Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
|
Quarterly report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
|
|
|
|
For the quarterly period ended March 31,
2009.
|
|
|
o
|
Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
|
|
|
|
For the transition period from
to
.
|
Commission
File Number
000-29815
Allos
Therapeutics, Inc.
(Exact name of
Registrant as specified in its charter)
Delaware
|
|
54-1655029
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
Identification
No.)
|
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
o
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
|
|
Accelerated
filer
x
|
|
|
|
Non-accelerated
filer
o
(Do not check if a smaller reporting company)
|
|
Smaller
reporting company
o
|
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 May 1, 2009,
there were 89,360,666 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.
(A Development Stage
Enterprise)
BALANCE SHEETS
(unaudited)
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
47,032,269
|
|
$
|
30,458,424
|
|
Restricted cash
|
|
237,632
|
|
237,632
|
|
Investments in
marketable securities
|
|
25,158,223
|
|
53,468,942
|
|
Prepaid research
and development expenses
|
|
726,977
|
|
919,384
|
|
Prepaid expenses
and other assets
|
|
1,448,966
|
|
2,772,235
|
|
Total current
assets
|
|
74,604,067
|
|
87,856,617
|
|
Property and
equipment, net
|
|
1,421,574
|
|
1,307,084
|
|
Investments in
marketable securities
|
|
348,327
|
|
38,480
|
|
Other assets
|
|
115,200
|
|
137,423
|
|
Total assets
|
|
$
|
76,489,168
|
|
$
|
89,339,604
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Trade accounts
payable
|
|
$
|
1,999,338
|
|
$
|
280,526
|
|
Accrued
liabilities
|
|
6,607,329
|
|
9,594,712
|
|
Total current
liabilities
|
|
8,606,667
|
|
9,875,238
|
|
Commitments and
contingencies (See Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity:
|
|
|
|
|
|
Preferred stock,
$0.001 par value; 10,000,000 shares authorized at March 31, 2009 and
December 31, 2008; no shares issued or outstanding
|
|
|
|
|
|
Series A
Junior Participating Preferred Stock, $0.001 par value; 1,000,000 shares
designated from authorized preferred stock at March 31, 2009 and
December 31, 2008; no shares issued or outstanding
|
|
|
|
|
|
Common stock,
$0.001 par value; 150,000,000 shares authorized at March 31, 2009 and
December 31, 2008; 81,610,666 and 81,238,812 shares issued and
outstanding at March 31, 2009 and December 31, 2008,
respectively
|
|
81,611
|
|
81,239
|
|
Additional
paid-in capital
|
|
382,610,202
|
|
379,042,015
|
|
Deficit
accumulated during the development stage
|
|
(314,809,312
|
)
|
(299,658,888
|
)
|
Total
stockholders equity
|
|
67,882,501
|
|
79,464,366
|
|
Total
liabilities and stockholders equity
|
|
$
|
76,489,168
|
|
$
|
89,339,604
|
|
The accompanying notes are an integral part of these
financial statements.
3
Table of Contents
ALLOS THERAPEUTICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months Ended
March 31,
|
|
Cumulative
Period from
September 1, 1992
(date of inception)
through March 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
5,705,102
|
|
$
|
5,973,612
|
|
$
|
154,853,026
|
|
Clinical
manufacturing
|
|
2,655,272
|
|
1,586,558
|
|
44,014,524
|
|
Marketing,
general and administrative
|
|
6,962,650
|
|
5,011,364
|
|
132,836,619
|
|
Restructuring
and separation costs
|
|
|
|
|
|
1,663,821
|
|
Total operating
expenses
|
|
15,323,024
|
|
12,571,534
|
|
333,367,990
|
|
Loss from
operations
|
|
(15,323,024
|
)
|
(12,571,534
|
)
|
(333,367,990
|
)
|
Gain on
settlement claims
|
|
|
|
|
|
5,110,083
|
|
Interest and
other income, net
|
|
172,600
|
|
564,935
|
|
23,685,059
|
|
Net loss
|
|
(15,150,424
|
)
|
(12,006,599
|
)
|
(304,572,848
|
)
|
Dividend related
to beneficial conversion feature of preferred stock
|
|
|
|
|
|
(10,236,464
|
)
|
Net loss
attributable to common stockholders
|
|
$
|
(15,150,424
|
)
|
$
|
(12,006,599
|
)
|
$
|
(314,809,312
|
)
|
Net loss per
share: basic and diluted
|
|
$
|
(0.19
|
)
|
$
|
(0.18
|
)
|
|
|
Weighted average
shares outstanding: basic and diluted
|
|
81,096,293
|
|
67,266,819
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
4
Table of Contents
ALLOS THERAPEUTICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Three Months Ended
March 31,
|
|
Cumulative
Period from
September 1, 1992
(date of inception)
through
|
|
|
|
2009
|
|
2008
|
|
March 31, 2009
|
|
Cash Flows From
Operating Activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,150,424
|
)
|
$
|
(12,006,599
|
)
|
$
|
(304,572,848
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
92,787
|
|
103,336
|
|
3,933,832
|
|
Stock-based
compensation expense
|
|
2,378,155
|
|
2,114,511
|
|
42,680,323
|
|
Write-off of
long-term investment
|
|
|
|
|
|
1,000,000
|
|
Realized loss on
sale of marketable securities
|
|
157,141
|
|
|
|
708,839
|
|
Other
|
|
|
|
|
|
117,809
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Prepaid expenses
and other assets
|
|
1,537,899
|
|
(339,110
|
)
|
(2,281,143
|
)
|
Interest
receivable on investments
|
|
363,343
|
|
105,879
|
|
(469,817
|
)
|
Accounts payable
|
|
1,718,812
|
|
466,261
|
|
1,999,338
|
|
Accrued
liabilities
|
|
(2,987,383
|
)
|
224,674
|
|
6,607,329
|
|
Net cash used in
operating activities
|
|
(11,889,670
|
)
|
(9,331,048
|
)
|
(250,276,338
|
)
|
Cash Flows From
Investing Activities:
|
|
|
|
|
|
|
|
Acquisition of
property and equipment
|
|
(207,278
|
)
|
(86,524
|
)
|
(5,120,089
|
)
|
Pledge of
restricted cash
|
|
|
|
|
|
(237,632
|
)
|
Purchases of
marketable securities
|
|
(133,412
|
)
|
(27,050,872
|
)
|
(609,729,669
|
)
|
Proceeds from
maturities of marketable securities
|
|
23,720,000
|
|
31,200,000
|
|
573,342,797
|
|
Proceeds from
sales of marketable securities
|
|
3,893,800
|
|
|
|
10,641,300
|
|
Purchase of
long-term investment
|
|
|
|
|
|
(1,000,000
|
)
|
Payments
received on notes receivable
|
|
|
|
|
|
49,687
|
|
Net cash
provided by (used in) investing activities
|
|
27,273,110
|
|
4,062,604
|
|
(32,053,606
|
)
|
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
|
|
1,190,405
|
|
2,281,097
|
|
16,201,222
|
|
Proceeds from
issuance of common stock, net of issuance costs
|
|
|
|
|
|
224,336,947
|
|
Net cash
provided by financing activities
|
|
1,190,405
|
|
2,281,097
|
|
329,362,213
|
|
Net increase (decrease)
in cash and cash equivalents
|
|
16,573,845
|
|
(2,987,347
|
)
|
47,032,269
|
|
Cash and cash
equivalents, beginning of period
|
|
30,458,424
|
|
15,919,664
|
|
|
|
Cash and cash
equivalents, end of period
|
|
$
|
47,032,269
|
|
$
|
12,932,317
|
|
$
|
47,032,269
|
|
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.
(A Development Stage
Enterprise)
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 months ended March 31, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009. 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,
2008, as amended, 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
developing product candidates, raising capital and recruiting personnel. Accordingly, we are considered to be in the
development stage as of March 31, 2009, 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 pralatrexate, conduct clinical trials,
obtain the necessary regulatory approvals, and manufacture and market
pralatrexate. The timing and costs to complete the successful development of
pralatrexate is highly uncertain, and therefore difficult to estimate. The
lengthy process of seeking regulatory approvals for pralatrexate, 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 pralatrexate 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 pralatrexate.
Even if our clinical trials demonstrate the safety and
effectiveness of pralatrexate in its target indications, we do not expect to be
able to generate commercial sales of pralatrexate 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 pralatrexate.
As of March 31, 2009, we had $72.5 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 March 31, 2009, together with the net
proceeds of $46.8 million from the April 2009 Financing discussed in Note
8, Subsequent Event, 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.
6
Table of
Contents
We anticipate
continuing our current development programs and/or beginning other long-term
development projects involving pralatrexate. These projects may require many
years and substantial expenditures to complete and may ultimately be
unsuccessful. In addition, we submitted
a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or
FDA, for pralatrexate for the treatment of patients with relapsed or refractory
peripheral T-cell lymphoma, or PTCL, in March of 2009. We expect to incur significant costs relating
to the potential commercialization of pralatrexate, including pre-commercial
scale up of manufacturing and development of sales and marketing
capabilities. Therefore, we will need to
raise additional capital to support our future operations. Our actual capital requirements will depend
on many factors, including:
·
the
timing and outcome of our NDA for pralatrexate for the treatment of patients
with relapsed or refractory PTCL;
·
the timing and costs
associated with developing sales and marketing capabilities and commercializing
pralatrexate, if it is approved for marketing;
·
the timing and costs
associated with manufacturing clinical and commercial supplies of pralatrexate;
·
the timing and amount of
revenues generated by our business activities, if any;
·
the
timing and costs associated with conducting preclinical and clinical
development of pralatrexate, as well as our evaluation of, and decisions with
respect to, additional therapeutic indications for which we may develop
pralatrexate;
·
the
timing, costs and potential revenue associated with any co-promotion or other
partnering arrangements entered into to commercialize pralatrexate, if it is
approved for marketing; and
·
our
evaluation of, and decisions with respect to, potential in-licensing or product
acquisition opportunities or other strategic alternatives.
We may seek to obtain this additional capital through
equity or debt financings, arrangements with corporate partners, or from other
sources. Such financings or 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
particular, the current instability in the global financial markets and lack of
liquidity in the credit and capital markets may adversely affect our ability to
secure adequate capital to support our future operations. 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, which we would
otherwise seek to develop or commercialize ourselves on terms that are less
favorable than might otherwise be available.
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.
2.
Prepaid Expenses and Other Assets
Prepaid expenses
and other assets are comprised of the following:
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Prepaid expenses
and other assets
|
|
$
|
1,448,966
|
|
$
|
772,235
|
|
Receivable and
cash in escrow related to pending litigation settlement (see Note 6)
|
|
|
|
2,000,000
|
|
|
|
$
|
1,448,966
|
|
$
|
2,772,235
|
|
7
Table
of Contents
3.
Accrued Liabilities
Accrued liabilities are
comprised of the following:
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Accrued
personnel costs
|
|
$
|
1,952,953
|
|
$
|
2,816,404
|
|
Accrued clinical
manufacturing expenses
|
|
1,952,748
|
|
1,153,028
|
|
Accrued research
and development expenses
|
|
1,353,902
|
|
2,272,219
|
|
Accrued
litigation settlement costs (see Note 6)
|
|
|
|
2,000,000
|
|
Accrued
expensesother
|
|
1,347,726
|
|
1,353,061
|
|
|
|
$
|
6,607,329
|
|
$
|
9,594,712
|
|
4.
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 months ended March 31,
2009 and 2008 has been recognized in the accompanying Statements of Operations
as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
Research and
development
|
|
$
|
864,414
|
|
$
|
675,787
|
|
Clinical
manufacturing
|
|
108,298
|
|
103,230
|
|
Marketing,
general and administrative
|
|
1,405,443
|
|
1,335,494
|
|
Total
stock-based compensation expense
|
|
$
|
2,378,155
|
|
$
|
2,114,511
|
|
We did not recognize a related tax benefit during the
three months ended March 31, 2009 and 2008, as we maintain net operating
loss carryforwards and we have established a valuation allowance against the
entire tax benefit as of March 31, 2009.
SFAS 123R did not impact our net cash flows from operating, investing or
financing activities for the three months ended March 31, 2009 and
2008. No stock-based compensation
expense was capitalized on our Balance Sheet as of March 31, 2009 and December 31,
2008.
The following
table summarizes activity and related information for stock option awards
granted under our equity incentive plans:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Outstanding
at December 31, 2008
|
|
7,236,512
|
|
$
|
5.14
|
|
3,122,681
|
|
$
|
4.15
|
|
Granted
|
|
1,620,072
|
|
6.52
|
|
|
|
|
|
Exercised
|
|
(371,854
|
)
|
3.20
|
|
|
|
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2009
|
|
8,484,730
|
|
$
|
5.49
|
|
3,371,232
|
|
$
|
4.53
|
|
During the three months ended March 31, 2009, we
granted 1,620,072 stock options with a weighted-average
grant-date fair value of $3.97 per share.
During the three months ended March 31, 2009 and 2008, we
recorded stock-based compensation related to our stock option plans of
$2,224,730 and $1,946,600, respectively.
As of March 31, 2009, the unrecorded stock-based compensation
balance related to stock option awards was $10,911,125 and will be recognized
over an estimated weighted-average amortization period of 1.5 years.
8
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Contents
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:
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Term
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
As of
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
Options fully
vested and exercisable
|
|
3,371,232
|
|
6.6
|
|
$
|
4.53
|
|
$
|
6,311,144
|
|
Options expected
to vest, including effects of expected forfeitures
|
|
4,394,705
|
|
9.0
|
|
$
|
6.10
|
|
1,971,836
|
|
Options fully
vested and expected to vest
|
|
7,765,937
|
|
7.9
|
|
$
|
5.42
|
|
$
|
8,282,980
|
|
The aggregate intrinsic value in the tables above
represents the total pretax intrinsic value, based on our closing stock price
of $6.18 as of March 31, 2009, 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 March 31, 2009 was
2,762,110.
The total intrinsic value of options exercised during
the three months ended March 31, 2009 and 2008 was $1,544,156 and
$728,260, 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 months ended March 31, 2009 and 2008 as we maintain net operating
loss carryforwards and we have established a valuation allowance against the
entire tax benefit as of March 31, 2009.
The following table summarizes activity and related
information for restricted stock, or RS, awards granted under our equity incentive
plans:
|
|
Number of
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested
RS at December 31, 2008
|
|
293,750
|
|
$
|
4.07
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(101,250
|
)
|
3.90
|
|
Nonvested
RS at March 31, 2009
|
|
192,500
|
|
$
|
4.16
|
|
The shares of restricted
stock vest in four equal annual installments from the date of grant. D
uring the three months ended March 31,
2009 and 2008, we recorded stock-based compensation related to restricted stock
awards of $85,313 and $147,499, respectively.
As of March 31, 2009, the unrecorded stock-based compensation
balance related to restricted stock awards was $247,779 and will be recognized
over an estimated weighted-average amortization period of 1.3 years.
The following table summarizes activity and related
information for restricted stock unit, or RSU, awards granted under our equity
incentive plans:
|
|
Number of
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested
RSU at December 31, 2008
|
|
|
|
$
|
|
|
Granted
|
|
151,941
|
|
6.40
|
|
Vested
|
|
|
|
|
|
Nonvested
RSU at March 31, 2009
|
|
151,941
|
|
$
|
6.40
|
|
The shares of restricted
stock unit awards vest in four equal annual installments from the date of
grant. D
uring the three months
ended March 31, 2009 and 2008, we recorded stock-based compensation
related to restricted stock unit awards of $47,232 and $0, respectively. As of March 31, 2009, the unrecorded
stock-based compensation balance related to restricted stock unit awards was
$849,363 and will be recognized over an estimated weighted-average amortization
period of 1.7 years.
9
Table of Contents
5.
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,
restricted stock unit awards 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 March 31,
|
|
|
|
2009
|
|
2008
|
|
Common stock
options
|
|
1,963,239
|
|
1,953,517
|
|
Restricted stock
|
|
264,877
|
|
384,478
|
|
Restricted stock
units
|
|
62,465
|
|
|
|
|
|
2,290,581
|
|
2,337,995
|
|
6.
Commitments and Contingencies
Royalty and License Fee Commitments for pralatrexate
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
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 $2.5 million based on the passage of time. In the future, we could
make an aggregate milestone payment of $500,000 upon the earlier of achievement
of a clinical development milestone or the passage of certain time periods, or
the Clinical Milestone, and up to $10.3 million upon achievement of certain
regulatory milestones, or the Regulatory Milestones, including regulatory
approval to market pralatrexate in the United States or Europe. The last scheduled
payment towards the Clinical Milestone of $500,000 is currently due on December 23,
2009. We submitted an NDA for pralatrexate for the treatment of patients with
relapsed or refractory PTCL in March 2009.
We have requested a priority review of the application, which, if
granted, would give the FDA six months from receipt of the submission to take
action on the application. If the FDA
accepts our NDA for review and if we obtain FDA approval to market pralatrexate,
we will be obligated to make payments of $1,500,000 and $5,300,000,
respectively, which represent a portion of the Regulatory Milestones. 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
We were named as a defendant in a purported securities
class action lawsuit filed in May 2004 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
plaintiffs 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 settlement was
subject to various conditions, including without limitation approval of the
District Court. On January 29,
2009, the District Court issued its Order and Final Judgment approving the
settlement, including the releases of the defendants for which the settlement
provided. Neither we nor our former
officer, who was also named as a defendant, admitted any liability in
connection with the settlement. The
amount of the settlement in excess of our deductible was covered by our
insurance carrier. The period to appeal
the District Courts approval of the settlement
10
Table of Contents
lapsed during the three months ended March 31, 2009 without
any further appeals being filed and the settlement is final. As of March 31,
2009, we have been released of our obligation related to this lawsuit and have no
accrual remaining related to the settlement.
7.
Recent Accounting Pronouncements
In November 2007, the Emerging Issues Task Force,
or EITF, issued a consensus, EITF 07-1,
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 and we adopted it January 1, 2009.
We currently do not have any such arrangements.
In December 2007,
the Financial Accounting Standards Board, or FASB, issued SFAS No. 141(R),
Business Combinations
. This
Statement replaces SFAS No. 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 No. 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 No. 141(R)). In addition, SFAS No. 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 No. 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 No. 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 No. 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 and we adopted it January 1, 2009. We have not entered into any
business combinations and will apply it to any business combinations in the
future.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements
. SFAS No. 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 No. 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 No. 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 No. 160 is effective for fiscal periods, and interim periods within
those fiscal years, beginning on or after December 15, 2008 and we adopted
it January 1, 2009. We currently do not have any subsidiaries.
In March 2008, the
FASB issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
. SFAS No. 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 No. 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 No. 133. SFAS No. 161 is
effective for financial statements issued for fiscal years beginning after November 15,
2008, and interim periods beginning after that date and we adopted it January 1,
2009.
We
currently
do not have any derivative instruments.
In May 2008,
the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles
. SFAS No. 162
11
Table
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identifies
the sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States of America. SFAS No. 162 is effective 60
days following the SECs approval of the Public Company Accounting Oversight
Board, or PCAOB, amendments to AICPA Codification of Auditing Standards, AU Section 411,
The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles
.
This amendment
was approved by the PCAOB on September 16, 2008.
We do not anticipate that the adoption of
SFAS No. 162 will materially impact our financial statements.
In June 2008, the
FASB issued FASB Staff Position, or FSP, EITF 03-6-1,
Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities, or
FSP EITF 03-6-1, to address whether
instruments granted in share-based payment transactions are participating
securities prior to their vesting and therefore need to be included in the
earnings per share calculation under the two-class method described in SFAS No. 128,
Earnings per Share
. This FSP requires
companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividends or dividend equivalents as participating
securities and thus, include them in calculations of basic earnings per share.
FSP EITF 03-6-1 is effective for fiscal years beginning after December 15,
2008 and we adopted it January 1, 2009.
There was no impact to our financial statements.
In April 2009, the
FASB issued FSP FAS 107-1 and APB 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
. This FSP
amends FASB Statement No. 107,
Disclosures
about Fair Value of Financial Instruments
, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This
FSP also amends APB Opinion No. 28,
Interim
Financial Reporting
, to require those disclosures in summarized
financial information at interim reporting periods. This FSP shall be
effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. We
are currently evaluating the disclosure requirements, but do not anticipate
that the adoption will materially impact our financial statements.
In April 2009, the
FASB issued FSP FAS 115-2 and FAS 124-2,
Recognition
and Presentation of Other-Than-Temporary Impairments
. This FSP
amends the other-than-temporary impairment guidance in U.S. Generally Accepted
Accounting Principles for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. This FSP
does not amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. This FSP shall be
effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009. We are currently evaluating the potential impact, but do not
anticipate that the adoption of this FSP will materially impact our financial
statements.
8.
Subsequent
Event
On April 3, 2009, we
completed an underwritten public offering of 7,750,000 shares of our common
stock at the public offering price of $6.30 per share (the April 2009
Financing). We received net proceeds from the offering of approximately $46.8
million, after deducting underwriting commissions and estimated offering
expenses.
12
Table of Contents
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 regarding our New Drug
Application for pralatrexate as a treatment for patients with relapsed or
refractory peripheral T-cell lymphoma; our intent to present final results from
the PROPEL trial at an upcoming scientific meeting; our projected timeline for
completing enrollment in our Phase 2b trial comparing pralatrexate and
erlotinib in patients with advanced non-small cell lung cancer; our projected
net cash use in operating activities for fiscal year 2009; 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 that 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.
Pralatrexate
Pralatrexate is a
targeted antifolate designed to accumulate preferentially in cancer cells.
Based on preclinical studies, we believe that pralatrexate selectively enters
cells expressing RFC-1, a protein that is over expressed on certain cancer
cells compared to normal cells. Once inside cancer cells, pralatrexate is
efficiently polyglutamylated, which leads to high intracellular drug retention.
Polyglutamylated pralatrexate essentially becomes trapped inside cancer
cells, making it less susceptible to efflux-based drug resistance. Acting on
the folate pathway, pralatrexate interferes with DNA synthesis and triggers
cancer cell death. We believe pralatrexate has the potential to be
delivered as a single agent or in combination therapy regimens.
In February 2009, we announced the final results
from PROPEL, our pivotal Phase 2 trial of pralatrexate in patients with
relapsed or refractory peripheral T-cell lymphoma, or PTCL. The trial enrolled a total of 115 patients,
109 of whom were considered evaluable for response according to the trial
protocol. The results of the trial
demonstrated that 29 of 109 evaluable patients, or 27%, achieved a response as
assessed by central independent oncology review, which is the primary endpoint
of the trial. The Kaplan-Meier estimate
for the median duration of response was 287 days, or 9.4 months. Duration of response is the key secondary
endpoint of the trial. The most common
grade 3/4 adverse events were thrombocytopenia, which was observed in 32% of
patients; mucosal inflammation in 21% of patients; neutropenia in 20% of
patients; and anemia in 17% of patients.
Based on the results of this trial, we submitted a New
Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for
pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009. We have requested a priority review of the
application, which, if granted, would give the FDA six months from receipt of
the submission to take
13
Table of Contents
action on the application. If it is approved for marketing, we intend to
commercialize pralatrexate by building an oncology focused U.S. sales and
marketing organization that may be complemented by co-promotion arrangements
with pharmaceutical or biotechnology partners, where appropriate. We intend to enter into co-promotion or out-licensing
arrangements with other pharmaceutical or biotechnology partners, where
necessary to reach foreign market segments that are not reachable by a
U.S.-based sales force or when deemed strategically and economically
advisable. We currently retain exclusive
worldwide commercial rights to pralatrexate for all indications.
The PROPEL trial was conducted under an agreement
reached with the FDA under its special protocol assessment, or SPA, process.
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. However, 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 pralatrexate for the treatment of
patients with relapsed or refractory PTCL, or otherwise be sufficient to support
FDA or any foreign regulatory approval.
For example, 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, the median duration of response reported above is a Kaplan-Meier
estimate based on the length of follow up for all responders at the time the
PROPEL trial database was locked. As a result, the median duration of response
may change based on continued patient follow up.
In addition to the PROPEL trial, we are committed to
evaluating pralatrexate for oncology use as a single agent and in combination
with other therapies. We currently have
seven ongoing clinical trials involving pralatrexate, including the PROPEL
trial, and plan to initiate additional trials to evaluate pralatrexates
potential clinical utility in other hematologic malignancies and solid tumor
indications. The following clinical
trials involving pralatrexate are currently open for enrollment:
·
a Phase 2b,
randomized, multi-center study comparing pralatrexate and Tarceva (erlotinib),
both with vitamin B
12
and folic acid supplementation, in patients
with Stage IIIB/IV non-small cell lung cancer, or 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 a minimum of 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 third quarter of 2009.
·
a Phase 2,
open-label, single-arm, multi-center study of pralatrexate with vitamin B
12
and folic acid supplementation 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.
·
a Phase 1/2a,
open-label, multi-center study of pralatrexate 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 45 additional patients in the expanded Phase 2a portion of
the study.
·
a Phase 1,
open-label, multi-center study of pralatrexate with vitamin B
12
and folic acid supplementation in patients
with relapsed or refractory cutaneous T-cell lymphoma. We initiated patient enrollment in this study
in August 2007. We plan to enroll
up to 56 evaluable patients in the study with the objective of determining the
optimal dose and safety profile, including at least 20 patients at what we
believe to be the optimal dose and schedule.
·
a Phase 1/2,
open-label, single-center study of pralatrexate 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 pralatrexates potential clinical utility in this setting.
In addition to our ongoing NSCLC and bladder cancer
studies, we are evaluating the potential future development of pralatrexate 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
pralatrexate for one or more of these indications or that such development efforts
will be ultimately successful.
14
Table of Contents
The FDA has awarded orphan drug status to pralatrexate
for the treatment of patients with T-cell lymphoma, follicular lymphoma and
diffuse large B-cell lymphoma. Under the U.S. Orphan Drug Act, if we are the
first company to receive FDA approval for pralatrexate 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
pralatrexate 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. The FDA has also awarded fast track designation to
pralatrexate for the treatment of patients with T-cell lymphoma. The FDAs 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.
The European Medicines Agency, or EMEA, has granted
Orphan Medicinal Product Designation to pralatrexate for the treatment of PTCL
and non-papillary TCC of the urinary bladder. The EMEA Orphan Medicinal Product
Designation is intended to promote the development of drugs that may provide
significant benefit to patients suffering from rare diseases identified as
life-threatening or very serious. Under EMEA guidelines, Orphan Medicinal
Product Designation provides ten years of potential market exclusivity once the
product candidate is approved for marketing for the designated indication in
the European Union.
In December 2002, we entered into a license
agreement with Memorial Sloan-Kettering Cancer Center, SRI International and
Southern Research Institute. Under the agreement, as amended, we obtained
exclusive worldwide rights to a portfolio of patents and patent applications
related to pralatrexate and its uses. The portfolio currently consists of two
issued patents in the United States, two allowed patent applications in Europe,
and pending patent applications in the United States, Canada, Europe,
Australia, Japan, China, Brazil, Indonesia, 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 may have 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 have closed this study and are in the
process of determining our future development plans, if any, for RH1.
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 pralatrexate, conduct
clinical trials, obtain the necessary regulatory approvals, and manufacture and
market pralatrexate. The timing and costs to complete the successful
development of pralatrexate is highly
uncertain, and therefore difficult to estimate. The lengthy process of seeking
regulatory approvals for pralatrexate, 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, including
those discussed in the Risk Factors section of Part II, Item 1A
below. Because of these risks and uncertainties, we cannot predict when or
whether we will successfully complete the development of pralatrexate 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 pralatrexate.
Even if our clinical trials demonstrate the safety and
effectiveness of pralatrexate in its target indications, we do not expect to be
able to generate commercial sales of pralatrexate 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
15
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research and development programs, prepare for the
potential commercial launch of pralatrexate, and commercialize pralatrexate for
the treatment of patients with relapsed or refractory PTCL, if it is approved
for marketing.
We anticipate continuing our current development
programs and/or beginning other long-term development projects involving
pralatrexate. These projects may require many years and substantial
expenditures to complete and may ultimately be unsuccessful. In addition, we submitted an NDA for
pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009. We have requested a priority review of the
application, which, if granted, would give the FDA six months from receipt of
the submission to take action on the application. We expect to incur significant costs relating
to the potential commercialization of pralatrexate, including pre-commercial
scale up of manufacturing and development of sales and marketing
capabilities. Therefore, we will need to
raise additional capital to support our future operations, including the
potential commercialization of pralatrexate if approved for marketing. Our actual capital requirements will depend
on many factors, including those discussed under the Liquidity and
Capital Resources section below.
Comparison
of three months ended March 31, 2009 and 2008
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Research and
development
|
|
$
|
5,705,102
|
|
$
|
5,973,612
|
|
Clinical
manufacturing
|
|
2,655,272
|
|
1,586,558
|
|
Marketing,
general and administrative
|
|
6,962,650
|
|
5,011,364
|
|
|
|
|
|
|
|
Total operating
expenses
|
|
$
|
15,323,024
|
|
$
|
12,571,534
|
|
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 March 31, 2009 and 2008 were $5.7
million and $6.0 million, respectively.
The $269,000 decrease in research and development expenses in the three
months ended March 31, 2009 as compared to the same period in 2008 was
primarily due to a $663,000 decrease in clinical trial costs involving
pralatrexate, including decreased costs for PROPEL which completed patient
enrollment in April 2008. This
decrease was partially offset by a $525,000 increase related to key personnel
changes, mainly attributable to additional headcount and increases in
compensation costs year over year.
For the remainder
of 2009, we expect our average quarterly research and development expenses to
increase relative to the amount recorded for the three months ended March 31,
2009 due to the following:
·
potential increases in licensing costs for
pralatrexate, as $1.5 million of regulatory milestone payments under the
license agreement for pralatrexate will become due if the FDA accepts our NDA
for review in 2009 and $5.3 million of regulatory milestone payments under the
license agreement for pralatrexate will become due if the FDA approves
pralatrexate for marketing in the United States in 2009;
·
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 quarter of
expense related to our annual grants to existing employees that occurred at the
end of February 2009.
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 March 31, 2009 and 2008
were $2.7 million and $1.6 million, respectively. The $1.1 million increase in clinical
manufacturing expenses in the three months ended March 31, 2009 as
compared to the same period in 2008 was primarily due to the following:
·
an $829,000 increase in third-party
manufacturing costs for clinical trial material and pre-commercial scale-up
activities for pralatrexate; and
16
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·
a $392,000 increase in consulting
expenses, primarily related to preparations for submission of the NDA to the
FDA for pralatrexate for the treatment of patients with relapsed or refractory
PTCL in March 2009.
For the remainder of 2009, we expect our average
quarterly clinical manufacturing expenses to increase relative to the amount
recorded for the three months ended March 31, 2009 due to the following:
·
an increase in third-party
manufacturing costs for pralatrexate to support ongoing and planned clinical
trials and pre-commercial scale-up;
·
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 quarter of
expense related to our annual grants to existing employees which occurred at
the end of February 2009.
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 March 31, 2009 and 2008 were $7.0
million and $5.0 million, respectively.
The $2.0 million increase in marketing, general and administrative
expenses in the three months ended March 31, 2009 as compared to the same
period in 2008 was primarily due to the following:
·
a $1.1 million increase related to
pre-commercial planning activities for pralatrexate; and
·
a $413,000
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 remainder
of 2009, we expect our average quarterly marketing, general and administrative
expenses to increase relative to the amount recorded for the three months ended
March 31, 2009 due to the following:
·
an
increase in non-cash stock-based compensation expense related to grants for new
employees and a full quarter of expense related to our annual equity grants to
existing employees that occurred at the end of February 2009;
·
an
increase in costs relating to pre-commercial planning activities for
pralatrexate; and
·
an
increase in personnel costs, primarily resulting from additional headcount
related to preparation for the potential commercial launch of pralatrexate, if
it is approved for marketing.
Stock-based Compensation Expense.
Stock-based compensation
expense for the three months ended March 31, 2009 and 2008 has been
recognized in our Statements of Operations as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
Research and
development
|
|
$
|
864,414
|
|
$
|
675,787
|
|
Clinical
manufacturing
|
|
108,298
|
|
103,230
|
|
Marketing,
general and administrative
|
|
1,405,443
|
|
1,335,494
|
|
Total
stock-based compensation expense
|
|
$
|
2,378,155
|
|
$
|
2,114,511
|
|
Of the $2.4 million
of stock-based compensation recognized in the three months ended March 31,
2009, $2.2 million was related to our stock option plans, $133,000 related
to restricted stock and restricted stock units and $21,000 related to our
employee stock purchase plan. Of the
$2.1 million of stock-based compensation recognized in the three months
ended March 31, 2008, $1.9 million was related to our stock option
plans, $147,000 related to restricted stock and $20,000 related to our employee
stock purchase plan. The $264,000
increase in stock-based compensation expense in the three months ended March 31,
2009 as compared to the same period in 2008 was primarily due to the increase
in the number of options granted resulting from grants for new employees and
our annual grants to existing employees that occurred in February 2009.
As of March 31,
2009, the unrecorded stock-based compensation balance related to stock option
awards was $10.9 million and will be recognized over an estimated
weighted-average amortization period of 1.5 years. As of March 31, 2009,
the unrecorded stock-based compensation balance related to restricted stock
unit awards was $849,000 and will be recognized
17
Table of Contents
over an estimated
weighted-average amortization period of 1.7 years. As of March 31, 2009, the unrecorded
stock-based compensation balance related to restricted stock awards was
$248,000 and will be recognized over an estimated weighted-average amortization
period of 1.3 years.
Interest
and Other Income, Net
. Interest income, net of
interest expense, for the three months ended March 31, 2009 and 2008 was
$173,000 and $565,000, respectively. The
$392,000 decrease in net interest income in the three months ended March 31,
2009 as compared to the same period in 2008 was primarily due to lower yields
on our cash, cash equivalents and investments in marketable securities, and a
realized loss of approximately $157,000 on the sale of certain of our
investments in marketable securities during the three months ended March 31,
2009. In response to the instability in
the global financial markets, we reviewed our investments in marketable
securities and sold certain investments during the three months ended March 31,
2009 prior to their maturity in order to preserve our principal, as the issuers
of these securities experienced significant deteriorations in their
creditworthiness as evidenced by investment rating downgrades. We have the ability and intent to hold our
remaining investments in marketable securities as of March 31, 2009 to
their scheduled maturity, although we monitor our investment portfolio with the
primary objectives of preserving principal and maintaining proper liquidity to
meet our operating needs.
Liquidity
and Capital Resources
As of March 31,
2009, we had $72.5 million in cash, cash equivalents, and investments in
marketable securities. Until required
for use in our business, we invest our cash reserves in bank deposits, money
market funds, high-grade corporate notes and U.S. government instruments in
accordance with our investment policy.
The weighted average duration of the remaining time to maturity for our
portfolio of investments in marketable securities as of March 31, 2009 was
approximately three months. Our
investments in marketable securities as of March 31, 2009 primarily
consisted of high-grade corporate notes. We did not hold any derivative
instruments, foreign exchange contracts, asset backed securities, mortgage
backed securities, auction rate securities, or securities of issuers in
bankruptcy in our investment portfolio as of March 31, 2009. Our liquidity, capital resources and results
of operations may be adversely affected by future declines in the value of our
investments in marketable securities.
The value of our investments in marketable securities may be adversely
affected by rating downgrades or bankruptcies affecting the issuers of such
securities, whether caused by instability in the global financial markets, lack
of liquidity in the credit and capital markets, or other factors. We have the ability and intent to hold our
remaining investments in marketable securities as of March 31, 2009 to
their scheduled maturity, although we monitor our investment portfolio with the
primary objectives of preserving principal and maintaining proper liquidity to
meet our operating needs.
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 $329.7 million through March 31,
2009. On April 3, 2009, we
completed an underwritten public offering of 7,750,000 shares of our common
stock at the public offering price of $6.30 per share, (the April 2009
Financing). We received net proceeds from the offering of approximately $46.8
million, after deducting underwriting commissions and estimated offering
expenses. We plan to use the net proceeds from the offering primarily for
activities relating to preparations for the potential commercial launch of
pralatrexate, clinical and preclinical research and development of
pralatrexate, working capital and general corporate purposes. We have also
generated $23.7 million of net interest income since our inception from
investing the net proceeds of these financings.
We have used $250.3
million of cash for operating activities from our inception through March 31,
2009. Net cash used to fund our
operating activities for the three months ended March 31, 2009 and 2008
was $11.9 million and $9.3 million, respectively.
For fiscal year 2009, we
currently anticipate that net cash use in operating activities will approximate
$55 to $60 million. Our 2009 financial
guidance includes the phase-in of certain key investments related to the
potential commercialization of pralatrexate, as well as $1.5 million and $5.3
million of potential milestone payments under our license agreement for
pralatrexate payable upon FDA acceptance of our NDA for review and FDA approval
to market pralatrexate, respectively.
Net cash provided by
investing activities for the three months ended March 31, 2009 was $27.3
million and consisted primarily of proceeds from maturities and sales of
investments in marketable securities.
Net cash provided by investing activities for the three months ended March 31,
2008 was $4.1 million and consisted primarily of proceeds from maturities of
investments in marketable securities, partially offset by the purchase of
investments in marketable securities.
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Table of Contents
Net cash provided by financing activities for the
three months ended March 31, 2009 was $1.2 million and consisted primarily
of proceeds associated with the exercise of common stock options. On April 3, 2009, we completed the April 2009
Financing and we received net proceeds of approximately $46.8 million, after
deducting underwriting commissions and estimated offering expenses. Net
cash provided by financing activities for the three months ended March 31,
2008 was $2.3 million and consisted primarily of proceeds associated with the
exercise of common stock options.
Based upon the current status of our product
development plans, we believe that our cash, cash equivalents, and investments
in marketable securities as of March 31, 2009, together with the net
proceeds from the April 2009 Financing, 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
pralatrexate. These projects may require many years and substantial
expenditures to complete and may ultimately be unsuccessful. In addition, we submitted an NDA for
pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009. We have requested a priority review of the
application, which, if granted, would give the FDA six months from receipt of
the submission to take action on the application. If the FDA accepts our NDA for review and if
we obtain FDA approval to market pralatrexate, we will be obligated to make
license fee payments of $1.5 million and $5.3 million, respectively. We expect to incur significant costs relating
to the potential commercialization of pralatrexate, including pre-commercial
scale up of manufacturing and development of sales and marketing capabilities.
Therefore, we will need to raise additional capital to support our future operations. Our actual capital requirements will depend
on many factors, including:
·
the timing and outcome of
our NDA for pralatrexate for the treatment of patients with relapsed or
refractory PTCL;
·
the timing and costs
associated with developing sales and marketing capabilities and commercializing
pralatrexate, if it is approved for marketing;
·
the timing and costs
associated with manufacturing clinical and commercial supplies of pralatrexate;
·
the timing and amount of
revenues generated by our business activities, if any;
·
the timing and costs
associated with conducting preclinical and clinical development of
pralatrexate, as well as our evaluation of, and decisions with respect to,
additional therapeutic indications for which we may develop pralatrexate;
·
the timing, costs and
potential revenue associated with any co-promotion or other partnering
arrangements entered into to commercialize pralatrexate, if it is approved for
marketing; and
·
our evaluation of, and
decisions with respect to, potential in-licensing or product acquisition
opportunities or other strategic alternatives.
We may seek to obtain this additional capital through
equity or debt financings, arrangements with corporate partners, or from other
sources. Such financings or 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 particular, the current instability in the global financial markets and
lack of liquidity in the credit and capital markets may adversely affect our
ability to secure adequate capital to support our future operations. 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, which we would
otherwise seek to develop or commercialize ourselves on terms that are less
favorable than might otherwise be available.
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.
19
Table of Contents
Obligations and Commitments
Royalty and License Fee Commitments for Pralatrexate
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
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 $2.5 million based on the passage of time. In the future, we could
make an aggregate milestone payment of $500,000 upon the earlier of achievement
of a clinical development milestone or the passage of certain time periods, or
the Clinical Milestone, and up to $10.3 million upon achievement of certain
regulatory milestones, or the Regulatory Milestones, including regulatory
approval to market pralatrexate in the United States or Europe. The last
scheduled payment towards the Clinical Milestone of $500,000 is currently due
on December 23, 2009. We submitted an NDA for pralatrexate for the
treatment of patients with relapsed or refractory PTCL in March 2009. We have requested a priority review of the
application, which, if granted, would give the FDA six months from receipt of
the submission to take action on the application. If the FDA accepts our NDA for review and if
we obtain FDA approval to market pralatrexate, we will be obligated to make
payments of $1.5 million and $5.3 million, respectively, which represent a
portion of the Regulatory Milestones. 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.
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, 2008, as amended.
Recent
Accounting Pronouncements
For a description of our recent accounting
pronouncements, please see Note 7 of the unaudited March 31, 2009
financial statements included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Our financial instruments as of March 31, 2009
consisted 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 weighted average
duration of the remaining time to maturity for our portfolio of investments in
marketable securities as of March 31, 2009 was approximately three
months. As of March 31, 2009, our
investments in marketable securities of $25.5 million were all classified
as held-to-maturity and were held in a variety of interest-bearing instruments,
consisting mainly of high-grade corporate notes. We did not hold any derivative
instruments, foreign exchange contracts, asset backed securities, mortgage
backed securities, auction rate securities, or securities of issuers in
bankruptcy in our investment portfolio as of March 31, 2009. The value of our investments in marketable
securities may be adversely affected by rating downgrades or bankruptcies affecting
the issuers of such securities, whether caused by instability in the global
financial markets, lack of liquidity in the credit and capital markets, or
other factors. In response to the recent
instability in the global financial markets, we reviewed our investments in
marketable securities and sold certain investments that we deemed to have
increased risk during the three months ended March 31, 2009. We have the ability and intent to hold our
remaining investments in marketable securities as of March 31, 2009 to
their scheduled maturity, although we monitor our investment portfolio with the
primary objectives of preserving principal and maintaining proper liquidity to
meet our operating needs.
20
Table of Contents
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 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
Disclosure 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, 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, or the Exchange Act. Based on that evaluation, our management,
including our principal executive officer and principal financial officer,
concluded that our disclosure controls and procedures were effective as of March 31,
2009 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 our principal executive officer and
principal financial officer, 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 March 31,
2009 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting. In the first quarter of
2009, we implemented new accounting software in preparation for our potential
growth and the commercialization of pralatrexate.
PART II. OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
We were named as a defendant in a purported securities
class action lawsuit filed in May 2004 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
plaintiffs 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 settlement was
subject to various conditions, including without limitation approval of the
District Court. On January 29,
2009, the District Court issued its Order and Final Judgment approving the
settlement, including the releases of the defendants for which the settlement
provided. Neither we nor our former
officer, who was also named as a defendant, admitted any liability in
connection with the settlement. The
amount of the settlement in excess of our deductible was covered by our
insurance carrier. The period to appeal
the District Courts approval of the settlement lapsed during the three months
ended March 31, 2009 without any further appeals being filed and the settlement
is final. As of March 31, 2009, we have been released of our obligation
related to this lawsuit and have no accrual remaining related to the settlement.
21
Table of Contents
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 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, 2008, as amended, 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 that have been substantively
changed from those set forth in our Annual Report on Form 10-K for the
period ended December 31, 2008, as amended, 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 public and private sale of securities. For the three months ended March 31,
2009, we had a net loss of $15.2 million.
As of March 31, 2009, we had accumulated a deficit during our
development stage of $314.8 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 pralatrexate, conduct clinical trials,
obtain the necessary regulatory approvals, and manufacture and market
pralatrexate. 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 pralatrexate,
and in preparing for the potential commercial launch of pralatrexate. 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 pralatrexate, our lead product candidate. If we are unable
to successfully develop and obtain regulatory approval for pralatrexate 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, obtain
the necessary regulatory approvals therefor, and successfully commercialize
them. Substantially all of our efforts
and expenditures over the next few years will be devoted to pralatrexate as we
have closed our Phase 1 clinical study of RH1 in patients with advanced solid
tumors or NHL and are in the process of determining our future development
plans, if any, for RH1. Accordingly, our future prospects are substantially
dependent on the successful development, regulatory approval and
commercialization of pralatrexate for the treatment of patients with relapsed
or refractory PTCL. Even if we receive regulatory approval, pralatrexate is not
expected to be commercially available for this or any other indication until at
least the second half of 2009. Further, certain of the indications that we are
pursuing for pralatrexate 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 pralatrexate. If we are unable to
successfully develop, obtain regulatory approval for and commercialize
pralatrexate for the treatment of patients with 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 pralatrexate.
Pralatrexate is in the
clinical stage of development and has not been approved for marketing in the
United States or any other
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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 pralatrexate, we
will be unable to sell pralatrexate 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
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
pralatrexate, or we may not obtain regulatory review of pralatrexate in a
timely manner.
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 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 pralatrexate for the treatment
of patients with relapsed or refractory 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. 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
pralatrexate 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 pralatrexate for the treatment of patients
with relapsed or refractory PTCL.
Even if
pralatrexate meets safety and efficacy endpoints in clinical trials, regulatory
authorities may not approve pralatrexate, or we may face post-approval problems
that require withdrawal of pralatrexate from the market.
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. We will not be
able to commercialize pralatrexate 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.
Pralatrexate may not be
approved even if it achieves its 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 an 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 post-marketing studies or risk evaluation and mitigation
strategies (REMS) for a product candidate. In addition, regulatory agencies may
not approve the labeling claims that are necessary or desirable for the
successful commercialization of pralatrexate.
Even if we receive
regulatory approval, pralatrexate may later produce adverse events that limits
or prevents its widespread use or that force us to withdraw pralatrexate 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 pralatrexate could harm our business and prevent us
from ever generating meaningful revenues or achieving profitability.
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Even if we receive
regulatory approval for pralatrexate, we will be subject to ongoing regulatory
obligations and review.
Following any regulatory
approval of pralatrexate, 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
pralatrexate. In addition, we or our third-party manufacturers will be required
to adhere to regulations setting forth the FDAs current Good Manufacturing
Practices, or cGMP. These regulations cover all aspects of the manufacturing,
storage, testing, quality control and record keeping relating to pralatrexate.
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
substantial 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.
We will need to
raise additional capital to support our future operations. If we fail to obtain the capital necessary to
fund our operations, we will be unable to successfully develop or commercialize
pralatrexate. *
Based upon the current status of our product development
plans, we believe that our cash, cash equivalents, and investments in
marketable securities as of March 31, 2009, together with the net proceeds
from the April 2009 Financing, 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. We anticipate continuing our current
development programs and/or beginning other long-term development projects
involving pralatrexate. These projects may require many years and substantial
expenditures to complete and may ultimately be unsuccessful. In addition, we submitted an NDA to the FDA
for pralatrexate for the treatment of patients with relapsed or refractory PTCL
in March 2009. We expect to incur
significant costs relating to the potential commercialization of pralatrexate,
including pre-commercial scale up of manufacturing and development of sales and
marketing capabilities. Therefore, we
will need to raise additional capital to support our future operations. Our actual capital requirements will depend on
many factors, including:
·
the timing and outcome of
our NDA for pralatrexate for the treatment of patients with relapsed or
refractory PTCL;
·
the timing and costs
associated with developing sales and marketing capabilities and commercializing
pralatrexate, if it is approved for marketing;
·
the timing and costs
associated with manufacturing clinical and commercial supplies of pralatrexate;
·
the timing and amount of
revenues generated by our business activities, if any;
·
the timing and costs
associated with conducting preclinical and clinical development of
pralatrexate, as well as our evaluation of, and decisions with respect to,
additional therapeutic indications for which we may develop pralatrexate;
·
the timing, costs and
potential revenue associated with any co-promotion or other partnering
arrangements entered into to commercialize pralatrexate, if it is approved for
marketing; and
·
our evaluation of, and
decisions with respect to, potential in-licensing or product acquisition
opportunities or other strategic alternatives.
We may seek to obtain
this additional capital through equity or debt financings, arrangements with
corporate partners, or from other sources. Such financings or 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 particular, the current instability in
the global financial markets and lack of liquidity in the credit and capital
markets may adversely affect our ability to secure adequate capital to support
our future operations. 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
might otherwise seek to develop or commercialize ourselves on terms that are
less favorable than might otherwise be available. If we are unable to generate meaningful
amounts of revenue
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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.
Budget constraints
may force us to delay our efforts to develop pralatrexate for certain
indications in favor of developing it for other indications, which may prevent
us from commercializing pralatrexate for all desired indications 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 of
pralatrexate for certain indications and may not be able to fully realize the
value of pralatrexate for other indications in a timely manner, if at all.
If pralatrexate
fails to meet safety and efficacy endpoints in clinical trials, it will not
receive regulatory approval and we will be unable to market pralatrexate. *
Pralatrexate 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 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 U.S. 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 pralatrexate and any other 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 pralatrexate clinical trials is based on
many assumptions about the expected effect of pralatrexate, and if those
assumptions prove incorrect, the clinical trials may not demonstrate the safety
or efficacy of pralatrexate. 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 pralatrexate fails to show
clinically significant benefits, it 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. 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 for pralatrexate, it would
significantly increase our expenses and delay potential marketing of
pralatrexate.
We announced the final
results from our pivotal Phase 2 PROPEL trial in February 2009. Based
on the results of the trial, we submitted an NDA to the FDA for pralatrexate
for the treatment of patients with relapsed or refractory PTCL in March 2009. 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 pralatrexate for the treatment of patients with relapsed
or refractory PTCL, or otherwise be sufficient to support FDA or any foreign
regulatory approval. The FDA may disagree with our interpretation of the
results of the trial and determine that the data are not sufficient to support
approval. If we fail to obtain regulatory approval for pralatrexate, we will be
unable to market and sell pralatrexate and therefore may never generate
meaningful amounts of revenue or become profitable.
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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 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, 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 that 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.
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 at the
medical institutions where the clinical trials are conducted. In addition,
clinical trials must be conducted with product candidates produced under 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;
·
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;
·
the 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 Institutional Review Boards for
reexamination, which may impact the costs, timing or successful completion of a
clinical trial. Due to these and other factors, pralatrexate 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 pralatrexate.
Reports of adverse
events or safety concerns involving pralatrexate 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
pralatrexate.
Pralatrexate may produce
serious adverse events. These adverse events could interrupt, delay or halt
clinical trials of pralatrexate and could result in the FDA or other regulatory
authorities denying approval of pralatrexate for any or all targeted
indications. An independent data safety monitoring board, the FDA, other
regulatory authorities or we may suspend
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or terminate clinical
trials at any time. We cannot assure you that pralatrexate or any other product
candidate 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,
pralatrexate, we could encounter delays in the timing of our clinical trials or
difficulties in obtaining the approval of pralatrexate. In addition, the public
perception of pralatrexate 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, any of which may adversely affect 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.
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 pralatrexate for clinical trials
and, if approved, for commercial sale. If we are unable to contract for a
sufficient supply of pralatrexate 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 pralatrexate, if it
is approved for marketing.
Pralatrexate is
cytotoxic, which requires the manufacturers of pralatrexate to have specialized
equipment and safety systems to handle such a substance. In addition, the
starting materials for pralatrexate require custom preparations, which will
require us to manage an additional set of suppliers to obtain the needed
supplies of pralatrexate.
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 pralatrexate or its 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 effect on our ability to continue clinical development of pralatrexate
or commercialize pralatrexate, if it is approved for marketing.
Even if we obtain
approval to market pralatrexate in one or more indications, our current or
future manufacturers may be unable to accurately and reliably manufacture
commercial quantities of pralatrexate 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 pralatrexate will be materially and adversely affected. This risk
may be heightened with respect to pralatrexate as there are a limited number of
fill/finish manufacturers with the ability to handle cytotoxic products such as
pralatrexate. Our reliance on contract manufacturers exposes us to additional
risks, including:
·
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
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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 pralatrexate. They could also entail higher
costs and result in our being unable to effectively commercialize pralatrexate.
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 pralatrexate. 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
pralatrexate, 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 pralatrexate 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
pralatrexate, or fail to obtain a license at a reasonable cost, we will be
unable to commercialize pralatrexate 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 that we seek to protect through confidentiality
agreements with our collaborators, employees, advisors 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 agreements 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 pralatrexate 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
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dependent 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 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 product candidates or 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.
If we enter into one or more strategic
partnerships, we may be required to relinquish important rights to and control
over the development of pralatrexate 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 pralatrexate;
·
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 pralatrexate or any
other 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 pralatrexate or any other product candidate
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 pralatrexate or any other product candidate.
29
Table of Contents
Acceptance of
pralatrexate in the marketplace is uncertain, and failure to achieve market
acceptance will limit our ability to generate revenue and become profitable.
Even if pralatrexate is
approved for marketing, pralatrexate 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 pralatrexate and its potential advantages over existing and newly
developed therapeutic products;
·
ease of use
of pralatrexate;
·
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.
Physicians, patients,
payors or the medical community in general may be unwilling to accept, utilize
or recommend the use of pralatrexate.
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 pralatrexate will depend, in part, on the extent to
which coverage and reimbursement for pralatrexate 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 pralatrexate. If government and
other third-party payors do not provide adequate coverage and reimbursement
levels for pralatrexate, pralatrexates 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 such
exclusivity.
The FDA has awarded orphan drug status to pralatrexate
for the treatment of patients with T-cell lymphoma, follicular lymphoma and
diffuse large B-cell lymphoma. Under the Orphan Drug Act, if we are the first
company to receive FDA approval for pralatrexate 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 pralatrexate 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.
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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 that 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 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 that 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 be
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 pralatrexate effectively.
We have limited experience
in sales, marketing and distribution. If
it is approved for marketing, we intend to build commercialize pralatrexate by
building an oncology-focused U.S. sales and marketing organization that may be
complemented by co-promotion arrangements with pharmaceutical or biotechnology
partners, where appropriate. We intend
to enter into co-promotion or out-licensing arrangements with other
pharmaceutical or biotechnology partners where necessary to reach foreign market
segments that are not reachable by a U.S.-based sales force or when deemed
strategically and economically advisable. To directly market and distribute
pralatrexate, we must build a sales and marketing organization with appropriate
technical expertise and distribution capabilities. 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 pralatrexate, and some or all of the revenues we receive will
depend upon the
31
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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 pralatrexate, our
commercial opportunity will be reduced or eliminated.
Even if we obtain the
necessary regulatory approvals to market pralatrexate, 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 pralatrexate. 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.
If product
liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of
pralatrexate.
The testing and marketing
of pharmaceutical products entail an inherent risk of product liability.
Product liability claims might be brought against us by consumers or 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 pralatrexate. 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
such 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 pralatrexate, if it is approved for marketing.
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 pralatrexate or result in termination of
our pralatrexate development program in its entirety. Mr. Berns and Dr. Cagnoni,
as well as others on our executive management team, have employment 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 of pharmaceutical products. 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 the Company.
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
pralatrexate, together with our general operations, are subject to extensive
regulation by federal, state and other authorities within the United States and
numerous entities outside of the United States. We have fewer employees than
many other companies that have one or more product candidates in late stage
clinical development and we rely heavily on third parties to conduct many
important functions.
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As a publicly-traded
company, we are subject to significant regulations including the Sarbanes Oxley
Act of 2002. 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 pralatrexate, 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, managements assessment 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. and Baker Brothers Life Sciences, L.P. 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., or 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, or 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 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 completed an underwritten offering of 9,000,000 shares of common stock, of
which Baker Brothers Life Sciences, L.P. and certain other affiliated funds,
which are collectively referred to hereinafter as Baker, purchased 3,300,000
shares, at a price per share of $6.00, for aggregate gross proceeds of
approximately $54.0 million. In connection
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Table of Contents
therewith, 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.
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. Warburg and Baker purchased 3,500,000 and 1,500,000
shares, respectively, of the 12,420,000 shares sold in such public offering.
As of March 31,
2009, we had 81,610,666 shares of common stock outstanding, of which Warburg
owned 26,124,430 shares, or approximately 32.0% of the voting power of our
outstanding common stock. According to filings with the SEC, as of February 6,
2009, Baker owns less than 10% 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 make 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 that 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, in connection with our 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
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Contents
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 our 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.
Unstable market conditions may have serious
adverse consequences on our business.
The recent economic downturn and market instability
has made the business climate more volatile and more costly. Our general
business strategy may be adversely affected by unpredictable and unstable
market conditions. If the current equity and credit markets deteriorate
further, or do not improve, it may make any necessary equity or debt financing
more difficult, more costly, and more dilutive. While we believe we have
adequate capital resources to meet our expected working capital and capital
expenditure requirements for at least the next 12 months, a radical economic
downturn or increase in our expenses could require additional financing on less
than attractive rates or on terms that are excessively dilutive to existing
stockholders. Failure to secure any necessary financing in a timely manner and
on favorable terms could have a material adverse effect on our growth strategy,
financial performance and stock price and could require us to delay or abandon
clinical development plans. There is a risk that one or more of our current
service providers, manufacturers or other partners may encounter difficulties
during challenging economic times, which could have an adverse effect on our
business, results of operations and financial condition.
Our liquidity, capital resources and results of
operations may be adversely affected by declines in the value of our
investments in marketable securities.*
As of March 31,
2009, we had $72.5 million in cash, cash equivalents, and investments in
marketable securities. Until required
for use in our business, we invest our cash reserves in bank deposits, money
market funds, high-grade corporate notes and U.S. government instruments in
accordance with our investment policy.
The weighted average duration of the remaining time to maturity for our
portfolio of investments in marketable securities as of March 31, 2009 was
approximately three months. Our
investments in marketable securities as of March 31, 2009 primarily
consisted of high-grade corporate notes. We did not hold any derivative
instruments, foreign exchange contracts, asset backed securities, mortgage
backed securities, auction rate securities, or securities of issuers in
bankruptcy in our investment portfolio as of March 31, 2009.
Based upon the current
status of our product development and commercialization plans, we believe that
our cash, cash equivalents, and investments in marketable securities as of March 31,
2009, together with the net proceeds from the April 2009 Financing, 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. In particular, our
liquidity, capital resources and results of operations may be adversely
affected by declines in the value of our investments in marketable securities. The value of our investments in marketable securities
may be adversely affected by rating downgrades or bankruptcies affecting the
issuers of such securities, whether caused by instability in the global
financial markets, lack of liquidity in the credit and capital markets, or
other factors. For example, during the
three months ended March 31, 2009 and September 30, 2008, we realized
losses of approximately $157,000 and $552,000, respectively, on the sale of
certain of our investments in marketable securities, which were sold in order
to preserve our principal as the issuers of these securities experienced
significant deteriorations in their creditworthiness as evidenced by investment
rating downgrades. We have the ability
and intent to hold our remaining investments in marketable securities as of March 31,
2009 to their scheduled maturity, although we monitor our investment portfolio
with the primary objectives of preserving principal and maintaining proper
liquidity to meet our operating needs.
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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 regulatory approvals or
non-approvals of pralatrexate or of competing product candidates;
·
actual or anticipated results of our clinical
trials involving pralatrexate;
·
changes in laws or regulations applicable to
pralatrexate;
·
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;
·
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.
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
36
Table of Contents
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.
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
|
None
|
|
|
|
ITEM 5.
|
OTHER INFORMATION
|
None
|
|
|
|
ITEM 6.
|
EXHIBITS
|
|
Exhibit No.
|
|
Note
|
|
Description
|
10.22.3
|
|
(1)
|
|
Form of Restricted Stock Unit Grant Notice and
Agreement under the 2008 Equity Incentive Plan.
|
10.23
|
|
(2)
|
|
Allos Therapeutics, Inc. Severance Benefit
Plan, as amended and restated effective December 11, 2007.
|
10.23.1
|
|
(3)
|
|
Allos Therapeutics, Inc. Change in Control
Severance Benefit Schedule, as amended and restated effective
February 23, 2009.
|
10.24
|
|
(4)
|
|
Executive Compensation and Equity Awards.
|
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..
|
Indicates
management contract or compensatory plan or arrangement.
#
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, 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 10.2 filed with our current report on Form 8-K
filed on February 27, 2009.
(2)
Incorporated
by reference to exhibit 10.3 filed with our current report on Form 8-K
filed on February 27, 2009.
(3)
Incorporated
by reference to exhibit 10.4 filed with our current report on Form 8-K
filed on February 27, 2009.
(4)
Incorporated
by reference to exhibit 10.1 filed with our current report on Form 8-K
filed on February 27, 2009.
37
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: May 5, 2009
|
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)
|
38
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