Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
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Quarterly report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
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For the quarterly period ended June 30,
2008.
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o
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Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
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For the transition period from
to
.
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Commission
File Number
000-29815
Allos
Therapeutics, Inc.
(Exact name of
Registrant as specified in its charter)
Delaware
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54-1655029
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(State or other
jurisdiction of
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(I.R.S. Employer
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incorporation or
organization)
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Identification
No.)
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11080
CirclePoint Road, Suite 200
Westminster,
Colorado 80020
(303)
426-6262
(Address,
including zip code, and telephone number,
including area code, of principal executive offices)
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
o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer
o
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Accelerated filer
x
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Non-accelerated
filer
o
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(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of August 1,
2008, there were 81,039,485 shares of the registrants Common Stock, par value
$0.001 per share, outstanding.
Table
of Contents
ALLOS
THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
NOTE:
Allos
Therapeutics, Inc., the Allos Therapeutics, Inc. logo, and all other Allos names are trademarks of
Allos Therapeutics, Inc. in the United States and in other selected
countries. All other brand names or trademarks appearing in this report are the
property of their respective holders. Unless the context requires otherwise,
references in this report to Allos, the Company, we, us, and our
refer to Allos Therapeutics, Inc.
2
Table
of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLOS THERAPEUTICS, INC.
BALANCE SHEETS
(unaudited)
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June 30,
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December 31,
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2008
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2007
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ASSETS
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Current assets:
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Cash and cash
equivalents
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$
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46,610,533
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$
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15,919,664
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Restricted cash
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183,334
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183,334
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Investments in
marketable securities
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49,487,845
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41,836,566
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Prepaid research
and development expenses
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722,645
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524,704
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Prepaid expenses
and other assets
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2,843,503
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2,374,471
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Total current
assets
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99,847,860
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60,838,739
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Investments in
marketable securities
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10,367,602
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Property and
equipment, net
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649,633
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621,451
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Total assets
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$
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110,865,095
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$
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61,460,190
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current
liabilities:
|
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Trade accounts
payable
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$
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1,687,608
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$
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1,191,849
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Accrued
liabilities
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7,954,605
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7,689,338
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Total current
liabilities
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9,642,213
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8,881,187
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Commitments and
contingencies (See Note 7)
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Stockholders
equity:
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Preferred stock,
$0.001 par value; 10,000,000 shares authorized at June 30, 2008 and
December 31, 2007; no shares issued or outstanding
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Series A
Junior Participating Preferred Stock, $0.001 par value; 1,000,000 shares
designated from authorized preferred stock at June 30, 2008 and
December 31, 2007; no shares issued or outstanding
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Common stock,
$0.001 par value; 150,000,000 shares authorized at June 30, 2008 and
December 31, 2007; 80,756,964 and 67,641,943 shares issued and
outstanding at June 30, 2008 and December 31, 2007,
respectively
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80,757
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67,642
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Additional
paid-in capital
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372,901,414
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300,440,336
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Deficit
accumulated during the development stage
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(271,759,289
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)
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(247,928,975
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)
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Total
stockholders equity
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101,222,882
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52,579,003
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Total
liabilities and stockholders equity
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$
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110,865,095
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$
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61,460,190
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The accompanying notes are an integral part of these
financial statements.
3
Table
of Contents
ALLOS THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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Cumulative
Period from
September 1, 1992
(date of inception)
through June 30,
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2008
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2007
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2008
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2007
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2008
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Operating
expenses:
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Research and
development
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$
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5,403,924
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$
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4,360,787
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$
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11,377,536
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$
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7,650,215
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$
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136,677,408
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Clinical
manufacturing
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1,485,052
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1,384,804
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3,071,610
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2,532,108
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37,683,716
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Marketing,
general and administrative
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5,438,764
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5,514,923
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10,450,128
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10,262,519
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113,280,669
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Restructuring
and separation costs
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1,663,821
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Total operating
expenses
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12,327,740
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11,260,514
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24,899,274
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20,444,842
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289,305,614
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Loss from
operations
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(12,327,740
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)
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(11,260,514
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)
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(24,899,274
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)
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(20,444,842
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)
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(289,305,614
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)
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Gain on
settlement claims
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5,110,083
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Interest and
other income, net
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504,025
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909,140
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1,068,960
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1,682,604
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22,672,706
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Net loss
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(11,823,715
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)
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(10,351,374
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)
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(23,830,314
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)
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(18,762,238
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)
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(261,522,825
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)
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Dividend related
to beneficial conversion feature of preferred stock
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(10,236,464
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)
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Net loss
attributable to common stockholders
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$
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(11,823,715
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)
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$
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(10,351,374
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)
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$
|
(23,830,314
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)
|
$
|
(18,762,238
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)
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$
|
(271,759,289
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)
|
|
|
|
|
|
|
|
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Basic and
diluted net loss per share
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$
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(0.16
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)
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$
|
(0.16
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)
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$
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(0.34
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)
|
$
|
(0.29
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)
|
|
|
|
|
|
|
|
|
|
|
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Weighted average
shares outstanding: basic and diluted
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72,382,487
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65,645,678
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69,916,800
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63,908,192
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The accompanying notes are an integral part
of these financial statements.
4
Table
of Contents
ALLOS THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
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Six Months Ended
June 30,
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Cumulative
Period From
September 1, 1992
(date of inception)
through
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2008
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2007
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June 30, 2008
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Cash Flows From
Operating Activities:
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Net loss
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$
|
(23,830,314
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)
|
$
|
(18,762,238
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)
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$
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(261,522,825
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)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
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|
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|
Depreciation and
amortization
|
|
207,088
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|
170,545
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|
3,655,397
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|
Stock-based
compensation expense
|
|
4,103,659
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|
3,117,296
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36,385,378
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Write-off of
long-term investment
|
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|
|
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1,000,000
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Other
|
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|
|
|
|
99,121
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Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Prepaid expenses
and other assets
|
|
(666,973
|
)
|
(579,325
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)
|
(3,556,148
|
)
|
Interest
receivable on investments
|
|
(106,730
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)
|
(418,790
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)
|
(772,039
|
)
|
Accounts payable
|
|
495,759
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|
363,982
|
|
1,687,608
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|
Accrued
liabilities
|
|
265,267
|
|
607,168
|
|
7,954,605
|
|
Net cash used in
operating activities
|
|
(19,532,244
|
)
|
(15,501,362
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)
|
(215,068,903
|
)
|
Cash Flows From
Investing Activities:
|
|
|
|
|
|
|
|
Acquisition of
property and equipment
|
|
(235,269
|
)
|
(134,264
|
)
|
(4,051,023
|
)
|
Pledge of
restricted cash
|
|
|
|
|
|
(183,334
|
)
|
Purchases of
marketable securities
|
|
(59,112,151
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)
|
(57,348,702
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)
|
(574,770,377
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)
|
Proceeds from
sales of marketable securities
|
|
41,200,000
|
|
28,660,000
|
|
515,686,969
|
|
Purchase of
long-term investment
|
|
|
|
|
|
(1,000,000
|
)
|
Payments
received on notes receivable
|
|
|
|
|
|
49,687
|
|
Net cash used in
investing activities
|
|
(18,147,420
|
)
|
(28,822,966
|
)
|
(64,268,078
|
)
|
Cash Flows From
Financing Activities:
|
|
|
|
|
|
|
|
Principal
payments under capital leases
|
|
|
|
|
|
(422,088
|
)
|
Proceeds from
sales leaseback
|
|
|
|
|
|
120,492
|
|
Proceeds from
issuance of convertible preferred stock, net of issuance costs
|
|
|
|
|
|
89,125,640
|
|
Proceeds from
issuance of common stock associated with stock options, stock warrants and
employee stock purchase plan
|
|
3,215,274
|
|
884,014
|
|
12,816,392
|
|
Proceeds from
issuance of common stock, net of issuance costs
|
|
65,155,259
|
|
50,257,207
|
|
224,307,078
|
|
Net cash
provided by financing activities
|
|
68,370,533
|
|
51,141,221
|
|
325,947,514
|
|
Net increase in
cash and cash equivalents
|
|
30,690,869
|
|
6,816,893
|
|
46,610,533
|
|
Cash and cash
equivalents, beginning of period
|
|
15,919,664
|
|
10,070,526
|
|
|
|
Cash and cash
equivalents, end of period
|
|
$
|
46,610,533
|
|
$
|
16,887,419
|
|
$
|
46,610,533
|
|
Supplemental
Schedule of Cash and Non-cash Operating and Financing Activities:
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
|
|
$
|
|
|
$
|
1,033,375
|
|
Issuance of
stock in exchange for license agreement
|
|
|
|
|
|
40,000
|
|
Capital lease
obligations incurred for acquisition of property and equipment
|
|
|
|
|
|
422,088
|
|
Issuance of
stock in exchange for notes receivable
|
|
|
|
|
|
139,687
|
|
Conversion of
preferred stock to common stock
|
|
|
|
|
|
89,125,640
|
|
The accompanying
notes are an integral part of these financial statements.
5
Table
of Contents
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1.
Basis of
Presentation
The unaudited financial
statements of Allos Therapeutics, Inc. (referred to herein as the Company,
we, us or our) included herein reflect all adjustments, consisting only
of normal recurring adjustments, which in the opinion of management are
necessary to fairly state our financial position, results of operations and
cash flows for the periods presented.
Certain information and footnote disclosures normally included in audited
financial information prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, or SEC. Operating
results for the three and six months ended June 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending December 31,
2008. These financial statements should
be read in conjunction with the audited financial statements and notes thereto
which are included in our Annual Report on Form 10-K for the year ended December 31,
2007 for a broader discussion of our business and the opportunities and risks
inherent in such business.
Since our inception in
1992, we have not generated any revenue from product sales and have experienced
significant net losses and negative cash flows from operations. Our activities have consisted primarily of
in-licensing and developing product candidates, raising capital and recruiting
personnel. Accordingly, we are
considered to be in the development stage as of June 30, 2008, as defined
in Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage
Enterprises.
Liquidity
Our ability to generate revenue and achieve
profitability is dependent on our ability, alone or with partners, to
successfully complete the development of our product candidates, conduct
clinical trials, obtain the necessary regulatory approvals, and manufacture and
market our product candidates. The timing and costs to complete the successful
development of any of our product candidates are highly uncertain, and
therefore difficult to estimate. The lengthy process of seeking regulatory
approvals for our product candidates, and the subsequent compliance with
applicable regulations, require the expenditure of substantial resources.
Clinical development timelines, likelihood of success and total costs vary
widely and are impacted by a variety of risks and uncertainties. Because of
these risks and uncertainties, we cannot predict when or whether we will
successfully complete the development of any of our product candidates or the
ultimate costs of such efforts. Due to these same factors, we cannot be certain
when, or if, we will generate any revenue or net cash inflow from any of our
current product candidates.
Even if our clinical trials demonstrate the safety and
effectiveness of our product candidates in their target indications, we do not
expect to be able to generate commercial sales for any of our product
candidates until the second half of 2009 at the earliest. We expect to incur significant and growing
net losses for the foreseeable future as a result of our research and
development programs and the costs of preparing for the potential commercial
launch of PDX. Although the size and
timing of our future net losses are subject to significant uncertainty, we
expect them to increase over the next several years as we continue to fund our
development programs and prepare for the potential commercial launch of PDX.
As of June 30, 2008, we had $106.5 million in
cash, cash equivalents and investments in marketable securities. Based upon the current status of our product
development plans, we believe that our cash, cash equivalents, and investments
in marketable securities as of June 30, 2008 should be adequate to support
our operations for at least 12 months, although there can be no assurance that
this can, in fact, be accomplished. Our forecast of the period of time through
which our financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially.
6
Table
of Contents
We anticipate
continuing our current development programs and/or beginning other long-term
development projects involving our product candidates. These projects may
require many years and substantial expenditures to complete and may ultimately
be unsuccessful. Therefore, we will need to obtain additional funds from
outside sources to continue research and development activities, fund operating
expenses, pursue regulatory approvals and build sales and marketing
capabilities, as necessary. If we are unable to raise sufficient additional
funds to support our operations, we may be required to delay, reduce the scope
of or eliminate one or more of our development programs. However, our actual
capital requirements will depend on many factors, including:
·
the timing and outcome of our ongoing PROPEL
trial;
·
costs associated with the commercialization of
our product candidates, if approved for marketing;
·
our evaluation of, and decisions with respect
to, additional therapeutic indications for which we may develop PDX;
·
our evaluation of, and decisions with respect
to, our strategic alternatives; and
·
costs
associated with securing potential in-license opportunities and additional
product candidates and conducting preclinical research and clinical development
for our product candidates.
2.
Prepaid Expenses
and Other Assets
Prepaid expenses
and other assets are comprised of the following:
|
|
June 30,
2008
|
|
December 31,
2007
|
|
Prepaid expenses
and other assets
|
|
$
|
1,080,503
|
|
$
|
615,471
|
|
Receivable
related to pending litigation settlement (see Note 7)
|
|
1,763,000
|
|
1,759,000
|
|
|
|
$
|
2,843,503
|
|
$
|
2,374,471
|
|
3.
Accrued
Liabilities
Accrued liabilities are
comprised of the following:
|
|
June 30,
2008
|
|
December 31,
2007
|
|
Accrued research
and development expenses
|
|
$
|
2,342,024
|
|
$
|
1,571,975
|
|
Accrued
litigation settlement costs (see Note 7)
|
|
2,000,000
|
|
2,000,000
|
|
Accrued
personnel costs
|
|
1,597,304
|
|
2,122,805
|
|
Accrued clinical
manufacturing expenses
|
|
1,330,749
|
|
1,259,799
|
|
Accrued expensesother
|
|
669,266
|
|
696,027
|
|
Accrued
restructuring and separation costs
|
|
15,262
|
|
38,732
|
|
|
|
$
|
7,954,605
|
|
$
|
7,689,338
|
|
4.
Stockholders
Equity
On May 29, 2008, we
sold 12,420,000 shares of our common stock in an underwritten public offering
at a price of $5.64 per share. The number of shares issued includes
1,620,000 shares purchased by the underwriters pursuant to their exercise in
full of their overallotment option. We
received net proceeds from the offering of approximately $65.2 million, after
deducting $4.2 million of underwriting commissions and $691,000 of estimated
offering expenses. The shares of common stock were sold under our shelf
Registration Statement on Form S-3, declared effective by the SEC on June 5,
2007.
At our Annual Meeting of
Stockholders held on June 24, 2008, the stockholders of Allos Therapeutics, Inc.
approved the Allos Therapeutics, Inc. 2008 Equity Incentive Plan (the 2008
Plan). The 2008 Plan authorizes the
issuance of incentive stock options, nonstatutory stock options, restricted
stock awards, restricted stock unit awards, stock appreciation rights,
performance stock awards and forms of equity compensation, which may be granted
to employees, directors and consultants. Only employees may receive incentive
stock options. The 2008 Plan succeeds and continues the Companys 2006
Inducement Award Plan, 2002 Broad Based Equity Incentive Plan, and 2000 Stock
Incentive Compensation Plan (the Prior
7
Table
of Contents
Plans). As of June 24,
2008, no additional stock awards will be granted under the Prior Plans and all
outstanding stock awards granted under the Prior Plans are deemed to be stock
awards granted under the 2008 Plan (but remain subject to the terms of the
Prior Plans with respect to which they were originally granted).
12,550,843 shares of the
Companys common stock may be issued pursuant to stock awards granted under the
2008 Plan, provided that all stock awards granted after the June 24, 2008
effective date of the 2008 Plan, other than stock options and stock
appreciation rights granted with an exercise price of at least 100% of such
stock awards fair market value on the date of grant, will reduce the number of
shares available for issuance under the 2008 Plan by 1.35 shares per share
granted pursuant to the stock award. If a stock award under the 2008 Plan
expires or otherwise terminates without being exercised in full, the shares of
common stock of the Company not acquired pursuant to the stock award will again
become available for issuance under the 2008 Plan. In addition, shares
issued pursuant to a stock award that are forfeited to or repurchased by the
Company prior to becoming fully vested and shares that are cancelled pursuant
to an exchange or repricing program will become available for the grant of new
stock awards under the 2008 Plan. Shares of common stock that revert to
and again become available for issuance under the 2008 Plan and that prior to
such reversion were granted pursuant to a stock award that reduced the number
of shares available under the 2008 Plan by 1.35 shares per share granted
pursuant to such stock award, shall cause the number of shares of common stock
of the Company available for issuance under the 2008 Plan to increase by 1.35
shares upon such reversion.
5.
Stock-Based
Compensation
In accordance with the
modified prospective transition method of SFAS No. 123 (Revised 2004),
Share-Based Payment
(SFAS 123R), stock-based compensation
expense for the three and six months ended June 30, 2008 and 2007 has been
recognized in the accompanying Statements of Operations as follows:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Research and
development
|
|
$
|
661,830
|
|
$
|
544,111
|
|
$
|
1,337,617
|
|
$
|
808,411
|
|
Clinical
manufacturing
|
|
103,782
|
|
46,931
|
|
207,012
|
|
82,949
|
|
Marketing,
general and administrative
|
|
1,223,536
|
|
1,222,874
|
|
2,559,030
|
|
2,225,936
|
|
Total
stock-based compensation expense
|
|
$
|
1,989,148
|
|
$
|
1,813,916
|
|
$
|
4,103,659
|
|
$
|
3,117,296
|
|
We did not recognize a
related tax benefit during the three or six months ended June 30, 2008 and
2007 as we maintain net operating loss carryforwards and we have established a
valuation allowance against the entire tax benefit as of June 30,
2008. No stock-based compensation
expense was capitalized on our Balance Sheets as of June 30, 2008 and December 31,
2007.
The following table
summarizes activity and related information for our stock option awards:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Outstanding
at December 31, 2007
|
|
6,405,430
|
|
$
|
4.68
|
|
2,754,274
|
|
$
|
3.80
|
|
Granted
|
|
2,087,812
|
|
6.25
|
|
|
|
|
|
Exercised
|
|
(683,963
|
)
|
4.62
|
|
|
|
|
|
Canceled
|
|
(365,873
|
)
|
5.84
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
7,443,406
|
|
$
|
5.07
|
|
3,047,671
|
|
$
|
4.12
|
|
During the six months ended June 30, 2008, we
granted 2,087,812 stock options with a weighted-average
grant-date fair value of $3.95 per share.
As of June 30, 2008, the unrecorded stock-based compensation
balance related to stock option awards was $9,420,280 and will be recognized
over an estimated weighted-average amortization period of 1.5 years.
The following table
summarizes information about outstanding stock options that are fully vested
and currently exercisable, and outstanding stock options that are expected to
vest in the future:
8
Table
of Contents
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Term
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
As of
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
Options fully
vested and exercisable
|
|
3,047,671
|
|
6.3
|
|
$
|
4.12
|
|
$
|
8,863,531
|
|
Options expected
to vest, including effects of expected forfeitures
|
|
3,824,046
|
|
9.0
|
|
$
|
5.71
|
|
4,916,011
|
|
Options fully
vested and expected to vest
|
|
6,871,717
|
|
7.8
|
|
$
|
5.00
|
|
$
|
13,779,542
|
|
The aggregate intrinsic
value in the table above represents the total pretax intrinsic value, based on
our closing stock price of $6.91 as of June 30, 2008, which would have
been received by the option holders had all option holders with in-the-money
options exercised their options as of that date. The total number of in-the-money options
exercisable as of June 30, 2008 was 2,663,033.
The total intrinsic value
of options exercised during the three months ended June 30, 2008 and 2007
was $715,597 and $502,894, respectively, determined as of the date of option
exercise. The total intrinsic value of
options exercised during the six months ended June 30, 2008 and 2007 was
$1,443,857 and $951,441, respectively, determined as of the date of option
exercise. We settle employee stock option exercises with newly issued common
shares. No tax benefits were realized by
us in connection with these exercises during the three or six months ended June 30,
2008 and 2007 as we maintain net operating loss carryforwards and we have
established a valuation allowance against the entire tax benefit.
The following table
summarizes activity and related information for restricted stock awards granted
under our equity incentive plans:
|
|
Number of
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested
at December 31, 2007
|
|
412,500
|
|
$
|
3.89
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(128,750
|
)
|
3.74
|
|
Nonvested
at June 30, 2008
|
|
283,750
|
|
$
|
3.95
|
|
The
shares of restricted stock vest in four equal annual installments from the date
of grant. D
uring the three months
ended June 30, 2008 and 2007, we recorded stock-based compensation related
to restricted stock awards of $93,480 and $181,131, respectively. During
the six months ended June 30, 2008 and 2007, we recorded stock-based
compensation related to restricted stock awards of $240,979 and $359,188,
respectively. As of June 30, 2008,
the unrecorded stock-based compensation balance related to restricted stock
awards was $456,093 and will be recognized over an estimated weighted-average
amortization period of 1.4 years.
6.
Net Loss Per
Share
Net loss per share is calculated in accordance with
SFAS No. 128,
Earnings Per Share
(SFAS 128). Under the provisions of SFAS 128, basic net loss per
share is computed by dividing the net loss attributable to common stockholders
for the period by the weighted average number of common shares outstanding
during the period. Diluted earnings per
share is computed by giving effect to all dilutive potential common stock outstanding
during the period, including stock options, restricted stock, stock warrants
and shares to be issued under our employee stock purchase plan.
Diluted net loss per
share is the same as basic net loss per share for all periods presented because
any potential dilutive common shares were anti-dilutive due to our net loss (as
including such shares would decrease our basic net loss per share). Potential
dilutive common shares that would have been included in the calculation of
diluted earnings per share if we had net income are as follows:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Common stock
options
|
|
1,665,841
|
|
2,142,589
|
|
1,727,920
|
|
2,331,681
|
|
Restricted stock
|
|
303,695
|
|
515,000
|
|
344,087
|
|
515,000
|
|
Common stock
warrants
|
|
|
|
279,088
|
|
|
|
297,696
|
|
|
|
1,969,536
|
|
2,936,677
|
|
2,072,007
|
|
3,144,377
|
|
9
Table
of Contents
7.
Commitments and
Contingencies
Royalty and License Fee Commitments for PDX
In December 2002, we entered into a license
agreement with Memorial Sloan-Kettering Cancer Center, SRI International and
Southern Research Institute, as amended, under which we obtained exclusive
worldwide rights to a portfolio of patents and patent applications related to
PDX (pralatrexate) and its uses. Under the terms of the agreement, we paid an
up-front license fee of $2.0 million upon execution of the agreement and are
also required to make certain additional cash payments based upon the
achievement of certain clinical development or regulatory milestones or the
passage of certain time periods. To date, we have made aggregate milestone
payments of $2.0 million based on the passage of time. In the future, we could
make aggregate milestone payments of $1.0 million upon the earlier of
achievement of a clinical development milestone or the passage of certain time
periods (the Clinical Milestone), and up to $10.3 million upon achievement of
certain regulatory milestones, including regulatory approval to market PDX in
the United States or Europe. The next scheduled payments toward the Clinical
Milestone of $500,000 each are currently due on December 23, 2008 and
2009. The up-front license fee and all milestone payments under the agreement
have been or will be recorded to research and development expense when
incurred. Under the terms of the agreement, we are required to fund all
development programs and will have sole responsibility for all commercialization
activities. In addition, we will pay the licensors a royalty based on a
percentage of net revenues arising from sales of the product or sublicense
revenues arising from sublicensing the product, if and when such sales or
sublicenses occur.
Contingencies
The Company and one of its former officers were named
as defendants in a purported securities class action lawsuit filed in May 2004
in the United States District Court for the District of Colorado (the District
Court). An amended complaint was filed in August 2004. The lawsuit was
brought on behalf of a purported class of purchasers of our securities during
the period from May 29, 2003 to April 29, 2004, and sought
unspecified damages relating to the issuance of allegedly false and misleading
statements regarding EFAPROXYN, one of our former product candidates, during
this period and subsequent declines in our stock price. On October 20,
2005, the District Court granted the defendants motion to dismiss the lawsuit
with prejudice. In an opinion dated October 20, 2005, the District Court
concluded that the plaintiffs complaint failed to meet the legal requirements
applicable to its alleged claims.
On November 20,
2005, the plaintiff appealed the District Courts decision to the U.S. Court of
Appeals for the Tenth Circuit (the Court of Appeals). On February 6,
2008, the parties signed a stipulation of settlement, settling the case for
$2,000,000. Neither we nor our former officer admits any liability in
connection with the settlement. The Court of Appeals accordingly has remanded
the case to the District Court for consideration of the settlement.
The settlement is subject to various conditions, including without
limitation approval of the District Court.
We expect that the amount of the settlement in excess of our deductible
will be covered by our insurance carrier.
In the event the settlement does not become final, we intend to
vigorously defend against the plaintiffs appeal. If the Court of Appeals then
were to reverse the District Courts decision and we were not successful in our
defense of such claims, we could be forced to make significant payments to the
plaintiffs, and such payments could have a material adverse effect on our
business, financial condition, results of operations and cash flows to the
extent such payments are not covered by our insurance carriers. Even if our
defense against such claims were successful, the litigation could result in
substantial costs and divert managements attention and resources, which could
adversely affect our business. As of June 30, 2008, we have recorded
$2,000,000 in accrued litigation settlement costs, which represents our best
estimate of the potential gross amount of the settlement costs to be paid to
the plaintiffs, and $1,763,000 in prepaid expenses and other assets, which
represents the amount we expect to be reimbursed from our insurance carrier.
The net difference of $237,000 between these amounts represents the remaining
unpaid deductible under our insurance policy, and this amount was recorded to
marketing, general and administrative expenses during the year ended December 31,
2006.
Lease
Commitments
On June 16, 2008, we
entered into an amendment to the lease agreement for our corporate headquarters
facility. As part of the amendment we
extended the term of the lease from November 1, 2008 for a period of 39
months to expire January 31, 2012. We also will have the right,
subject to the terms of the amendment, to extend the term of the lease
agreement for one additional period of three years thereafter. We reduced the
number of rentable square feet included in the leased premises to approximately
34,536 square feet.
10
Table
of Contents
8.
Recent Accounting
Pronouncements
In September 2006,
the Financial Accounting Standards Board, or FASB, issued SFAS 157,
Fair Value Measurements
, which defines fair value, provides
a framework for measuring fair value, and expands the disclosures required for
fair value measurements. SFAS 157 applies to other accounting pronouncements
that require fair value measurements; it does not require any new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15,
2007 and we adopted it on January 1, 2008. The application of SFAS 157 to
certain items has been deferred and will be effective for fiscal years
beginning after November 15, 2008 and interim periods within that
year. The adoption of this pronouncement
did not have a material impact on our results of operations or financial
position for the three and six month periods ended June 30, 2008. We have
no assets or liabilities that were measured using significant unobservable
inputs (Level 3 assets and liabilities) as of June 30, 2008. Our financial instruments include cash and
cash equivalents, investments in marketable securities, prepaid expenses,
accounts payable and accrued liabilities. The carrying amounts of financial
instruments approximate their fair value due to their short maturities. The
carrying values of our cash equivalents and investments in marketable
securities approximate their market values based on quoted market prices, or
Level 1 inputs. We account for investments in marketable securities in
accordance with SFAS No. 115,
Accounting
for Certain Investments in Debt and Equity Securities
. Investments
in marketable securities are classified as held to maturity and are carried at
cost plus accrued interest.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115,
which is effective for fiscal years
beginning after November 15, 2007 and we adopted it on January 1,
2008. This statement permits an entity to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
Subsequent unrealized gains and losses on items for which the fair value option
has been elected will be reported in earnings. The adoption of this
pronouncement did not have a material impact on our results of operations or
financial position for the three and six month periods ended June 30,
2008, as we did not elect to measure any of our financial instruments at fair
value.
In June 2007, the Emerging Issues Task Force,
or EITF, issued a consensus, EITF 07-3,
Advance
Payments for Research and Development Activities
, which states that
non-refundable advance payments for goods that will be used or services that
will be performed in future research and development activities should be
deferred and capitalized until the goods have been delivered or the related
services have been rendered. EITF 07-3
is to be applied prospectively for new contractual arrangements entered into in
fiscal years beginning after December 15, 2007 and we adopted it on January 1,
2008. The adoption did not result in a material change to our current
accounting practice.
In November 2007, the EITF issued a consensus,
EITF 07-01,
Accounting for Collaboration
Arrangements Related to the Development and Commercialization of Intellectual
Property
, which is focused on how the parties to a collaborative
agreement should account for costs incurred and revenue generated on sales to
third parties, how sharing payments pursuant to a collaboration agreement
should be presented in the income statement and certain related disclosure
questions. EITF 07-1 is to be applied retrospectively for collaboration
arrangements in fiscal years beginning after December 15, 2008. We currently do not have any such
arrangements.
In December 2007,
the FASB issued SFAS 141(R),
Business
Combinations
. This Statement replaces SFAS 141,
Business Combinations,
and requires an
acquirer to recognize the assets acquired, the liabilities assumed, including
those arising from contractual contingencies, any contingent consideration, and
any noncontrolling interest in the acquiree at the acquisition date, measured
at their fair values as of that date, with limited exceptions specified in the
statement. SFAS 141(R) also requires the acquirer in a business
combination achieved in stages (sometimes referred to as a step acquisition) to
recognize the identifiable assets and liabilities, as well as the
noncontrolling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with SFAS 141(R)). In
addition, SFAS 141(R)s requirement to measure the noncontrolling interest in
the acquiree at fair value will result in recognizing the goodwill attributable
to the noncontrolling interest in addition to that attributable to the
acquirer. SFAS 141(R) amends SFAS No. 109,
Accounting for Income Taxes
, to require the acquirer to
recognize changes in the amount of its deferred tax benefits that are
recognizable because of a business combination either in income from continuing
operations in the period of the combination or directly in contributed capital,
depending on the circumstances. It also amends SFAS 142,
Goodwill and Other Intangible Assets
, to,
among other things, provide guidance on the impairment testing of acquired
research and development intangible assets and assets that the acquirer intends
not to use. SFAS 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We are currently
evaluating the potential impact of this statement. We do not expect any impact on our financial
statements.
11
Table
of Contents
In
December 2007, the FASB issued SFAS 160,
Noncontrolling
Interests in Consolidated Financial Statements
. SFAS 160 amends
Accounting Research Bulletin 51,
Consolidated
Financial Statements
, to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It also clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements.
SFAS 160 also changes the way the consolidated income statement is presented by
requiring consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. It
also requires disclosure, on the face of the consolidated statement of income,
of the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS 160 requires that a parent recognize a gain or
loss in net income when a subsidiary is deconsolidated and requires expanded
disclosures in the consolidated financial statements that clearly identify and
distinguish between the interests of the parent owners and the interests of the
noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal
periods, and interim periods within those fiscal years, beginning on or after December 15,
2008. We are currently evaluating the potential impact of this statement.
We
do not expect any impact on our financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities
. SFAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
companies to enhance disclosure about how these instruments and activities
affect their financial position, performance and cash flows. SFAS 161 also
improves the transparency about the location and amounts of derivative
instruments in a companys financial statements and how they are accounted for
under SFAS 133. SFAS 161 is effective for financial statements issued for
fiscal years beginning after November 15, 2008, and interim periods within
beginning after that date. We are currently evaluating the potential impact of
this statement.
We do not expect any impact on our financial statements.
ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as information contained elsewhere
in this report,
contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements include, but are not limited to, statements concerning our projected
timelines for the initiation of new trials and announcement of results from our
ongoing clinical trials, including our Phase 2 PROPEL trial; the potential
for the results of our Phase 2 PROPEL trial to support marketing approval of
PDX; other statements regarding our future product development and regulatory
strategies, including our intent to develop or seek regulatory approval for our
product candidates in specific indications; the ability of our third-party
manufacturing parties to support our requirements for drug supply; any
statements regarding our future financial performance, results of operations or
sufficiency of capital resources to fund our operating requirements; and any
other statements which are other than statements of historical fact. In some
cases, these statements may be identified by terminology such as may, will,
should, expects, plans, anticipates, believes, estimates, predicts,
potential or continue, or the negative of such terms and other comparable
terminology. Although we believe that the expectations reflected in the
forward-looking statements contained herein are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. These
statements involve known and unknown risks and uncertainties that
may cause our, or our industrys results, levels of activity, performance
or achievements to be materially different from those expressed or implied by
the forward-looking statements. Factors that may cause or contribute to such
differences include, among other things, those discussed in Part II, Item
1A of this report under the caption Risk Factors. All forward-looking
statements included in this report are based on information available to us as
of the date hereof and we undertake no obligation to revise any forward-looking
statements in order to reflect any subsequent events or circumstances.
Forward-looking statements not specifically described above also may be found
in these and other sections of this report.
Overview
We are a biopharmaceutical company focused on
developing and commercializing innovative small molecule drugs for the
treatment of cancer. Our goal is to build a profitable company by generating
income from products we develop and commercialize, either alone or with one or
more potential strategic partners. We strive
to develop proprietary products that have the potential to improve the standard
of care in cancer therapy. Our focus is
on product opportunities for oncology that leverage our internal clinical
development and regulatory expertise and address important markets with unmet
medical need. We may also seek to grow our existing portfolio of product
candidates through product acquisition and in-licensing efforts.
We currently have two
small molecule chemotherapeutic product candidates in clinical
development, PDX (pralatrexate) and
12
Table
of Contents
RH1.
PDX
PDX
(pralatrexate) is
a novel, small molecule chemotherapeutic agent that inhibits dihydrofolate
reductase, or DHFR, a folic acid (folate)-dependent enzyme involved in the
building of nucleic acid, or DNA, and other processes. PDX was rationally
designed for efficient transport into tumor cells via the reduced folate
carrier, or RFC-1, and effective intracellular drug retention. We believe these
biochemical features, together with preclinical and clinical data in a variety
of tumors, suggest that PDX may have a favorable safety and efficacy profile
relative to methotrexate and other related DHFR inhibitors. We believe PDX has
the potential to be delivered as a single agent or in combination therapy
regimens.
In August 2006, we initiated PROPEL, an
international, multi-center, open-label, single-arm Phase 2 clinical trial of
PDX in patients with relapsed or refractory peripheral T-cell lymphoma, or
PTCL, that we believe, if positive, will be sufficient to support the filing of
a new drug application, or NDA, to seek marketing approval for PDX in this
indication. Patients receive 30 mg/m
2
of PDX once every week
for six weeks followed by one week of rest per cycle of treatment. The treatment regimen also includes
vitamin B
12
and folic acid supplementation. The primary
endpoint of the study is objective response rate, either complete or partial
response, which will be assessed by central independent oncology review. Duration of response is the key secondary
endpoint. All patients enrolled in the
trial will continue to be followed for long-term survival.
In July 2006, we reached agreement with the U.S.
Food and Drug Administration, or FDA, under its special protocol assessment, or
SPA, process on the design of this Phase 2 trial. The SPA process allows for FDA evaluation of
a clinical trial protocol intended to form the primary basis of an efficacy
claim in support of an NDA, and provides an agreement that the trial design,
including trial size, clinical endpoints and data analyses are acceptable to
the FDA. The SPA agreement is not a
guarantee of approval, and we cannot assure you that the design of, or data collected
from, the PROPEL trial will be adequate to demonstrate the safety and efficacy
of PDX for the treatment of PTCL, or otherwise be sufficient to support FDA or
any foreign regulatory approval. In
addition, the response rate, duration of response and safety profile required
to support FDA approval are not specified in the PROPEL trial protocol and will
be subject to FDA review.
In accordance with the PROPEL trial protocol, three
pre-planned interim analyses of safety data and one pre-planned interim analysis
of response data have been conducted. In
January, September and December 2007, we announced that an
independent data monitoring committee, or DMC, completed interim analyses of
safety data from the first 10, 35 and 65 evaluable patients who completed at
least one cycle of treatment with PDX, respectively, and recommended that the
trial continue per the protocol at each analysis. No major safety concerns were identified by
the DMC. In September 2007, we
announced that the results of the interim analysis of patient response data
exceeded the pre-specified threshold for continuation of the trial, which
required a minimum of four responses, either complete or partial responses, out
of the first 35 evaluable patients, as determined by central independent
oncology review.
We completed patient enrollment in the PROPEL trial in
April 2008, with more than 100 evaluable patients enrolled at sites across
the United States, Canada and Europe. In May 2008, we reported interim response and safety data from the
PROPEL trial. Twenty-nine percent, or 19 of the first 65 evaluable
patients enrolled in the trial, experienced either a complete or partial
response, as assessed by central independent oncology review. Forty-five
percent, or 29 of the first 65 evaluable patients, experienced either a
complete or partial response, as assessed by the PROPEL investigators. Patients
are considered evaluable if they received at least one dose of PDX and their
diagnosis of PTCL has been confirmed by independent review. The median duration of response for these
patients could not be estimated due to the current length of follow-up. The
most common drug related grade 3/4 adverse events were mucositis and
thrombocytopenia, which were observed in 14% and 23% of patients, respectively.
Patients received a median of three prior treatment regimens.
We currently expect to report top line results of the
PROPEL trial by the end of 2008, although the actual timing may vary based on a
number of factors. Following our review
of the trial results, we intend to submit a New Drug Application for PDX for
the treatment of patients with relapsed or refractory PTCL as expeditiously as
possible.
Our decision to begin
PROPEL was based upon interim data from an ongoing Phase 1/2
single-center, open-label, single-arm study of PDX in patients with relapsed or
refractory non-Hodgkins lymphoma, or NHL, and Hodgkins disease. Interim data
from this trial, which was most recently presented at the AACR-NCI-EORTC
conference in October 2007, demonstrated a high overall response rate in
patients with various subtypes of T-cell lymphoma. Notably, investigator-assessed
responses were observed in 14 of 26 (54%) evaluable patients with T-cell
lymphoma, including nine complete responses and five partial responses. The
13
Table
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addition of vitamins to
the treatment regimen appeared to mitigate the occurrence of advanced grade
stomatitis, or mouth ulcers, a toxicity commonly associated with PDX.
In July 2006, the
FDA awarded orphan drug designation to PDX for the treatment of patients with
T-cell lymphoma. The FDA may award orphan drug designation to drugs that target
conditions affecting 200,000 or fewer patients per year in the United States.
Under the Orphan Drug Act, if we are the first company to receive FDA approval
for PDX for this orphan drug indication, we will obtain seven years of
marketing exclusivity during which the FDA may not approve another companys
application for the same drug for the same orphan indication. Orphan drug
exclusivity would not prevent FDA approval of a different drug for the orphan
drug indication or the same drug for a different indication. In October 2006,
the FDA granted fast track designation to PDX for the treatment of patients
with T-cell lymphoma. The fast track program is designed to facilitate the
development and expedite the review of new drugs that are intended to treat
serious or life-threatening conditions and that demonstrate the potential to
address unmet medical needs. In April 2007, the European Commission, with
a favorable opinion of the Committee for Orphan Medicinal Products of the
European Medicines Agency, or EMEA, granted orphan medicinal product
designation to PDX for the treatment of patients with PTCL. The EMEA orphan
medicinal product designation, or OMPD, is intended to promote the development
of drugs that may provide significant benefit to patients suffering from rare
diseases identified notably as life-threatening, chronically debilitating or
very serious. Under EU regulation, OMPD provides ten years of potential market
exclusivity once the product candidate is approved for marketing for the
designated indication in the European Union, which can be reduced to six years
or terminated in certain circumstances.
In addition to the PROPEL
trial, the following clinical trials involving PDX are also open for
enrollment:
·
a Phase 1/2a,
open-label, multi-center study of PDX and gemcitabine with vitamin B
12
and folic acid supplementation in patients with
relapsed or refractory non-Hodgkins lymphoma, or NHL, and Hodgkins
disease. We initiated patient enrollment
in this study in May 2007. We plan
to enroll up to 54 evaluable patients in the Phase 1 portion of the study and
up to 30 additional patients with relapsed or refractory PTCL in the expanded
Phase 2a portion of the study.
·
a Phase 1,
open-label, multi-center study of PDX with vitamin B
12
and folic acid supplementation in patients
with relapsed or refractory cutaneous T-cell lymphoma, or CTCL. We initiated patient enrollment in this study
in August 2007. We plan to enroll
up to 56 evaluable patients in the study, including at least 20 patients at
what we believe to be the optimal dose and schedule. In June 2008, we
announced interim data from the study. Data were presented on 17 patients,
including 14 evaluable patients who completed at least one cycle of treatment
with PDX at doses ranging from 15 - 30 mg/m
2
as part of a weekly schedule for two or three weeks
followed by one week of rest. Patients received a median of three prior
systemic therapies. Investigator-assessed responses were observed in seven of
14 evaluable patients (50%), including two complete responses and five partial
responses. Responses were observed in
all four treatment cohorts. The most
common adverse event was mucositis, with Grade 2 mucositis observed in six of
17 patients and Grade 3 mucositis observed in two of 17 patients. There were no Grade 4 toxicities and no
thrombocytopenia above Grade 1.
·
a Phase 1/2,
open-label, single-center study of PDX with vitamin B
12
and folic acid supplementation in patients
with relapsed or refractory NHL and Hodgkins disease. This study is currently focused on exploring
alternate dosing and administration schedules in patients with B-cell lymphoma
to further evaluate PDXs potential clinical utility in this setting.
·
a Phase 1 dose
escalation study of PDX with vitamin B
12
and folic acid supplementation in patients
with previously treated (Stage IIIB/IV) advanced non-small cell lung cancer, or
NSCLC.
·
a Phase 2b,
randomized, multi-center study comparing PDX and Tarceva® (erlotinib), both
with vitamin B
12
and folic acid supplementation, in patients
with Stage IIIB/IV NSCLC who are, or have been, cigarette smokers who have
failed treatment with at least one prior platinum-based chemotherapy regimen. We initiated patient enrollment in this study
in January 2008. The study will seek to enroll approximately 160 patients
in up to 50 investigative sites worldwide. Based on current enrollment rates,
we expect to complete patient enrollment in this study in the second half of
2009.
·
a Phase 2,
open-label, single-arm, multi-center study of PDX in patients with advanced or
metastatic relapsed transitional cell carcinoma, or TCC, of the urinary
bladder. We initiated patient enrollment
in this study in July 2008. The
study will seek to enroll approximately 41 patients in up to 20 investigative
sites worldwide. The
14
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primary endpoint of the
study is objective response rate (complete and partial response). Secondary
endpoints include duration of response, clinical benefit rate, progression-free
survival, or PFS, overall survival and the safety and tolerability of PDX. In this study, patients will receive PDX as
an intravenous, or IV, push administered on days 1 and 15 of a 4-week/28 day
cycle. The initial dose of PDX will be
190 mg/m
2
,
which may be adjusted based on criteria defined in the protocol. Patients will receive concurrent vitamin therapy
of B
12
and folic acid.
In addition to our ongoing NSCLC and bladder cancer
studies, we are evaluating the potential future development of PDX for other
solid tumor indications, including Stage III/IV head and neck cancer and Stage
III/IV breast cancer, among others.
There can be no assurances that we will pursue the development of PDX
for one or more of these indications or that such development efforts will be
ultimately successful.
In December 2002, we entered into a license
agreement with Memorial Sloan-Kettering Cancer Center, SRI International and
Southern Research Institute, as amended, under which we obtained exclusive
worldwide rights to a portfolio of patents and patent applications related to
PDX and its uses. The portfolio currently consists of two issued patents in the
U.S., two allowed patent applications in Europe, and pending patent
applications in the U.S., Canada, Europe, Australia, Japan, China, Brazil,
Indonesia, India, South Korea, Mexico, Norway, New Zealand, the Philippines, Singapore,
and South Africa.
RH1
RH1
is a small molecule chemotherapeutic agent that we
believe is bioactivated by the enzyme DT-diaphorase, or DTD, also known as
NAD(P)H quinone oxidoreductase, or NQ01.
We believe DTD is over-expressed in many tumors, relative to normal
tissue, including lung, colon, breast and liver tumors. We believe that because RH1 is bioactivated
in the presence of DTD, it has the potential to provide targeted drug delivery
to these tumor types while limiting the amount of toxicity to normal tissue.
In November 2007, we initiated
patient enrollment in a Phase 1, open-label, multi-center dose escalation study
of RH1 in patients with advanced solid tumors or NHL. We plan to enroll up to 60 evaluable patients
in the study with the objective of determining the maximum tolerated dose, or
MTD, recommended Phase 2 dose and safety profile of RH1 in this
population. We plan to enroll three to
six patients per cohort. Once we
determine what we believe to be the optimal dose and schedule, we plan to
recruit an expanded cohort of up to 24 evaluable patients who have tumor types
with a high likelihood of DTD over-expression to explore possible markers of
anticancer activity.
In December 2004, we entered into an agreement
with the University of Colorado Health Sciences Center, the University of
Salford and Cancer Research Technology under which we obtained exclusive
worldwide rights to certain intellectual property surrounding RH1.
EFAPROXYN
TM
(efaproxiral)
Development Discontinued
In mid-2007, we
discontinued the development of EFAPROXYN, our former lead product candidate,
after announcing top-line results from ENRICH, a Phase 3 clinical trial of
EFAPROXYN plus whole brain radiation therapy, or WBRT, in women with brain
metastases originating from breast cancer.
The study failed to achieve its primary endpoint of demonstrating a
statistically significant improvement in overall survival in patients receiving
EFAPROXYN plus WBRT, compared to patients receiving WBRT alone. We are currently pursuing the sale of our
rights to EFAPROXYN although we may not receive any material consideration for
any sale.
Results
of Operations
We are a development
stage company. Since our inception in 1992, we have not generated any revenue
from product sales and have experienced significant net losses and negative
cash flows from operations. We have incurred these losses principally from
costs incurred in our research and development programs, clinical manufacturing
and from our marketing, general and administrative expenses. Our ability to
generate revenue and achieve profitability is dependent on our ability, alone
or with partners, to successfully complete the development of our product
candidates, conduct clinical trials, obtain the necessary regulatory approvals,
and manufacture and market our product candidates. The timing and costs to
complete the successful development of any of our product candidates are highly
uncertain, and therefore difficult to estimate. The lengthy process of seeking
regulatory approvals for our product candidates, and the subsequent compliance
with applicable regulations, require the expenditure of substantial resources.
Clinical development timelines, likelihood of success and total costs vary
widely and are impacted by a variety of risks and uncertainties discussed in
the Risk Factors section of Part II,
15
Table
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Item 1A below.
Because of these risks and uncertainties, we cannot predict when or whether we
will successfully complete the development of any of our product candidates or
the ultimate costs of such efforts. Due to these same factors, we cannot be
certain when, or if, we will generate any revenue or net cash inflow from any
of our current product candidates.
Even if our clinical
trials demonstrate the safety and effectiveness of our product candidates in
their target indications, we do not expect to be able to generate commercial
sales of any of our product candidates until the second half of 2009, at the
earliest. We expect to continue incurring net losses and negative cash flows
for the foreseeable future. Although the
size and timing of our future net losses are subject to significant uncertainty,
we expect them to increase over the next several years as we continue to fund
our research and development programs and prepare for the potential commercial
launch of PDX.
Comparison
of three and six months ended June 30, 2008 and 2007
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
5,403,924
|
|
$
|
4,360,787
|
|
$
|
11,377,536
|
|
$
|
7,650,215
|
|
Clinical
manufacturing
|
|
1,485,052
|
|
1,384,804
|
|
3,071,610
|
|
2,532,108
|
|
Marketing,
general and administrative
|
|
5,438,764
|
|
5,514,923
|
|
10,450,128
|
|
10,262,519
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
|
$
|
12,327,740
|
|
$
|
11,260,514
|
|
$
|
24,899,274
|
|
$
|
20,444,842
|
|
Research
and Development.
Research and development expenses
include the costs of certain personnel, basic research, preclinical studies,
clinical trials, regulatory affairs, biostatistical data analysis and licensing
fees for our product candidates.
Research and development
expenses for the three months ended June 30, 2008 and 2007 were $5.4
million and $4.4 million, respectively.
The $1.0 million increase in research and development expenses in the
three months ended June 30, 2008 as compared to the same period in 2007
was primarily due to a $2.0 million increase in clinical trial costs involving
PDX, including increased costs for PROPEL and initiation of patient enrollment
in two new trials involving PDX after the second quarter of 2007.
This
increase was partially offset by:
·
a $585,000 decrease in clinical trial
costs related to EFAPROXYN, which includes $308,000 of expenses during the
three months ended June 30, 2007 for estimated costs to be incurred in
connection with closing out our EFAPROXYN trials as a result of the discontinuation
of the EFAPROXYN development program; and
·
a $290,000 decrease in preclinical
study costs, primarily related to PDX.
Research and development
expenses for the six months ended June 30, 2008 and 2007 were $11.4
million and $7.7 million, respectively.
The $3.7 million increase in research and development expenses in the
six months ended June 30, 2008 as compared to the same period in 2007 was
primarily due to the following:
·
a $4.3 million increase in clinical
trial costs involving PDX, including increased costs for PROPEL and initiation
of patient enrollment in two new trials involving PDX after the second quarter
of 2007;
·
a $529,000 increase in non-cash
stock-based compensation expense, as discussed in more detail below; and
·
a $240,000 increase related to key
personnel changes and related travel costs, mainly attributable to additional
headcount and increases in compensation costs year over year.
These
increases were partially offset by:
16
Table
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·
a $631,000 decrease in clinical trial
costs related to EFAPROXYN, which includes $308,000 of expenses during the six
months ended June 30, 2007 for estimated costs to be incurred in
connection with closing out our EFAPROXYN trials as a result of the discontinuation
of the EFAPROXYN development program; and
·
a
$727,000 decrease in preclinical study costs, primarily related to PDX.
For the second half of
2008, we expect our research and development expenses to increase relative to
the amount recorded for the six months ended June 30, 2008 due to the
following:
·
increases in costs for our ongoing
and planned clinical trials and preclinical studies for PDX;
·
an increase in personnel costs,
primarily resulting from additional headcount; and
·
an increase in non-cash stock-based
compensation expense related to grants for new employees and a full six-months
of expense related to our annual grants to existing employees which occurred at
the end of February 2008.
Clinical
Manufacturing.
Clinical manufacturing expenses include
the costs of certain personnel, third-party manufacturing costs for development
of drug materials for use in clinical trials and preclinical studies, and costs
associated with pre-commercial scale-up of manufacturing to support anticipated
regulatory and potential commercial requirements.
Clinical manufacturing
expenses for the three months ended June 30, 2008 and 2007 were $1.5
million and $1.4 million, respectively.
The $100,000 increase in clinical manufacturing expenses in the three
months ended June 30, 2008 as compared to the same period in 2007 was
primarily due to increased consulting costs.
Clinical manufacturing
expenses for the six months ended June 30, 2008 and 2007 were $3.1 million
and $2.5 million, respectively. The $540,000
increase in clinical manufacturing expenses in the six months ended June 30,
2008 as compared to the same period in 2007 was primarily due to a $339,000
increase related to key personnel changes and related travel costs, mainly
attributable to additional headcount and increases in compensation costs year
over year.
For the second half of
2008, we expect our clinical manufacturing expenses to increase relative to the
amount recorded for the six months ended June 30, 2008 due to the
following:
·
increases in order to support our
requirements for ongoing and planned clinical trials and pre-commercial
scale-up; and
·
an increase in non-cash stock-based
compensation expense related to grants for new employees and a full six-months
of expense related to our annual grants to existing employees which occurred at
the end of February 2008.
Marketing,
General and Administrative.
Marketing, general and
administrative expenses include costs for pre-marketing activities, corporate
development, executive administration, corporate offices and related
infrastructure.
Marketing, general and
administrative expenses for the three months ended June 30, 2008 and 2007
were $5.4 million and $5.5 million, respectively. The $76,000 decrease in marketing, general
and administrative expenses in the three months ended June 30, 2008 as
compared to the same period in 2007 was primarily due to a $453,000 decrease in
market research and consulting expenses as a result of the discontinuation of
our EFAPROXYN development program in June 2007, offset by a $480,000
increase in PDX portfolio development and commercialization planning activities.
Marketing, general and
administrative expenses for the six months ended June 30, 2008 and 2007
were $10.5 million and $10.3 million, respectively. The $188,000 increase in
marketing, general and administrative expenses in the six months ended June 30,
2008 as compared to the same period in 2007 was primarily due to the following:
·
a $568,000 increase in PDX portfolio
development and commercialization planning activities; and
·
a $333,000 increase in non-cash
stock-based compensation expense, as discussed in more detail below.
This increase was
partially offset by a $739,000 decrease in market research and consulting
expenses as a result of the discontinuation of our EFAPROXYN development
program in June 2007.
For the second half of
2008, we expect our marketing, general and administrative expenses to increase
relative to the amount recorded for the six months ended June 30, 2008 due
to the following:
17
Table
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·
an
increase in personnel costs, primarily resulting from additional headcount;
·
an
increase in costs relating to the preparation for the potential commercial
launch of PDX, in the event we obtain regulatory approval; and
·
an
increase in non-cash stock-based compensation expense related to grants for new
employees and a full six-months of expense related to our annual grants to
existing employees which occurred at the end of February 2008.
Stock-based
Compensation Expense.
Stock-based
compensation expense for the three and six months ended June 30, 2008 and
2007 has been recognized in our Statements of Operations as follows:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Research and
development
|
|
$
|
661,830
|
|
$
|
544,111
|
|
$
|
1,337,617
|
|
$
|
808,411
|
|
Clinical
manufacturing
|
|
103,782
|
|
46,931
|
|
207,012
|
|
82,949
|
|
Marketing,
general and administrative
|
|
1,223,536
|
|
1,222,874
|
|
2,559,030
|
|
2,225,936
|
|
Total
stock-based compensation expense
|
|
$
|
1,989,148
|
|
$
|
1,813,916
|
|
$
|
4,103,659
|
|
$
|
3,117,296
|
|
The $2.0 million of
stock-based compensation recognized in the three months ended June 30,
2008 was primarily related to our stock option plans. Of the $1.8 million of stock-based
compensation recognized in the three months ended June 30, 2007,
$1.6 million was related to our stock option plans, $181,000 related to
restricted stock and $14,000 was related to our employee stock purchase plan.
The $175,000 increase in stock-based compensation expense in the three months
ended June 30, 2008 as compared to the same period in 2007 was primarily
due to an increase in the number of options granted to new employees.
Of the $4.1 million of
stock-based compensation recognized in the six months ended June 30, 2008,
$3.8 million was related to our stock option plans, $241,000 related to
restricted stock and $25,000 was related to our employee stock purchase
plan. Of the $3.1 million of
stock-based compensation recognized in the six months ended June 30, 2007,
$2.7 million was related to our stock option plans, $359,000 related to
restricted stock and $23,000 was related to our employee stock purchase plan.
The $986,000 increase in stock-based compensation expense in the six months
ended June 30, 2008 as compared to the same period in 2007 was primarily
due to an increase in the number of options granted to new employees and our
annual grants to existing employees which occurred in February 2008.
As of June 30, 2008,
the unrecorded stock-based compensation balance related to stock option awards
was $9.4 million and will be recognized over an estimated weighted-average
amortization period of 1.5 years. As of June 30, 2008, the unrecorded
stock-based compensation balance related to restricted stock awards was
$456,000 and will be recognized over an estimated weighted-average amortization
period of 1.4 years.
Interest
and Other Income, Net
.
Interest income for the three months ended June 30, 2008 and 2007
was $504,000 and $909,000, respectively.
Interest income, net of interest expense, for the six months ended June 30,
2008 and 2007 was $1.1 million and $1.7 million, respectively. The $405,000 and $614,000 decreases in net
interest income in the three and six months ended June 30, 2008 as
compared to the same periods in 2007 were primarily due to lower average
investment balances and lower yields on our cash, cash equivalents and
investments in marketable securities.
Liquidity
and Capital Resources
As of June 30, 2008,
we had $106.5 million in cash, cash equivalents, and investments in marketable
securities. Since our inception, we have
financed our operations primarily through public and private sales of our
equity securities, which have resulted in net proceeds to us of
$326.2 million through June 30, 2008.
We have also generated $22.7 million of net interest income since
our inception from investing the net proceeds of these financings.
We have used $215.1
million of cash for operating activities from our inception through June 30,
2008. Net cash used to fund our
operating activities for the six months ended June 30, 2008 and 2007 was
$19.5 million and $15.5 million, respectively.
Net cash used in
investing activities for the six months ended June 30, 2008 and 2007 was
$18.1 million and $28.8 million, respectively, and consisted primarily of the
purchase of investments in marketable securities, partially offset by the
proceeds
18
Table
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from maturities of
investments in marketable securities.
Net cash provided by
financing activities for the six months ended June 30, 2008 was $68.4
million and consisted primarily of the net proceeds from the sale of 12,420,000
shares of our common stock in May 2008 in an underwritten public offering
at a price of $5.64 per share (the May 2008 Financing) and proceeds from
the issuance of common stock associated with stock options exercised by our
employees and sales of stock under our employee stock purchase plan of $3.2
million. We received net proceeds from
the May 2008 Financing of approximately $65.2 million, after deducting
$4.2 million of underwriting commissions and $691,000 of estimated offering
expenses. The shares of common stock were sold under our shelf Registration
Statement on Form S-3, declared effective by the SEC on June 5,
2007. Net cash provided by financing
activities for the six months ended June 30, 2007 was $51.1 million and
consisted primarily of the net proceeds from the sale of 9,000,000 shares of
our common stock in February 2007 in an underwritten offering at a price
of $6.00 per share (the February 2007 Financing). We received net proceeds from the February 2007
Financing of approximately $50.3 million, after deducting underwriting commissions
of approximately $3.2 million and other offering expenses of approximately
$503,000. The shares of common stock were sold under our shelf Registration
Statement on Form S-3, declared effective by the SEC on July 10,
2006.
Based upon the current status of our product
development plans, we believe that our cash, cash equivalents, and investments
in marketable securities as of June 30, 2008 should be adequate to support
our operations through at least the next 12 months, although there can be no
assurance that this can, in fact, be accomplished. Our forecast of the period
of time through which our financial resources will be adequate to support our
operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially.
We anticipate
continuing our current development programs and/or beginning other long-term
development projects involving our product candidates. These projects may
require many years and substantial expenditures to complete and may ultimately
be unsuccessful. Therefore, we will need to obtain additional funds from
outside sources to continue research and development activities, fund operating
expenses, pursue regulatory approvals and build sales and marketing
capabilities, as necessary. However, our actual capital requirements will
depend on many factors, including:
·
the timing and outcome of our ongoing PROPEL
trial;
·
costs associated with the commercialization of
our product candidates, if approved for marketing;
·
our evaluation of, and decisions with respect
to, additional therapeutic indications for which we may develop PDX or RH1;
·
our evaluation of, and decisions with respect
to, our strategic alternatives; and
·
costs
associated with securing potential in-license opportunities and additional
product candidates and conducting preclinical research and clinical development
for our product candidates.
We will need to raise
additional capital to support our future operations, including the potential
commercialization of PDX in the event the PROPEL trial is positive and we
obtain regulatory approval to market PDX. We may seek to obtain this additional
capital through arrangements with corporate partners, equity or debt
financings, or from other sources. Such arrangements, if successfully
consummated, may be dilutive to our existing stockholders. However, there is no
assurance that additional financing will be available when needed, or that, if
available, we will obtain such financing on terms that are favorable to our
stockholders or us. In addition, in the event that additional funds are
obtained through arrangements with collaborative partners or other sources,
such arrangements may require us to relinquish rights to some of our
technologies, product candidates or products under development that we would
otherwise seek to develop or commercialize ourselves. If we are unable to
generate meaningful amounts of revenue from future product sales, if any, or
cannot otherwise raise sufficient additional funds to support our operations,
we may be required to delay, reduce the scope of or eliminate one or more of
our development programs and our business and future prospects for revenue and
profitability may be harmed.
Obligations
and Commitments
Royalty and License Fee Commitments for PDX
In December 2002, we
entered into a license agreement with Memorial Sloan-Kettering Cancer Center,
SRI International and
19
Table
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Southern Research
Institute, as amended, under which we obtained exclusive worldwide rights to a
portfolio of patents and patent applications related to PDX (pralatrexate) and
its uses. Under the terms of the agreement, we paid an up-front license fee of
$2.0 million upon execution of the agreement and are also required to make
certain additional cash payments based upon the achievement of certain clinical
development or regulatory milestones or the passage of certain time periods. To
date, we have made aggregate milestone payments of $2.0 million based on the
passage of time. In the future, we could make aggregate milestone payments of
$1.0 million upon the earlier of achievement of a clinical development
milestone or the passage of certain time periods (the Clinical Milestone),
and up to $10.3 million upon achievement of certain regulatory milestones,
including regulatory approval to market PDX in the United States or Europe. The
next scheduled payments toward the Clinical Milestone of $500,000 each are
currently due on December 23, 2008 and 2009. The up-front license fee and
all milestone payments under the agreement have been or will be recorded to
research and development expense when incurred. Under the terms of the
agreement, we are required to fund all development programs and will have sole
responsibility for all commercialization activities. In addition, we will pay
the licensors a royalty based on a percentage of net revenues arising from
sales of the product or sublicense revenues arising from sublicensing the
product, if and when such sales or sublicenses occur.
Lease
Commitments
On June 16, 2008, we
entered into an amendment to the lease agreement for our corporate headquarters
facility. As part of the amendment we
extended the term of the lease from November 1, 2008 for a period of 39
months to expire January 31, 2012. We also will have the right,
subject to the terms of the amendment, to extend the term of the lease
agreement for one additional period of three years thereafter. We reduced the
number of rentable square feet included in the leased premises to approximately
34,536 square feet.
Critical
Accounting Policies
Our discussion and
analysis of our financial condition and results of operations are based upon
our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, and expenses. We
base our estimates on historical experience, available information and
assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. For a description of our critical accounting
policies, please see our Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.
Recent
Accounting Pronouncements
For a description of our
recent accounting pronouncements, please see Note 8 of the unaudited June 30,
2008 financial statements included herein.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments or
auction rate securities in our investment portfolio and have no foreign
exchange contracts. Our financial
instruments as of June 30, 2008 consist of cash, cash equivalents,
investments in marketable securities, and accounts payable. All highly liquid investments with original
maturities of three months or less are considered to be cash equivalents.
We invest in marketable securities in accordance with
our investment policy. The primary
objectives of our investment policy are to preserve principal, maintain proper
liquidity to meet operating needs and maximize yields. Our investment policy specifies credit
quality standards for our investments and limits the amount of credit exposure
to any single issue, issuer or type of investment. The average duration of the issues in our
portfolio of investments in marketable securities as of June 30, 2008 is
approximately seven months. As of June 30,
2008, our investments in marketable securities of $59.9 million are all
classified as held-to-maturity and were held in a variety of interest-bearing
instruments, consisting mainly of high-grade corporate notes.
Investments in fixed-rate
interest-earning instruments carry varying degrees of interest rate risk. The fair market value of our fixed-rate
securities may be adversely impacted due to a rise in interest rates. In general, securities with longer maturities
are subject to greater interest-rate risk than those with shorter
maturities. Due in part to this factor,
our interest income may fall short of expectations or we may suffer losses in
principal if securities are sold that have declined in market value due to
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changes in interest
rates. Due to the short duration of our
investment portfolio, we believe an immediate 10% change in interest rates
would not be material to our financial condition or results of operations.
ITEM 4.
CONTROLS AND PROCEDURES
As of the end of the
period covered by this report, an evaluation was carried out under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer (the Evaluating
Officers), of the effectiveness of our disclosure controls and procedures, as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended (Exchange Act). Based on that
evaluation, our management, including the Evaluating Officers, concluded that
our disclosure controls and procedures were effective as of June 30, 2008
to ensure that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commissions rules and forms, and that such information is accumulated and
communicated to our management, including the Evaluating Officers, as
appropriate, to allow timely decisions regarding required disclosure.
No
Changes in Internal Control over Financial Reporting
There were no changes in
our internal controls over financial reporting during the three months ended June 30,
2008 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and one of its former officers were named
as defendants in a purported securities class action lawsuit filed in May 2004
in the United States District Court for the District of Colorado (the District
Court). An amended complaint was filed in August 2004. The lawsuit was
brought on behalf of a purported class of purchasers of our securities during
the period from May 29, 2003 to April 29, 2004, and sought
unspecified damages relating to the issuance of allegedly false and misleading
statements regarding EFAPROXYN, one of our former product candidates, during
this period and subsequent declines in our stock price. On October 20,
2005, the District Court granted the defendants motion to dismiss the lawsuit
with prejudice. In an opinion dated October 20, 2005, the District Court
concluded that the plaintiffs complaint failed to meet the legal requirements
applicable to its alleged claims.
On November 20,
2005, the plaintiff appealed the District Courts decision to the U.S. Court of
Appeals for the Tenth Circuit (the Court of Appeals). On February 6,
2008, the parties signed a stipulation of settlement, settling the case for
$2,000,000. Neither we nor our former officer admits any liability in
connection with the settlement. The Court of Appeals accordingly has remanded
the case to the District Court for consideration of the settlement.
The settlement is subject to various conditions, including without
limitation approval of the District Court.
We expect that the amount of the settlement in excess of our deductible
will be covered by our insurance carrier.
In the event the settlement does not become final, we intend to
vigorously defend against the plaintiffs appeal. If the Court of Appeals then
were to reverse the District Courts decision and we were not successful in our
defense of such claims, we could be forced to make significant payments to the
plaintiffs, and such payments could have a material adverse effect on our
business, financial condition, results of operations and cash flows to the
extent such payments are not covered by our insurance carriers. Even if our
defense against such claims were successful, the litigation could result in
substantial costs and divert managements attention and resources, which could
adversely affect our business. As of June 30, 2008, we have recorded
$2,000,000 in accrued litigation settlement costs, which represents our best
estimate of the potential gross amount of the settlement costs to be paid to
the plaintiffs, and $1,763,000 in prepaid expenses and other assets, which
represents the amount we expect to be reimbursed from our insurance carrier.
The net difference of $237,000 between these amounts represents the remaining
unpaid deductible under our insurance policy, and this amount was recorded to
marketing, general and administrative expenses during the year ended December 31,
2006.
ITEM 1A. RISK
FACTORS
Our
business faces significant risks. These risks include those described below and
may include additional risks of which we are not currently aware or which we
currently do not believe are material. If any of the events or circumstances
described in the following risk factors actually occurs, they may materially
harm our business, financial condition, operating results and cash flow. As a
result, the market price of our common stock could decline. Additional risks
and uncertainties that are not yet
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identified
or that we think are immaterial may also materially harm our business,
operating results and financial condition.
Stockholders and
potential investors in shares of our common stock should carefully consider the
following risk factors, which hereby update those risks contained in the Risk
Factors section of our Annual Report on Form 10-K for the year ended December 31, 2007, in
addition to other information and risk factors 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 written or oral forward-looking statements made by or on
behalf of the Company. We are relying
upon the safe harbor for all forward-looking statements in this report, and any
such statements made by or on behalf of the Company are qualified by reference
to the following cautionary statements, as well as to those set forth elsewhere
in this report. We consistently update and include our risk factors in our
Quarterly Reports on Form 10-Q. Risk factors which have been substantively
changed from those set forth in our Annual Report on Form 10-K for the
period ended December 31, 2007 have been marked with an asterisk
immediately following the heading of such risk factor.
We have a history of net losses and an accumulated
deficit, and we may never generate revenue or achieve or maintain profitability
in the future. *
Since our inception in 1992, we have not generated any
revenue from product sales and have experienced significant net losses and
negative cash flows from operations. To date, we have financed our operations
primarily through the private and public sale of securities. For the six months ended June 30, 2008,
we had a net loss of $23.8 million.
As of June 30, 2008, we had accumulated a deficit during our
development stage of $271.8 million.
We have incurred these losses principally from costs incurred in our
research and development programs, clinical manufacturing and from our
marketing, general and administrative expenses. We expect to continue incurring
net losses for the foreseeable future. Our ability to generate revenue and
achieve profitability is dependent on our ability, alone or with partners, to
successfully complete the development of our product candidates, conduct
clinical trials, obtain the necessary regulatory approvals, and manufacture and
market our product candidates. We may never generate revenue from product sales
or become profitable. We expect to continue to spend substantial amounts on
research and development, including amounts spent on conducting clinical trials
for our product candidates, and in preparing for the potential commercial
launch of our product candidates. We may not be able to continue as a going
concern if we are unable to generate meaningful amounts of revenue to support
our operations or cannot otherwise raise the necessary funds to support our
operations.
Our near-term prospects are substantially
dependent on PDX, our lead product candidate. If we are unable to
successfully develop and obtain regulatory approval for PDX for the treatment
of patients with relapsed or refractory PTCL, our ability to generate revenue
will be significantly delayed.
*
We currently have no products that are approved for
commercial sale. Our product candidates are in various stages of development,
and significant research and development, financial resources and personnel
will be required to develop commercially viable products and obtain regulatory
approvals for them. Most of our efforts and expenditures over the next few
years will be devoted to PDX. Accordingly, our future prospects are
substantially dependent on the successful development, regulatory approval and
commercialization of PDX for the treatment of patients with relapsed or
refractory PTCL. Even if we receive regulatory approval, PDX is not expected to
be commercially available for this or any other indication until at least the
second half of 2009. RH1 is in an earlier stage of development relative to PDX,
and if both PDX and RH1 are approved for marketing, we expect that RH1 would
not be commercially available until after PDX is commercially available.
Further, certain of the indications that we are pursuing have relatively low
incidence rates, which may make it difficult for us to enroll a sufficient
number of patients in our clinical trials on a timely basis, or at all, and may
limit the revenue potential of our product candidates. If we are unable to
successfully develop, obtain regulatory approval for and commercialize PDX for
the treatment of relapsed or refractory PTCL, our ability to generate revenue
from product sales will be significantly delayed and our stock price would
likely decline.
We cannot predict when or if we will obtain regulatory
approval to commercialize our product candidates. *
The research, testing, manufacturing, labeling,
approval, selling, marketing and distribution of drug products are subject to
extensive regulation by the FDA and other regulatory authorities in the United
States and other countries, which regulations differ from country to country.
Our product candidates are in the preclinical and clinical stages of
development and have not been approved for marketing in the United States or
any other country. A pharmaceutical product cannot be marketed in the United
States or most other countries until it has completed a rigorous and extensive
regulatory review and approval process. If we fail to obtain regulatory
approval to market our product candidates, we will be unable to sell our
products and generate revenue, which would jeopardize our ability to continue
operating our business. Satisfaction of regulatory requirements typically takes
many years, is dependent upon the type, complexity and novelty of the product
and requires the expenditure of
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substantial resources. Of particular significance are
the requirements covering research and development, testing, manufacturing,
quality control, labeling and promotion of drugs for human use. We may not
obtain regulatory approval for any product candidates we develop, including
PDX, or we may not obtain regulatory review of such product candidates in a
timely manner. For a complete description of the regulatory approval process and
related risks, please refer to the Government Regulation section of Item 1 of
our Annual Report on Form 10-K for the year ended December 31, 2007.
If our product candidates, including PDX, fail to meet
safety and efficacy endpoints in clinical trials, they will not receive
regulatory approval, and we will be unable to market them. *
Our product candidates
may not prove to be safe and efficacious in clinical trials and may not meet
all of the applicable regulatory requirements needed to receive regulatory
approval. The clinical development and regulatory approval process is extremely
expensive and takes many years. Failure can occur at any stage of development,
and the timing of any regulatory approval cannot be accurately predicted. In
addition, failure to comply with the FDA and other applicable United States and
foreign regulatory requirements applicable to clinical trials may subject us to
administrative or judicially imposed sanctions.
As part of the regulatory process, we must
conduct clinical trials for each product candidate to demonstrate safety and
efficacy to the satisfaction of the FDA and other regulatory authorities
abroad. The number and design of clinical trials that will be required varies
depending on the product candidate, the condition being evaluated, the trial
results and regulations applicable to any particular product candidate. The
design of our clinical trials is based on many assumptions about the expected
effect of our product candidates, and if those assumptions prove incorrect, the
clinical trials may not demonstrate the safety or efficacy of our product
candidates. Preliminary results may not be confirmed upon full analysis of the
detailed results of a trial, and prior clinical trial program designs and
results may not be predictive of future clinical trial designs or results.
Product candidates in later stage clinical trials may fail to show the desired
safety and efficacy despite having progressed through initial clinical trials
with acceptable endpoints. For example, we terminated the development of
EFAPROXYN, one of our former product candidates, when it failed to demonstrate
statistically significant improvement in overall survival in the targeted
patients in a Phase 3 clinical trial. If our product candidates fail to show
clinically significant benefits, they will not be approved for marketing.
Even if we achieve positive interim results in
clinical trials, these results do not necessarily predict final results, and
acceptable results in early trials may not be repeated in later trials. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations that could delay, limit or prevent regulatory clearances, and
the FDA can request that we conduct additional clinical trials. A number of companies
in the pharmaceutical industry have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. As a result,
there can be no assurance that our PROPEL trial will achieve its primary or
secondary endpoints. In addition, negative or inconclusive results or adverse
medical events during a clinical trial could cause a clinical trial to be
repeated or terminated. Also, failure to construct clinical trial protocols to
screen patients for risk profile factors relevant to the trial for purposes of
segregating patients into the patient populations treated with the drug being
tested and the control group could result in either group experiencing a
disproportionate number of adverse events and could cause a clinical trial to
be repeated or terminated. If we have to conduct additional clinical trials,
whether for PDX or any other product candidate, it would significantly increase
our expenses and delay potential marketing of our product candidates.
We completed patient
enrollment in our pivotal Phase 2 PROPEL trial in April 2008. We
cannot assure you that the design of, or data collected from, the PROPEL trial
will be adequate to demonstrate the safety and efficacy of PDX for the
treatment of patients with relapsed or refractory PTCL, or otherwise be
sufficient to support FDA or any foreign regulatory approval. If the PROPEL
trial fails to achieve its safety and efficacy endpoints, we may be unable to
obtain regulatory approval to commercialize PDX, and our business and stock
price would be harmed. Further, even if we believe the data from the trial are
positive, the FDA may disagree with our interpretation and determine that the
data are not sufficient to support approval. If we fail to obtain regulatory
approval for PDX or any of our other current or future product candidates, we
will be unable to market and sell them and therefore may never generate
meaningful amounts of revenue or become profitable.
We may experience delays in our clinical trials that
could adversely affect our financial position and our commercial prospects.
We do not know when our
current clinical trials, including our PROPEL trial, will be completed, if at
all. We also cannot accurately predict when other planned clinical trials will
begin or be completed. Many factors affect patient enrollment, including the
size of the patient population, the proximity of patients to clinical sites,
the eligibility criteria for the trial,
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competing clinical trials
and new drugs approved for the conditions we are investigating. Other companies
are conducting clinical trials and have announced plans for future trials that
are seeking or likely to seek patients with the same diseases as those we are
studying. Competition for patients in some cancer trials is particularly
intense because of the limited number of leading specialist physicians and the
geographic concentration of major clinical centers.
As a result of the
numerous factors which can affect the pace of progress of clinical trials, our
trials may take longer to enroll patients than we anticipate, if they can be
completed at all. Delays in patient enrollment in the trials may increase our costs
and slow our product development and approval process. Our product development
costs will also increase if we need to perform more or larger clinical trials
than planned. If other companies product candidates show favorable results, we
may be required to conduct additional clinical trials to address changes in
treatment regimens or for our products to be commercially competitive. Any
delays in completing our clinical trials will delay our ability to generate
revenue from product sales, and we may have insufficient capital resources to
support our operations. Even if we do have sufficient capital resources, our
ability to become profitable will be delayed.
While we have negotiated a special protocol assessment
with the FDA relating to our PROPEL trial, this agreement does not guarantee
any particular outcome from regulatory review of the trial or the product,
including any regulatory approval. *
The protocol for the PROPEL trial was reviewed by the
FDA under its special protocol assessment, or SPA process, which allows for FDA
evaluation of a clinical trial protocol intended to form the primary basis of
an efficacy claim in support of a new drug application, and provides an
agreement that the study design, including trial size, clinical endpoints
and/or data analyses are acceptable to the FDA. However, the response rate,
duration of response and safety profile required to support FDA approval are
not specified in the PROPEL trial protocol and will be subject to FDA review.
In addition, even if we believe PROPEL is positive, a SPA agreement is not a
guarantee of approval, and we cannot be certain that the design of, or data
collected from, the PROPEL trial will be adequate to demonstrate the safety and
efficacy of PDX for the treatment of patients with relapsed or refractory PTCL,
or otherwise be sufficient to support FDA or any foreign regulatory approval.
Further, the SPA agreement is not binding on the FDA if public health concerns
unrecognized at the time the SPA agreement was entered into become evident,
other new scientific concerns regarding product safety or efficacy arise, or if
we fail to comply with the agreed upon trial protocols. In addition, the SPA
agreement may be changed by us or the FDA on written agreement of both parties,
and the FDA retains significant latitude and discretion in interpreting the
terms of the SPA agreement and the data and results from the PROPEL trial. As a
result, we do not know how the FDA will interpret the parties respective
commitments under the SPA agreement, how it will interpret the data and results
from the PROPEL trial, or whether PDX will receive any regulatory approvals as
a result of the SPA agreement or the PROPEL trial. Therefore, despite the
potential benefits of the SPA agreement, significant uncertainty remains
regarding the clinical development and regulatory approval process for PDX for
the treatment of patients with relapsed or refractory PTCL.
We may be required to suspend, repeat or terminate our
clinical trials if they are not conducted in accordance with regulatory
requirements, the results are negative or inconclusive or the trials are not
well designed. *
Clinical trials must be
conducted in accordance with the FDAs current Good Clinical Practices or other
applicable foreign government guidelines and are subject to oversight by the
FDA, other foreign governmental agencies and Institutional Review Boards, or
IRBs, at the medical institutions where the clinical trials are conducted. In
addition, clinical trials must be conducted with product candidates produced
under the FDAs current Good Manufacturing Practices, or cGMP, and may require
large numbers of test subjects. Clinical trials may be suspended by the FDA,
other foreign governmental agencies, or us for various reasons, including:
·
deficiencies
in the conduct of the clinical trials, including failure to conduct the
clinical trial in accordance with regulatory requirements or clinical
protocols;
·
deficiencies
in the clinical trial operations or trial sites resulting in the imposition of
a clinical hold;
·
the
product candidate may have unforeseen adverse side effects;
·
the
time required to determine whether the product candidate is effective may be
longer than expected;
·
fatalities
or other adverse events arising during a clinical trial due to medical problems
that may not be related to clinical trial treatments;
·
the
product candidate may not appear to be more effective than current therapies;
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·
quality or
stability of the product candidate may fall below acceptable standards; or
·
we may not be
able to produce sufficient quantities of the product candidate to complete the
trials.
In addition, changes in regulatory requirements and
guidance may occur and we may need to amend clinical trial protocols to reflect
these changes. Amendments may require us to resubmit our clinical trial
protocols to IRBs for reexamination, which may impact the costs, timing or
successful completion of a clinical trial. Due to these and other factors, our
current product candidates or any of our other future product candidates could
take a significantly longer time to gain regulatory approval than we expect or
may never gain approval, which could reduce or eliminate our revenue by
delaying or terminating the potential commercialization of our product
candidates.
Reports of adverse events or safety concerns involving
our product candidates or in related technology fields or other companies
clinical trials could delay or prevent us from obtaining regulatory approval or
negatively impact public perception of our product candidates.
Our product candidates may produce serious adverse
events. These adverse events could interrupt, delay or halt clinical trials of
our product candidates and could result in the FDA or other regulatory
authorities denying approval of our product candidates for any or all targeted
indications. An independent data safety monitoring board, the FDA, other
regulatory authorities or we may suspend or terminate clinical trials at any
time. We cannot assure you that any of our product candidates will be safe for
human use.
At present, there are a number of clinical trials
being conducted by other pharmaceutical companies involving small molecule
chemotherapeutic agents. If other pharmaceutical companies announce that they
observed frequent adverse events or unknown safety issues in their trials
involving compounds similar to, or competitive with, our product candidates, we
could encounter delays in the timing of our clinical trials or difficulties in
obtaining the approval of our product candidates. In addition, the public
perception of our product candidates might be adversely affected, which could
harm our business and results of operations and cause the market price of our
common stock to decline, even if the concern relates to another companys
product or product candidate.
Due to our reliance on contract research organizations
and other third parties to conduct our clinical trials, we are unable to
directly control the timing, conduct and expense of our clinical trials.
We rely primarily on third parties to conduct our
clinical trials, including the PROPEL trial. As a result, we have had and will
continue to have less control over the conduct of our clinical trials, the
timing and completion of the trials, the required reporting of adverse events
and the management of data developed through the trial than would be the case
if we were relying entirely upon our own staff. Communicating with outside
parties can also be challenging, potentially leading to mistakes as well as
difficulties in coordinating activities. Outside parties may have staffing
difficulties, may undergo changes in priorities or may become financially
distressed, adversely affecting their willingness or ability to conduct our
trials. We may experience unexpected cost increases that are beyond our
control. Problems with the timeliness or quality of the work of a contract
research organization may lead us to seek to terminate the relationship and use
an alternative service provider. However, making this change may be costly and
may delay our trials, and contractual restrictions may make such a change
difficult or impossible. Additionally, it may be impossible to find a
replacement organization that can conduct our trials in an acceptable manner
and at an acceptable cost.
Even if our product candidates meet safety and
efficacy endpoints in clinical trials, regulatory authorities may not approve
them, or we may face post-approval problems that require withdrawal of our
products from the market. *
We will not be able to commercialize any of our
product candidates until we have obtained regulatory approval. We have limited
experience in filing and pursuing applications necessary to gain regulatory
approvals, which may place us at risk of delays, overspending and human
resources inefficiencies.
Our product candidates
may not be approved even if they achieve their endpoints in clinical trials.
Regulatory agencies, including the FDA or their advisors, may disagree with our
interpretations of data from preclinical studies and clinical trials. The FDA
has substantial discretion in the approval process, and when or whether
regulatory approval will be obtained for any drug we develop. For example, even
though we established a SPA with the FDA for our PROPEL trial, there is no
guarantee that the data generated from the PROPEL trial will be adequate to
support FDA approval. Regulatory agencies also may approve a product candidate
for fewer conditions than requested or may grant approval subject to the
performance of
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post-marketing studies
for a product candidate. In addition, regulatory agencies may not approve the
labeling claims that are necessary or desirable for the successful
commercialization of our product candidates.
Even if we receive regulatory approvals, our product
candidates may later produce adverse events that limit or prevent their
widespread use or that force us to withdraw those product candidates from the
market. In addition, a marketed product continues to be subject to strict
regulation after approval and may be required to undergo post-approval studies.
Any unforeseen problems with an approved product or any violation of
regulations could result in restrictions on the product, including its withdrawal
from the market. Any delay in or failure to receive or maintain regulatory
approval for any of our products could harm our business and prevent us from
ever generating meaningful revenues or achieving profitability.
Even if we receive regulatory approval for our product
candidates, we will be subject to ongoing regulatory obligations and review. *
Following any regulatory approval of our product
candidates, we will be subject to continuing regulatory obligations such as
safety reporting requirements and additional post-marketing obligations,
including regulatory oversight of the promotion and marketing of our products.
In addition, we or our third-party manufacturers will be required to adhere to
regulations setting forth cGMP. These regulations cover all aspects of the
manufacturing, storage, testing, quality control and record keeping relating to
our product candidates. Furthermore, we or our third-party manufacturers must
pass a pre-approval inspection of manufacturing facilities by the FDA and foreign
authorities before obtaining marketing approval and will be subject to periodic
inspection by these regulatory authorities to ensure strict compliance with
cGMP or other applicable government regulations and corresponding foreign
standards. We do not have control over a third-party manufacturers compliance
with these regulations and standards. Such inspections may result in compliance
issues that could prevent or delay marketing approval, or require the
expenditure of financial or other resources to address. If we or our
third-party manufacturers fail to comply with applicable regulatory
requirements, we may be subject to fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution.
Budget constraints may force us to delay our efforts
to develop certain product candidates in favor of developing others, which may
prevent us from commercializing all product candidates as quickly as possible.
Because we have limited resources, and because
research and development is an expensive process, we must regularly assess the
most efficient allocation of our research and development budget. As a result,
we may have to prioritize development candidates and may not be able to fully
realize the value of some of our product candidates in a timely manner, if at
all.
If we fail to obtain the capital necessary to fund our
operations, we will be unable to successfully develop or commercialize our
product candidates. *
We expect that significant additional capital will be
required in the future to continue our research and development efforts and to
commercialize our product candidates, if approved for marketing. Our actual
capital requirements will depend on many factors, including:
·
the timing and outcome of
our ongoing PROPEL trial;
·
costs associated with the
commercialization of our product candidates, if approved for marketing;
·
our evaluation of, and
decisions with respect to, additional therapeutic indications for which we may
develop PDX or RH1;
·
our evaluation of, and
decisions with respect to, our strategic alternatives; and
·
costs associated with
securing potential in-license opportunities and additional product candidates
and conducting preclinical research and clinical development for our product
candidates.
We will need to raise additional capital to support
our future operations, including the potential commercialization of PDX in the
event the PROPEL trial is positive and we obtain regulatory approval to market
PDX. We may seek to obtain this additional capital through arrangements with
corporate partners, equity or debt financings, or from other sources. Such
arrangements, if successfully consummated, may be dilutive to our existing
stockholders. However, there is no assurance that additional financing will be
available when needed, or that, if available, we will obtain such financing on
terms that are
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favorable to our stockholders or us. In addition, in
the event that additional funds are obtained through arrangements with
collaborative partners or other sources, such arrangements may require us to
relinquish rights to some of our technologies, product candidates or products
under development that we would otherwise seek to develop or commercialize
ourselves. If we are unable to generate meaningful amounts of revenue from
future product sales, if any, or cannot otherwise raise sufficient additional
funds to support our operations, we may be required to delay, reduce the scope
of or eliminate one or more of our development programs and our business and
future prospects for revenue and profitability may be harmed.
If we are unable to effectively protect our
intellectual property, we will be unable to prevent third parties from using
our technology, which would impair our competitiveness and ability to
commercialize our product candidates. In addition, enforcing our proprietary rights
may be expensive and result in increased losses. *
Our success will depend in part on our ability to
obtain and maintain meaningful patent protection for our products, both in the
United States and in other countries. We rely on patents to protect a large
part of our intellectual property and our competitive position. Any patents
issued to or licensed by us could be challenged, invalidated, infringed,
circumvented or held unenforceable, based on, among other things, obviousness,
inequitable conduct, anticipation or enablement. In addition, it is possible
that no patents will issue on any of our licensed patent applications. It is
possible that the claims in patents that have been issued or licensed to us or
that may be issued or licensed to us in the future will not be sufficiently
broad to protect our intellectual property or that the patents will not provide
protection against competitive products or otherwise be commercially valuable.
Failure to obtain and maintain adequate patent protection for our intellectual
property would impair our ability to be commercially competitive.
Our commercial success will also depend in part on our
ability to commercialize our product candidates without infringing patents or
other proprietary rights of others or breaching the licenses granted to us. We
may not be able to obtain a license to third-party technology that we may
require to conduct our business or, if obtainable, we may not be able to
license such technology at a reasonable cost. If we fail to obtain a license to
any technology that we may require to commercialize our technologies or product
candidates, or fail to obtain a license at a reasonable cost, we will be unable
to commercialize the affected product or to commercialize it at a price that
will allow us to become profitable.
In addition to patent protection, we also rely upon
trade secrets, proprietary know-how and technological advances which we seek to
protect through confidentiality agreements with our collaborators, employees
and consultants. Our employees and consultants are required to enter into
confidentiality agreements with us. We also enter into non-disclosure
agreements with our collaborators and vendors, which are intended to protect
our confidential information delivered to third parties for research and other
purposes. However, these agreements could be breached and we may not have
adequate remedies for any breach, or our trade secrets and proprietary know-how
could otherwise become known or be independently discovered by others.
Furthermore, as with any pharmaceutical company, our
patent and other proprietary rights are subject to uncertainty. Our patent
rights related to our product candidates might conflict with current or future
patents and other proprietary rights of others. For the same reasons, the
products of others could infringe our patents or other proprietary rights.
Litigation or patent interference proceedings, either of which could result in
substantial costs to us, may be necessary to enforce any of our patents or
other proprietary rights, or to determine the scope and validity or
enforceability of other parties proprietary rights. We may be dependant on
third parties, including our licensors, for cooperation and information that
may be required in connection with the defense and prosecution of our patents
and other proprietary rights. The defense and prosecution of patent and
intellectual property infringement claims are both costly and time consuming,
even if the outcome is favorable to us. Any adverse outcome could subject us to
significant liabilities to third parties, require disputed rights to be
licensed from third parties, or require us to cease selling our future
products. We are not currently a party to any patent or other intellectual
property infringement claims.
We do not have manufacturing facilities or
capabilities and are dependent on third parties to fulfill our manufacturing
needs, which could result in the delay of clinical trials, regulatory
approvals, product introductions and commercial sales.
We are dependent on third
parties for the manufacture and storage of our product candidates for clinical
trials and, if approved, for commercial sale. If we are unable to contract for
a sufficient supply of our product candidates on acceptable terms, or if we
encounter delays or difficulties in the manufacturing process or our
relationships with our manufacturers, we may not have sufficient product to
conduct or complete our clinical trials or support commercial requirements for
our product candidates, if approved for marketing.
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Both PDX and RH1 are
cytotoxic which requires manufacturers of these substances to have specialized
equipment and safety systems to handle such substances. In addition, the
starting materials for PDX require custom preparations, which will require us
to manage an additional set of suppliers to obtain the needed supplies of PDX.
Given our lack of formal
supply agreements and the fact that in many cases our components are supplied
by a single source, our third party suppliers may not be able to fulfill our
potential commercial needs or meet our deadlines, or the components they supply
to us may not meet our specifications and quality policies and procedures. If
we need to find an alternative supplier of PDX or other components, we may not
be able to contract for those components on acceptable terms, if at all. Any
such failure to supply or delay caused by such suppliers would have an adverse
affect on our ability to continue clinical development of our product
candidates or commercialize any future products.
Even if we obtain
approval to market our product candidates in one or more indications, our
current or future manufacturers may be unable to accurately and reliably
manufacture commercial quantities of our product candidates at reasonable
costs, on a timely basis and in compliance with the FDAs cGMP. If our current
or future contract manufacturers fail in any of these respects, our ability to
timely complete our clinical trials, obtain required regulatory approvals and
successfully commercialize our product candidates will be materially and
adversely affected. This risk may be heightened with respect to PDX and RH1 as
there are a limited number of fill/finish manufacturers with the ability to
handle cytotoxic products such as PDX and RH1. Our reliance on contract
manufacturers exposes us to additional risks, including:
·
delays or failure to manufacture sufficient
quantities needed for clinical trials in accordance with our specifications or
to deliver such quantities on the dates we require;
·
our current and future manufacturers are subject
to ongoing, periodic, unannounced inspections by the FDA and corresponding
state and international regulatory authorities for compliance with strictly
enforced cGMP regulations and similar state and foreign standards, and we do
not have control over our contract manufacturers compliance with these
regulations and standards;
·
our manufacturers may not be able to comply with
applicable regulatory requirements, which would prohibit them from
manufacturing products for us;
·
our manufacturers may have
staffing difficulties, may undergo changes in control or may become financially
distressed, adversely affecting their willingness or ability to manufacture
products for us;
·
our manufacturers might not be able to fulfill
our commercial needs, which would require us to seek new manufacturing
arrangements and may result in substantial delays in meeting market demands;
·
if we need to change to other commercial
manufacturing contractors, the FDA and comparable foreign regulators must
approve our use of any new manufacturer, which would require additional
testing, regulatory filings and compliance inspections, and the new
manufacturers would have to be educated in, or themselves develop substantially
equivalent processes necessary for, the production of our products; and
·
we may not have intellectual property rights, or
may have to share intellectual property rights, to any improvements in the
manufacturing processes or new manufacturing processes for our products.
Any of these factors could result in the delay of
clinical trials, regulatory submissions, required approvals or
commercialization of our product candidates. They could also entail higher
costs and result in our being unable to effectively commercialize our product
candidates.
We may explore strategic partnerships that may
never materialize or may fail
.
We may, in the future,
periodically explore a variety of possible strategic partnerships in an effort
to gain access to additional complementary resources. At the current time, we
cannot predict what form such a strategic partnership might take. We are likely
to face significant competition in seeking appropriate strategic partners, and
these strategic partnerships can be complicated and time consuming to negotiate
and document. We may not be able to negotiate strategic partnerships on
acceptable terms, or at all. We are unable to predict when, if ever, we will
enter into any additional strategic partnerships because of the numerous risks
and uncertainties associated with establishing strategic partnerships.
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If we enter into one or more strategic
partnerships, we may be required to relinquish important rights to and control
over the development of our product candidates or otherwise be subject to
unfavorable terms
.
Any future strategic
partnerships we enter into could subject us to a number of risks, including:
·
we may be
required to undertake the expenditure of substantial operational, financial and
management resources in integrating new businesses, technologies and products;
·
we may be
required to issue equity securities that would dilute our existing stockholders
percentage ownership;
·
we may be
required to assume substantial actual or contingent liabilities;
·
we may not be
able to control the amount and timing of resources that our strategic partners
devote to the development or commercialization of product candidates;
·
strategic
partners may delay clinical trials, provide insufficient funding, terminate a clinical
trial or abandon a product candidate, repeat or conduct new clinical trials or
require a new version of a product candidate for clinical testing;
·
strategic
partners may not pursue further development and commercialization of products
resulting from the strategic partnering arrangement or may elect to discontinue
research and development programs;
·
strategic
partners may not commit adequate resources to the marketing and distribution of
any future products, limiting our potential revenues from these products;
·
disputes may
arise between us and our strategic partners that result in the delay or
termination of the research, development or commercialization of our product
candidates or that result in costly litigation or arbitration that diverts managements
attention and consumes resources;
·
strategic
partners may experience financial difficulties;
·
strategic
partners may not properly maintain or defend our intellectual property rights
or may use our proprietary information in a manner that could jeopardize or
invalidate our proprietary information or expose us to potential litigation;
·
business
combinations or significant changes in a strategic partners business strategy
may also adversely affect a strategic partners willingness or ability to
complete its obligations under any arrangement;
·
strategic
partners could independently move forward with a competing product candidate
developed either independently or in collaboration with others, including our
competitors; and
·
strategic partners
could terminate the arrangement or allow it to expire, which would delay the
development and may increase the cost of developing our product candidates.
Acceptance of our products in the marketplace is
uncertain, and failure to achieve market acceptance will limit our ability to
generate revenue and become profitable.
Even if approved for marketing, our products may not
achieve market acceptance. The degree of market acceptance will depend upon a
number of factors, including:
·
the receipt of timely regulatory approval for
the uses that we are studying;
·
the establishment and demonstration in the
medical community of the safety and efficacy of our products and their
potential advantages over existing and newly developed therapeutic products;
·
ease of use of our products;
·
reimbursement and coverage policies of
government and private payors such as Medicare, Medicaid, insurance companies,
health maintenance organizations and other plan administrators; and
·
the scope and effectiveness of our sales and
marketing efforts.
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Physicians, patients, payors or the medical community
in general may be unwilling to accept, utilize or recommend the use of any of
our products.
The status of reimbursement from third-party payors
for newly approved health care drugs is uncertain and failure to obtain
adequate coverage and reimbursement could limit our ability to generate
revenue.
Our ability to successfully commercialize our products
will depend, in part, on the extent to which coverage and reimbursement for the
products will be available from government and health administration
authorities, private health insurers, managed care programs, and other
third-party payors.
Significant uncertainty exists as to the reimbursement
status of newly approved health care products. Third-party payors, including
Medicare, are challenging the prices charged for medical products and services.
Government and other third-party payors increasingly are attempting to contain
health care costs by limiting both coverage and the level of reimbursement for
new drugs and by refusing, in some cases, to provide coverage for uses of
approved products for disease conditions for which the FDA has not granted
labeling approval. Third-party insurance coverage may not be available to
patients for our products. If government and other third-party payors do not
provide adequate coverage and reimbursement levels for our product candidates,
their market acceptance may be reduced.
Health care reform measures could adversely affect our
business.
The business and financial condition of pharmaceutical
and biotechnology companies are affected by the efforts of governmental and
third-party payors to contain or reduce the costs of health care. In the United
States and in foreign jurisdictions there have been, and we expect that there
will continue to be, a number of legislative and regulatory proposals aimed at
changing the health care system. For example, in some countries other than the
United States, pricing of prescription drugs is subject to government control,
and we expect proposals to implement similar controls in the United States to
continue. We are unable to predict what additional legislation or regulation,
if any, relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such legislation or
regulation would have on our business. The pendency or approval of such
proposals or reforms could result in a decrease in our stock price or limit our
ability to raise capital or to obtain strategic partnerships or licenses.
We may not obtain orphan drug exclusivity or we may
not receive the full benefit of orphan drug exclusivity even if we obtain it. *
The FDA has awarded orphan drug status to PDX for the
treatment of patients with T-cell lymphoma. Under the Orphan Drug Act, if we
are the first company to receive FDA approval for this drug for the designated
orphan drug indication, we will obtain seven years of marketing exclusivity
during which the FDA may not approve another companys application for the same
drug for the same orphan indication. Orphan drug exclusivity would not prevent
FDA approval of a different drug for the orphan indication or the same drug for
a different indication.
If we fail to comply with healthcare fraud and abuse
laws, we could face substantial penalties and our business, operations and
financial condition could be adversely affected
.
*
As a biopharmaceutical company, even though we do not
and will not control referrals of health care services or bill directly to
Medicare, Medicaid or other third-party payors, certain federal and state
healthcare laws and regulations pertaining to fraud and abuse will be
applicable to our business. These laws and regulations, include, among others:
·
the federal Anti-Kickback
Statute, which prohibits, among other things, persons from soliciting,
receiving or providing remuneration, directly or indirectly, to induce either
the referral of an individual for an item or service or the purchasing or
ordering of a good or service, for which payment may be made under federal
health care programs such as the Medicare and Medicaid programs;
·
federal false claims laws
which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare,
Medicaid, or other third-party payors that are false or fraudulent;
·
the federal Health
Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits
executing a scheme to defraud any healthcare benefit program or making false
statements relating to healthcare matters and which
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also
imposes certain requirements relating to the privacy, security and transmission
of individually identifiable health information;
·
federal self-referral laws,
such as STARK, which prohibits a physician from making a referral to a provider
of certain health services with which the physician or the physicians family
member has a financial interest; and
·
state law equivalents of
each of the above federal laws, such as anti-kickback and false claims laws
which may apply to items or services reimbursed by any third-party payor,
including commercial insurers, and state laws governing the privacy of health
information in certain circumstances, many of which differ from each other in
significant ways and often are not preempted by HIPAA.
Although there are a number of statutory exemptions
and regulatory safe harbors protecting certain common activities from
prosecution under the federal Anti-Kickback statute, the exemptions and safe
harbors are drawn narrowly, and practices that involve remuneration intended to
induce prescribing, purchases or recommendations may be subject to scrutiny if
they do not qualify for an exemption or safe harbor. Our practices may not in
all cases meet all of the criteria for safe harbor protection from
anti-kickback liability.
If our operations are found to be in violation of any
of the laws described above or any other governmental regulations that apply to
us, we may be subject to penalties, including civil and criminal penalties,
damages, fines and the curtailment or restructuring of our operations. Any
penalties, damages, fines, curtailment or restructuring of our operations could
adversely affect our ability to operate our business and our financial results.
Although compliance programs can mitigate the risk of investigation and
prosecution for violations of these laws, the risks cannot be entirely
eliminated. Any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses and
divert our managements attention from the operation of our business. Moreover,
achieving and sustaining compliance with all applicable federal and state fraud
and abuse laws may prove costly.
If we are unable to develop adequate sales, marketing
or distribution capabilities or enter into agreements with third parties to
perform some of these functions, we will not be able to commercialize our
products effectively.
We have limited
experience in sales, marketing and distribution. To directly market and
distribute any products, we must build a sales and marketing organization with
appropriate technical expertise and distribution capabilities. We may attempt
to build such a sales and marketing organization on our own or with the
assistance of a contract sales organization. For some market opportunities, we
may need to enter into co-promotion or other licensing arrangements with larger
pharmaceutical or biotechnology firms in order to increase the likelihood of
commercial success for our products. We may not be able to establish sales,
marketing and distribution capabilities of our own or enter into such
arrangements with third parties in a timely manner or on acceptable terms. To
the extent that we enter into co-promotion or other licensing arrangements, our
product revenues are likely to be lower than if we directly marketed and sold
our products, and some or all of the revenues we receive will depend upon the
efforts of third parties, and these efforts may not be successful.
Additionally, building marketing and distribution capabilities may be more
expensive than we anticipate, requiring us to divert capital from other
intended purposes or preventing us from building our marketing and distribution
capabilities to the desired levels.
If our competitors develop and market products that
are more effective than ours, our commercial opportunity will be reduced or
eliminated.
Even if we obtain the necessary regulatory approvals
to market PDX or any other product candidate, our commercial opportunity will
be reduced or eliminated if our competitors develop and market products that
are more effective, have fewer side effects or are less expensive than our
product candidates. Our potential competitors include large fully integrated
pharmaceutical companies and more established biotechnology companies, both of
which have significant resources and expertise in research and development,
manufacturing, testing, obtaining regulatory approvals and marketing. Academic
institutions, government agencies, and other public and private research
organizations conduct research, seek patent protection and establish
collaborative arrangements for research, development, manufacturing and
marketing. It is possible that competitors will succeed in developing
technologies that are more effective than those being developed by us or that
would render our technology obsolete or noncompetitive.
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If product liability lawsuits are successfully brought
against us, we may incur substantial liabilities and may be required to limit
commercialization of our product candidates.
The testing and marketing of pharmaceutical products
entail an inherent risk of product liability. Product liability claims might be
brought against us by consumers, health care providers or by pharmaceutical
companies or others selling our future products. If we cannot successfully
defend ourselves against such claims, we may incur substantial liabilities or
be required to limit the commercialization of our product candidates. We have
obtained limited product liability insurance coverage for our human clinical
trials. However, product liability insurance coverage is becoming increasingly
expensive, and we may be unable to maintain product liability insurance
coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to product liability. A successful product liability claim in excess
of our insurance coverage could have a material adverse effect on our business,
financial condition and results of operations. We may not be able to obtain
commercially reasonable product liability insurance for any products approved
for marketing.
We are currently involved in a securities class action
litigation, which could harm our business if management attention is diverted
or the claims are decided against us.
We have been named as a defendant in a purported
securities class action lawsuit seeking unspecified damages relating to the
issuance of allegedly false and misleading statements regarding EFAPROXYN
during the period from May 29, 2003 to April 29, 2004 and subsequent
declines in our stock price. In an opinion dated October 20, 2005, the
U.S. District Court for the District of Colorado concluded that the plaintiffs
complaint failed to meet the legal requirements applicable to its alleged
claims and dismissed the lawsuit. On November 20, 2005, the plaintiff
appealed the District Courts decision to the U.S. Court of Appeals for the
Tenth Circuit. On February 6, 2008, the parties signed a stipulation of
settlement, settling the case for $2,000,000. The defendants do not admit any
liability in connection with the settlement. The Court of Appeals has remanded
the case to the District Court for consideration of the settlement. The
settlement is subject to various conditions, including, without limitation,
approval of the District Court. We
expect that the amount of the settlement in excess of our deductible will be
covered by our insurance carrier. In the event the settlement does not become
final, we intend to vigorously defend against the plaintiffs appeal. If the
Court of Appeals then were to reverse the District Courts decision and we were
not successful in our defense of such claims, we could be forced to make
significant payments to the plaintiffs, and such payments could have a material
adverse effect on our business, financial condition, results of operations and
cash flows to the extent such payments are not covered by our insurance
carriers. Even if our defense against such claims were successful, the
litigation could result in substantial costs and divert managements attention
and resources, which could adversely affect our business. As of June 30,
2008, we have recorded $2,000,000 in accrued litigation settlement costs, which
represents our best estimate of the potential gross amount of the settlement
costs to be paid to the plaintiffs, and $1,763,000 in prepaid expenses and
other assets, which represents the amount we expect to be reimbursed from our
insurance carrier. The net difference of $237,000 between these amounts
represents the remaining unpaid deductible under our insurance policy, and this
amount was recorded to marketing, general and administrative expenses during
the year ended December 31, 2006.
Our success depends on retention of our President
and Chief Executive
Officer, Chief Medical Officer and other key
personnel.
We are highly dependent on our President and Chief
Executive Officer, Paul L. Berns, our Chief Medical Officer, Pablo J. Cagnoni,
M.D., and other members of our management team. We are named as the beneficiary
on a term life insurance policy covering Mr. Berns in the amount of
$10.0 million. We also depend on academic collaborators for each of our
research and development programs. The loss of any of our key employees or
academic collaborators could delay our discovery research program and the
development and commercialization of our product candidates or result in
termination of them in their entirety. Mr. Berns and Dr. Cagnoni, as
well as others on our executive management team, have severance agreements with
us, but the agreements provide for at-will employment with no specified term.
Our future success also will depend in large part on our continued ability to
attract and retain other highly qualified scientific, technical and management
personnel, as well as personnel with expertise in clinical testing, governmental
regulation and commercialization. We face competition for personnel from other
companies, universities, public and private research institutions, government
entities and other organizations. If we are unsuccessful in our recruitment and
retention efforts, our business will be harmed.
We also rely on consultants, collaborators and
advisors to assist us in formulating and conducting our research. All of our
consultants, collaborators and advisors are employed by other employers or are
self-employed and may have commitments to or consulting contracts with other
entities that may limit their ability to contribute to our company.
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We cannot guarantee that we will be in compliance with
all potentially applicable regulations.
The development, manufacturing, and, if approved,
pricing, marketing, sale and reimbursement of our products, together with our
general obligations, are subject to extensive regulation by federal, state and
other authorities within the United States and numerous entities outside of the
United States. We also have significantly fewer employees than many other
companies that have the same or fewer product candidates in late stage clinical
development and we rely heavily on third parties to conduct many important
functions.
As a publicly-traded company, we are subject to significant
regulations, some of which have either only recently been adopted, including
the Sarbanes Oxley Act of 2002, or are currently proposals subject to change.
We cannot assure you that we are or will be in compliance with all potentially
applicable regulations. If we fail to comply with the Sarbanes Oxley Act of
2002 or any other regulations we could be subject to a range of consequences,
including restrictions on our ability to sell equity securities or otherwise
raise capital funds, the de-listing of our common stock from the Nasdaq Global
Market, suspension or termination of our clinical trials, failure to obtain
approval to market our product candidates, restrictions on future products or
our manufacturing processes, significant fines, or other sanctions or
litigation.
If our internal controls over financial reporting are
not considered effective, our business and stock price could be adversely
affected.
Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our
internal controls over financial reporting as of the end of each fiscal year,
and to include a management report assessing the effectiveness of our internal
controls over financial reporting in our annual report on Form 10-K for
that fiscal year. Section 404 also requires our independent registered
public accounting firm to attest to, and report on, the effectiveness of our
internal controls over financial reporting.
Our management, including
our chief executive officer and principal financial officer, does not expect
that our internal controls over financial reporting will prevent all error and
all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control systems
objectives will be met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud involving a company have been,
or will be, detected. The design of any system of controls is based in part on
certain assumptions about the likelihood of future events, and we cannot assure
you that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become ineffective because
of changes in conditions or deterioration in the degree of compliance with policies
or procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected. We
cannot assure you that we or our independent registered public accounting firm
will not identify a material weakness in our internal controls in the future. A
material weakness in our internal controls over financial reporting would
require management and our independent registered public accounting firm to
consider our internal controls as ineffective. If our internal controls over
financial reporting are not considered effective, we may experience a loss of
public confidence, which could have an adverse effect on our business and on
the market price of our common stock.
If we do not progress in our programs as anticipated,
our stock price could decrease.
For planning purposes, we estimate the timing of a
variety of clinical, regulatory and other milestones, such as when a certain
product candidate will enter clinical development, when a clinical trial will
be initiated or completed, or when an application for regulatory approval will
be filed. Some of our estimates are included in this report. Our estimates are
based on information available to us as of the date of this report and a
variety of assumptions. Many of the underlying assumptions are outside of our
control. If milestones are not achieved when we estimated that they would be,
investors could be disappointed, and our stock price may decrease.
Warburg Pincus Private Equity VIII, L.P. (Warburg)
and Baker Brothers Life Sciences, L.P. (Baker) each control a substantial
percentage of the voting power of our outstanding common stock. *
On March 2, 2005, we entered into a Securities
Purchase Agreement with Warburg Pincus Private Equity VIII, L.P. (Warburg)
and certain other investors pursuant to which we issued and sold an aggregate
of 2,352,443 shares of our Series A Exchangeable Preferred Stock (the Exchangeable
Preferred) at a price per share of $22.10, for aggregate gross proceeds of
approximately $52.0 million. On May 18, 2005, at our Annual Meeting
of Stockholders, our stockholders voted
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to approve the issuance of shares of our common stock
upon exchange of shares of the Exchangeable Preferred. As a result of such
approval, we issued a total of 23,524,430 shares of common stock upon exchange
of 2,352,443 shares of Exchangeable Preferred. In connection with its purchase
of the Exchangeable Preferred, Warburg entered into a standstill agreement
agreeing not to pursue certain activities the purpose or effect of which may be
to change or influence the control of the Company.
On February 2, 2007, we closed an underwritten
offering of 9,000,000 shares of common stock, of which Baker Brothers Life
Sciences, L.P. and certain other affiliated funds (collectively Baker)
purchased 3,300,000 shares, at a price per share of $6.00, for aggregate gross
proceeds of approximately $54.0 million (the February 2007 Financing).
In connection with its purchase of shares in the February 2007 Financing,
Baker entered into a standstill agreement agreeing not to pursue certain
activities the purpose or effect of which might be to change or influence the
control of the Company.
On May 29, 2008, we sold 12,420,000 shares of our
common stock in an underwritten public offering at a price of $5.64 per share,
for aggregate gross proceeds of approximately $70.0 million (the May 2008
Financing). Warburg and Baker purchased 3,500,000 and 1,500,000 shares,
respectively, of the 12,420,000 shares sold in the May 2008 Financing.
As of June 30, 2008, we had 80,756,964 shares of
common stock outstanding, of which Warburg owned 26,124,430 shares, or
approximately 32.3% of the voting power of our outstanding common stock, and
Baker owned 11,248,621 shares, or approximately 13.9% of the voting power of
our outstanding common stock. Although each of Warburg and Baker have entered
into a standstill agreement with us, they are, and will continue to be, able to
exercise substantial influence over any actions requiring stockholder approval.
Anti-takeover provisions in our charter documents and
under Delaware law could discourage, delay or prevent an acquisition of us,
even if an acquisition would be beneficial to our stockholders, and may prevent
attempts by our stockholders to replace or remove our current management.
Provisions of our amended and restated certificate of
incorporation and bylaws, as well as provisions of Delaware law, could make it
more difficult for a third party to acquire us, even if doing so would benefit
our stockholders. In addition, these provisions may frustrate or prevent any
attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of
directors. Because our board of directors is responsible for appointing the
members of our management team, these provisions could in turn affect any
attempt by our stockholders to replace current members of our management team.
These provisions include:
·
authorizing the issuance of
blank check preferred stock that could be issued by our board of directors to
increase the number of outstanding shares or change the balance of voting
control and thwart a takeover attempt;
·
prohibiting cumulative
voting in the election of directors, which would otherwise allow for less than
a majority of stockholders to elect director candidates;
·
prohibiting stockholder
action by written consent, thereby requiring all stockholder actions to be
taken at a meeting of our stockholders;
·
eliminating the ability of
stockholders to call a special meeting of stockholders; and
·
establishing advance notice
requirements for nominations for election to the board of directors or for
proposing matters that can be acted upon at stockholder meetings.
In addition, we are subject to Section 203 of the
Delaware General Corporation Law, which generally prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
an interested stockholder for a period of three years following the date on
which the stockholder became an interested stockholder. This provision could
have the effect of delaying or preventing a change of control, whether or not
it is desired by or beneficial to our stockholders. Notwithstanding the
foregoing, the three year moratorium imposed on business combinations by Section 203
will not apply to either Warburg or Baker because, prior to the dates on which
they became interested stockholders, our board of directors approved the
transactions which resulted in Warburg and Baker becoming interested
stockholders. However, in connection with its purchase of Exchangeable
Preferred in March 2005, Warburg entered into a standstill agreement
agreeing not to pursue certain activities the purpose or effect of which may be
to change or influence the control of the Company. Similarly,
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in connection with the February 2007 Financing,
Baker entered into a standstill agreement agreeing not to pursue certain
activities the purpose or effect of which may be to change or influence the
control of the Company.
We have adopted a stockholder rights plan that may
discourage, delay or prevent a merger or acquisition that is beneficial to our
stockholders.
In May 2003, our
board of directors adopted a stockholder rights plan that may have the effect
of discouraging, delaying or preventing a merger or acquisition of us that our
stockholders may consider beneficial by diluting the ability of a potential
acquirer to acquire us. Pursuant to the terms of the stockholder rights plan,
when a person or group, except under certain circumstances, acquires 15% or
more of our outstanding common stock or 10 business days after announcement of
a tender or exchange offer for 15% or more of our outstanding common stock, the
rights (except those rights held by the person or group who has acquired or
announced an offer to acquire 15% or more of our outstanding common stock)
would generally become exercisable for shares of our common stock at a
discount. Because the potential acquirers rights would not become exercisable
for our shares of common stock at a discount, the potential acquirer would
suffer substantial dilution and may lose its ability to acquire us. In
addition, the existence of the plan itself may deter a potential acquirer from
acquiring or making an offer to acquire us.
As a result, either by operation of the plan or by its potential
deterrent effect, mergers and acquisitions of the Company that our stockholders
may consider in their best interests may not occur.
Because Warburg owns a substantial percentage of our
outstanding common stock, we amended the stockholder rights plan in connection
with Warburgs purchase of Exchangeable Preferred in March 2005 to provide
that Warburg and its affiliates will be exempt from the stockholder rights
plan, unless Warburg and its affiliates become, without the prior consent of
our board of directors, the beneficial owner of more than 44% of our common
stock. Likewise, since Baker owns a substantial percentage of our outstanding
common stock, we amended the stockholder rights plan in connection with the February 2007
Financing to provide that Baker and its affiliates will be exempt from the
stockholder rights plan, unless Baker becomes, without the prior consent of our
board of directors, the beneficial owner of more than 20% of our common stock.
Under the stockholder rights plan, our board of directors has express authority
to amend the rights plan without stockholder approval.
The market price for our common stock has been and may
continue to be highly volatile, and an active trading market for our common
stock may never exist.
We cannot assure you that an active trading market for
our common stock will exist at any time. Holders of our common stock may not be
able to sell shares quickly or at the market price if trading in our common
stock is not active. The trading price of our common stock has been and is
likely to continue to be highly volatile and could be subject to wide
fluctuations in price in response to various factors, many of which are beyond
our control, including:
·
actual or anticipated
results of our clinical trials, including our pivotal Phase 2 PROPEL trial;
·
actual or anticipated
regulatory approvals or non-approvals of our product candidates, including PDX,
or of competing product candidates;
·
changes in laws or
regulations applicable to our product candidates;
·
changes in the expected or
actual timing of our development programs;
·
actual or anticipated
variations in quarterly operating results;
·
announcements of
technological innovations by us or our competitors;
·
changes in financial
estimates or recommendations by securities analysts;
·
conditions or trends in the
biotechnology and pharmaceutical industries;
·
changes in the market
valuations of similar companies;
·
announcements by us of
significant acquisitions, strategic partnerships, joint ventures or capital
commitments;
35
Table of Contents
·
additions or departures of
key personnel;
·
disputes or other
developments relating to proprietary rights, including patents, litigation
matters and our ability to obtain patent protection for our technologies;
·
developments concerning any
of our research and development, manufacturing and marketing collaborations;
·
sales of large blocks of
our common stock;
·
sales of our common stock
by our executive officers, directors and five percent stockholders; and
·
economic and other external
factors, including disasters or crises.
Public companies in general and companies included on
the Nasdaq Global Market in particular have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of those companies. There has been particular volatility
in the market prices of securities of biotechnology and other life sciences
companies, and the market prices of these companies have often fluctuated
because of problems or successes in a given market segment or because investor
interest has shifted to other segments. These broad market and industry factors
may cause the market price of our common stock to decline, regardless of our
operating performance. We have no control over this volatility and can only
focus our efforts on our own operations, and even these may be affected due to
the state of the capital markets. In the past, following large price declines
in the public market price of a companys securities, securities class action
litigation has often been initiated against that company, including in 2004
against us. Litigation of this type could result in substantial costs and
diversion of managements attention and resources, which would hurt our business.
Any adverse determination in litigation could also subject us to significant
liabilities.
We are required to recognize stock-based compensation
expense relating to employee stock options, restricted stock, and stock
purchases under our Employee Stock Purchase Plan, and the amount of expense we
recognize may not accurately reflect the value of our share-based payment
awards. Further, the recognition of stock-based compensation expense will cause
our net losses to increase and may cause the trading price of our common stock
to fluctuate.
On January 1, 2006, we adopted SFAS No. 123
(Revised 2004),
Share-Based Payment
(SFAS 123R),
which requires the measurement and recognition of compensation expense for all
stock-based compensation based on estimated fair values. As a result, our
operating results for the three and six months ended June 30, 2008 and
2007 include, and future periods will include, a charge for stock-based
compensation related to employee stock options, restricted stock and discounted
employee stock purchases. The
application of SFAS 123R requires the use of an option-pricing model to
determine the fair value of share-based payment awards. This determination of fair value is affected
by our stock price as well as assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to, our
expected stock price volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors. Option-pricing models were developed
for use in estimating the value of traded options that have no vesting or
hedging restrictions and are fully transferable. Because our employee stock
options have certain characteristics that are significantly different from
traded options, and because changes in the subjective assumptions can
materially affect the estimated value, in managements opinion the existing
valuation models may not provide an accurate measure of the fair value of our
employee stock options.
SFAS 123R has had a material impact on our
financial statements and results of operations. We also expect that
SFAS 123R will have a material impact on our future financial statements
and results of operations. We cannot predict the effect that our stock-based
compensation expense will have on the trading price of our common stock.
Substantial sales of shares may impact the market
price of our common stock.
If our stockholders sell substantial amounts of our
common stock, the market price of our common stock may decline. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we consider appropriate. We
are unable to predict the effect that sales may have on the then prevailing
market price of our common stock. We
have entered into a Registration Rights Agreement with Warburg and the other
purchasers of our Exchangeable Preferred pursuant to which such investors are
entitled to certain registration rights with respect to the shares of common
stock that we issued upon exchange of the Exchangeable Preferred.
36
Table of Contents
In addition, we will need
to raise substantial additional capital in the future to fund our
operations. If we raise additional funds
by issuing equity securities, the market price of our common stock may decline
and our existing stockholders may experience significant dilution.
ITEM 2.
|
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
|
|
None
|
|
|
|
|
|
ITEM 3.
|
|
DEFAULTS UPON SENIOR SECURITIES
|
|
None
|
|
|
|
|
|
ITEM 4.
|
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
|
|
We held our 2008
Annual Meeting of Stockholders on June 24, 2008. At such meeting, the
following actions were voted upon:
a.
Election of Directors
|
|
For
|
|
Withheld
|
|
Stephen J. Hoffman, Ph.D., M.D.
|
|
61,575,928
|
|
495,102
|
|
Paul L. Berns
|
|
61,565,370
|
|
505,660
|
|
Michael D. Casey
|
|
59,569,370
|
|
2,501,200
|
|
Stewart Hen
|
|
61,574,363
|
|
496,667
|
|
Jeffrey R. Latts, M.D.
|
|
61,568,828
|
|
502,202
|
|
Jonathan S. Leff
|
|
51,777,095
|
|
10,293,935
|
|
Timothy P. Lynch
|
|
59,565,370
|
|
2,505,660
|
|
b.
Approval of the Companys
2008 Equity Incentive Plan.
For
|
|
Against
|
|
Abstentions
|
|
54,029,348
|
|
1,172,028
|
|
20,063
|
|
c.
Ratification of the
selection by the Audit Committee of the Board of Directors of
PricewaterhouseCoopers LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31, 2008.
For
|
|
Against
|
|
Abstentions
|
|
61,989,621
|
|
51,475
|
|
29,934
|
|
ITEM 5.
|
|
OTHER INFORMATION
|
|
None
|
|
|
|
|
|
ITEM 6.
|
|
EXHIBITS
|
|
|
Exhibit No.
|
|
Note
|
|
Description
|
10.1
|
|
(1)
|
|
Allos Therapeutics, Inc. 2008 Equity Incentive
Plan.
|
10.2
|
|
(2)
|
|
Form of
Option Agreement under the 2008 Equity Incentive Plan.
|
10.3
|
|
(3)
|
|
Form of
Restricted Stock Award Agreement under the 2008 Equity Incentive Plan.
|
10.5.3*
|
|
|
|
Fifth Amendment to Office Lease Agreement dated
June 16, 2008 between Allos and Circle Point Properties, LLC.
|
31.1
|
|
|
|
Certification of principal executive officer
required by Rule 13a-14(a) / 15d-14(a).
|
31.2
|
|
|
|
Certification of principal financial officer
required by Rule 13a-14(a) / 15d-14(a).
|
32.1#
|
|
|
|
Section 1350 Certification.
|
*
|
|
Confidential treatment has been requested with
respect to portions of this exhibit. Omitted portions have been filed
with the Securities and Exchange Commission pursuant to Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
|
|
|
|
#
|
|
The certifications
attached as Exhibit 32.1 that accompany this Quarterly Report on
Form 10-Q are not deemed filed with the Securities and Exchange
Commission and are not to be incorporated by reference into any filing of
Allos Therapeutics, Inc. under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended,
|
|
|
|
37
Table of Contents
|
|
whether made before or after the date of this Form 10-Q,
irrespective of any general incorporation language contained in such filing.
|
|
|
|
(1)
|
|
Incorporated by reference to Exhibit 99.1 filed
with our Registration Statement on Form S-8 filed on June 24, 2008.
|
|
|
|
(2)
|
|
Incorporated by reference to Exhibit 99.2 filed
with our Registration Statement on Form S-8 filed on June 24, 2008.
|
|
|
|
(3)
|
|
Incorporated by reference to Exhibit 99.3 filed
with our Registration Statement on Form S-8 filed on June 24, 2008.
|
38
Table
of Contents
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: August 5,
2008
|
ALLOS
THERAPEUTICS, INC.
|
|
|
|
/s/ Paul L.
Berns
|
|
Paul L. Berns
|
|
President and
Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
/s/ David C.
Clark
|
|
David C. Clark
|
|
Vice President,
Finance and Treasurer
|
|
(Principal
Financial and Accounting Officer)
|
39
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