1998, resulting in a general decline in the stock price for many of these companies, including ours. Our Board of Directors took action and announced a stock repurchase program that has allowed us to buy back some of our shares at attractive prices. The repurchases are antidilutive and help offset the shares issued under our various stock option programs. Second, our revenues for the year were less than expected because we did not sign a new corporate partnership. Management took action to reduce expenses by instituting additional cost controls and by reducing the rate at which we hired new employees.
In many ways, 1998 was a year in which we greatly improved our Company and laid the foundation for strong future growth. We strengthened our relationships with corporate partners, developed long term strategic plans, set priorities and created the critical mass necessary for future success. In 1999, we hope to move three new product candidates into clinical development, expand the market for GLIADEL
Wafer and add new corporate partners. Because we have multiple new product opportunities, a strong balance sheet and the infrastructure to use our assets productively, we feel Guilford is well positioned for the future.Our strongest asset is our people. It is through their creativity, hard work and commitment that we have been able to achieve success in translating leading-edge science into significant commercial opportunities. Furthermore, they have demonstrated a remarkable ability to cope with rapid change and uncertainty, a critical requirement in our industry. I would like to thank our employees for their contributions and our partners and shareholders for their continued support.
Sincerely,
Craig R. Smith, M.D.
Chairman of the Board,
President and Chief Executive Officer
April 15, 1999
