**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 
|                                                                                                                          | **(Mark One)** |
|-------------------------------------------------------------------------------------------------------------------------------|----------------|
|                                                                                                                          | **ý**     | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                          |
| **For the quarterly period ended June 30,  2003**                                                                             |
|                                                                                                                          |
| **OR**                                                                                                                        |
|                                                                                                                          |
|                                                                                                                          | **o**          | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                          |
| **For the transition period from          to         ** |
|                                                                                                                          |
| **Commission File Number: 000-30289**                                                                                         |

 

| **PRAECIS PHARMACEUTICALS INCORPORATED**                         |
|------------------------------------------------------------------|
| (Exact name of registrant as specified in  its charter)          |
|                                                             |   |   |
| **Delaware**                                                     |   | **04-3200305** |
| (State or other jurisdiction of   incorporation or organization) |   | (I.R.S. Employer   Identification No.) |
|                                                             |   |   |
| **830 Winter Street, Waltham, MA 02451-1420**                    |
| (Address of principal executive offices and  zip code)           |
|                                                             |
| **(781) 795-4100**                                               |
| (Registrant’s telephone number, including  area code)       |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90days.         Yes ý No o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).     Yes ý No o

 

Asof July 31, 2003, there were 51,878,691 shares of the registrant’s commonstock, $.01 par value, outstanding.

 

 

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**PRAECISPHARMACEUTICALS INCORPORATED**

**FORM 10-Q**

**FOR THE QUARTER ENDED JUNE 30, 2003**

 

**INDEX**

 
| **PART I.**       | **FINANCIAL INFORMATION**                                                                                  |
|-------------------|------------------------------------------------------------------------------------------------------------|
|              |
| Item 1.           | Financial Statements  (Unaudited)                                                                          |
|              |
|              | Condensed  Consolidated Balance Sheets –  December 31, 2002 and June 30, 2003                         |
|              |
|              | Condensed  Consolidated Statements of Operations –  three and six months ended June 30, 2002 and 2003 |
|              |
|              | Condensed  Consolidated Statements of Cash Flows –  six months ended June 30, 2002 and 2003           |
|              |
|              | Notes  to Condensed Consolidated Financial Statements                                                      |
|              |
| Item  2.          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                |
|              |
| Item  3.          | Quantitative  and Qualitative Disclosures About Market Risk                                                |
|              |
| Item 4.           | Controls and  Procedures                                                                                   |
|              |
| **PART II.**      | **OTHER INFORMATION**                                                                                      |
|              |
| Item  4.          | Submission  of Matters to a Vote of Security Holders                                                       |
|              |
| Item 6.           | Exhibits and  Reports on Form 8-K                                                                          |
|              |
| **SIGNATURE**     |
|              |
| **EXHIBIT INDEX** |

 

2

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

**PRAECIS PHARMACEUTICALS INCORPORATED**

**Condensed Consolidated Balance Sheets**

**(Inthousands, except share data)**

**(Unaudited)**

 
|                                                                                                                                           |   | **December  31,  2002** |       | **June  30,  2003** |       |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|---------------------|------------|
|                                                                                                                                           |   |                    | ** ** |                | ** ** |
| **Assets**                                                                                                                                     |   |                    | ** ** |                | ** ** |
| Current assets:                                                                                                                                |   |                    |       |                |       |
| Cash and cash equivalents                                                                                                                      |   | $                       | 64,913     |                | $          | 79,856 |   |
| Marketable securities                                                                                                                          |   | 130,122                 |       | 86,923              |       |
| Prepaid expenses and other assets                                                                                                              |   | 848                     |       | 1,457               |       |
|                                                                                                                                           |   |                    |       |                |       |
| Total current assets                                                                                                                           |   | 195,883                 |       | 168,236             |       |
|                                                                                                                                           |   |                    |       |                |       |
| Property and equipment, net                                                                                                                    |   | 71,252                  |       | 69,284              |       |
| Due from officer                                                                                                                               |   | 933                     |       | 883                 |       |
| Other assets                                                                                                                                   |   | 182                     |       | 15                  |       |
|                                                                                                                                           |   |                    |       |                |       |
| Total assets                                                                                                                                   |   | $                       | 268,250    |                | $          | 238,418 |   |
|                                                                                                                                           |   |                    |       |                |       |
| **Liabilities and Stockholders’  Equity**                                                                                                 |   |                    | ** ** |                | ** ** |
| Current liabilities:                                                                                                                           |   |                    |       |                |       |
| Accounts payable                                                                                                                               |   | $                       | 3,285      |                | $          | 743 |   |
| Accrued expenses                                                                                                                               |   | 7,075                   |       | 6,459               |       |
|                                                                                                                                           |   |                    |       |                |       |
| Total current liabilities                                                                                                                      |   | 10,360                  |       | 7,202               |       |
| Long-term debt                                                                                                                                 |   | 33,000                  |       | 33,000              |       |
|                                                                                                                                           |   |                    |       |                |       |
| Commitments and contingencies                                                                                                                  |   |                    |       |                |       |
|                                                                                                                                           |   |                    |       |                |       |
| Stockholders’ equity:                                                                                                                     |   |                    |       |                |       |
| Common Stock, $0.01 par value; 200,000,000 shares  authorized; 51,801,423 shares in 2002 and 51,877,916 shares in 2003 issued  and outstanding |   | 518                     |       | 519                 |       |
| Accumulated other comprehensive income                                                                                                         |   | 203                     |       | 296                 |       |
| Additional paid-in capital                                                                                                                     |   | 354,676                 |       | 354,873             |       |
| Accumulated deficit                                                                                                                            |   | (130,507                | )          | (157,472            | )          |
|                                                                                                                                           |   |                    |       |                |       |
| Total stockholders’ equity                                                                                                                |   | 224,890                 |       | 198,216             |       |
|                                                                                                                                           |   |                    |       |                |       |
| Total liabilities and stockholders’ equity                                                                                                |   | $                       | 268,250    |                | $          | 238,418 |   |

 

*See accompanying notes.*

 

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**PRAECIS PHARMACEUTICALS INCORPORATED**

**Condensed Consolidated Statements ofOperations**

**(In thousands, except per share data)**

**(Unaudited)**

 
|                                                             |   | **Three Months Ended  June 30,** |    | **Six Months Ended  June 30,** |   |
|------------------------------------------------------------------|--------|----------------------------------|---------|--------------------------------|--------|
|                                                             |   |                             |    |
|                                                             |   | **2002**                         |    | **2003**                       |   | **2002** |   | **2003** |   |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Corporate collaboration revenue                                  |   | $                                | 1,029   |                           | $      | — |   | $ | 1,029 |   | $ | — |   |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Costs and expenses:                                              |   |                             |    |                           |   |   |   |   |   |
| Research and development                                         |   | 13,518                           |    | 12,290                         |   | 24,854 |   | 20,969 |   |
| Sales and marketing                                              |   | 274                              |    | 1,034                          |   | 714 |   | 2,062 |   |
| General and administrative                                       |   | 2,743                            |    | 2,604                          |   | 4,857 |   | 4,728 |   |
| Total costs and expenses                                         |   | 16,535                           |    | 15,928                         |   | 30,425 |   | 27,759 |   |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Operating loss                                                   |   | (15,506                          | )       | (15,928                        | )      | (29,396 | ) | (27,759 | ) |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Interest income, net                                             |   | 1,291                            |    | 378                            |   | 2,495 |   | 794 |   |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Net loss                                                         |   | $                                | (14,215 | )                              | $      | (15,550 | ) | $ | (26,901 | ) | $ | (26,965 | ) |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Basic and diluted net loss per share                             |   | $                                | (0.27   | )                              | $      | (0.30 | ) | $ | (0.52 | ) | $ | (0.52 | ) |
|                                                             |   |                             |    |                           |   |   |   |   |   |
| Weighted average number of basic and diluted shares  outstanding |   | 51,727                           |    | 51,842                         |   | 51,572 |   | 51,831 |   |

* *

*See accompanying notes.*

 

4

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**PRAECIS PHARMACEUTICALS INCORPORATED**

**Condensed Consolidated Statements of CashFlows**

**(In thousands)**

**(Unaudited)**

 
|                                                                     |   | **Six  Months Ended  June 30,** |    |
|--------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                     |   | **2002**                        |    | **2003** |   |
| **Operating activities:**                                                |   |                            |    |   |   |
| Net loss                                                                 |   | $                               | (26,901 | ) | $ | (26,965 | ) |
| Adjustments to reconcile net loss to cash used in  operating activities: |   |                            |    |   |   |
| Depreciation and amortization                                            |   | 2,354                           |    | 2,285 |   |
| Stock compensation                                                       |   | (196                            | )       | 68 |   |
| Changes in operating assets and liabilities:                             |   |                            |    |   |   |
| Accounts receivable                                                      |   | 458                             |    | — |   |
| Prepaid expenses and other assets                                        |   | (608                            | )       | (442 | ) |
| Due from officer                                                         |   | (1,000                          | )       | 50 |   |
| Accounts payable                                                         |   | 1,025                           |    | (2,542 | ) |
| Accrued expenses                                                         |   | (2,568                          | )       | (616 | ) |
|                                                                     |   |                            |    |   |   |
| Net cash used in operating activities                                    |   | (27,436                         | )       | (28,162 | ) |
|                                                                     |   |                            |    |   |   |
| **Investing activities:**                                                |   |                            |    |   |   |
| Purchase of available-for-sale securities                                |   | (49,342                         | )       | (35,936 | ) |
| Sales or maturities of available-for-sale  securities                    |   | 62,344                          |    | 79,228 |   |
| Purchase of property and equipment                                       |   | (1,405                          | )       | (317 | ) |
|                                                                     |   |                            |    |   |   |
| Net cash provided by investing activities                                |   | 11,597                          |    | 42,975 |   |
|                                                                     |   |                            |    |   |   |
| **Financing activities:**                                                |   |                            |    |   |   |
| Proceeds from exercises of stock options                                 |   | 929                             |    | 130 |   |
|                                                                     |   |                            |    |   |   |
| Net cash provided by financing activities                                |   | 929                             |    | 130 |   |
|                                                                     |   |                            |    |   |   |
| Net (decrease) increase in cash and cash equivalents                     |   | (14,910                         | )       | 14,943 |   |
| Cash and cash equivalents, beginning of period                           |   | 144,685                         |    | 64,913 |   |
|                                                                     |   |                            |    |   |   |
| Cash and cash equivalents, end of period                                 |   | $                               | 129,775 |   | $ | 79,856 |   |

 

*See accompanyingnotes.*

 

5

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**PRAECISPHARMACEUTICALS INCORPORATED**

**Notesto Condensed Consolidated Financial Statements**

**(Unaudited)**

 

**1.****                                      Basisof Presentation**

 

The accompanying condensed consolidated financial statements have beenprepared by PRAECIS PHARMACEUTICALS INCORPORATED (the “Company”) in accordancewith generally accepted accounting principles and pursuant to the rules andregulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  It is suggestedthat the financial statements be read in conjunction with the audited financialstatements and the accompanying notes included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2002. 

 

The information furnished reflects all adjustments which, in theopinion of management, are considered necessary for a fair presentation ofresults for the interim periods.  Suchadjustments consist only of normal recurring items.  It should also be noted that results for the interim periods arenot necessarily indicative of the results expected for the full year or anyfuture period. 

 

The preparation of these financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.  

 

**2.****                                      Summaryof Significant Accounting Principles**

 

***Principles ofConsolidation***

 

The accompanying consolidated financial statements include theCompany’s accounts and the accounts of its wholly owned subsidiaries, 830Winter Street LLC and PRAECIS Europe Limited. All significant intercompany account balances and transactions betweenthe companies have been eliminated. 

 

***Stock-BasedCompensation***

 

The Company has elected to follow Accounting Principles Board OpinionNo. 25*, Accounting for Stock Issued toEmployees* (“APB No. 25”) and related interpretations, in accountingfor its stock-based compensation plans. Under APB No. 25, when the exerciseprice of options granted to employees under these plans equals the market priceof the underlying stock on the date of grant, no compensation expense isrequired.  The Company has adopted thedisclosure-only provisions of Statement of Financial Accounting Standards(“SFAS”) No. 148, *Accounting for Stock-BasedCompensation-Transition and Disclosure, an amendment of Financial AccountingStandards Board ("FASB") Statement No. 123*(“SFAS No.148”). 

 

6

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Accordingly, had compensation expense for the Company’s stock optionplans been determined based on the fair value at the grant date for awardsunder these plans, consistent with the methodology prescribed under SFAS No.148, the Company’s net loss and net loss per share would have approximated thepro forma amounts indicated below: 

 
|                                                                                                                                                                                                             |   | **Three  Months Ended  June 30,** |    | **Six  Months Ended  June 30,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|
|                                                                                                                                                                                                             |   | **2002**                          |    | **2003**                        |   | **2002** |   | **2003** |   |
|                                                                                                                                                                                                             |   |                              |    |                            |   |   |   |   |   |
| Net loss, as reported                                                                                                                                                                                            |   | $                                 | (14,215 | )                               | $      | (15,550 | ) | $ | (26,901 | ) | $ | (26,965 | ) |
|                                                                                                                                                                                                             |   |                              |    |                            |   |   |   |   |   |
| Deduct/(add): Stock compensation cost as computed  under APB No. 25                                                                                                                                              |   | (3                                | )       | 31                              |   | (196 | ) | 68 |   |
|                                                                                                                                                                                                             |   |                              |    |                            |   |   |   |   |   |
| Deduct: Stock based employee compensation cost, net  of related tax effects, that would have been included in the determination of  net loss as reported if the fair value method had been applied to all awards |   | (3,045                            | )       | (2,727                          | )      | (5,431 | ) | (5,525 | ) |
|                                                                                                                                                                                                             |   |                              |    |                            |   |   |   |   |   |
| Pro forma net loss                                                                                                                                                                                               |   | $                                 | (17,263 | )                               | $      | (18,246 | ) | $ | (32,528 | ) | $ | (32,422 | ) |
|                                                                                                                                                                                                             |   |                              |    |                            |   |   |   |   |   |
| Diluted net loss per share, as reported                                                                                                                                                                          |   | $                                 | (0.27   | )                               | $      | (0.30 | ) | $ | (0.52 | ) | $ | (0.52 | ) |
|                                                                                                                                                                                                             |   |                              |    |                            |   |   |   |   |   |
| Diluted net loss per share, pro forma                                                                                                                                                                            |   | $                                 | (0.33   | )                               | $      | (0.35 | ) | $ | (0.63 | ) | $ | (0.63 | ) |

 

The fair value of the stock options at the date of grant was estimatedusing the Black-Scholes option pricing model with the following weightedaverage assumptions: 

 
|                    |   | **2002** |   | **2003** |   |
|-------------------------|--------|----------|--------|----------|--------|
| Risk-free interest rate |   | 4.0      | %      | 4.0      | %      |
|                    |   |     |   |     |   |
| Expected life (years)   |   | 6        |   | 6        |   |
|                    |   |     |   |     |   |
| Volatility              |   | 103      | %      | 103      | %      |

 

The Company has never declared or paid anycash dividends on any of its capital stock and does not expect to do so in theforeseeable future.  

 

***Net Loss Per Share***

 

Basic net loss per share is based on the weighted average number ofcommon shares outstanding.  For thethree and six months ended June 30, 2002 and 2003, diluted net loss per commonshare is the same as basic net loss per common share as the inclusion of commonstock options would be antidilutive due to the Company’s net losses for allperiods presented.  Diluted net loss percommon share excluded 7,028,513 and 7,591,612 common stock options for theperiods ended June 30, 2002 and 2003, respectively. 

 

7

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***Comprehensive Income***

 

SFAS No. 130, *Reporting Comprehensive Income*,establishes standards for the reporting and display of comprehensive income(loss) and its components in the consolidated financial statements.  The Company’s accumulated othercomprehensive income is comprised primarily of net unrealized gains or losseson available-for-sale securities.  Forthe three and six months ended June 30, 2002 and 2003, respectively,comprehensive loss was as follows (in thousands): 

 
|                                                  |   | **Three Months Ended   June 30,** |       | **Six Months Ended  June 30,** |       |
|-------------------------------------------------------|--------|-----------------------------------|------------|--------------------------------|------------|
|                                                  |   | **2002**                          |       | **2003**                       |       | **2002** |   | **2003** |   |
|                                                  |   |                              | ** ** |                           | ** ** |   | ** ** |   | ** ** |
| Net  loss                                             |   | $                                 | (14,215    | )                              | $          | (15,550 | ) | $ | (26,901 | ) | $ | (26,965 | ) |
| Changes  in comprehensive loss:                       |   |                              |       |                           |       |   |   |   |   |
|                                                  |   |                              |       |                           |       |   |   |   |   |
| Net  unrealized holding gains (losses) on investments |   | 364                               |       | (68                            | )          | (272 | ) | 93 |   |
|                                                  |   |                              |       |                           |       |   |   |   |   |
| Total  comprehensive loss                             |   | $                                 | (13,851    | )                              | $          | (15,618 | ) | $ | (27,173 | ) | $ | (26,872 | ) |

 

***Recent AccountingPronouncements***

 

In January 2003, the FASB issued FASB Interpretation No. 46, *Consolidationof Variable Interest Entities* (“FIN No. 46”).  FIN No. 46 sets forth the criteria used indetermining whether an investment in a variable interest entity (“VIE”) shouldbe consolidated and is based on the general premise that companies that controlanother entity through interests other than voting interests should consolidatethe controlled entity.  FIN No. 46 wouldrequire the consolidation of specified VIE’s created before February 1, 2003 inthe Company’s September 30, 2003 Quarterly Report on Form 10-Q.  For specified VIE’s created after January31, 2003, FIN No. 46 would require consolidation in this Quarterly Report onForm 10-Q.  The Company does not haveany VIE’s.  Accordingly, theimplementation of FIN No. 46 will not have any impact on its consolidatedfinancial statements.

 

**3.**                                      **SubsequentEvent**

 

On July 30, 2003, the Company exercised the first of two one-yearextension options on its acquisition and construction loan agreement extendingthe maturity date until July 30, 2004. On August 1, 2003, the Company began to pay principal in addition tointerest on the loan.  In connectionwith this extension, the Company also entered into an interest rate capagreement in order to reduce the potential impact of interest rate increases onfuture income.

 

8

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| **ITEM 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|-------------|--------------------------------------------------------------------------------------------------|

 

*The followingdiscussion of our financial condition and results of operations should be readtogether with the condensed consolidated financial statements and accompanyingnotes to those statements included elsewhere in this Form 10-Q.  This Form 10-Q contains forward-lookingstatements within the meaning of Section 21E of the Securities Exchange Act of1934, as amended, that involve risks and uncertainties.  All statements other than statements ofhistorical information set forth herein are forward-looking and may containinformation about financial results, economic conditions, trends and knownuncertainties.  Our actual results coulddiffer materially from those discussed in these forward-looking statements as aresult of a number of factors, which include those discussed in this sectionand elsewhere in this report, and the risks discussed in our other filings withthe Securities and Exchange Commission. Readers are cautioned not to place undue reliance on theseforward-looking statements, which reflect management’s analysis, judgment,belief or expectation only as of the date hereof.  PRAECIS undertakes no obligation to publicly reissue or modifythese forward-looking statements to reflect events or circumstances that ariseafter the date hereof.*

* *

**Overview**

** **

Since our inception, we have been engaged in developing drugs for thetreatment of a variety of human diseases. Our lead program is the development of PlenaxisTM (abarelix forinjectable suspension), a drug for the treatment of diseases that respond tothe lowering of certain hormone levels. We are developing Plenaxis for thetreatment of hormonally responsive prostate cancer and endometriosis.  We are seeking approval for Plenaxis in theUnited States for use in advanced, symptomatic prostate cancer patients forwhom the use of existing hormonal therapies may not be appropriate.  We resubmitted our new drug application, orNDA, to the FDA on February 27, 2003 seeking approval for this indication.  In July 2003, the FDA indicated that theoriginal action date of August 27, 2003 would be extended by 90 days, and wenow expect a response from the FDA by November 26, 2003.

 

In June 2003, we initiated the regulatory submission process in theEuropean Union seeking approval to market Plenaxis for the treatment of a broadpopulation of hormonally responsive prostate cancer patients.  We submitted a marketing authorizationapplication, or MAA, in Germany and anticipate broader European Union approvalsunder the Mutual Recognition Procedure, or MRP.  We expect the German review process to be completed during 2004. 

 

We are conducting clinical trials of Apan, our proprietary drugcandidate for the treatment of Alzheimer’s disease.  We have filed an investigational new drug application, or IND,for our proprietary compound, PPI-2458, in development for the treatment ofnon-Hodgkin’s lymphoma.  The FDA hasgiven clearance for us to initiate clinical trials in non-Hodgkin’s lymphomapatients.  In addition, we have otherprograms in the research or preclinical development stage.

 

Since our inception, we have had no revenues from product sales.  In the past, a significant portion of ourrevenues was received under collaboration agreements through which we convertedthe potential value underlying our Plenaxis program into a stream of upfront,milestone and expense reimbursement payments from corporate collaborators.  In 2001, we regained full ownership of ourPlenaxis program and, as a result, revenues from collaborations have ended andwe will not receive any additional revenues, nor will we be required to pay anyadditional amounts or royalties, under our former collaborationagreements.  Substantially all of ourexpenditures to date have been for drug development and commercializationactivities and for general and administrative expenses. 

 

Due to the costs associated with the continued development andpotential commercialization of Plenaxis in the United States for the treatmentof advanced, symptomatic prostate cancer patients, as well as other researchand development and general and administrative expenses, and our lack ofrevenues, we had a net operating loss for the first half of 2003.  We expect to continue to have net operatinglosses at least through 2005.  We do notexpect to generate operating income unless we receive FDA approval to marketPlenaxis in the United States.  Assumingreceipt by the end of 2003 of such FDA approval, partnering of clinicalprograms at opportune times and continued 

 

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prudent fiscal management, we believe that our existing cash andinvestments will be sufficient for us to execute our current operating plan andattain profitability by 2006 without the need to return to the capital markets.

 

Our accumulated deficit as of June 30, 2003 was approximately $157.5million

 

At June 30, 2003, we had 148 full-time employees, 116 of whom wereengaged in research and development activities, compared to 133 full-timeemployees at June 30, 2002, 103 of whom were engaged in research anddevelopment activities. 

 

**Results of Operations**  

 

**Three Months EndedJune 30, 2003 Compared To Three Months Ended June 30, 2002**

 

We had no revenues for the three months ended June 30, 2003, comparedto approximately $1.0 million for the corresponding period in 2002. During thesecond quarter of 2002, we received a final reimbursement payment from a formercorporate collaborator.  We do notexpect to receive any additional revenues under this collaborationagreement.  If the FDA grants marketingapproval for Plenaxis in the United States by the end of 2003, we estimate thatwe will begin to ship product in the first quarter of 2004.  If the FDA does not grant marketing approvalfor Plenaxis in the United States, or if approval is delayed, such denial ordelay is likely to have a materially adverse impact on our expected revenues. 

 

Research and development expenses for the three months ended June 30,2003 decreased 9% to approximately $12.3 million, from approximately $13.5million for the corresponding period in 2002. The decrease in expenses reflectsreduced spending in our clinical and preclinical programs.  As a result of the resubmission of our NDAin February 2003, spending on the clinical development of Plenaxis for thetreatment of hormonally responsive advanced prostate cancer during the secondquarter of 2003 was reduced significantly.  In addition, pending final analysis of the results of certainclinical studies, we also reduced spending on our endometriosis program duringthe second quarter of 2003.  During thesecond quarter of 2003, we initiated a phase Ib clinical trial for Apan and weplan to initiate a phase I clinical trial for PPI-2458 in non-Hodgkin’slymphoma during the second half of 2003 and, accordingly, will increase ourspending in these areas.  Overall, weexpect our research and development expenses for the remainder of 2003 toremain lower than 2002 spending and then increase thereafter.  We are unable to predict the precise levelof spending on individual clinical programs due to the uncertain nature ofclinical development and the potential for future development partnerships. 

 

We currently have several other ongoing research and developmentprograms. Using industry estimates, typical drug development programs may lastfor ten or more years and may cost hundreds of millions of dollars to complete.As our programs progress, we will assess the possibility of entering intocorporate collaborations to offset a portion of development costs. The ultimatesuccess of our research and development programs and the impact of theseprograms on our operations and financial results cannot be accurately predictedand will depend, in large part, upon the outcome and timing of many variablesoutside of our control. 

 

We began our clinical program to develop Plenaxis for the treatment ofprostate cancer in 1996. In December 2000, we submitted an NDA to the FDA forPlenaxis for the treatment of hormonally responsive prostate cancer. However,the FDA raised concerns regarding the occurrence of immediate-onset, systemicallergic reactions in a small subset of clinical trial patients. In addition,the FDA expressed concern that, in a subset of patients treated beyond thethree-month pivotal study time frame, fluctuations in testosterone levels wereobserved more frequently in patients treated with Plenaxis than in patientstreated with either Lupron Depot or Lupron Depot plus Casodex.  We have proposed various alternatives to theFDA to address these issues and improve the risk/benefit profile ofPlenaxis.  As mentioned above, weresubmitted our NDA to the FDA on February 27, 2003.  In July 2003, the FDA indicated that our original action date ofAugust 27, 2003 would be extended by 90 days. We now expect a response from the FDA regarding the approvability ofPlenaxis by November 26, 2003.  Duringthe extension, the FDA will finalize its review of previously obtained datarecently requested by, and submitted to, the agency, as well as work with us toarrive at the appropriate risk management program for Plenaxis.  Specifically, the agency has indicated thatour proposed risk management program would need to include some form ofcontrolled or managed distribution.  Wewill work with the FDA to determine the necessary modifications to our riskmanagement program.

 

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On June 23, 2003, we also submitted an MAA in Germany.  We will subsequently seek broader EuropeanUnion approval for Plenaxis under the MRP to market Plenaxis for the treatmentof a broad population of hormonally responsive prostate cancer patients.  We expect that the German regulatoryauthorities will complete their review of our MAA during 2004.  However, we cannot assure investors that wewill be successful in obtaining approval in the United States or abroad forPlenaxis for the treatment of hormonally responsive prostate cancer or for anyother indication. 

 

In 1998, we began our clinical program to develop Plenaxis for thetreatment of endometriosis. We completed a phase II study of Plenaxis for thetreatment of pain associated with endometriosis in March 2002. Results from thisstudy suggest that we may be able to utilize a lower dose and/or a moreprolonged dosing interval in future studies to reduce drug exposure andattendant bone mineral density loss, a known consequence of hormonal therapiesthat lower estrogen levels.  Accordingly,during 2002, we initiated and completed a pharmacokinetic study of Plenaxis forthe treatment of endometriosis to examine the appropriate dose and dosingschedule.  Upon completion of our reviewof the results of this study, we will determine the next steps for development,which will include evaluating potential partnership opportunities. 

 

We began our clinical program for Apan in 2000.  We have completed a normal volunteer, phaseIa dose escalation study of Apan and have determined a maximum tolerated dose,or MTD, in healthy volunteers.  Duringthe second quarter of 2003, we initiated a phase Ib trial of Apan inAlzheimer’s disease patients.  In thistrial, we have been and will continue evaluating a single administration ofApan in a series of patient cohorts, escalating the dose in successive cohorts,with the goal of establishing the MTD in patients.  Upon completion of the phase Ib study and, assuming favorable FDAreview of the study’s results, we intend to initiate a phase Ic trial examiningmultiple administrations of a selected Apan dose in Alzheimer’s diseasepatients. 

 

We plan to initiate our clinical program for PPI-2458 in the secondhalf of 2003.  In April 2003, wesubmitted to the FDA an IND for PPI-2458 and the FDA has given clearance for usto initiate a phase I clinical study of PPI-2458 in non-Hodgkin’s lymphomapatients.  PPI-2458 is a novel,proprietary molecule based on the fumagillin class of compounds that have beenshown to prevent both abnormal cell growth and the formation of new bloodvessels, which contribute to aberrant tissue growth.  In the proposed study, we will evaluate an oral formulation ofPPI-2458 in non-Hodgkin’s lymphoma patients who are no longer deriving benefitsfrom other therapies.  In addition tonon-Hodgkin’s lymphoma, we also intend to continue evaluating the potentialutility of PPI-2458 for treating certain other cancers, as well as rheumatoidarthritis. 

 

Sales and marketing expenses for the three months ended June 30, 2003increased to approximately $1.0 million, from approximately $0.3 million forthe corresponding period in 2002.  Thisincrease was due to increased costs related to pre-commercialization efforts,in particular for market research, various national meetings, and pricing andreimbursement consulting activities, in connection with the possible launch ofPlenaxis in the United States.  Weintend, upon FDA approval of our NDA, to market and sell Plenaxis in the UnitedStates through our own marketing and sales team.  Accordingly, assuming FDA approval of Plenaxis, we expect oursales and marketing expenses to continue to increase during 2003 andthereafter, and to include, but not be limited to, expenses relating to thebuilding of a commercial infrastructure, the cost of our sales force, andeducational, promotional and marketing programs. 

 

General and administrative expenses for the three months ended June 30,2003 decreased 5% to approximately $2.6 million, from approximately $2.7million for the corresponding period in 2002. We expect that general andadministrative expenses will increase slightly during 2003 and thereafter basedon normal hiring of additional administrative personnel to support thecontinued growth of our research, development and commercializationinitiatives. 

 

Net interest income for the three months ended June 30, 2003 decreased71% to approximately $0.4 million, from approximately $1.3 million for thecorresponding period in 2002. The decrease in net interest income was dueprimarily to reduced average interest rates and lower average cash andinvestment balances.

 

At December 31, 2002, we had federal net operating losscarryforwards of $129.0 million that will expire in varying amountsthrough 2022, if not utilized. Utilization of net operating loss and tax creditcarryforwards will be subject to substantial annual limitations under theInternal Revenue Code of 1986, as amended. The annual limitations may result inthe expiration of the net operating loss and tax credit carryforwards beforefull utilization.

 

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**Six Months Ended June30, 2003 Compared To Six Months Ended June 30, 2002**

 

We had no revenues for the six months ended June 30, 2003, compared toapproximately $1.0 million for the corresponding period in 2002. During thesecond quarter of 2002, we received a final reimbursement payment from a formercorporate collaborator.  We do notexpect to receive any additional revenues under this collaboration agreement.  If the FDA grants marketing approval forPlenaxis in the United States by the end of 2003, we estimate that we willbegin to ship product in the first quarter of 2004.  If the FDA does not grant marketing approval for Plenaxis in theUnited States, or if approval is delayed, such denial or delay is likely tohave a materially adverse impact on our expected revenues. 

 

Research and development expenses for the six months ended June 30,2003 decreased 16% to approximately $21.0 million, from approximately $24.9million for the corresponding period in 2002. The decrease in expenses reflects reduced spending in our clinical andpreclinical programs.  As a result ofthe resubmission of our NDA in February 2003, spending on the clinicaldevelopment of Plenaxis for the treatment of hormonally responsive advancedprostate cancer during the first half of 2003 was reduced significantly.  In addition, pending final analysis of theresults of certain clinical studies, we also reduced spending on ourendometriosis program during the first half of 2003.  During the second quarter of 2003, we initiated a phase Ibclinical trial for Apan and we plan to initiate a phase I clinical trial forPPI-2458 in non-Hodgkin’s lymphoma during the second half of 2003 and,accordingly, will increase our spending in these areas. 

 

Sales and marketing expenses for the six months ended June 30, 2003increased to approximately $2.1 million, from approximately $0.7 million forthe corresponding period in 2002.  Thisincrease was due to increased costs related to pre-commercialization efforts,in particular for market research, various physician and national meetings,pricing and reimbursement consulting and sales force sizing and deploymentactivities, in connection with the possible launch of Plenaxis in the UnitedStates.  We intend, upon FDA approval ofour NDA, to market and sell Plenaxis in the United States through our ownmarketing and sales team.  Accordingly,assuming FDA approval of Plenaxis, we expect our sales and marketing expensesto continue to increase during 2003 and thereafter, and to include, but not belimited to, expenses relating to the building of a commercial infrastructure,the cost of our sales force, and educational, promotional and marketingprograms. 

 

General and administrative expenses for the six months ended June 30,2003 decreased 3% to approximately $4.7 million, from approximately $4.9million for the corresponding period in 2002. We expect that general andadministrative expenses will increase slightly during 2003 and thereafter basedon normal hiring of additional administrative personnel to support thecontinued growth of our research, development and commercializationinitiatives. 

 

Net interest income for the six months ended June 30, 2003 decreased68% to approximately $0.8 million, from approximately $2.5 million for thecorresponding period in 2002. The decrease in net interest income was dueprimarily to reduced average interest rates and lower average cash andinvestment balances.  

 

**Liquidity and CapitalResources**

** **

At June 30, 2003, we had cash, cash equivalents and marketablesecurities of approximately $166.8 million and working capital of approximately$161.0 million, compared to approximately $195.0 million and $185.5 million,respectively, at December 31, 2002. During 2003, we expect to use an aggregate of approximately $65.0million of our cash and investments to fund operations.  This reflects a $10.0 million reductioncompared to our previous guidance of approximately $75.0 million.  Due to the 90-day extension of the PlenaxisNDA review, we have updated our United States launch expectations for Plenaxisto the first quarter of 2004, which will lead to reduced spending in 2003.  Assuming receipt by the end of 2003 ofregulatory approval to market Plenaxis in the United States for advanced, symptomaticprostate cancer patients, partnering of clinical programs at opportune timesand continued prudent fiscal management, we believe that our existing cash andinvestments will be sufficient for us to execute our current operating plan andattain profitability by 2006 without the need to return to the capital markets.

 

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For the six months ended June 30, 2003, net cash of approximately $28.2million was used in operating activities, compared to approximately $27.4million used in operating activities during the six months ended June 30, 2002.During the six months ended June 30, 2003, our use of cash in operations wasdue principally to our net loss of approximately $27.0 million and thereduction in accounts payable and accrued expenses of approximately $3.2million, partially offset by approximately $2.3 million of depreciation andamortization.  We expect our cashutilization to increase for the remainder of 2003 as a result of an overallincrease in operating expenses as we prepare for the possible commercial launchof Plenaxis, continue with clinical trials for Apan, initiate a new clinicalprogram for PPI-2458 and expand our research and development initiatives.  The actual amount of these expenditures willdepend on numerous factors, including the timing of expenses and the timing andprogress of our research, development, marketing and sales efforts.

 

Net cash provided by investing activities of approximately $43.0million for the six months ended June 30, 2003 consisted primarily of net salesor maturities of marketable securities of approximately $43.3 million.  This compares to net cash provided byinvesting activities of approximately $11.6 million for the correspondingperiod in 2002.  Net cash provided byinvesting activities for the six months ended June 30, 2002 was primarilyrelated to net sales or maturities of marketable securities of approximately$13.0 million. 

 

In July 2000, in connection with the purchase, through our wholly ownedreal estate subsidiary, of our corporate headquarters and research facility inWaltham, Massachusetts, the subsidiary entered into an acquisition andconstruction loan agreement providing for up to $33.0 million in financing forthe acquisition of, and improvements to, the facility. As of June 30, 2003,$33.0 million was outstanding under the loan agreement. Advances bear interestat a rate equal to the 30-day LIBOR plus 2.0% (3.12% at June 30, 2003).Interest is payable monthly in arrears. In July, we exercised the first of twoone-year extension options, extending the maturity date of the loan until July30, 2004.  As a result of thisextension, in August we started making monthly principal payments on the loanof approximately $70,000, in addition to the existing interest payments.  In connection with this extension, we alsoentered into an interest rate cap agreement in order to reduce the potentialimpact of interest rate increases on future income. 

 

The loan is secured by the facility, together with all fixtures,equipment, improvements and other related items, and by all rents, income orprofits received by our real estate subsidiary, and is unconditionallyguaranteed by us. In addition to this financing, we have spent approximately$38.0 million of our own funds in connection with the build-out and occupancyof this facility. We have occupied this facility since May 2001 and, asplanned, are actively seeking to sublease a portion of the facility. 

 

At December 31, 2002, we had provided a valuation allowance of$64.1 million for our deferred tax assets. The valuation allowancerepresents the value of the deferred tax assets.  Due to anticipated  futureoperating losses, we believe that it is more likely than not that we will notrealize the net deferred tax assets in the future and we have provided anappropriate valuation allowance. 

 

**Recent Accounting Pronouncements**

 

In January 2003, the Financial Accounting Standards Board, or FASB,issued FASB Interpretation No. 46, *Consolidation of Variable Interest Entities*,or FIN No. 46.  FIN No. 46 sets forththe criteria used in determining whether an investment in a variable interestentity, or VIE, should be consolidated and is based on the general premise thatcompanies that control another entity through interests other than votinginterests should consolidate the controlled entity.  FIN No. 46 would require the consolidation of specified VIE’screated before February 1, 2003 in our September 30, 2003 Quarterly Report onForm 10-Q.  For specified VIE’s createdafter January 31, 2003, FIN No. 46 would require consolidation in thisQuarterly Report on Form 10-Q.  We donot have any VIE’s.  Accordingly, theimplementation of FIN No. 46 will not have any impact on our consolidatedfinancial statements.

 

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**Risk Factors That MayAffect Future Results**

 

*The risks anduncertainties described below are not the only ones we face.  Additional risks and uncertainties notpresently known to us or that are currently deemed immaterial may also impairour business, financial condition and results of operations.  If any of these risks actually occur, ourbusiness, financial condition and results of operations could be materiallyadversely affected.*

* *

**Because we have not yet marketed or sold anyproducts and anticipate significant increases in our operating expenses overthe next several years, we may not be profitable in the future.**

 

We cannot assure you that we will be profitable in the future or, if weattain profitability, that it will be sustainable. All of our potentialproducts are in the research or development stage. We have not yet marketed orsold any products, and we may not succeed in developing and marketing anyproduct in the future. To date, we have derived substantially all of ourrevenues from payments under corporate collaboration and license agreements.Due to the termination of the Amgen and Sanofi-Synthélabo agreements and theuncertainty regarding regulatory approval for our lead product candidate,Plenaxis, for the foreseeable future, we do not expect to have any revenues,other than interest income. In addition, we expect to continue to spendsignificant amounts to develop commercial sales and marketing capabilities,continue clinical studies and seek regulatory approval for our existing productcandidates. We also intend to spend substantial amounts to fund additionalresearch and development for other potential products, enhance our coretechnologies, and for general and administrative purposes. As of June 30, 2003,we had an accumulated deficit of approximately $157.5 million. We expect thatour operating expenses will increase significantly due primarily to increasedexpenses related to continued pre-commercialization activities for Plenaxis, aswell as the initiation and continuation of studies as part of our otherclinical programs, resulting in significant operating losses at least through2005 and possibly thereafter. 

 

**If our clinical trials are not successful, orif we are otherwise unable to obtain and maintain the regulatory approvalrequired to market and sell our potential products, we would incur additionaloperating losses.**

 

The development and sale of our product candidates are subject toextensive regulation by governmental authorities. Obtaining and maintainingregulatory approval typically is costly and takes many years. Regulatoryauthorities, most importantly, the FDA, have substantial discretion toterminate clinical trials, delay or withhold registration and marketingapproval in the United States, and mandate product recalls. Failure to complywith regulatory requirements may result in criminal prosecution, civilpenalties, recall or seizure of products, total or partial suspension ofproduction or injunction, as well as other actions as to our potential productsor against us. Outside the United States, we can market a product only if wereceive marketing authorization from the appropriate regulatory authorities.This foreign regulatory approval process includes all of the risks associated withthe FDA approval process, and may include additional risks. 

 

To gain regulatory approval from the FDA and foreign regulatoryauthorities for the commercial sale of any product, we must demonstrate inclinical trials, and satisfy the FDA and foreign regulatory authorities as to,the safety and efficacy of the product. If we develop a product to treat a long-lasting disease, such as canceror Alzheimer’s disease, we must gather data over an extended period of time.There are many risks associated with our clinical trials. For example, we maybe unable to achieve the same level of success in later trials as we did inearlier ones. Additionally, data we obtain from preclinical and clinicalactivities are susceptible to varying interpretations that could impederegulatory approval. Further, some patients in our prostate cancer andAlzheimer’s disease programs have a high risk of death, age-related disease orother adverse medical events that may not be related to our products.  These events may affect the statisticalanalysis of the safety and efficacy of our products. If we obtain regulatoryapproval for a product, the approval will be limited to those diseases forwhich our clinical trials demonstrate the product is safe and effective. 

 

In addition, many factors could delay or result in termination of ourongoing or future clinical trials. For example, a clinical trial may experienceslow patient enrollment or lack of sufficient drug supplies. Patients mayexperience adverse medical events or side effects, and there may be a real orperceived lack of effectiveness of, or of safety issues associated with, thedrug we are testing. Future governmental action or existing or changes in FDApolicies or precedents, may also result in delays or rejection of an applicationfor marketing approval.  The FDA hasconsiderable discretion in determining whether to grant marketing approval fora drug, and may delay or deny approval even in circumstances where theapplicant’s clinical trials have proceeded in compliance with FDA proceduresand regulations 

 

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and have met the established end-points of the trials. Challengesto FDA determinations are generally time-consuming and costly.  We can give no assurance that we will obtainmarketing approval for Plenaxis, our drug candidate for the treatment ofhormonally responsive prostate cancer and endometriosis, or for any of ourother product candidates.  Also,regulatory approval may be conditioned upon significant labeling requirementsand, as described below, in the case of FDA approval of Plenaxis, will requirethat we agree with the FDA on and implement some form of controlled or manageddistribution program.  Such labeling ordistribution requirements could adversely affect the marketability or value ofthe product. 

 

To date, none of our product candidates has received regulatoryapproval for commercial sale. In June 2001, we received a letter from the FDAwith respect to our NDA for Plenaxis for the treatment of hormonally responsiveadvanced prostate cancer, in which the FDA indicated that the informationpresented in the NDA was inadequate for approval. The FDA raised concernsregarding the occurrence of immediate-onset, systemic allergic reactions in asmall subset of clinical trial patients. In addition, the FDA expressed concernthat, in a subset of patients treated beyond the three-month pivotal study timeframe, fluctuations in testosterone levels were observed more frequently inpatients treated with Plenaxis than in patients treated with either LupronDepot or Lupron Depot plus Casodex.  Wehave proposed various alternatives to the FDA to address these issues andimprove the risk/benefit profile of Plenaxis. Based upon our discussions withthe FDA, we are now seeking approval for Plenaxis for use in advanced,symptomatic prostate cancer patients for whom the use of existing hormonaltherapies may not be appropriate.  InFebruary 2003, we resubmitted to the FDA our NDA seeking approval for thisindication.  In July 2003, the FDAindicated that our original action date of August 27, 2003 would be extended by90 days.  We now expect a response fromthe FDA regarding the approvability of Plenaxis by November 26, 2003.  During the extension, the FDA will finalizeits review of data recently requested by, and submitted to, the agency, as wellas work with us to arrive at the appropriate risk management program forPlenaxis.  Specifically, the agency hasindicated that our proposed risk management program would need to include someform of controlled or managed distribution. We will work with the FDA to determine the necessary modifications toour risk management program. 

 

In June 2003, we also submitted an MAA in Germany and anticipatebroader approvals under the MRP to market Plenaxis in the European Union forthe treatment of a broad population of hormonally responsive prostate cancerpatients.  We expect that the Germanregulatory authorities will complete their review of our MAA by mid-2004. 

 

The FDA actions described above have delayed, and otherwise adverselyaffected, our obtaining regulatory approval to market Plenaxis in the UnitedStates for the treatment of advanced prostate cancer.  There could be further delays due to FDA review or action, andthe FDA could deny approval altogether. If we are further delayed in obtaining or are unable to obtain FDAapproval, any foreign regulatory approval or regulatory approval to market ourother potential products, we may exhaust our available resources significantlysooner than we had planned, particularly given the termination of the Amgen andSanofi-Synthélabo agreements. If this were to happen, we would need to eitherraise additional funds or seek alternative partners to complete development andcommercialization of Plenaxis and continue our currently planned research anddevelopment programs. We cannot assure you that we would be able to raise thenecessary funds or negotiate additional corporate collaborations on acceptableterms, if at all. 

 

**We may be unable to establish marketing andsales capabilities necessary to successfully commercialize Plenaxis or ourother potential products.**

 

We have no experience in marketing or selling pharmaceutical productsand have very limited marketing and sales resources. To achieve commercialsuccess for any approved product, we must either develop a marketing and salesforce, as well as the infrastructure to support it, or enter into arrangementswith others to market and sell our products. We may be unable to establishmarketing, sales and distribution capabilities necessary to commercialize andgain market acceptance for our potential products. We have announced ourintention to independently market and sell Plenaxis in the United States if wereceive FDA approval of this product for use in advanced, symptomatic prostatecancer patients. Accordingly, we will need to hire a sales force with expertisein pharmaceutical sales. Recruiting and retaining qualified sales personnelwill be critical to our success. Competition for skilled personnel is intense,and we cannot assure you that we will be able to attract and retain asufficient number of qualified individuals to successfully launch Plenaxis orany other potential product. In addition, establishing the expertise necessaryto successfully market and sell 

 

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Plenaxis, or any other product, will require a substantial capitalinvestment. Our ability to successfully commercialize Plenaxis in the UnitedStates for the treatment of advanced, symptomatic prostate cancer patients andto otherwise execute our current operating plan and attain profitability by2006, without the need to raise additional capital, is dependent on numerousfactors, including, as described above, our receipt by the end of 2003 ofregulatory approval to market Plenaxis in the United States for advanced,symptomatic prostate cancer patients, partnering of clinical programs atopportune times and continued prudent fiscal management.  Accordingly, we cannot assure investors thatwe will have the funds to successfully commercialize Plenaxis or any otherpotential product in the United States or elsewhere. 

 

We have also announced our intention to market and sell Plenaxisoutside of the United States through one or more marketing partners.  We have not entered into any sucharrangements and we cannot assure you that we will be able to enter intoagreements with third parties on acceptable terms, if at all. In addition,co-promotion or other marketing arrangements with third parties tocommercialize Plenaxis or any other potential products could significantlylimit the revenues we derive from these products, and these third parties mayfail to commercialize Plenaxis or our other potential products successfully. Tothe extent we enter into any such agreements, the parties to those agreementsmay also market products that compete with our products, further limiting ourpotential revenue from product sales. 

 

**Even if we receive approval for the marketingand sale of Plenaxis or any of our other product candidates, they may fail toachieve market acceptance and, accordingly, may never be commerciallysuccessful.**

 

Many factors may affect the market acceptance and commercial success ofPlenaxis or any of our other potential products, including: 

 

•                                  thescope of the patient population and the indications for which Plenaxis or ourother product candidates are approved;

 

•                                 theterms of any risk management and/or controlled or managed distribution programrequired by the FDA in connection with the approval of Plenaxis or any of ourother product candidates;

 

•                                 theproduct labeling or product insert required by the FDA for Plenaxis and each ofour other product candidates;

 

•                                 theeffectiveness of Plenaxis or any of our other product candidates, including anypotential side effects, as compared to alternative treatment methods;

 

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•                                 theextent and success of our marketing and sales efforts relating to the marketingand sale of Plenaxis or other potential products;

 

•                                 therate at which Plenaxis or our other product candidates are reimbursed bythird-party payors, in particular Medicare;

 

•                                 thetiming of market entry as compared to competitive products;

 

•                                 thecompetitive features of our products as compared to other products, includingthe frequency of administration of Plenaxis as compared to other products, anddoctor and patient acceptance of these features;

 

•                                 thecost-effectiveness of Plenaxis or our other product candidates and theavailability of insurance or other third-party reimbursement, inparticular Medicare, for patients using our products; and

 

•                                 unfavorablepublicity concerning Plenaxis or any of our other product candidates or anysimilar products.

 

If our products are not commerciallysuccessful, we may never become profitable.

 

**Our potential revenues will diminish if wefail to obtain acceptable prices or adequate reimbursement for Plenaxis or ourother product candidates from third-party payors.**

 

The continuing efforts of government and third-party payors to containor reduce the costs of health care may limit our commercial opportunity. Ifgovernment and other third-party payors do not provide adequate coverage andreimbursement for Plenaxis or our other product candidates, physicians may notprescribe them. If we are unable to offer physicians comparable or superiorfinancial motivation to use Plenaxis or our other product candidates, we maynot be able to generate significant revenues. In some foreign markets, pricingand profitability of prescription pharmaceuticals are subject to governmentcontrol. In the United States, we expect that there will continue to be federaland state proposals for similar controls. In addition, managed care initiativesin the United States will continue to put pressure on the pricing ofpharmaceutical products. Cost control initiatives could decrease the price thatwe receive for any of our products in the future. Further, cost controlinitiatives could impair or diminish our ability, or incentive, or the abilityor incentive of potential partners, to commercialize Plenaxis or any of ourother products, and accordingly, our ability to earn revenues from thiscommercialization. 

 

Our ability to commercialize pharmaceutical products, alone or withcollaborators, may depend in part on the availability of reimbursement for ourproducts from: 

 

•                                 governmentand health administration authorities; 

 

•                                 privatehealth insurers; and 

 

•                                 otherthird-party payors, including Medicare and Medicaid. 

 

We cannot predict the availability of reimbursement for newly approveddrugs. Third-party payors, including Medicare, are increasingly challenging theprices charged for medical products and services. Government and otherthird-party payors increasingly are limiting both coverage and the level ofreimbursement for new drugs and, in some cases, refusing to provide coveragefor a patient’s use of an approved drug for purposes not approved by the FDA.Third-party insurance coverage may not be available to patients for Plenaxis orany of our other products. 

 

**If we fail to develop and maintain ourrelationships with third-party manufacturers, or if these manufacturersfail to perform adequately, we may be unable to commercialize Plenaxis or anyof our product candidates.**

 

Our ability to conduct, or continue to conduct, clinical trials andcommercialize our product candidates, including Plenaxis, will depend in parton our ability to manufacture, or arrange for third-party manufacture of, ourproducts on a large scale, at a competitive cost and in accordance withregulatory requirements. We must establish and maintain a commercial scaleformulation and manufacturing process for each of our potential products forwhich we seek marketing approval. We or third-party manufacturers may encounterdifficulties with these processes at any time that could result in delays inclinical trials, regulatory submissions or in the commercialization ofpotential products.

 

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We have no experience in large-scale product manufacturing, nor do wehave the resources or facilities to manufacture products on a commercial scale.We will continue to rely upon contract manufacturers to produce Plenaxis andother compounds for later-stage preclinical, clinical and commercial purposesfor a significant period of time. Third-party manufacturers may not be able tomeet our needs as to timing, quantity or quality of materials. If we are unableto contract for a sufficient supply of needed materials on acceptable terms, orif we encounter delays or difficulties in our relationships with manufacturers,our clinical trials may be delayed, thereby preventing or delaying thesubmission of product candidates for, or the granting of, regulatory approvaland the commercialization of our potential products. Any such delays may lowerour revenues and delay or prevent our attaining or maintaining profitability. 

 

If the third-party manufacturers upon which we rely fail to meet ourneeds for clinical or commercial supply, we may be required to supplement ourmanufacturing capacity by building our own manufacturing facilities. This wouldrequire substantial expenditures.  Also,we would need to hire and train significant numbers of employees to staff a newfacility. If we are required to build our own facility, we may not be able todevelop sufficient manufacturing capacity to produce drug materials forclinical trials or commercial use. 

 

In addition, we and the third-party manufacturers that we use mustcontinually adhere to current good manufacturing practice regulations enforcedby the FDA through its facilities inspection program. If our facilities or thefacilities of third-party manufacturers cannot pass a pre-approval plantinspection, the FDA pre-market approval of our product candidates will not begranted. In complying with these regulations and foreign regulatoryrequirements, we and any of our third-party manufacturers will be obligated toexpend time, money and effort in production, record-keeping and quality controlto assure that our potential products meet applicable specifications and otherrequirements. If we or any of our third-party manufacturers fail to comply withthese requirements, we may be subject to regulatory sanctions. 

 

Any of these factors could prevent, or cause delays in, obtainingregulatory approvals for, and the manufacturing, marketing or selling of, ourpotential products, including Plenaxis, and could also result in significantlyhigher operating expenses. 

 

Under our collaboration agreement with Amgen, Amgen had control overcertain phases of the manufacturing process for Plenaxis and was itselfperforming certain manufacturing processes. Due to the termination of our collaboration agreement with Amgen, toassure an adequate supply of drug product for continued clinical studies and,if Plenaxis is approved for marketing, for commercial sale, we were required toenter into a new agreement with a third party manufacturer to provide for themanufacturing functions that Amgen had been performing.  Due to the use of a different manufacturer,we may be required to undergo additional regulatory review and complianceprocedures which could result in additional expenses and further delay theregulatory review and potential commercialization of Plenaxis for the treatmentof advanced, symptomatic prostate cancer patients. 

 

**The loss or failure of any of our third-partymanufacturers could substantially delay or impair our development, or our saleor continued sale, of Plenaxis products.**

 

For each stage of Plenaxis production we have relied, and expect in thenear term to continue to rely, on a single third-party manufacturer, and wecurrently have not contracted, and in the near term do not expect to contract,with a second supplier for any of these production stages. Accordingly, theloss of one or more of these suppliers for any reason, including as a result offire, terrorism, acts of God or insolvency or bankruptcy, could result insubstantial delays in, or substantially impair our ability to complete, clinicaltrials and regulatory submissions or reviews, and could delay or impairsubstantially our sale or continued sale of Plenaxis products. Such delays orimpairment, and the associated costs and expenses, may lower our potentialrevenues and delay or prevent our attaining profitability. While we intend toevaluate the possibility of a second source of supply at each stage of Plenaxisproduction, the number of qualified alternative suppliers is limited, and wecannot assure investors that we will be able to locate alternative suppliers ornegotiate second supply agreements on reasonable terms. Furthermore, theprocess of engineering a new supplier’s facility for the production of Plenaxisand obtaining the necessary FDA approval of the facility would requiresubstantial lead-time and could be extremely costly. We cannot assure investorsthat we will not lose one or more of our suppliers, or that in such event wewould be readily able to continue the development and commercialization andsale of Plenaxis products without substantial and costly delays. 

 

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**Alternative treatments are available whichmay impair our ability to capture or maintain market share for our potentialproducts.**

 

Alternative products exist or are under development to treat thediseases for which we are developing drugs. For example, the FDA has approvedseveral drugs for the treatment of prostate cancer that respond to changes inhormone levels. Even if the FDA approves Plenaxis for commercialization for thetreatment of advanced, symptomatic prostate cancer patients, the approval isexpected to be limited to a particular group of patients and distribution ofPlenaxis is expected to be controlled or managed in some manner.  Accordingly, it may be difficult for doctorsto obtain Plenaxis or they may choose to use alternative treatments that aremore readily available.  Moreover,Plenaxis may not compete favorably with existing treatments that already havean established market share. If Plenaxis does not achieve broad marketacceptance as a drug for the treatment of advanced, symptomatic prostate cancerpatients, we may not become profitable. 

 

**Because we depend on third parties to conductlaboratory testing and human clinical studies and assist us with regulatorycompliance, we may encounter delays in product development andcommercialization.**

 

We have contracts with a limited number of research organizations todesign and conduct our laboratory testing and human clinical studies. If we cannotcontract for testing activities on acceptable terms, or at all, we may notcomplete our product development efforts in a timely manner. To the extent werely on third parties for laboratory testing and human clinical studies, we maylose some control over these activities. For example, third parties may notcomplete testing activities on schedule or when we request them to do so. Inaddition, these third parties may conduct our clinical trials in a mannerinconsistent with regulatory requirements or otherwise in a manner that yieldsmisleading or unreliable data. This, or other failures of these third partiesto carry out their duties, could result in significant additional costs andexpenses and could delay or prevent the development and commercialization ofour product candidates. 

 

**Many of our competitors have substantiallygreater resources than we do and may be able to develop and commercializeproducts that make our potential products and technologies obsolete ornon-competitive.**

 

A biotechnology company such as ours must keep pace with rapidtechnological change and faces intense competition. We compete withbiotechnology and pharmaceutical companies for funding, access to newtechnology, research personnel and in product research and development. Many ofthese companies have greater financial resources and more experience than we doin developing drugs, obtaining regulatory approvals, manufacturing andmarketing. We also face competition from academic and research institutions andgovernment agencies pursuing alternatives to our products and technologies. Weexpect that all of our products under development will face intense competitionfrom existing or future drugs. In addition, for each of our product candidates,we may face increasing competition from generic formulations or existing drugswhose active components are no longer covered by patents. 

 

Our competitors may: 

 

•                                 successfullyidentify drug candidates or develop products earlier than we do; 

 

•                                 obtainapprovals from the FDA or foreign regulatory bodies more rapidly than we do; 

 

•                                 developproducts that are more effective, have fewer side effects or cost less than ourproducts; or

 

•                                 successfullymarket and sell products that compete with our products. 

 

The success of our competitors in any of these efforts would adverselyaffect our ability to develop, commercialize and market our product candidatesand to attain and maintain profitability. 

 

**If we are unable to obtain and enforce validpatents, we could lose any competitive advantage we may have.**

** **

Our success will depend in part on our ability to obtain patents andmaintain adequate protection of our technologies and potential products. If wedo not adequately protect our intellectual property, competitors may be able touse our technologies and erode any competitive advantage we may have. Forexample, if we lose our patent protection for Plenaxis, another party couldproduce and 

 

19

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market the compound in direct competition with us. Some foreigncountries lack rules and methods for defending intellectual property rights anddo not protect proprietary rights to the same extent as the United States. Manycompanies have had difficulty protecting their proprietary rights in foreigncountries. 

 

Patent positions are sometimes uncertain and usually involve complexlegal and factual questions. We can protect our proprietary rights fromunauthorized use by third parties only to the extent that our proprietarytechnologies are covered by valid and enforceable patents or are effectivelymaintained as trade secrets. We currently own or have exclusively licensed 23issued United States patents. We have applied, and will continue to apply, forpatents covering both our technologies and products as we deem appropriate.Others may challenge our patent applications or our patent applications may notresult in issued patents. Moreover, any issued patents on our own inventions,or those licensed from third parties, may not provide us with adequateprotection, or others may challenge the validity of, or seek to narrow orcircumvent, these patents. Third-party patents may impair or block our abilityto conduct our business. Additionally, third parties may independently developproducts similar to our products, duplicate our unpatented products, or designaround any patented products we develop. 

 

**If we are unable to protect our trade secretsand proprietary information, we could lose any competitive advantage we mayhave.**

 

In addition to patents, we rely on a combination of trade secrets,confidentiality, nondisclosure and other contractual provisions, and securitymeasures to protect our confidential and proprietary information. Thesemeasures may not adequately protect our trade secrets or other proprietary information.If these measures do not adequately protect our rights, third parties could useour technology, and we could lose any competitive advantage we may have. Inaddition, others may independently develop similar proprietary information ortechniques, which could impair any competitive advantage we may have. 

 

**If our technologies, processes or potentialproducts conflict with the patents or other intellectual property rights ofcompetitors, universities or others, we could have to engage in costly litigationand be unable to commercialize those products.**

 

Our technologies, processes or potential products may give rise toclaims that they infringe patents or other intellectual property rights ofthird parties.  A third party couldforce us to pay damages, stop our use of these technologies or processes, orstop our manufacturing or marketing of the affected products by bringing alegal action against us for infringement. In addition, we could be required toobtain a license to continue to use the technologies or processes or tomanufacture or market the affected products, and we may not be able to do so onacceptable terms or at all. We believe that significant litigation willcontinue in our industry regarding patent and other intellectual propertyrights. If we become involved in litigation, it could consume a substantialportion of our resources. Even if legal actions were meritless, defending alawsuit could take significant time, be expensive and divert management’sattention from other business concerns. 

 

**If third parties terminate our licenses, wecould experience delays or be unable to complete the development andcommercialization of our potential products.**

 

We license some of our technology from third parties. Termination ofour licenses could force us to delay or discontinue some of our development andcommercialization programs. For example, if Advanced Research and TechnologyInstitute, Inc., the assignee of Indiana University Foundation, terminated ourlicense with them, we could have to discontinue development andcommercialization of our Plenaxis products. We cannot assure you that we wouldbe able to license substitute technology in the future. Our inability to do socould impair our ability to conduct our business because we may lack the technology,or the necessary rights to technology, required to develop and commercializeour potential products. 

 

**We may have substantial exposure to productliability claims and may not have adequate insurance to cover those claims.**

 

We may be held liable if any product we develop, or any product made byothers using our technologies, causes injury. We have only limited productliability insurance coverage for our potential products in clinical trials. Weintend to expand our product liability insurance coverage for any of ourproducts for which we obtain marketing approval. However, this insurance may beprohibitively expensive or may not fully cover our potential liabilities. Ourinability to obtain adequate insurance 

 

20

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coverage at an acceptable cost could prevent or inhibit thecommercialization of our products. Our collaboration agreements with Amgen andSanofi-Synthélabo included, and the agreements with them regarding thetermination of those collaborations also include, an indemnification of themfor liabilities associated with the development and commercialization ofPlenaxis. If a third party, including a former collaborator, sues us for anyinjury, or for indemnification for losses, arising out of products made by usor using our technologies, our liability could exceed our total assets. 

 

**We may be unable to find suitable tenants fora portion of our facility.**

 

In May 2001, we moved to a new 175,000 square foot facility in Waltham,Massachusetts. We are currently seeking to sublease a portion of this facility.To date, we have not been able to find suitable sub-tenants to occupy thisspace. If we are unable to find suitable sub-tenants, we will not be able tooffset with rental income any of the substantial mortgage payments and otheroperating expenses associated with our facility. 

 

**If we lose our key personnel or are unable toattract and retain additional skilled personnel, we may be unable to pursue ourproduct development and commercialization efforts.**

 

We depend substantially on the principal members of our management andscientific staff, including Malcolm L. Gefter, Ph.D., our Chief ExecutiveOfficer and Chairman of the Board, and William K. Heiden, our President andChief Operating Officer. We do not have employment agreements with any of ourexecutive officers. Any officer or employee can terminate his or herrelationship with us at any time and work for one of our competitors. The lossof these key individuals could result in competitive harm because we couldexperience delays in our product research, development and commercializationefforts without their expertise. 

 

Recruiting and retaining qualified scientific personnel to performfuture research and development work also will be critical to our success.Competition for skilled personnel is intense and the turnover rate can be high.We compete with numerous companies and academic and other research institutionsfor experienced scientists. This competition may limit our ability to recruitand retain qualified personnel on acceptable terms. Failure to attract andretain qualified personnel would prevent us from continuing to develop ourpotential products, enhancing our technologies and launching our productscommercially. Our planned activities will require the addition of newpersonnel, including management and marketing and sales personnel, and thedevelopment of additional expertise by existing management personnel, inparticular in the area of product marketing and sales. The inability to retainthese personnel or to develop this expertise could prevent, or result in delaysin, the research, development and commercialization of Plenaxis or our otherpotential products. 

 

**We use hazardous chemicals and radioactiveand biological materials in our business and any claims relating to thehandling, storage or disposal of these materials could be time consuming andcostly.**

 

Our research and development processes involve the controlled use ofhazardous materials, including chemicals and radioactive and biologicalmaterials, which may pose health risks. For example, the health risksassociated with accidental exposure to Plenaxis include temporary impotence orinfertility and harmful effects on pregnant women. Our operations also producehazardous waste products. We cannot completely eliminate the risk of accidentalcontamination or discharge from hazardous materials and any resultant injury.Federal, state and local laws and regulations govern the use, manufacture,storage, handling and disposal of hazardous materials. Compliance with healthand safety and environmental laws and regulations is necessary and expensive.Current or future health and safety and environmental regulations may impairour research, development or production efforts. We may be required to payfines, penalties or damages in the event of noncompliance or the exposure ofindividuals to hazardous materials. 

 

From time to time, third-parties have also worked with hazardousmaterials in connection with our agreements with them. We have agreed toindemnify our present and former collaborators in some circumstances againstdamages and other liabilities arising out of development activities or productsproduced in connection with these collaborations. 

 

**If we engage in an acquisition, we will incura variety of costs and may never realize the anticipated benefits of theacquisition.**

 

If appropriate opportunities become available, we may attempt toacquire businesses, or acquire or in-license products or technologies, that webelieve are a strategic fit with our business. We currently have no commitmentsor agreements for any acquisitions.  Ifwe do undertake any transaction 

 

21

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of this sort, the process of integrating an acquired business, or anacquired or in-licensed product or technology, may result in unforeseenoperating difficulties and expenditures and may absorb significant managementattention that would otherwise be available for the ongoing development of ourbusiness. Moreover, we may fail to realize the anticipated benefits of anytransaction of this sort. To the extent we issue stock in a transaction, theownership interest of our stockholders will be diluted. Transactions of thiskind could also cause us to incur debt, expose us to future liabilities andresult in expenses related to goodwill and other intangible assets. 

 

**The market price of our common stock mayexperience extreme price and volume fluctuations.**

 

The market price of our common stock may fluctuate substantially due toa variety of factors, including, but not limited to:

 

•                                 announcementof FDA approval or disapproval of Plenaxis for the treatment of advanced,symptomatic prostate cancer patients or any of our other product candidates, orof associated labeling or controlled or managed distribution requirements;

 

•                                 failureor delay by third-party manufacturers in performing their supplyobligations or disputes or litigation regarding those obligations;

 

•                                 ourability to commercialize, directly or with collaborators, our productcandidates and the timing of commercialization;

 

•                                 thesuccess rate of our discovery efforts and clinical trials;

 

•                                 announcementsof technological innovations or new products by us or our competitors;

 

•                                 developmentsor disputes concerning patents or proprietary rights, including claims ofinfringement, interference or litigation against us or our licensors;

 

•                                 announcementsconcerning our competitors, or the biotechnology or pharmaceutical industry ingeneral;

 

•                                 publicconcerns as to the safety of our products or our competitors’ products;

 

•                                 changesin government regulation of the pharmaceutical or medical industry;

 

•                                 changesin the reimbursement policies of third-party insurance companies orgovernment agencies;

 

•                                 actualor anticipated fluctuations in our operating results;

 

•                                 changesin financial estimates or recommendations by securities analysts;

 

•                                 salesof large blocks of our common stock;

 

•                                 changesin accounting principles; and

 

•                                 theloss of any of our key scientific or management personnel.

 

In addition, the stock market has experienced extreme price and volumefluctuations. The market prices of the securities of biotechnology companies,particularly companies like ours without current product revenues and earnings,have been highly volatile, and may continue to be highly volatile in thefuture. This volatility has often been unrelated to the operating performanceof particular companies. In the past, securities class action litigation hasoften been brought against companies that experience volatility in the marketprice of their securities. Whether or not meritorious, litigation broughtagainst us could result in substantial costs and a diversion of management’sattention and resources. 

 

22

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**We expect that our quarterly results ofoperations will fluctuate, and this fluctuation could cause our stock price todecline.**

 

Our quarterly operating results have fluctuated in the past and arelikely to do so in the future. These fluctuations could cause our stock priceto decline. Some of the factors that could cause our operating results tofluctuate include: 

 

•                                 thetiming and level of expenses related to the development and commercializationof our Plenaxis products leading to revenues from product sales;

 

•                                 thetiming and level of expenses related to our other research and clinicaldevelopment programs; and

 

•                                 thetiming of our commercialization of other products resulting in revenues.

 

Due to the possibility of fluctuations in our revenues and expenses, webelieve that quarter-to-quarter comparisons of our operating results are not agood indication of our future performance. 

 

**Anti-takeover provisions in our charter andby-laws, our rights agreement and certain provisions of Delaware law may makean acquisition of us more difficult, even if an acquisition would be beneficialto our stockholders.**

 

Provisions in our certificate of incorporation and by-laws may delay orprevent an acquisition of us or a change in our management. Also, because weare incorporated in Delaware, we are governed by the provisions of Section 203of the Delaware General Corporation Law, which may prohibit or delay largestockholders, in particular those owning 15% or more of our outstanding votingstock, from merging or combining with us. In addition, the rights issued underour rights agreement may be a substantial deterrent to a person acquiring 10%or more of our common stock without the approval of our board of directors.These provisions in our charter and by-laws, rights agreement and underDelaware law could reduce the price that investors might be willing to pay forshares of our common stock in the future and result in the market price beinglower than it would be without these provisions.  

 

**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

The primary objective of our investment activities is to preserveprincipal while at the same time maximizing the income we receive from ourinvestments without significantly increasing risk.  We have not entered into any instruments for tradingpurposes.  Some of the securities thatwe invest in may have market risk. This means that an increase in prevailinginterest rates may cause the principal amount of the investment to decrease. Tominimize this risk in the future, we maintain our portfolio of cash equivalentsand short-term investments in a variety of securities, including commercialpaper, money market funds and government and non-government debt securities. Animmediate hypothetical 100 basis point increase in interest rates would haveresulted in an approximate $0.5 million decrease in the fair value of ourinvestments as of June 30, 2003.  Thesame hypothetical increase in interest rates as of December 31, 2002 would haveresulted in an approximate $0.8 million decrease in the fair value of ourinvestments.  Due to the conservativenature and relatively short duration of our investments, interest rate risk ismitigated. As of June 30, 2003, approximately 96% of our total investments willmature in one year or less, with the remainder maturing in less than two years.

 

In connection with the purchase of our new facility in July 2000,our wholly owned real estate subsidiary executed an acquisition andconstruction loan agreement that provides for up to $33.0 million inborrowings at a floating interest rate indexed to 30-day LIBOR. In July 2003,we exercised the first of two one-year extension options extending the maturitydate of the loan until July 30, 2004. In connection with this extension, the subsidiary has entered into aninterest rate cap agreement which limits exposure to interest rate increasesabove a certain threshold.  Due to thecurrent interest rate environment and the relatively short duration of the loanagreement extension, we currently do not believe that there is materialinterest rate risk exposure with respect to the loan agreement. In addition, webelieve that we have mitigated our risk relating to significant adversefluctuations in interest rates with respect to borrowings under the loanagreement, and we do not believe that a 10% change in interest rates would havea material impact on our results of operations or cash flows. 

 

23

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**ITEM 4.  CONTROLS AND PROCEDURES.**

 

*(a)*                            *DisclosureControls and Procedures*. 

 

The Company’s management, with the participation of the Company’s ChiefExecutive Officer and Chief Financial Officer, has evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended) as of the end of the period covered by this report.  Based on such evaluation, the Company’sChief Executive Officer and Chief Financial Officer have concluded that, as ofthe end of such period, the Company’s disclosure controls and procedures areeffective in recording, processing, summarizing and reporting, on a timelybasis, information required to be disclosed by the Company in the reports thatit files or submits under the Exchange Act. 

 

*(b)**                               InternalControl Over Financial Reporting*.  

 

There have not been any changes in the Company’s internal control overfinancial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act) during the fiscal quarter to which this report relatesthat have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.  

 

24

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**PART II.  OTHER INFORMATION**

 

**ITEM 4.  SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS.**  

 

We held ourAnnual Meeting of Stockholders on May 21, 2003 to (i) elect six directors, (ii)approve our Employee Stock Purchase Plan, as amended and restated, and (iii)ratify the appointment by our Board of Directors of Ernst & Young LLP asour independent auditors for fiscal year 2003. 

 

The followingnominees were elected, by the vote set forth below, to hold office until thenext annual meeting of stockholders and until their successors are duly electedand qualified: 

 
| **Nominee:**             |   | **Number of  Votes For:** |   | **Number of  Votes Withheld:** |   |
|--------------------------|--------|---------------------------|--------|--------------------------------|--------|
| Malcolm L. Gefter, Ph.D. |   | 44,209,621                |   | 5,159,506                      |   |
| G. Leonard Baker, Jr.    |   | 49,212,673                |   | 156,454                        |   |
| Henry F. McCance         |   | 49,212,673                |   | 156,454                        |   |
| William R. Ringo         |   | 44,236,552                |   | 5,132,575                      |   |
| David B. Sharrock        |   | 49,212,673                |   | 156,454                        |   |
| Patrick J. Zenner        |   | 44,105,335                |   | 5,263,792                      |   |

 

In addition, the stockholders approved the Employee Stock PurchasePlan, as amended and restated to increase by 240,000 the number of shares ofcommon stock, par value $.01 per share, authorized for issuance under the Planand extend the term of the Plan until June 30, 2005, by the following vote: 

 
| **For:**   |   | **Against:** |   | **Abstain:** |   |
|------------|--------|--------------|--------|--------------|--------|
|       |   |         |   |         |   |
| 45,877,440 |   | 3,435,254    |   | 56,432       |   |

 

The stockholders also ratified the appointment by the Board ofDirectors of Ernst & Young LLP as our independent auditors for fiscal year2003 by the following vote: 

 
| **For:**   |   | **Against:** |   | **Abstain:** |   |
|------------|--------|--------------|--------|--------------|--------|
|       |   |         |   |         |   |
| 47,508,497 |   | 1,840,139    |   | 20,491       |   |

 

**ITEM6.  EXHIBITS AND REPORTS ON FORM 8-K.**

** **

**(a)****                                 ****Exhibits**

 
| ***Exhibit   Number*** |   | ***Exhibit***                                                                                                 |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------|
|                   |   |                                                                                                          |
| 3.1                    |   | Amended and Restated Certificate of Incorporation (2)                                                         |
|                   |   |                                                                                                          |
| 3.2                    |   | Third Amended and Restated By-Laws (5)                                                                        |
|                   |   |                                                                                                          |
| 4.1                    |   | Specimen certificate representing shares of common stock (1)                                                  |
|                   |   |                                                                                                          |
| 4.2                    |   | Specimen certificate representing shares of common stock (including  Rights Agreement Legend) (3)             |
|                   |   |                                                                                                          |
| 4.3                    |   | Rights Agreement between the Registrant and American Stock Transfer  & Trust Company, as Rights Agent (4) |

 

25

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| ***Exhibit   Number*** |   | ***Exhibit***                                                                                                                                                          |
|------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |   |                                                                                                                                                                   |
| 4.4                    |   | Form of Certificate of Designations of Series A Junior Participating  Preferred Stock (attached as Exhibit A to the Rights Agreement filed as  Exhibit 4.3 hereto) (4) |
|                   |   |                                                                                                                                                                   |
| 4.5                    |   | Form of Rights Certificate (attached as Exhibit B to the Rights  Agreement filed as Exhibit 4.3 hereto) (4)                                                            |
|                   |   |                                                                                                                                                                   |
| 10.1                   |   | Amended and Restated Employee Stock Purchase Plan (6)                                                                                                                  |
|                   |   |                                                                                                                                                                   |
| 31.1                   |   | Certification of Chief Executive Officer                                                                                                                               |
|                   |   |                                                                                                                                                                   |
| 31.2                   |   | Certification of Chief Financial Officer                                                                                                                               |
|                   |   |                                                                                                                                                                   |
| 32.1                   |   | Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                    |
|                   |   |                                                                                                                                                                   |
| 32.2                   |   | Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                    |

 

----

| (1)    |   | Incorporated by reference to Registration Statement on Form S-1  (Registration No. 333-96351) initially filed with the Securities and  Exchange Commission on February 8, 2000 and declared effective on April 26,  2000.    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                         |
| (2)    |   | Incorporated by reference to Quarterly Report on Form 10-Q for the  quarter ended March 31, 2000 filed with the Securities and Exchange  Commission on June 7, 2000.                                                         |
|   |   |                                                                                                                                                                                                                         |
| (3)    |   | Incorporated by reference to Registration Statement on Form S-1  (Registration No. 333-54342) initially filed with the Securities and  Exchange Commission on January 26, 2001 and declared effective on February  14, 2001. |
|   |   |                                                                                                                                                                                                                         |
| (4)    |   | Incorporated by reference to Registration Statement on Form 8-A filed  with the Securities and Exchange Commission on January 26, 2001.                                                                                      |
|   |   |                                                                                                                                                                                                                         |
| (5)    |   | Incorporated by reference to Annual Report on Form 10-K for the year  ended December 31, 2002 filed with the Securities and Exchange Commission on  March 19, 2003.                                                          |
|   |   |                                                                                                                                                                                                                         |
| (6)    |   | Incorporated by reference to Registration Statement on Form S-8  (333-106012) filed with the Securities and Exchange Commission on June 11,  2003.                                                                           |
|   |   |                                                                                                                                                                                                                         |
| (b)    |   | Reports Submitted on Form 8-K                                                                                                                                                                                                |

 

On April 16, 2003, we filed a Current Reporton Form 8-K to file under Item 5 (Other Events) a copy of our Press Releasedated April 16, 2003.

 

On April 25, 2003, we furnished a CurrentReport on Form 8-K to furnish under Item 9 (Regulation FD Disclosure) a copy ofour Press Release dated April 25, 2003.

 

On June 23, 2003, we filed a Current Reporton Form 8-K to file under Item 5 (Other Events) a copy of our Press Releasedated June 23, 2003.

 

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**SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, asamended, the Registrant has duly caused this report to be signed on its behalfby the undersigned hereunto duly authorized.

 

 
|                        | PRAECIS PHARMACEUTICALS INCORPORATED |
|-----------------------------|--------------------------------------|
|                        |                                 |   |
| Date:  August 13, 2003 |                                 |
|                        |                                 |   |
|                        | By                                   | /s/ Kevin F. McLaughlin |   |
|                        |                                 | Kevin F. McLaughlin |   |
|                        |                                 | Chief Financial Officer, Senior Vice President,  Treasurer and Secretary *(Duly Authorized Officer   and Principal Financial and Accounting Officer)* |
|                             |                                      |  |  |  |

 

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**EXHIBITINDEX**

 
| **Exhibit  Number** |   | **Exhibit**                                                                                                                                                            |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                   |
| 3.1                 |   | Amended and Restated Certificate of Incorporation (2)                                                                                                                  |
|                |   |                                                                                                                                                                   |
| 3.2                 |   | Third Amended and Restated By-Laws (5)                                                                                                                                 |
|                |   |                                                                                                                                                                   |
| 4.1                 |   | Specimen certificate representing shares of common stock (1)                                                                                                           |
|                |   |                                                                                                                                                                   |
| 4.2                 |   | Specimen certificate representing shares of common stock (including  Rights Agreement Legend) (3)                                                                      |
|                |   |                                                                                                                                                                   |
| 4.3                 |   | Rights Agreement between the Registrant and American Stock Transfer  & Trust Company, as Rights Agent (4)                                                          |
|                |   |                                                                                                                                                                   |
| 4.4                 |   | Form of Certificate of Designations of Series A Junior Participating  Preferred Stock (attached as Exhibit A to the Rights Agreement filed as  Exhibit 4.3 hereto) (4) |
|                |   |                                                                                                                                                                   |
| 4.5                 |   | Form of Rights Certificate (attached as Exhibit B to the Rights  Agreement filed as Exhibit 4.3 hereto) (4)                                                            |
|                |   |                                                                                                                                                                   |
| 10.1                |   | Amended and Restated Employee Stock Purchase Plan (6)                                                                                                                  |
|                |   |                                                                                                                                                                   |
| 31.1                |   | Certification of Chief Executive Officer                                                                                                                               |
|                |   |                                                                                                                                                                   |
| 31.2                |   | Certification of Chief Financial Officer                                                                                                                               |
|                |   |                                                                                                                                                                   |
| 32.1                |   | Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                    |
|                |   |                                                                                                                                                                   |
| 32.2                |   | Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                    |

 

----

| (1)    | Incorporated by reference to Registration Statement on Form S-1  (Registration No. 333-96351) initially filed with the Securities and Exchange  Commission on February 8, 2000 and declared effective on April 26, 2000.     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                         |
| (2)    | Incorporated by reference to Quarterly Report on Form 10-Q for the  quarter ended March 31, 2000 filed with the Securities and Exchange  Commission on June 7, 2000.                                                         |
|   |                                                                                                                                                                                                                         |
| (3)    | Incorporated by reference to Registration Statement on Form S-1  (Registration No. 333-54342) initially filed with the Securities and  Exchange Commission on January 26, 2001 and declared effective on February  14, 2001. |
|   |                                                                                                                                                                                                                         |
| (4)    | Incorporated by reference to Registration Statement on Form 8-A filed  with the Securities and Exchange Commission on January 26, 2001.                                                                                      |
|   |                                                                                                                                                                                                                         |
| (5)    | Incorporated by reference to Annual Report on Form 10-K for the year  ended December 31, 2002 filed with the Securities and Exchange Commission on  March 19, 2003.                                                          |
|   |                                                                                                                                                                                                                         |
| (6)    | Incorporated by reference to Registration Statement on Form S-8  (333-106012) filed with the Securities and Exchange Commission on June 11,  2003.                                                                           |

 

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