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NORTHFIELD LABORATORIES, INC.
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TO OUR SHAREHOLDERS
The past 12 months were characterized by great accomplishments and
significant challenges for Northfield Laboratories. I am honored to have the
opportunity to lead Northfield as we embark on the most critical, yet exciting
period in the Company's history. I will be searching for both a President and an
individual as head of medical affairs to join our management team, and
anticipate identifying individuals that will bring additional skill and
expertise to our organization. We have great expectations for the next year. I
would like to update you on our current status, our ongoing efforts to
commercialize our PolyHeme(TM) blood substitute product, and my plans that are
designed to increase shareholder value over the long term.
ABOUT POLYHEME
We believe PolyHeme represents an ideal oxygen-carrying resuscitative fluid
for use in the treatment of urgent, life threatening blood loss. PolyHeme is the
only blood substitute that has been rapidly and safely infused in sufficiently
massive quantities to be considered useful in the treatment of large volume
blood loss in trauma and surgical settings. PolyHeme provides temporary
life-sustaining oxygen carrying capacity and avoids dangerously low hemoglobin
levels until adequate red blood cell levels can be restored safely. We have
infused PolyHeme in doses of up to 20 units, which is twice the total normal
adult blood volume, in as brief a period of 20 minutes in situations of massive
blood loss. We have experienced survival rates of 75% in patients with such
substantial blood loss, which is a dramatic improvement over the historical
survival rate of just 20%. This represents an extraordinary accomplishment, and
it is the reason we believe PolyHeme addresses a critical unmet medical need by
providing life-saving therapy in situations where no alternative currently
exists.
PolyHeme has several other important advantages. It is immediately
available and universally compatible with all blood types, eliminating the need
for costly and time-consuming compatibility testing before blood can be infused
into a patient. Our manufacturing process destroys or eliminates viruses that
might transmit disease, and its extended shelf life of over 12 months compared
with a 42-day maximum for donated red blood cells helps make PolyHeme perfectly
suited for use in the treatment of urgent and unplanned hemorrhage. We have
conducted clinical trials in three areas -- trauma, elective surgery, and
compassionate use in life-threatening circumstances. At present, our only active
trials are the continuing enrollment of patients on a case by case basis in
situations of compassionate use. We are pleased to provide this life-saving
benefit in cases of immunologic incompatibility with the available blood
supplies or religious objection to donated blood. We will continue this support
on an ongoing basis.
POTENTIAL POLYHEME OPPORTUNITY
The extraordinary events of September 11, 2001 demonstrated the
unpredictable nature of the blood supply. Had there been a large number of
injured patients requiring blood, the available supplies might not have been
adequate. As the country responded with a remarkable increase in blood
donations, we were faced with the unexpected situation of considerable loss due
to outdating of the blood after 42 days. The availability of a supply of an
alternative oxygen-carrier such as PolyHeme, with its universal compatibility,
immediate availability and long term storage capability, would have been most
helpful in avoiding such difficulties. The deployment of our military to
Afghanistan has shown the need for resuscitation in areas far removed from
medical care. It is likely that PolyHeme would be useful in this environment
also. Although these situations are fortunately rare, they do occur and serve to
emphasize the potential benefit of PolyHeme in urgent, unplanned blood loss when
there is no available alternative treatment.
As we have stated previously, the actual market potential of PolyHeme is
difficult to accurately project because of the many factors that will influence
the eventual role the product plays in transfusion therapy. However, we
anticipate that the major early opportunity will be in situations when blood is
unavailable. We believe that the potential benefits of PolyHeme in this setting
will appropriately lead to premium pricing and a substantial business
opportunity.
REGULATORY STATUS
In August 2001, we submitted our Biologics License Application to the Food
and Drug Administration seeking approval to market PolyHeme for use in the
treatment of urgent, life-threatening blood loss. This was a significant
milestone for Northfield, representing the culmination of 16 years of product
development, clinical studies and data analysis. It was also a landmark event
for the industry, because it was the first BLA for a blood substitute for human
use in the United States. The decision to submit the BLA was based on the
demonstration that PolyHeme supported life in seriously injured, bleeding
patients and significantly improved survival in situations when blood could not
be used. We were aware that despite the compelling outcomes, there would be
regulatory hurdles. PolyHeme is an innovative product, with no precedent to
provide guidance for the FDA. The history of safety concerns for other blood
substitutes as well as other highly visible product recalls added a considered
and understandable degree of caution. However, we felt the BLA submission was
appropriate.
In November 2001, the FDA issued a refusal to file letter with respect to
our BLA filing. Based on our discussions with the FDA, we have learned that many
of the agency's concerns are focused on the perceived broad nature of the
proposed indication for the use of the product, the validity of the historical
control group and the actual trial design itself. These concerns reflect the
fact that our studies were not designed as a classical registration trial using
a randomized, prospective, double-blinded design, but rather a trial under
conditions involving real life, unplanned, life-threatening blood loss
simulating situations in which no alternative treatment is available. The
ethical and logistic considerations involved in this environment did not allow
us to use a traditional approach to trial design. The endpoint in the trial was
patient survival, and the use of PolyHeme led to a dramatic improvement over the
predicted survival based on historical data. We believe the strength of the data
justified our BLA submission.
We have had numerous recent meetings and follow-on discussions with the
FDA. We have described in great detail the patients and settings in which
PolyHeme would and would not be used. We have presented additional information
regarding the historical controls, and have also submitted other data that we
believe validate the control group. We have also discussed the challenges of the
traditional trial design for our proposed indication. Our dialogue has been
instructive and encouraging, although it is possible that additional trials will
still be necessary. We are striving to reach a consensus as quickly as possible
in order to move forward to regulatory approval for PolyHeme and resolve the
uncertainty that currently exists.
FUNDING
It is clear that we will need additional funding in the future. Clarity and
certainty regarding our regulatory status are essential to positioning ourselves
to move rapidly and effectively to raise money in the capital funds markets when
the climate on Wall Street becomes more favorable. This has been a tumultuous
year for the market, but we want to be poised to access new capital when the
market normalizes. In the meantime, we have $18.4 million in available cash,
which should support our on-going operations for at least the next 18 months.
PARTNERSHIP
Over the course of PolyHeme's development, we have had discussions with
several large pharmaceutical companies that have expressed strong interest in
partnering with Northfield. We believe a partner with experience in the surgical
and critical care areas would be an excellent strategic fit. The right partner
would add expertise in the areas of marketing, regulatory affairs and
manufacturing and enhance the likelihood of successful commercialization of
PolyHeme. As is the case with fund raising, clarity and certainty regarding our
regulatory status are essential in order to secure a world-class partner on
attractive terms for our shareholders.
SCIENTIFIC AND INVESTOR PRESENTATIONS
As we have done previously, we made several public presentations in a
variety of forums. In October 2001 we presented data confirming PolyHeme's
life-sustaining capacity in massive blood loss at the American College of
Surgeons annual meeting in New Orleans. This is notable since this conference
represents the largest surgical meeting in the United States covering all
surgical specialties. In May of this year, we once again presented at the
Deutsche Bank Alex. Brown Health Care Conference. Also in May, we presented at
the American Association of Blood Bank's symposium on Oxygen Therapeutics and
Transfusion Alternatives.
In the April 4, 2002 issue of The New England Journal of Medicine, a report
appeared describing the successful use of PolyHeme on an emergency basis in a
case of life-threatening hemorrhage. In the July 2002 issue of Transfusion,
another case report describing the successful use of PolyHeme in
life-threatening anemia in a patient with sickle cell anemia will appear. In the
October 2002 issue of the Journal of the American College of Surgeons, the
manuscript describing the use of PolyHeme in trauma and urgent blood loss will
be published in its entirety. These are all significant, since acceptance of
such work for publication following peer review represents validation of our
results within the medical and scientific communities and is further evidence of
the significance of our work.
In September of this year, there will be several additional important
presentations. On September 10, 2002 we will be presenting an update to the
military at the Advanced Technology Applications for Combat Casualty Care
(ATACCC). On September 27, 2002, a paper from the University of Colorado will be
presented at the American Association for the Surgery of Trauma describing the
benefits of PolyHeme compared to blood in modulating the immune response in
critically injured trauma patients.
CHANGES IN MANAGEMENT
As I write this letter, only a few days have passed since Richard DeWoskin,
one of the Company's founders and former Chairman, decided to transfer the
leadership of Northfield. Richard has devoted his professional career to the
development of a human blood substitute and has spearheaded the efforts that
have brought PolyHeme to its current stage of development. Richard's decision to
step down reflected his belief that it was an appropriate time for Northfield to
continue its development with a different perspective. This orderly transition
is an indication of the growth and maturity of our organization. I am delighted
that we will continue to benefit from his counsel and support. We are grateful
for all of Richard's efforts, and wish him well in his future endeavors.
CORPORATE GOVERNANCE INITIATIVES
In view of the recent focus on corporate governance issues, we have made a
number of important changes at Northfield. We have expanded our Board of
Directors and nominated two new directors for election at our upcoming annual
meeting. The seven director nominees proposed by Northfield include four
independent directors. We also created a new nominating committee with
responsibility for evaluating and recommending potential director candidates.
The nominating committee joins our audit and compensation committees in being
comprised fully of independent directors.
We have also recently amended the charter for our audit committee to
delegate to the committee the sole power to appoint and replace our independent
auditors and to determine what, if any, non-audit services are to be provided by
our auditors. In addition, we adopted a written code of business conduct that
includes policies applicable to our directors, officers and employees relating
to compliance with law, conflicts of interest, protection of confidential
information, accuracy and integrity of books and records and similar matters.
ANNUAL MEETING
Our 2002 Annual Meeting of stockholders will be held on Friday, September
13, 2002 at 10:00 a.m. (CDT) at our executive offices in Evanston, Illinois.
This year the entire meeting, including the official portion of the meeting, the
annual business update and the question and answer session, will be broadcast
live on the
Internet. You may visit either Northfield's website at www.northfieldlabs.com or
www.tfprn.com to access the presentation. Either site should be accessed at
least 15 minutes before the start time to download any software that may be
required. Shareholders without Internet access will be able to listen to the
report by calling a toll free number. The call-in number will be made available
approximately two weeks prior to the presentation and will be announced in a
press release and posted on our website. The replay will be available for 30
days on the Internet and for seven days by telephone.
SUMMARY
We believe that the next year will be a pivotal one for Northfield. We
intend to aggressively pursue the goals that are essential for our future
success and that will increase shareholder value over the long term:
- Resolve our regulatory status with the FDA as quickly as possible;
- Raise additional capital;
- Secure a partnership with a major pharmaceutical company; and
- Increase Northfield's profile in the scientific and investment
communities.
We will strive to expand our communications with our current shareholders
as well as potential new investors, and to keep you informed of our progress in
a timely and open fashion. I anticipate a smooth transition with our management
changes, and look forward to the continuing support of our dedicated and loyal
employees and investors. I hope this review conveys the sense of optimism
regarding our expectations for the next year. I thank you for your continued
support as we work to make these goals a reality.
Sincerely,
/s/ Steven A. Gould
Steven A. Gould, M.D.
Chairman of the Board and
Chief Executive Officer