10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2001 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2001 ------------------ [_] 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: 0-19290 [LOGO] COR THERAPEUTICS, INC. (Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 94-3060271 (I.R.S. employer identification no.) (650) 244-6800 (Registrant's telephone number, including area code) 256 East Grand Avenue, South San Francisco, California 94080 (Address of principal executive offices and zip code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No ___ As of September 30, 2001, the number of outstanding shares of the Registrant's Common Stock was 55,647,346. ================================================================================ COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- INDEX

INTEGRILIN(R) (eptifibatide) Injection, COR Therapeutics(R), and COR(R) are registered trademarks of COR Therapeutics, Inc. -------------------------------------------------------------------------------- Page 2 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements and Notes CONDENSED BALANCE SHEETS (in thousands)

See accompanying notes. -------------------------------------------------------------------------------- Page 3 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts)

See accompanying notes. -------------------------------------------------------------------------------- Page 4 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (unaudited, in thousands)

See accompanying notes. -------------------------------------------------------------------------------- Page 5 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Summary of significant accounting policies COR Therapeutics, Inc. ("COR") was incorporated in Delaware on February 4, 1988. COR is dedicated to the discovery, development and marketing of novel therapeutic products to establish new standards of care for treating and preventing acute and chronic cardiovascular diseases. We market INTEGRILIN(R) (eptifibatide) Injection, our approved drug, to treat patients with certain acute cardiovascular diseases. We are also developing a portfolio of product candidates to treat and prevent a broad range of acute and chronic cardiovascular diseases and other conditions. Interim financial information We prepared the accompanying unaudited condensed financial statements in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In our opinion, these condensed financial statements include all adjustments, consisting only of normal recurring adjustments, that we consider necessary to fairly state our financial position, our results of operations and our cash flows. We derived the condensed balance sheet at December 31, 2000 from the audited financial statements at that date. The condensed balance sheet at September 30, 2001 does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2000. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. Contract revenues Contract revenues include copromotion revenue and other contract revenue. Copromotion revenue includes our share of profits from the sale of INTEGRILIN in copromotion territories by Schering-Plough Ltd. and Schering Corporation (collectively, "Schering"), as well as the reimbursement from Schering of our costs of copromotion revenue. We recognize copromotion revenue when Schering ships related product to wholesalers and record it net of allowances, if any, which we believe are necessary. Our costs of copromotion revenue consist of certain manufacturing-related, advertising and promotional expenses associated with the sale of INTEGRILIN within copromotion territories. We defer certain manufacturing-related expenses until the time Schering ships related product to its customers inside and outside copromotion territories. Deferred revenue includes payments from Schering received prior to the period in which the related contract revenues are earned. Other contract revenue includes recognition of reimbursement to us by Schering of certain manufacturing-related expenses for materials used outside the copromotion territory, and royalties from Schering on sales of INTEGRILIN outside the copromotion territory. We recognize these revenues when Schering ships the related product to its customers. Other contract revenue also includes development revenue, which we recognize as earned based on the performance requirements of the contract. We expense related development costs as they are incurred. -------------------------------------------------------------------------------- Page 6 of 20 Prepaid copromotion expenses Prepaid copromotion expenses represent materials on hand, valued at cost, and prepayments to third-party suppliers associated with manufacturing-related copromotion expenses. Prepaid copromotion expenses consist of the following (in thousands): September 30, December 31, 2001 2000 ------------- ------------ Deposits and prepayments $ 7,538 $ 4,690 Bulk materials 47,384 30,918 Finished goods 29,399 23,041 ------------- ------------ $ 84,321 $ 58,649 ============= ============ Other assets Other assets represent issuance costs associated with our sale of $300,000,000 aggregate principal amount of 4.5% convertible senior notes in June and July 2001 and our sale of $300,000,000 aggregate principal amount of 5.0% convertible subordinated notes in February 2000. The issuance costs are being amortized over the five-year life of the convertible senior notes and the seven-year life of the convertible subordinated notes. Other assets consist of the following (in thousands):

Information concerning market and source of supply concentration COR and Schering copromote INTEGRILIN in the United States and share any profits or losses. Together with Schering and Genentech, Inc., we also copromote INTEGRILIN with Genentech's fibrinolytic, or clot-dissolving drugs, TNKase(TM) and Activase(R) across the United States. INTEGRILIN has received regulatory approval in the European Union and a number of other countries for various indications. We have exclusively licensed Schering to market INTEGRILIN outside the United States, and Schering pays us royalties based on sales of INTEGRILIN outside the United States. We have long-term supply arrangements with two suppliers for the bulk product and with another two suppliers, one of which is Schering, for the filling and final packaging of INTEGRILIN. Advertising and promotion costs Advertising and promotion costs are expensed in the period they are incurred and classified as cost of copromotion revenue. Advertising and promotion costs totaled $3,466,000 and $11,637,000 for the three and nine months ended September 30, 2001 compared to $3,859,000 and $10,751,000 for the corresponding periods in 2000. Reclassification We have reclassified certain prior year balances to conform to the current year presentation. -------------------------------------------------------------------------------- Page 7 of 20 Comprehensive income (loss) Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity that are excluded from net income (loss). Comprehensive income (loss) consists of the following (in thousands):

Segment information Our business activities include the discovery, development and commercialization of novel cardiovascular and other pharmaceutical products and are organized into one operating segment. All of our operating assets are located in the United States. All of our revenues are derived from within the United States, except for royalty and other contract revenue earned on sales of INTEGRILIN by Schering outside of the United States. 2. Financial instruments We used the following methods and assumptions in estimating the fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount of cash and cash equivalents reported on the balance sheet approximates its fair value. Short-term investments: Short-term investments consist of marketable government and other debt securities and are classified as available-for-sale. These investments are carried at fair value and any unrealized gains and losses are reported in stockholders' equity. The fair values are based upon quoted market prices. At September 30, 2001, the amortized cost and estimated fair value of short-term investments, classified by contractual maturity, are (in thousands):

During the three and nine months ended September 30, 2001, we sold short-term investments with a fair value of $92,196,000 and $271,036,000 resulting in gross realized gains of $1,676,000 and $4,134,000 and gross realized losses of $6,000 and $7,000, respectively. Long-term obligations: The estimated fair values of our convertible senior notes and convertible subordinated notes at September 30, 2001 are approximately $255,000,000 and $266,000,000, respectively, based upon quoted market prices. -------------------------------------------------------------------------------- Page 8 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- Earnings per share In accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share", we have computed basic net income (loss) per share using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share also includes the effect of any potentially dilutive securities, consisting of stock options, for the three and nine months ended September 30, 2001. Had we been in a net income position for the three and nine months ended September 30, 2000, diluted earnings per share (EPS) would have included the shares used in the computation of basic net income per share as well as the impact of 5,553,000 and 6,032,000 net shares issued upon the assumed exercise of outstanding stock options. We have excluded the impact of our convertible senior and subordinated notes from the computation of diluted shares outstanding because the impact of an assumed conversion of these convertible notes is anti-dilutive for all periods presented. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three and nine months ended September 30, 2001 and 2000 (in thousands).

3. Contingencies In October 1997, a patent opposition was filed in Europe by another company against the claims of a patent granted to us in Europe covering broad, generic claims for INTEGRILIN, as well as numerous related compounds that are not part of our core technology. The opposition asserted that all claims of the patent are unpatentable. In July 2000, the Opposition Division of the European Patent Office confirmed the validity of our patent claims without requiring us to limit or otherwise amend our claims. In November 2000, the opposition filed an appeal of this decision. -------------------------------------------------------------------------------- Page 9 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the anticipated results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include the commercial success of INTEGRILIN and other factors discussed below and under the caption "Risk Factors." Forward-looking statements are based on our current expectations, and we do not intend to update such information to reflect future events or developments. Overview COR is dedicated to the discovery, development and marketing of novel therapeutic products to establish new standards of care for treating and preventing acute and chronic cardiovascular diseases. We market INTEGRILIN, our approved drug, to treat patients with certain acute cardiovascular diseases. We are also developing a portfolio of product candidates to treat and prevent a broad range of acute and chronic cardiovascular diseases and other conditions. INTEGRILIN is our first product taken from discovery to commercialization. In May 1998, the United States Food and Drug Administration approved INTEGRILIN to treat patients who undergo a procedure known as angioplasty to open blood vessels. The FDA has also approved INTEGRILIN to treat patients with intermittent chest pains known as unstable angina and patients suffering from a type of heart attack known as non-Q-wave myocardial infarction, whether the doctor intends to treat these patients with medicines alone or with a subsequent angioplasty. INTEGRILIN is the only drug in its class that the FDA has approved for use in all these indications. COR and Schering copromote INTEGRILIN in the United States and share any profits or losses. INTEGRILIN also has received regulatory approval for various cardiovascular indications in the European Union and a number of other countries. We have exclusively licensed Schering to market INTEGRILIN outside the United States, and Schering pays us royalties based on sales of INTEGRILIN outside the United States. In January 2001, we, Schering and Genentech, Inc., entered into an agreement to copromote INTEGRILIN with Genentech's fibrinolytic, or clot-dissolving drugs, TNKase(TM) and Activase(R) across the United States. We, Schering and Genentech have also agreed to an exclusive clinical collaboration for any future large-scale clinical trials that combine a fibrinolytic with drugs in the same class as INTEGRILIN. In addition to our commercial activities, we continue to pursue a wide array of research and development programs. These programs have therapeutic potential for a variety of indications including acute coronary syndromes, stroke, restenosis, cancer and venous and arterial thrombosis. We have funded our operations primarily through public and private debt and equity financings and proceeds from research and development and commercialization collaboration agreements. We have incurred a cumulative net loss of $230,662,000 through September 30, 2001. Results of Operations Three and nine months ended September 30, 2001 and 2000 Total contract revenues, which include copromotion and other contract revenue, were $33,023,000 and $93,866,000 for the three and nine months ended September 30, 2001 compared to $29,913,000 and $72,891,000 for the corresponding periods in 2000. Copromotion revenue related to the sales of INTEGRILIN by Schering was $30,319,000 and $85,532,000 for the three and nine months ended September 30, 2001 compared to $27,840,000 and $67,725,000 for the corresponding periods in 2000. Schering reported to us total worldwide sales of INTEGRILIN of $58,817,000 and $163,783,000 for the three and nine months ended September 30, 2001 compared to $51,794,000 and $121,282,000 for the corresponding periods in 2000. Sales of INTEGRILIN in the United States were $52,941,000 and $147,835,000 for the three and nine months ended September 30, 2001. The worldwide sales increase in the three and nine months -------------------------------------------------------------------------------- Page 10 of 20 COR THERAPEUTICS, INC. ------------------------------------------------------------------------------- ended September 30, 2001 compared to 2000 is attributable to overall market growth as well as increased market share for INTEGRILIN. Copromotion revenue fluctuates in relation to the domestic sales of INTEGRILIN and to our and Schering's respective costs of copromotion revenue, and we expect these fluctuations to continue. Product sales reported by Schering for any period are not necessarily indicative of product sales for any future period. Wholesaler management decisions to increase or decrease their inventory of INTEGRILIN may result in sales of INTEGRILIN to wholesalers that do not track directly with sales from wholesalers of INTEGRILIN to hospitals. Other contract revenue was $2,704,000 and $8,334,000 for the three and nine months ended September 30, 2001 compared to $2,073,000 and $5,166,000 for the corresponding periods in 2000. These fluctuations are due to increased royalty and other contract revenue resulting from increased international sales of INTEGRILIN and to fluctuations in clinical trial and development activities. We expect royalty and other contract revenue and clinical trial and development activities to fluctuate in the future. Cost of copromotion revenue was $13,626,000 and $38,838,000 for the three and nine months ended September 30, 2001 compared to $14,034,000 and $37,302,000 for the corresponding periods in 2000. Cost of copromotion revenue includes certain manufacturing-related, advertising and promotional expenses associated with the sale of INTEGRILIN within copromotion territories. Cost of copromotion revenue fluctuates in relation to the domestic sales of INTEGRILIN and as we incur more or less of the joint manufacturing, advertising or promotional activities that we undertake in our collaboration with Schering. Research and development expenses were $11,452,000 and $35,113,000 for the three and nine months ended September 30, 2001 compared to $10,246,000 and $32,990,000 for the corresponding periods in 2000, consistent with our ongoing clinical trial activities and expenses pertaining to other research, development and clinical activities associated with product candidates. Research and development expenses are expected to increase over the next several years, although the timing of certain of these expenses may depend on the timing and phase of, and indications pursued in, additional clinical trials of INTEGRILIN and product candidates in development. Marketing, general and administrative expenses were $7,557,000 and $22,626,000 for the three and nine months ended September 30, 2001 compared to $8,082,000 and $23,490,000 for the corresponding periods in 2000, consistent with our ongoing marketing and general corporate activities. We expect marketing, general and administrative costs to increase over the next several years. Interest income was $8,583,000 and $21,154,000 for the three and nine months ended September 30, 2001 compared to $5,597,000 and $13,516,000 for the corresponding periods in 2000. The increase in 2001 compared to 2000 was due to changes in average cash and investment balances, including proceeds from the sale of $300,000,000 aggregate principal amount of 4.5% convertible senior notes in June and July 2001, and from realized gains from the sale of short-term investments during the three months ended March 31 and September 30, 2001. Interest expense was $8,184,000 and $17,195,000 for the three and nine months ended September 30, 2001 compared to $4,369,000 and $10,284,000 for the corresponding periods in 2000. The increase in 2001 compared to 2000 was due to changes in average outstanding debt obligations, including proceeds from the sale of $300,000,000 aggregate principal amount of 4.5% convertible senior notes in June and July 2001. Net income was $1,223,000 for the nine months ended September 30, 2001. The provision for income taxes of $25,000 reflects federal alternative minimum taxes. -------------------------------------------------------------------------------- Page 11 of 20 COR THERAPEUTICS, INC. ------------------------------------------------------------------------------- Liquidity and Capital Resources We had available cash, cash equivalents and short-term investments of $633,275,000 at September 30, 2001. Cash in excess of immediate requirements is invested with the primary objective of preserving principal while at the same time maximizing yields without significantly increasing risk. We have funded our operations primarily through public and private debt and equity financings and revenues from commercialization and research and development collaboration agreements. Additional funding has come from grant revenues, interest income and property and equipment financings. Net cash used in operating activities and additions to capital equipment was $5,344,000 for the nine months ended September 30, 2001, compared to $17,614,000 for the nine months ended September 30, 2000. The decrease in 2001 compared to 2000 was primarily due to the timing of activities related to our agreement with Schering, the effect of reduced losses from operations and increased purchases of property and equipment. Cash requirements for operating activities and additions to capital equipment may increase in future periods. The timing of these cash requirements may vary from period to period depending on the timing and phase of, and indications pursued in, additional clinical trials of INTEGRILIN and other product candidates in development and depending on our debt service obligations. Cash provided by financing activities was $295,503,000 for the nine months ended September 30, 2001 compared to $311,270,000 for the nine months ended September 30, 2000. These amounts include proceeds from the sale of $300,000,000 aggregate principal amount of 4.5% convertible senior notes in June and July 2001 and proceeds from the sale of $300,000,000 aggregate principal amount of 5.0% convertible subordinated notes in February 2000. Additional cash provided by financing activities stems from the issuance of common stock pursuant to our stock option and stock purchase plans. We expect our cash requirements will increase in future periods due to anticipated expansion of research and development, including clinical trials, and increased marketing, sales, and general and administrative activities. Existing capital resources and interest earned thereon are expected to meet these increased cash requirements for the next several years. However, cash requirements may change depending on numerous factors, including the progress of anticipated research and development programs, the scope and results of pre-clinical and clinical studies and the number and nature of the indications pursued in clinical studies. Cash requirements may also change due to the timing of regulatory approvals, technological advances, determinations as to the commercial potential of future products and the status of competitive products. Finally, the establishment and maintenance of collaborative relationships with other companies, the availability of financing and other unexpected factors may require additional funds that may not be available on favorable terms, if at all. Risk Factors Our business faces significant risks. Stockholders and potential investors in our securities should carefully consider the following risk factors, in addition to other information in this report. We are identifying these risk factors as important factors that could cause our actual results to differ materially from those contained in any forward-looking statements made by or on behalf of us. These risks may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial also may impair our business. We are relying upon the safe-harbor for forward-looking statements and any such statements made by or on behalf of COR are qualified by reference to the following cautionary statements, as well as to those set forth elsewhere in this report. Risks related to our drug development and commercialization activities If INTEGRILIN does not maintain commercial success, we will not be able to generate the revenues necessary to support our business. Our business depends on the commercial success of INTEGRILIN, which has been on the market in the United States since June 1998. Marketing outside the United States commenced in mid-1999. Although sales of INTEGRILIN have increased since its launch, if sales do not continue to increase over current levels, we may not ------------------------------------------------------------------------------- Page 12 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- achieve sustained profitability, and we will be forced to scale back our operations and research and development programs. We may not be able to compete effectively in the cardiovascular disease market. Due to the incidence and severity of cardiovascular diseases, the market for therapeutic products that address these diseases is large, and competition is intense and expected to increase. Our most significant competitors are major pharmaceutical companies and more established biotechnology companies. The two products that compete with INTEGRILIN are ReoPro(R), which is produced by Johnson & Johnson and sold by Johnson & Johnson and Eli Lilly & Co., and Aggrastat(R), which is produced and sold by Merck & Co., Inc. Our competitors operate large, well-funded cardiovascular research and development programs and have significant expertise in manufacturing, testing, regulatory matters and marketing. We also must compete with academic institutions, governmental agencies, and other public and private research organizations that conduct research in the cardiovascular field, seek patent protection for their discoveries and establish collaborative arrangements for product and clinical development and marketing. We may not be able to obtain the regulatory approvals necessary to market new products and to market INTEGRILIN for additional therapeutic uses. We must satisfy stringent governmental regulations in order to develop, commercialize and market our products. INTEGRILIN is the only product we have submitted to the FDA for approval for commercial sale, and it has been approved for a specific set of therapeutic uses. To grow our business, we may need to obtain regulatory approval to be able to promote INTEGRILIN for additional therapeutic uses and to commercialize new product candidates. A company cannot market a pharmaceutical product in the United States until it has completed rigorous pre-clinical testing and clinical trials of the product and an extensive regulatory clearance process that the FDA implements. It typically takes many years to satisfy regulatory requirements, depending upon the type, complexity and novelty of the product. The process is very expensive. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use. Before we can receive FDA clearance to market a product, we must demonstrate that the product is safe and effective for the patient population that will be treated. Preclinical and clinical data are susceptible to varying interpretations that could delay, limit or prevent regulatory clearances. In addition, we may encounter delays or rejections from additional government regulation, from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our potential products or us. If a product receives regulatory clearance, its marketing will be limited to those disease states and conditions for which clinical trials demonstrate that the product is safe and effective. Any compound we develop may not prove to be safe and effective in clinical trials and may fail to meet all of the regulatory requirements needed to receive marketing clearance. Outside the United States, our ability to market a product depends on our receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process includes all of the risks associated with FDA clearance described above. Schering has applied for an expanded marketing authorization for INTEGRILIN in the European Union. A payment from Schering to us is due upon approval of the expanded marketing authorization. The timing of any approval, and any related payment, is uncertain. If Schering is unable to obtain approval for the expanded marketing authorization, continued commercialization of INTEGRILIN in the European Union will be impaired and we will not receive the related payment from Schering or be able to record the anticipated revenue. -------------------------------------------------------------------------------- Page 13 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- We depend on our collaborative relationship with Schering to market and sell INTEGRILIN, and our business will suffer if Schering fails to perform under the collaboration. Our strategy is to work with collaborative partners to develop product candidates and commercialize products. Generally, collaborations with established pharmaceutical companies provide funding for product development and the benefit of an established sales and marketing organization. In particular, our ability to successfully commercialize INTEGRILIN depends on our collaboration with Schering. Under this collaboration, Schering has agreed to: . co-market INTEGRILIN with us in the United States and market the product as our exclusive licensee outside the United States; . share profits and losses in the United States and pay royalties to us on sales of INTEGRILIN outside the United States; . provide manufacturing and manufacturing support services; . design and conduct advanced clinical trials; . fund promotional activities with us; and . pay us fees upon achievement of certain milestones. Schering's performance under the collaboration is outside our control. If Schering fails to perform its obligations diligently and in a timely manner, commercialization of INTEGRILIN will be impaired and our business may not be profitable. If we do not establish additional collaborative relationships, our ability to develop and commercialize new products will be impaired. In addition to INTEGRILIN, we have various product candidates in pre-clinical and clinical trials and other product candidates in various stages of research and development. We are a party to numerous research agreements related to these product candidates, most of which do not contemplate taking a product candidate through development and commercialization. We will need to enter into additional collaborations to develop and commercialize these and additional product candidates. We face significant competition in seeking appropriate collaborative partners. Negotiating these arrangements is complex and time consuming. If we are successful in establishing a collaboration, the collaboration may not be successful. If we fail to establish collaborative partnerships for our product candidates, we may have to terminate, delay or cut back development programs. If our clinical trials are unsuccessful, or if they experience significant delays, our ability to commercialize products will be impaired. We must provide the FDA and foreign regulatory authorities with pre-clinical and clinical data that demonstrate that our products are safe and effective before they can be approved for commercial sale. Clinical development, including pre-clinical testing, is a long, expensive and uncertain process. It may take us several years to complete our testing, and failure can occur at any stage of testing. Interim results of pre-clinical or clinical studies do not necessarily predict their final results, and acceptable results in early studies might not be seen in later studies. Any pre-clinical or clinical test may fail to produce results satisfactory to the FDA. Pre-clinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results from a pre-clinical study or clinical trial or adverse medical events during a clinical trial could cause a pre-clinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful. We may not complete our planned pre-clinical or clinical trials on schedule or at all. In addition, due to the substantial demand for clinical trial sites in the cardiovascular area, we may have difficulty obtaining a sufficient -------------------------------------------------------------------------------- Page 14 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- number of appropriate patients or clinician support to conduct our clinical trials as planned. If so, we may have to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly. Our product development costs will increase if we have delays in testing or approvals. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our product or potential products. Even if regulators approve a product for marketing, it may not be commercially successful. If our manufacturers fail to deliver sufficient quantities of INTEGRILIN or product candidates on schedule, we may be unable to meet demand for INTEGRILIN and may experience delays in product development. We have no manufacturing facilities and, accordingly, rely on third parties and Schering for clinical and commercial production of INTEGRILIN and for clinical production of product candidates. We have two manufacturers that produce bulk product, and two manufacturers, one of which is Schering, to perform packaging of INTEGRILIN. We have additional manufacturers producing product candidates for clinical trials. We rely on our contract manufacturers to deliver INTEGRILIN and product candidates that have been manufactured in accordance with Current Good Manufacturing Practices and other applicable regulations. If the third-party manufacturers or suppliers were to cease production or otherwise fail to supply us, or if we were unable to renew our manufacturing contracts or contract for additional manufacturing services on acceptable terms, or if Schering and our other contract manufacturers were to fail to adhere to Current Good Manufacturing Practices, our ability to produce INTEGRILIN and to conduct pre-clinical testing and clinical trials of product candidates would be impaired. If we do not have adequate supplies of INTEGRILIN to meet market demand, we may lose potential revenues, and the healthcare community may turn to competing products. If we cannot obtain adequate supplies of product candidates for pre-clinical and clinical trials, regulatory approval and development of product candidates may be delayed. Our ability to commercialize cromafiban may be diminished if the ongoing clinical study of roxifiban is unsuccessful. Previous clinical trials of oral GP IIb-IIIa inhibitors developed by other pharmaceutical companies have thus far failed to demonstrate the safety and efficacy of drugs in this class. DuPont Pharmaceuticals is conducting an ongoing Phase III clinical trial of the oral GP IIb-IIIa inhibitor roxifiban. New patient enrollment for the trial has been deferred while DuPont effects changes to the trial design and protocol. If the roxifiban trial is unsuccessful, we may be unwilling to pursue development of our oral GP IIb-IIIa inhibitor, cromafiban. Even if we were willing to continue to develop cromafiban after an unsuccessful roxifiban trial, we may not be able to secure development partners for the drug, obtain regulatory approval for continued clinical studies or to enroll patients in such studies. Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement from third party payors. Healthcare insurers, including the United States Health Care Financing Administration, managed care providers, private health insurers and other organizations set aggregate dollar amounts that they will reimburse to hospitals for the medicines and care the hospitals administer to treat particular conditions. These insurers adjust the amounts periodically, and could lower the amount that they will reimburse hospitals to treat the conditions for which the FDA has approved INTEGRILIN. If they do, pricing levels or sales volumes of INTEGRILIN may decrease and cause a reduction in sales and a loss of potential revenues. In foreign markets a number of different governmental and private entities determine the level at which hospitals will be reimbursed for administering INTEGRILIN to insured patients. If these levels are set, or reset, too low, it may not be possible to sell INTEGRILIN at a profit in these markets. Each of our product candidates, if approved for marketing, will face the same risk. If we are unable to protect our patents and proprietary rights, we may not be able to compete successfully. We rely on patent and trade secret protection for significant new technologies, products and processes because of the long development time, uncertainty and high cost associated with bringing a new product to the marketplace. Our success will depend in part on our ability to obtain and enforce patent protection for our technology both in the -------------------------------------------------------------------------------- Page 15 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- United States and other countries. While we are seeking and/or maintaining patents for INTEGRILIN and our product candidates, patents may not be issued, and issued patents may afford limited or no protection. We may be required to obtain licenses to patents or other proprietary rights from third parties. Licenses required under any patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain required licenses, we may encounter delays in product development while attempting to redesign products or methods or we could find the development, manufacture or sale of such products requiring licenses to be foreclosed. Further, we could incur substantial costs in defending any patent litigation brought against us or in asserting our patent rights, including those rights licensed to us by others. If product liability lawsuits are successfully brought against us, we may incur substantial liabilities. The testing, marketing and sale of human pharmaceutical products expose us to significant and unpredictable risks of product liability claims in the event that the use of our technology or products is alleged to have resulted in adverse effects. Our products are administered to patients with serious cardiovascular disease who have a high incidence of mortality. A successful product liability suit against us could impair our financial condition and force us to limit commercialization of products. If we do not attract and retain key employees and consultants, our business could be impaired. We are highly dependent on the principal members of our scientific and management staff. In addition, we rely on consultants to assist us in formulating our research and development strategy. Attracting and retaining qualified personnel is critical to our success. Competition for scientific and managerial personnel is particularly intense in the San Francisco Bay Area where we, together with numerous other life sciences companies, universities and research institutions, maintain our operations. Failure to continue to attract these individuals, or the loss of key personnel, could impair the progress of our programs. Risks related to our finances We have a history of annual operating losses and are uncertain of future profitability. Historically, our expenses have exceeded our revenues. As of September 30, 2001, we had an accumulated deficit of $230,662,000. The extent of future losses and timing of future profitability are uncertain, even taking into account our share of revenues from sales of INTEGRILIN. We continue to incur significant expenses for research and development and to develop, train, maintain and manage our sales force, and these expenses have exceeded our share of INTEGRILIN product revenues. We may never achieve ongoing profitability. If we should need additional funds beyond our existing capital resources and fail to obtain them, we will be unable to successfully develop and commercialize products. We may require significant additional funds beyond our existing capital resources to market INTEGRILIN and conduct the costly and time-consuming research, pre-clinical testing and clinical trials necessary to develop and optimize our technology and potential products, to establish manufacturing, marketing and sales capabilities for product candidates and to bring any such products to market. We may raise these funds through public or private equity offerings, debt financings or additional corporate collaborations and licensing arrangements. We may find that additional funding may not be available to us when we need it, on acceptable terms or at all. If we raise capital by issuing equity securities, our stockholders may experience dilution. To the extent we raise additional funds through collaborative arrangements, we may be required to relinquish some rights to our technologies or product candidates or grant licenses on terms that are not favorable to us. If we are unable to obtain adequate funding when needed, commercialization of INTEGRILIN may be impaired, and we may be required to curtail one or more development programs. -------------------------------------------------------------------------------- Page 16 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- Our indebtedness and debt service obligations may adversely affect our cash flow. At September 30, 2001, we had $601,707,000 of outstanding debt, including primarily our convertible senior and subordinated notes. During each of the last five years, our earnings were insufficient to cover our fixed charges. During each of the next three years, our debt service obligations on our convertible senior and subordinated notes will be approximately $28,500,000 in interest payments. If we are unable to generate sufficient cash to meet these obligations and have to use existing cash or investments, we may have to delay or curtail research and development programs. We intend to fulfill our debt service obligations both from cash generated by our operations and from our existing cash and investments. We may add additional lease lines to finance capital expenditures and may obtain additional long-term debt and lines of credit. Our indebtedness could have significant additional negative consequences, including: . increasing our vulnerability to general adverse economic and industry conditions; . limiting our ability to obtain additional financing; . requiring the dedication of a substantial portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures; . limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and . placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources. Risks related to an investment in our securities Our common stock price is volatile, and an investment in our securities could suffer a decline in value. Our stock price has been highly volatile and may continue to be highly volatile in the future. Our stock price depends on a number of factors, some of which are beyond our control, which could cause the market price of our common stock to fluctuate substantially. These factors include: . fluctuations in our financial and operating results; . whether our financial results are consistent with securities analysts' expectations; . the results of pre-clinical and clinical trials and other companies' clinical trials of products and product candidates in the same class as our products and product candidates; . announcements of technological innovations or new commercial products by us or our competitors; . developments concerning proprietary rights; and . publicity regarding actual or potential performance of products under development by us or our competitors. In the past, stockholders have filed securities class action lawsuits against companies after the market price of the company's stock has fallen precipitously. Such a lawsuit could cause us to incur significant defense costs and divert management's attention and other resources. Any adverse determination could subject us to significant liabilities. -------------------------------------------------------------------------------- Page 17 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- In addition, the stock market in general has from time to time and in particular, recently experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock. Moreover, during periods of stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to the companies' operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole, and investors could lose a part of their investment. Because our convertible senior notes and convertible subordinated notes are convertible into shares of our common stock, their value may be affected by these factors as well. If a change in control were to occur, we may not have sufficient funds to pay the redemption price for all the notes tendered. If there is a change in control of our company, the holders of our convertible senior and convertible subordinated notes may require us to redeem some or all of the notes. Although the indentures governing our convertible senior and convertible subordinated notes allow us in certain circumstances to pay the redemption price in shares of our common stock, if a change in control were to occur, we may not have sufficient funds to pay the redemption price for all the notes tendered. There is no sinking fund for our convertible senior or convertible subordinated notes. Anti-takeover provisions in our charter documents and under Delaware law may make it more difficult to acquire us, even though an acquisition may be beneficial to our stockholders. Provisions of our certificate of incorporation and by-laws could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions: . authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; . limit who may call a special meeting of stockholders; and . require a vote of 2/3 of our voting stock to approve any business combination with a holder of 15% or more of our voting stock, or any person affiliated with a person who is or was a holder of 15% or more of our voting stock, unless procedural and minimum price requirements are met. In January 1995, our board of directors adopted a preferred share purchase rights plan, commonly known as a "poison pill." The provisions described above, our preferred share purchase rights plan and provisions of the Delaware General Corporation Law relating to business combinations with interested stockholders may discourage, delay or prevent a third party from acquiring us, even if our stockholders might receive a premium for their shares in the acquisition over then current market prices. -------------------------------------------------------------------------------- Page 18 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk for changes in interest rates relate primarily to our investment portfolio and long-term obligations. Our primary investment objective is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality government and other debt securities. Our portfolio includes money market funds, commercial paper, medium-term notes, corporate notes and government securities. To minimize the exposure due to adverse shifts in interest rates, we invest in short-term securities with maturities of less than three years. At September 30, 2001, approximately 57% of our cash and investment portfolio was composed of investments maturing in one year or less. The remainder of our investment portfolio matures in less than three years. Our long-term obligations include $300,000,000 of 4.5% convertible senior notes due June 15, 2006 and $300,000,000 of 5.0% convertible subordinated notes due March 1, 2007. Interest on the convertible senior notes is fixed and payable semi-annually on June 15 and December 15 of each year and interest on the convertible subordinated notes is fixed and payable semi-annually on March 1 and September 1 of each year. The notes are convertible into shares of our common stock at different rates at any time prior to maturity, unless previously redeemed or repurchased, subject to adjustment in certain events. The following table presents, as of September 30, 2001, the amounts of our cash, cash equivalents and short-term investments that may be subject to interest rate risk and the average interest rates by year of maturity ($ in thousands):

-------------------------------------------------------------------------------- Page 19 of 20 COR THERAPEUTICS, INC. -------------------------------------------------------------------------------- PART II. OTHER INFORMATION Item 1. Legal Proceedings In October 1997, a patent opposition was filed in Europe by another company against the claims of a patent granted to us in Europe covering broad, generic claims for INTEGRILIN, as well as numerous related compounds that are not part of our core technology. The opposition asserted that all claims of the patent are unpatentable. In July 2000, the Opposition Division of the European Patent Office confirmed the validity of our patent claims without requiring us to limit or otherwise amend our claims. In November 2000, the opposition filed an appeal of this decision. Item 6. Exhibits and Reports on Form 8-K Exhibits Number Exhibit ------------- --------------------------------------------------------------- * 10.1 Form of Option Agreement used under the Registrant's 1991 Equity Incentive Plan, as amended. * 10.2 Form of Option Agreement used under the Registrant's 1998 Non-Officer Equity Incentive Plan, as amended. 10.3 Lease Agreement dated July 1, 2001 between Britannia Pointe Grand Limited Partnership and the Registrant. -------------------------------------------------------------------------------- * Indicates management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10) of Regulation S-K. Reports on Form 8-K There were no reports on Form 8-K filed for the quarter ended September 30, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: October 31, 2001 COR THERAPEUTICS, INC.

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COR THERAPEUTICS INC / DE 10-Q