Table of Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
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Quarterly report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the
quarterly period ended June 30, 2009.
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o
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Transition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the
transition period from
to
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Commission
File Number
000-29815
Allos
Therapeutics, Inc.
(Exact name of
Registrant as specified in its charter)
Delaware
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54-1655029
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(State or other
jurisdiction of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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11080
CirclePoint Road, Suite 200
Westminster,
Colorado 80020
(303)
426-6262
(Address,
including zip code, and telephone number,
including area code, of principal executive offices)
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant 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
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Accelerated filer
x
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Non-accelerated
filer
o
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Smaller reporting
company
o
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(Do not check if a
smaller reporting company)
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
As of July 31, 2009,
there were 89,389,188 shares of the registrants Common Stock, par value
$0.001 per share, outstanding.
Table of Contents
ALLOS
THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
NOTE:
Allos
Therapeutics, Inc., the Allos Therapeutics, Inc. logo, and all other Allos names are trademarks of
Allos Therapeutics, Inc. in the United States and in other selected
countries. All other brand names or trademarks appearing in this report are the
property of their respective holders. Unless the context requires otherwise,
references in this report to Allos, the Company, we, us, and our
refer to Allos Therapeutics, Inc.
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLOS THERAPEUTICS, INC.
(A Development
Stage Enterprise)
BALANCE SHEETS
(unaudited)
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June 30,
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December 31,
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2009
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2008
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ASSETS
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Current
assets:
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Cash and cash
equivalents
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$
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95,621,117
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$
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30,458,424
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Restricted cash
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237,632
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237,632
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Investments in
marketable securities
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9,242,900
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53,468,942
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Prepaid research
and development expenses
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964,251
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919,384
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Prepaid expenses
and other assets
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1,972,422
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2,772,235
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Total current
assets
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108,038,322
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87,856,617
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Property and
equipment, net
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1,521,889
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1,307,084
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Investments in
marketable securities
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346,396
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38,480
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Other assets
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92,979
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137,423
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Total assets
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$
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109,999,586
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$
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89,339,604
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current
liabilities:
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Trade accounts
payable
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$
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1,676,979
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$
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280,526
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Accrued
liabilities
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7,713,207
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9,594,712
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Total current
liabilities
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9,390,186
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9,875,238
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Commitments and
contingencies (See Note 8)
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Stockholders
equity:
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Preferred stock,
$0.001 par value; 10,000,000 shares authorized at June 30, 2009 and
December 31, 2008; no shares issued or outstanding
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Series A
Junior Participating Preferred Stock, $0.001 par value; 1,000,000 shares
designated from authorized preferred stock at June 30, 2009 and
December 31, 2008; no shares issued or outstanding
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Common stock,
$0.001 par value; 150,000,000 shares authorized at June 30, 2009 and
December 31, 2008; 89,389,188 and 81,238,812 shares issued and
outstanding at June 30, 2009 and December 31, 2008, respectively
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89,389
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81,239
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Additional
paid-in capital
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432,136,245
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379,042,015
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Deficit
accumulated during the development stage
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(331,616,234
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)
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(299,658,888
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)
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Total
stockholders equity
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100,609,400
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79,464,366
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Total
liabilities and stockholders equity
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$
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109,999,586
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$
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89,339,604
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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)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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Cumulative
Period from
September 1, 1992
(date of inception)
through
June 30,
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2009
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2008
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2009
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2008
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2009
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Operating
expenses:
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Research
and development
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$
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7,170,215
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$
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5,403,924
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$
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12,875,317
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$
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11,377,536
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$
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162,023,241
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Clinical
manufacturing
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1,606,163
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1,485,052
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4,261,435
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3,071,610
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45,620,687
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Marketing,
general and administrative
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8,036,594
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5,438,764
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14,999,244
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10,450,128
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140,873,213
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Restructuring
and separation costs
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1,663,821
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Total
operating expenses
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16,812,972
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12,327,740
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32,135,996
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24,899,274
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350,180,962
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Loss
from operations
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(16,812,972
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(12,327,740
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(32,135,996
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(24,899,274
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(350,180,962
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)
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Gain
on settlement claims
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5,110,083
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Interest
and other income, net
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6,050
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504,025
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178,650
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1,068,960
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23,691,109
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Net
loss
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(16,806,922
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)
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(11,823,715
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(31,957,346
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)
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(23,830,314
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)
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(321,379,770
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)
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Dividend
related to beneficial conversion feature of preferred stock
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(10,236,464
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)
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Net
loss attributable to common stockholders
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$
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(16,806,922
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)
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$
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(11,823,715
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)
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$
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(31,957,346
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)
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$
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(23,830,314
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)
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$
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(331,616,234
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)
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Net
loss per share: basic and diluted
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$
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(0.19
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)
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$
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(0.16
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)
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$
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(0.38
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)
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$
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(0.34
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)
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Weighted
average shares outstanding: basic and diluted
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89,011,044
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72,382,487
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85,075,532
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69,916,800
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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)
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Six Months Ended
June 30,
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Cumulative
Period From
September 1, 1992
(date of inception)
through
June 30,
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2009
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2008
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2009
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Cash
Flows From Operating Activities:
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Net
loss
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$
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(31,957,346
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)
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$
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(23,830,314
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)
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$
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(321,379,770
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)
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Adjustments
to reconcile net loss to net cash used in operating activities:
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Depreciation
and amortization
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190,235
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207,088
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4,031,280
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Stock-based
compensation expense
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4,847,736
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4,103,659
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45,149,904
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Write-off
of long-term investment
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1,000,000
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Realized
loss on sale of marketable securities
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157,141
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708,839
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Other
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149,040
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266,849
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Changes
in operating assets and liabilities:
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Prepaid
expenses and other assets
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799,391
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(666,973
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)
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(3,019,651
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)
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Interest
receivable on investments
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653,240
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(106,730
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)
|
(179,920
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)
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Accounts
payable
|
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1,396,453
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|
495,759
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|
1,676,979
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Accrued
liabilities
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(1,881,505
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)
|
265,267
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7,713,207
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Net
cash used in operating activities
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(25,645,615
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)
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(19,532,244
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)
|
(264,032,283
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)
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Cash
Flows From Investing Activities:
|
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Acquisition
of property and equipment
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(554,081
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)
|
(235,269
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)
|
(5,466,892
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)
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Pledge
of restricted cash
|
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|
|
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|
(237,632
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)
|
Purchases
of marketable securities
|
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(36,055
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)
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(59,112,151
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)
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(609,632,312
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)
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Proceeds
from maturities of marketable securities
|
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39,250,000
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41,200,000
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588,872,797
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Proceeds
from sales of marketable securities
|
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3,893,800
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10,641,300
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|
Purchase
of long-term investment
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|
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(1,000,000
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)
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Payments
received on notes receivable
|
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|
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|
49,687
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|
Net
cash provided by (used in) investing activities
|
|
42,553,664
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(18,147,420
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)
|
(16,773,052
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)
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Cash
Flows From Financing Activities:
|
|
|
|
|
|
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Principal
payments under capital leases
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(422,088
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)
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Proceeds
from sales leaseback
|
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120,492
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Proceeds
from issuance of convertible preferred stock, net of issuance costs
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89,125,640
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Proceeds
from issuance of common stock associated with stock options, stock warrants
and employee stock purchase plan
|
|
1,313,355
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3,215,274
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16,324,172
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Proceeds
from issuance of common stock, net of issuance costs
|
|
46,941,289
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|
65,155,259
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|
271,278,236
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Net
cash provided by financing activities
|
|
48,254,644
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|
68,370,533
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|
376,426,452
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|
Net
increase in cash and cash equivalents
|
|
65,162,693
|
|
30,690,869
|
|
95,621,117
|
|
Cash
and cash equivalents, beginning of period
|
|
30,458,424
|
|
15,919,664
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
95,621,117
|
|
$
|
46,610,533
|
|
$
|
95,621,117
|
|
Supplemental
Schedule of Cash and Non-cash Operating and Financing Activities:
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|
|
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Cash
paid for interest
|
|
$
|
|
|
$
|
|
|
$
|
1,033,375
|
|
Issuance
of stock in exchange for license agreement
|
|
|
|
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|
40,000
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|
Capital
lease obligations incurred for acquisition of property and equipment
|
|
|
|
|
|
422,088
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|
Issuance
of stock in exchange for notes receivable
|
|
|
|
|
|
139,687
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Conversion
of preferred stock to common stock
|
|
|
|
|
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89,125,640
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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, or U.S. GAAP, have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, or SEC.
Operating results for the three and six months ended June 30, 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 June 30, 2009, as defined
in Statement of Financial Accounting Standards, or SFAS, No. 7,
Accounting and Reporting by Development Stage
Enterprises.
Liquidity
We are a
biopharmaceutical company committed to the development and commercialization of
innovative anti-cancer therapeutics. We are currently focused on the
development and commercialization of pralatrexate, a selective antifolate
designed to accumulate preferentially in cancer cells. Accordingly, 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. 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 commercialization of pralatrexate for
the treatment of patients with relapsed or refractory peripheral T-cell
lymphoma, or PTCL, if it is approved for marketing.
As of June 30, 2009,
we had $105.2 million in cash, cash equivalents and investments in marketable
securities. 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 June 30,
2009 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 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 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. In May 2009, the FDA accepted the NDA
for priority review and established a Prescription Drug User Fee Act date of September 24,
2009 for a decision regarding approval of the NDA. If the FDA approves our NDA,
we expect to incur significant costs relating to the potential
commercialization of pralatrexate, including costs related to the development
of our sales and marketing, medical affairs and manufacturing operations. 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;
|
6
Table
of Contents
·
|
|
the timing and
costs associated with developing our sales and marketing, medical affairs and
manufacturing operations for the potential commercialization of 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.
Fair Value of
Financial Instruments
Cash, Cash
Equivalents and Investments in Marketable Securities
All highly liquid investments with
original maturities of three months or less are considered to be cash
equivalents. The carrying values of our cash equivalents and investments in
marketable securities approximate their market values based on quoted market
prices. We account for investments in marketable securities in accordance with
SFAS No. 115,
Accounting for Certain
Investments in Debt and Equity Securities
. Investments in marketable
securities are classified as held to maturity and are carried at cost plus
accrued interest. Our cash and cash equivalents are maintained in a financial
institution in amounts that, at times, may exceed federally insured limits. We
realized a loss of approximately $0 and $157,000 on the sale of certain of our
investments in marketable securities during the three and six months ended June 30,
2009, with no such losses in the three or six months ended June 30,
2008. In response to the recent
instability in the global financial markets, we reviewed our investments in
marketable securities and sold certain investments prior to their maturity in
order to preserve our principal, as the issuers of those 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 June 30,
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. The weighted average duration of the
remaining time to maturity for our portfolio of investments in marketable
securities as of June 30, 2009 was approximately three months. As of June 30, 2009, our investments in
marketable securities 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 June 30, 2009.
Fair Value of
Financial Instruments
Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
, or SFAS 157,
provides a framework for measuring fair value, expands the disclosures required
for fair value measurements and establishes a common definition of fair value
applicable to all assets and liabilities measured at fair value. SFAS 157
defines fair value as the price that would be
7
Table of Contents
received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. The fair value hierarchy established by SFAS 157 prioritizes
the inputs into valuation techniques used to measure fair value. Accordingly,
we use valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs when determining fair value. The three
levels of the hierarchy are as follows:
Level 1: Inputs
that reflect unadjusted quoted prices in active markets that are accessible to
us for identical assets or liabilities;
Level 2: Inputs
include quoted prices for similar assets and liabilities in active and inactive
markets or that are observable for the asset or liability either directly or
indirectly; and
Level 3:
Unobservable inputs that are supported by little or no market activity.
We have no assets or liabilities that
were measured using quoted prices for similar assets and liabilities or
significant unobservable inputs (Level 2 and Level 3 assets and liabilities,
respectively) as of June 30, 2009.
Our financial instruments include cash and cash equivalents, investments
in marketable securities, prepaid expenses, accounts payable and accrued
liabilities. The carrying amounts of financial instruments approximate their
fair value due to their short maturities. The carrying value of our cash held
in money market funds totaling $95.5 million as of June 30, 2009 is
included in cash and cash equivalents on our Balance Sheet and approximates
their market values based on quoted market prices, or Level 1 inputs.
3.
Prepaid Expenses
and Other Assets
Prepaid expenses and
other assets are comprised of the following:
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Prepaid
expenses and other assets
|
|
$
|
1,972,422
|
|
$
|
772,235
|
|
Receivable
and cash in escrow related to litigation settlement (see Note 8)
|
|
|
|
2,000,000
|
|
|
|
$
|
1,972,422
|
|
$
|
2,772,235
|
|
4.
Accrued
Liabilities
Accrued liabilities are
comprised of the following:
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Accrued
personnel costs
|
|
$
|
2,461,421
|
|
$
|
2,816,404
|
|
Accrued
clinical manufacturing expenses
|
|
1,943,674
|
|
1,153,028
|
|
Accrued
research and development expenses
|
|
1,650,779
|
|
2,272,219
|
|
Accrued
litigation settlement costs (see Note 8)
|
|
|
|
2,000,000
|
|
Accrued
expensesother
|
|
1,657,333
|
|
1,353,061
|
|
|
|
$
|
7,713,207
|
|
$
|
9,594,712
|
|
5.
Stockholders
Equity
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. We received net proceeds
from the offering of $46.9 million, after deducting $1.4 million of
underwriting commissions and $489,000 of estimated offering expenses.
At our Annual Meeting of
Stockholders held on June 23, 2009, our stockholders approved an amendment
to the Allos Therapeutics, Inc. 2008 Equity Incentive Plan, or the Plan,
to increase the aggregate number of shares of common stock authorized for
issuance under the Plan by 5,750,000 shares. Our board of directors had
previously approved the amendment and recommended its approval to our
stockholders.
8
Table of Contents
6.
Stock-Based
Compensation
In accordance with the
modified prospective transition method of SFAS No. 123 (Revised 2004),
Share-Based Payment
, stock-based compensation expense for
the three and six months ended June 30, 2009 and 2008 has been recognized
in the accompanying Statements of Operations as follows:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Research
and development
|
|
$
|
847,029
|
|
$
|
661,830
|
|
$
|
1,711,443
|
|
$
|
1,337,617
|
|
Clinical
manufacturing
|
|
100,028
|
|
103,782
|
|
208,326
|
|
207,012
|
|
Marketing,
general and administrative
|
|
1,522,524
|
|
1,223,536
|
|
2,927,967
|
|
2,559,030
|
|
Total
stock-based compensation expense
|
|
$
|
2,469,581
|
|
$
|
1,989,148
|
|
$
|
4,847,736
|
|
$
|
4,103,659
|
|
We did not recognize a
related tax benefit during the three or six months ended June 30, 2009 and
2008 as we maintain net operating loss carryforwards and we have established a
valuation allowance against the entire tax benefit as of June 30,
2009. No stock-based compensation
expense was capitalized on our Balance Sheets as of June 30, 2009 and December 31,
2008.
The following table
summarizes activity and related information for our stock option awards:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at December 31, 2008
|
|
7,236,512
|
|
$
|
5.14
|
|
3,122,681
|
|
$
|
4.15
|
|
Granted
|
|
2,158,632
|
|
6.60
|
|
|
|
|
|
Exercised
|
|
(385,899
|
)
|
3.21
|
|
|
|
|
|
Canceled
|
|
(13,334
|
)
|
9.37
|
|
|
|
|
|
Outstanding at June 30, 2009
|
|
8,995,911
|
|
$
|
5.57
|
|
3,881,455
|
|
$
|
4.70
|
|
During the six months
ended June 30, 2009, we granted 2,158,632 stock options with a weighted-average grant-date fair value of
$4.06 per share. During the three
months ended June 30, 2009 and 2008, we recorded stock-based compensation
related to our stock option plans of $2,272,914 and $1,890,921,
respectively. During the six months ended June 30, 2009 and 2008, we
recorded stock-based compensation related to our stock option plans of
$4,497,644 and $3,837,521, respectively. As of June 30, 2009, the
unrecorded stock-based compensation balance related to stock option awards was
$10,497,396 and will be recognized over an estimated weighted-average
amortization period of 1.4 years.
The following table
summarizes information about outstanding stock options that are fully vested
and currently exercisable, and outstanding stock options that are expected to
vest in the future:
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Term
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
As of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
Options
fully vested and exercisable
|
|
3,881,455
|
|
6.6
|
|
$
|
4.70
|
|
$
|
13,985,093
|
|
Options
expected to vest, including effects of expected forfeitures
|
|
4,357,607
|
|
8.9
|
|
$
|
6.21
|
|
9,137,859
|
|
Options
fully vested and expected to vest
|
|
8,239,062
|
|
7.8
|
|
$
|
5.50
|
|
$
|
23,122,952
|
|
The aggregate intrinsic
value in the table above represents the total pretax intrinsic value, based on
our closing stock price of $8.29 as of June 30, 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 June 30, 2009 was 3,845,155.
The total intrinsic value
of options exercised during the three months ended June 30, 2009 and 2008
was $50,311 and $715,597, respectively, determined as of the date of option
exercise. The total intrinsic value of
options exercised during the six months ended June 30, 2009 and 2008 was
$1,594,467 and $1,443,857, respectively, determined as of the date of option
exercise. We settle employee stock option exercises with newly issued common
shares. No tax benefits were realized by
us in connection with these exercises during the three or six months ended June 30,
2009 and 2008 as we maintain net operating
9
Table of Contents
loss carryforwards and we
have established a valuation allowance against the entire tax benefit.
The following table
summarizes activity and related information for restricted stock, or RS,
awards:
|
|
Number of
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested RS at December 31, 2008
|
|
293,750
|
|
$
|
4.07
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(128,750
|
)
|
3.74
|
|
Nonvested RS at June 30, 2009
|
|
165,000
|
|
$
|
4.34
|
|
The
shares of restricted stock vest in four equal annual installments from the date
of grant. D
uring the three months
ended June 30, 2009 and 2008, we recorded stock-based compensation related
to restricted stock awards of $54,760 and $93,480, respectively. During
the six months ended June 30, 2009 and 2008, we recorded stock-based
compensation related to restricted stock awards of $140,073 and $240,979,
respectively. As of June 30, 2009,
the unrecorded stock-based compensation balance related to restricted stock
awards was $193,018 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:
|
|
Number of
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested RSU at December 31, 2008
|
|
|
|
$
|
|
|
Granted
|
|
164,981
|
|
6.45
|
|
Vested
|
|
|
|
|
|
Nonvested RSU at June 30, 2009
|
|
164,981
|
|
$
|
6.45
|
|
The
shares of restricted stock unit awards vest in four equal annual installments
from the date of grant. Upon vesting of
the restricted stock unit awards, we issue unrestricted shares of our common
stock. D
uring the three months
ended June 30, 2009 and 2008, we recorded stock-based compensation related
to restricted stock unit awards of $120,358 and $0, respectively. During
the six months ended June 30, 2009 and 2008, we recorded stock-based
compensation related to restricted stock unit awards of $167,590 and $0,
respectively. As of June 30, 2009,
the unrecorded stock-based compensation balance related to restricted stock
unit awards was $801,419 and will be recognized over an estimated
weighted-average amortization period of 1.7 years.
7.
Net Loss Per
Share
Net loss per share is
calculated in accordance with SFAS No. 128,
Earnings Per Share
, or 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.
10
Table of Contents
Diluted net loss per
share is the same as basic net loss per share for all periods presented because
any potential dilutive common shares were anti-dilutive due to our net loss (as
including such shares would decrease our basic net loss per share). Potential
dilutive common shares that would have been included in the calculation of
diluted earnings per share if we had net income are as follows:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Common
stock options
|
|
1,766,976
|
|
1,665,841
|
|
1,874,406
|
|
1,727,920
|
|
Restricted
stock
|
|
184,945
|
|
303,695
|
|
224,845
|
|
344,087
|
|
Restricted
stock units
|
|
158,159
|
|
|
|
110,576
|
|
|
|
|
|
2,110,080
|
|
1,969,536
|
|
2,209,827
|
|
2,072,007
|
|
8.
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.
Additionally, in May 2009, we made a milestone payment of $1.5 million
based on the FDA accepting our NDA for review. In the future, we could make a
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 $8.8 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 the earlier of
FDA approval to market pralatrexate or December 23, 2009. If we obtain FDA approval to market
pralatrexate, we will also be obligated to make an additional milestone payment
of $5.3 million, which represents 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 lapsed during the three months
ended March 31, 2009 without any further appeals being filed and the
settlement is final. We have no further obligations related to this lawsuit and
have no accrual remaining related to the settlement.
9.
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
11
Table of Contents
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 the FASB, issued SFAS No. 141(R),
Business Combinations,
or SFAS
141(R). SFAS 141(R) 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 141(R) also
requires the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the
full amounts of their fair values (or other amounts determined in accordance
with SFAS 141(R)). In addition, SFAS 141(R)s requirement to measure the
noncontrolling interest in the acquiree at fair value will result in
recognizing the goodwill attributable to the noncontrolling interest in
addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109,
Accounting for Income Taxes
, to
require the acquirer to recognize changes in the amount of its deferred tax
benefits that are recognizable because of a business combination either in
income from continuing operations in the period of the combination or directly
in contributed capital, depending on the circumstances. It also amends SFAS 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 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,
or SFAS 160. SFAS 160 amends Accounting Research Bulletin
51,
Consolidated Financial Statements
,
to establish accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS 160 also changes the way the consolidated income
statement is presented by requiring consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS 160
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated and requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the
interests of the parent owners and the interests of the noncontrolling owners
of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods
within those fiscal years, beginning on or after December 15, 2008 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
, or SFAS 161. SFAS 161
is intended to improve financial reporting about derivative instruments and
hedging activities by requiring companies to enhance disclosure about how these
instruments and activities affect their financial position, performance and
cash flows. SFAS 161 also improves the transparency about the location and
amounts of derivative instruments in a companys financial statements and how
they are accounted for under SFAS No. 133. SFAS 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 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. We adopted this FSP on April 1, 2009. The
12
Table
of Contents
required disclosures are included in Note 2, Fair
Value of Financial Instruments.
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. GAAP 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. We adopted this FSP on April 1, 2009. The adoption
of this FSP did not materially impact our financial statements.
In May 2009,
the FASB issued SFAS No. 165,
Subsequent
Events
. This statement establishes general standards of
accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
In particular, this statement sets forth (1) the period after the balance
sheet date during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure in the
financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (3) the disclosures that an entity should make
about events or transactions that occurred after the balance sheet
date. This statement
is effective for interim or
annual periods ending after June 15, 2009 and we adopted it on April 1,
2009. The required disclosures are included
in Note 10, Subsequent Events
.
In June 2009,
the FASB issued SFAS No. 166,
Accounting for Transfers
of Financial Assets an amendment of FASB Statement No. 140
,
which amends the derecognition guidance in SFAS No. 140 and eliminates the
exemption from consolidation for qualifying special-purpose entities. This
statement is effective for financial asset transfers occurring after the
beginning of an entitys first fiscal year that begins after November 15,
2009. We are currently evaluating the potential impact of this statement.
In June 2009,
the FASB issued SFAS No. 167,
Amendments to FASB
Interpretation No. 46(R),
which amends the consolidation
guidance applicable to variable interest entities. The amendments will
significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R). This statement is effective as of the beginning
of the first fiscal year that begins after November 15, 2009. We are
currently evaluating the potential impact of this statement.
In June 2009, the FASB approved its Accounting
Standards Codification, or Codification, as the single source of authoritative
United States accounting and reporting standards applicable for all
non-governmental entities.
Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants.
The Codification, which changes the referencing of
financial standards, is effective for interim or annual financial periods
ending after September 15, 2009. Therefore, in the third quarter of 2009,
all references made to U.S. GAAP will use the new Codification numbering system
prescribed by the FASB. As the Codification is not intended to change or alter
existing U.S. GAAP, it is not expected to have any impact on our financial
position or results of operations.
10.
Subsequent Events
In accordance with
SFAS No. 165,
Subsequent
Events,
subsequent events
have been evaluated through August 4, 2009, the date which these financial
statements were issued.
On July 17, 2009, we filed with the Delaware
Secretary of State a Certificate of Amendment to our
Certificate of Designation of Series A
Junior Participating Preferred Stock
to increase the number of
shares designated as Series A Junior Participating Preferred Stock
thereunder from 1,000,000 shares to 1,500,000 shares. In accordance with the
terms of our Amended and Restated Certificate of Incorporation, as amended, our
board of directors has the authority to increase the number of shares of any
series of preferred stock. The
Certificate of Amendment was approved by our board of directors on July 16,
2009.
On July 20, 2009, we filed a Shelf Registration
Statement on Form S-3 with the SEC providing for the registration for sale
by us of an aggregate of up to $150 million of shares of our common stock and
preferred stock, depositary shares, various series of debt securities and
warrants to purchase any of such securities, either individually or in units,
and also providing for the registration for resale by Warburg Pincus Private
Equity VIII, L.P., or Warburg, of up to 26,124,430 shares of our common
stock. In the event that there is an
offering by us under this registration statement, we currently intend to use
any proceeds therefrom primarily for activities relating to the potential
commercialization of pralatrexate, clinical and preclinical research and
development of pralatrexate, working capital and general corporate
purposes. We will not receive any
proceeds from sales of common stock by Warburg, if any. To date, the SEC has
not declared the registration statement effective.
13
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 projected timeline to present top
line results from our Phase 2b trial comparing pralatrexate and Tarceva (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 manufacturers 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 committed to the development and commercialization of
innovative anti-cancer therapeutics. 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 needs. We may also
seek to grow our existing portfolio of product candidates through product
acquisition and in-licensing efforts.
Pralatrexate
Pralatrexate is a
selective 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 March 2009, we submitted a New Drug
Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for
approval to market pralatrexate for the treatment of patients with relapsed or
refractory peripheral T-cell lymphoma, or PTCL. In May 2009, the FDA
accepted the NDA for priority review and established a Prescription Drug User
Fee Act, or PDUFA, date of September 24, 2009 for a decision regarding
approval of the NDA. If pralatrexate is approved for marketing, we intend to
commercialize pralatrexate by building an oncology focused U.S. sales and
marketing organization. We are actively
preparing for the potential commercial launch of pralatrexate in the U.S.,
including the phase-in of key investments and personnel associated with the
development of our sales and marketing, medical affairs and manufacturing
operations. 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
14
Table of Contents
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 NDA is based on the results from PROPEL, our
pivotal Phase 2 trial of pralatrexate in patients with relapsed or refractory
PTCL, that were announced in February 2009. 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. In May 2009, updated results of the
trial were presented at the 45
th
Annual Meeting of the American Society of
Clinical Oncology, which demonstrated an increase in overall response rate from
27% to 28%, or 30 of 109 evaluable patients. Of these patients, 10
achieved a complete response and 20 achieved a partial response. In addition,
23 patients had stable disease. Of the 30 patients who responded to pralatrexate,
21 patients, or 70%, did so by the end of cycle one of therapy. Median
overall survival was 14.7 months, with 57% of patients surviving 12 months or
more.
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
six 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 ongoing:
·
a Phase 2b,
randomized, international, 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 and completed patient enrollment with 201 patients in July 2009. We currently expect to report top line
results of the trial in the first half of 2010, although the actual timing may
vary based upon a number of factors.
·
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.
In July 2009, we completed patient enrollment in the Phase 1 portion of
this study and initiated enrollment in the Phase 2a portion of the trial to assess
the efficacy and safety of two different schedules of this combination in
patients with NHL, both B- and T-cell, as well as in patients with Hodgkins
lymphoma.
·
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
15
Table
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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 IV breast cancer and Stage
III/IV head and neck 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.
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 issued patents in Europe, an issued
patent in Singapore, an allowed patent application in New Zealand, and pending
patent applications in the United States, Canada, Europe, Australia, Japan,
China, Brazil, Indonesia, South Korea, Mexico, Norway, New Zealand, the
Philippines, and South Africa.
RH1
RH1
is a small molecule chemotherapeutic agent that we
believe is bioactivated by the enzyme DT-diaphorase, also known as NAD(P)H
quinone oxidoreductase. In June 2009,
we discontinued the RH1 development program.
We are currently seeking to sell or license our rights to RH1, although
there can be no assurance that we will successfully complete a transaction or
receive any material consideration in connection therewith.
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. 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 commercialization of pralatrexate for
the treatment of patients with relapsed or refractory PTCL, if it is approved
for
16
Table of Contents
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, if the FDA approves our NDA for
pralatrexate for the treatment of patients with relapsed or refractory PTCL, we
expect to incur significant costs relating to the potential commercialization
of pralatrexate, including costs related to the development of our sales and
marketing, medical affairs and manufacturing operations. 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 and six months ended June 30, 2009 and 2008
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
7,170,215
|
|
$
|
5,403,924
|
|
$
|
12,875,317
|
|
$
|
11,377,536
|
|
Clinical
manufacturing
|
|
1,606,163
|
|
1,485,052
|
|
4,261,435
|
|
3,071,610
|
|
Marketing,
general and administrative
|
|
8,036,594
|
|
5,438,764
|
|
14,999,244
|
|
10,450,128
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
|
$
|
16,812,972
|
|
$
|
12,327,740
|
|
$
|
32,135,996
|
|
$
|
24,899,274
|
|
Research
and Development.
Research
and development expenses include the costs of certain personnel, basic
research, preclinical studies, clinical trials, regulatory affairs, medical
affairs, biostatistical data analysis and licensing fees for our product
candidates.
Research and development
expenses for the three months ended June 30, 2009 and 2008 were $7.2
million and $5.4 million, respectively.
The $1.8 million increase in research and development expenses in the
three months ended June 30, 2009 as compared to the same period in 2008
was primarily due to the following:
·
a $1.5 million increase in licensing costs for pralatrexate, as $1.5
million of milestone payments under the license agreement for pralatrexate
became due upon FDA acceptance of our NDA for review in May 2009, with no
corresponding amount in the same period in 2008;
·
a $675,000 increase in consulting and professional fees, primarily
related to the preparation and filing of our NDA for pralatrexate; and
·
a $617,000 increase related to key personnel changes and related travel
costs, mainly attributable to additional headcount and increases in
compensation costs year over year.
This
increase was partially offset by a $1.1 million decrease in clinical trial
costs involving pralatrexate, including decreased costs for PROPEL, which
completed patient enrollment in April 2008, and a $284,000 decrease in
preclinical studies, primarily related to pralatrexate.
Research and development
expenses for the six months ended June 30, 2009 and 2008 were $12.9
million and $11.4 million, respectively.
The $1.5 million increase in research and development expenses in the
six months ended June 30, 2009 as compared to the same period in 2008 was
primarily due to the following:
·
a $1.5 million increase in licensing costs for pralatrexate, as $1.5
million of milestone payments under the license agreement for pralatrexate
became due upon FDA acceptance of our NDA for review in May 2009, with no
corresponding amount in the same period in 2008;
·
a $1.1 million increase related to key personnel changes and related
travel costs, mainly attributable to additional headcount and increases in
compensation costs year over year;
17
Table
of Contents
·
a $515,000 increase in consulting and professional
fees, primarily related to the preparation and filing of our NDA for
pralatrexate; and
·
a
$373,000 increase in non-cash stock-based compensation expense, as discussed in
more detail below.
This
increase was partially offset by a $1.8 million decrease in clinical trial
costs involving pralatrexate, including decreased costs for PROPEL, which
completed patient enrollment in April 2008, and a $416,000 decrease in
preclinical studies, primarily related to pralatrexate.
For the second half of 2009, we expect our research
and development expenses to increase relative to the amount recorded for the
six months ended June 30, 2009 due to the following:
·
$5.8
million of potential milestone payments under the license agreement for
pralatrexate that will become due if the FDA approves pralatrexate for
marketing in the United States in 2009;
·
an
increase in personnel and related travel costs primarily resulting from
additional headcount; and
·
an increase
in non-cash stock-based compensation expense related to grants for new
employees and two full quarters of expense related to our annual grants to
existing employees that occurred at the end of February 2009, as discussed
in more detail below.
Clinical
Manufacturing.
Clinical
manufacturing expenses include the costs of certain personnel, third-party
manufacturing costs for development of drug materials for use in clinical
trials and preclinical studies, and costs associated with pre-commercial
scale-up of manufacturing to support anticipated regulatory and potential
commercial requirements.
Clinical manufacturing
expenses for the three months ended June 30, 2009 and 2008 were $1.6
million and $1.5 million, respectively.
The $121,000 increase in clinical manufacturing expenses in the three
months ended June 30, 2009 as compared to the same period in 2008 was
primarily due to third-party manufacturing costs for clinical trial material
and pre-commercial scale-up activities for pralatrexate.
Clinical manufacturing
expenses for the six months ended June 30, 2009 and 2008 were $4.3 million
and $3.1 million, respectively. The $1.2
million increase in clinical manufacturing expenses in the six months ended June 30,
2009 as compared to the same period in 2008 was primarily due to the following:
·
an $784,000 increase in third-party
manufacturing costs for clinical trial material and pre-commercial scale-up
activities for pralatrexate; and
·
a $342,000
increase in consulting expenses, primarily related to the preparation and
filing of our NDA for pralatrexate.
For the second half of
2009, we expect our clinical manufacturing expenses to increase relative to the
amount recorded for the six months ended June 30, 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 two full quarters 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 June 30, 2009 and 2008
were $8.0 million and $5.4 million, respectively. The $2.6 million increase in marketing,
general and administrative expenses in the three months ended June 30,
2009 as compared to the same period in 2008 was primarily due to the following:
18
Table of Contents
·
a $1.5 million increase related to
key personnel changes and related travel and facilities costs, mainly
attributable to additional headcount and increases in compensation costs year
over year;
·
a $930,000 increase related to
pre-commercial planning activities for pralatrexate; and
·
a $300,000 increase in non-cash
stock-based compensation expense, as discussed in more detail below.
Marketing, general and
administrative expenses for the six months ended June 30, 2009 and 2008
were $15.0 million and $10.5 million, respectively. The $4.5 million increase in marketing,
general and administrative expenses in the six months ended June 30, 2009
as compared to the same period in 2008 was primarily due to the following:
·
a $2.2 million increase related to
key personnel changes and related travel and facilities costs, mainly
attributable to additional headcount and increases in compensation costs year
over year;
·
a $2.0 million increase related to
pre-commercial planning activities for pralatrexate; and
·
a $370,000 increase in non-cash
stock-based compensation expense, as discussed in more detail below.
For the second half of 2009, we expect our marketing,
general and administrative expenses to increase relative to the amount recorded
for the six months ended June 30, 2009 due to the following:
·
an increase in costs relating to
pre-commercial planning activities for pralatrexate;
·
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;
and
·
an increase in non-cash stock-based
compensation expense related to grants for new employees and two full quarters
of expense related to our annual equity grants to existing employees that
occurred at the end of February 2009, as discussed in more detail below.
Stock-based
Compensation Expense.
Stock-based
compensation expense for the three and six months ended June 30, 2009 and
2008 has been recognized in our Statements of Operations as follows:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Research and
development
|
|
$
|
847,029
|
|
$
|
661,830
|
|
$
|
1,711,443
|
|
$
|
1,337,617
|
|
Clinical
manufacturing
|
|
100,028
|
|
103,782
|
|
208,326
|
|
207,012
|
|
Marketing,
general and administrative
|
|
1,522,524
|
|
1,223,536
|
|
2,927,967
|
|
2,559,030
|
|
Total
stock-based compensation expense
|
|
$
|
2,469,581
|
|
$
|
1,989,148
|
|
$
|
4,847,736
|
|
$
|
4,103,659
|
|
Of the $2.5 million of
stock-based compensation recognized in the three months ended June 30,
2009, $2.3 million was related to our stock option plans, $175,000 related to
restricted stock and restricted stock units and $22,000 was related to our
employee stock purchase plan. The $2.0
million of stock-based compensation recognized in the three months ended June 30,
2008 was primarily related to our stock option plans. The $480,000 increase in
stock-based compensation expense in the three months ended June 30, 2009
as compared to the same period in 2008 was primarily due to an increase in the
number of options granted to new employees and to existing employees pursuant
to our annual grants that occurred in February 2009.
Of the $4.8 million of
stock-based compensation recognized in the six months ended June 30, 2009,
$4.5 million was related to our stock option plans, $308,000 related to
restricted stock and restricted stock units and $42,000 was related to our
employee stock purchase plan. Of the
$4.1 million of stock-based compensation recognized in the six months ended June 30,
2008, $3.8 million was related to our stock option plans, $241,000 related
to restricted stock and $25,000 was related to our employee stock purchase
plan. The $744,000 increase in stock-based compensation expense in the six
months ended June 30, 2009 as compared to the same period in 2008 was
primarily due to an increase in the number of options granted to new employees
and to existing employees pursuant to our annual grants that occurred in February 2009.
As of June 30, 2009,
the unrecorded stock-based compensation balance related to stock option awards
was $10.5 million and will be recognized over an estimated weighted-average
amortization period of 1.4 years. As of June 30, 2009, the unrecorded
19
Table
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stock-based compensation
balance related to restricted stock unit awards was $801,000 and will be
recognized over an estimated weighted-average amortization period of 1.7 years.
As of June 30, 2009, the unrecorded stock-based compensation balance
related to restricted stock awards was $193,000 and will be recognized over an
estimated weighted-average amortization period of 1.3 years.
Interest
and Other Income, Net
. Interest and other income, net
for the three months ended June 30, 2009 and 2008 was $6,000 and $504,000,
respectively. The $498,000 decrease in
interest and other income, net in the three months ended June 30, 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; in addition to
a $149,000 loss during the three months ended June 30, 2009 on the
disposal of certain software that was no longer in use. Interest and other
income, net for the six months ended June 30, 2009 and 2008 was $179,000
and $1.1 million, respectively. The
$890,000 decrease in interest and other income, net in the six months ended June 30,
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, 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 and a $149,000 loss on the disposal of certain software that was no longer
in use during the three months ended June 30, 2009.
Liquidity
and Capital Resources
As of June 30, 2009,
we had $105.2 million in cash, cash equivalents, and investments in marketable
securities. Of this amount, $95.5 million was held in money market funds and
$9.6 million was primarily held in high-grade corporate notes with a weighted
average duration of the remaining time to maturity of three months. 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. 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 June 30, 2009. We have the ability and intent to hold our
remaining investments in marketable securities as of June 30, 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 $376.7 million through June 30,
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, or the April 2009
Financing. We received net proceeds from the April 2009 Financing of $46.9
million, after deducting underwriting commissions and estimated offering
expenses. We have also generated approximately $23.7 million of net
interest income since our inception from investing the net proceeds of these
public and private sales of our equity securities.
We have used $264.0
million of cash for operating activities from our inception through June 30,
2009. Net cash used to fund our
operating activities for the six months ended June 30, 2009 and 2008 was
$25.6 million and $19.5 million, respectively.
For fiscal year 2009, we
currently anticipate that net cash use in operating activities will approximate
$65 million to $70 million. Our 2009
financial guidance includes the phase-in of key investments associated with the
development of our sales and marketing, medical affairs and manufacturing
operations in preparation for the potential commercialization of pralatrexate,
as well as $5.8 million of milestone payments under our license agreement for
pralatrexate payable upon FDA approval of our NDA.
Net cash provided from
investing activities for the six months ended June 30, 2009 was $42.6
million and consisted primarily of the proceeds from maturities and sales of
investments in marketable securities, partially offset by $554,000 for the
acquisition of property and equipment.
Net cash used in investing activities for the six months ended June 30,
2008 was $18.1 million and consisted primarily of the purchase of investments
in marketable securities, partially offset by the proceeds from maturities of
investments in marketable securities.
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Net cash provided by
financing activities for the six months ended June 30, 2009 was $48.3
million and consisted primarily of the $46.9 million of net proceeds from the April 2009
Financing and $1.3 million of proceeds from the issuance of common stock
associated with stock options exercised by our employees and sales of stock
under our employee stock purchase plan.
Net cash provided by financing activities for the six months ended June 30,
2008 was $68.4 million and consisted primarily of the $65.2 million of net
proceeds from the sale of 12,420,000 shares of our common stock in May 2008
in an underwritten public offering at a price of $5.64 per share and $3.2
million of proceeds from the issuance of common stock associated with stock
options exercised by our employees and sales of stock under our employee stock
purchase plan.
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 June 30, 2009
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, if the FDA approves our NDA for
pralatrexate for the treatment of patients with relapsed or refractory PTCL, we
expect to incur significant costs relating to the potential commercialization
of pralatrexate, including costs related to the development of our sales and
marketing, medical affairs and manufacturing operations. 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 our sales and marketing, medical affairs and
manufacturing operations for the potential commercialization of 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.
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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. Additionally, in May 2009,
we made a milestone payment of $1.5 million based on the FDA accepting our NDA
for review. In the future, we could make a 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 $8.8 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 the earlier of FDA approval to market pralatrexate or December 23,
2009. If we obtain FDA approval to
market pralatrexate, we will also be obligated to make an additional milestone
payment of $5.3 million, which represents 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
recent accounting pronouncements, please see Note 9 of the unaudited June 30,
2009 financial statements included herein.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments as of June 30, 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 June 30, 2009 was approximately three
months. As of June 30, 2009, our
investments in marketable securities of $9.6 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 June 30, 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 June 30, 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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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 June 30,
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 June 30,
2009 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As
reported in our Quarterly Report on Form 10-Q for the period ended March 31,
2009, the period to appeal the approval by the U.S. District Court for the
District of Colorado of the settlement of the securities class action lawsuit
to which we were a party lapsed during the three months ended March 31,
2009 without any further appeals being filed and the settlement is final.
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 six months ended June 30,
2009, we had a net loss of $32.0 million.
As of June 30, 2009, we had accumulated a deficit during our
development stage of $331.6 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 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.
*
In February 2009, we
announced the results of our pivotal Phase 2 PROPEL trial of pralatrexate in patients
with relapsed or refractory peripheral T-cell lymphoma, or PTCL. Based on the
results of the 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. In May 2009, the FDA accepted the NDA
for priority review and established a Prescription Drug User Fee Act date of September 24,
2009 for a decision regarding approval of the NDA. 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
24
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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.
Substantially all of our efforts
and expenditures over the next few years will be devoted to pralatrexate as we
discontinued the RH1 development program in June 2009. Accordingly, our future prospects are
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 September 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 will 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 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
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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
agreement 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 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.
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.
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
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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 June 30, 2009,
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, if the FDA approves our NDA for
pralatrexate for the treatment of patients with relapsed or refractory PTCL, we
expect to incur significant costs relating to the potential commercialization
of pralatrexate, including costs related to the development of our sales and
marketing, medical affairs and manufacturing operations. 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 our sales and marketing, medical affairs and
manufacturing operations for the potential commercialization of 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
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 from future product sales, if any, or cannot otherwise raise
sufficient additional funds to support our operations, we may be required to
delay, reduce the scope of or eliminate one or more of our development programs
and our business and future prospects for revenue and profitability may be
harmed.
If we are unable
to 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. *
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We have limited
experience in sales, marketing and distribution. If pralatrexate is approved for marketing, we
intend to commercialize pralatrexate by building an oncology-focused U.S. sales
and marketing organization. To directly
market and distribute pralatrexate, we must build a commercial organization
with appropriate technical expertise and distribution capabilities. Although we
are currently in the process of developing our sales, marketing and
distribution capabilities, we may not be able to establish these capabilities
on our own or enter into necessary or desirable arrangements with third parties
in a timely manner or on acceptable terms.
Additionally, building sales, 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 sales, marketing and
distribution capabilities to the desired levels.
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 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 efforts of third parties, which may not be
successful.
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:
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the receipt of
timely regulatory approval for the uses that we are studying;
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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;
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ease of use of
pralatrexate;
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reimbursement
and coverage policies of government and private payors such as Medicare,
Medicaid, insurance companies, health maintenance organizations and other
plan administrators; and
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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. If
pralatrexate fails to achieve market acceptance, we may be unable to generate
meaningful amounts of revenue or become profitable.
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.
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
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fraud and abuse will be
applicable to our business. These laws and regulations, include, among others:
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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;
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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;
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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;
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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
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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 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.
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
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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 require
us to manage an additional set of suppliers to obtain the needed supplies of
pralatrexate.
We have entered into
arrangements with one third-party manufacturer to produce pralatrexate bulk
drug substance and two third-party manufacturers to produce pralatrexate
formulated drug product. We believe
these third-party manufacturers have the capability to meet our clinical trial
and commercial requirements, if pralatrexate is approved for marketing in the
United States. In addition, we are in the process of establishing supply
agreements for the commercial production of pralatrexate bulk drug substance
and formulated drug product. However,
given our current lack of formal supply agreements and the fact that in many
cases our components are supplied by a single source, our third party
manufacturers 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 may 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:
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our current and
future manufacturers are subject to ongoing, periodic, unannounced
inspections by the FDA and corresponding state and international regulatory
authorities for compliance with strictly enforced cGMP regulations and
similar state and foreign standards, and we do not have control over our
contract manufacturers compliance with these regulations and standards;
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our
manufacturers may not be able to comply with applicable regulatory
requirements, which would prohibit them from manufacturing products for us;
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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;
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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;
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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
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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.
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
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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.
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:
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deficiencies in
the conduct of the clinical trials, including failure to conduct the clinical
trial in accordance with regulatory requirements or clinical protocols;
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deficiencies in
the clinical trial operations or trial sites;
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the product
candidate may have unforeseen adverse side effects;
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the time
required to determine whether the product candidate is effective may be
longer than expected;
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fatalities or
other adverse events arising during a clinical trial due to medical problems
that may not be related to clinical trial treatments;
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the product
candidate may not appear to be more effective than current therapies;
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the quality or
stability of the product candidate may fall below acceptable standards; or
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insufficient
quantities of the product candidate to complete the trials.
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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.
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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 or terminate clinical trials at any
time. We cannot assure you that pralatrexate 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.
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
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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 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:
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we may be
required to undertake the expenditure of substantial operational, financial
and management resources in integrating new businesses, technologies and
products;
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we may be
required to issue equity securities that would dilute our existing
stockholders percentage ownership;
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we may be required
to assume substantial actual or contingent liabilities;
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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;
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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;
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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;
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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;
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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;
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strategic
partners may experience financial difficulties;
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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;
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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;
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strategic
partners could independently move forward with a competing product candidate
developed either independently or in collaboration with others, including our
competitors; and
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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.
|
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. Further, broad
health care reform proposals are currently being considered by the U.S.
Congress. 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.
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 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 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
34
Table of Contents
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.
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. controls 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
35
Table of Contents
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 and certain of its affiliates entered into a standstill
agreement pursuant to which they agreed not to pursue, for so long as they
continue to own a specified number of shares of our common stock, 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 net proceeds of $65.2
million. Warburg purchased 3,500,000 shares of the 12,420,000 shares sold
in such public offering.
As of June 30, 2009,
we had 89,389,188 shares of common stock outstanding, of which Warburg owned
26,124,430 shares, or approximately 29.2% of the voting power of our
outstanding common stock. Although
Warburg has entered into a standstill agreement with us, Warburg is, 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 Warburg because,
prior to the date on which Warburg became an interested stockholder, our board
of directors approved the transactions that resulted in Warburg becoming an
interested stockholder. However, in connection with its purchase of
Exchangeable Preferred in March 2005, Warburg and certain of its
affiliates entered into a standstill agreement pursuant to which they agreed
not to pursue, for so long as they continue to own a specified number of shares
of our common stock, 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
36
Table of
Contents
preventing a
merger or acquisition of us that our stockholders may consider beneficial by
diluting the ability of a potential acquirer to acquire us. Pursuant to the
terms of the stockholder rights plan, when a person or group, except under
certain circumstances, acquires 15% or more of our outstanding common stock or
10 business days after announcement of a tender or exchange offer for 15% or
more of our outstanding common stock, the rights (except those rights held by
the person or group who has acquired or announced an offer to acquire 15% or
more of our outstanding common stock) would generally become exercisable for
shares of our common stock at a discount. Because the potential acquirers
rights would not become exercisable for our shares of common stock at a
discount, the potential acquirer would suffer substantial dilution and may lose
its ability to acquire us. In addition, the existence of the plan itself may
deter a potential acquirer from acquiring or making an offer to acquire
us. As a result, either by operation of
the plan or by its potential deterrent effect, mergers and acquisitions of the
Company that our stockholders may consider in their best interests may not
occur.
Because Warburg owns a
substantial percentage of our outstanding common stock, we amended the
stockholder rights plan in connection with Warburgs purchase of Exchangeable
Preferred in March 2005 to provide that Warburg and its affiliates will be
exempt from the stockholder rights plan, unless Warburg and its affiliates
become, without the prior consent of our board of directors, the beneficial
owner of more than 44% of our common stock. Likewise, in connection with our
completion of an underwritten offering of 9,000,000 shares of common stock in February 2007,
we amended the stockholder rights plan to provide that Baker Brothers Life
Sciences, L.P. and certain other affiliated funds, which are collectively
referred to herein as Baker, 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. According to
filings with the Securities and Exchange Commission, or SEC, Baker owned less
than 10% of our outstanding common stock as of February 2009. 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 June 30, 2009,
we had $105.2 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. Our investments
in marketable securities as of June 30, 2009, totaling $9.6 million,
primarily consisted of high-grade corporate notes. The weighted average duration of the
remaining time to maturity for our portfolio of investments in marketable
securities as of June 30, 2009 was approximately three months. 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 June 30, 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 June 30, 2009 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, we realized a loss of approximately
$157,000 on the sale of certain of our investments in marketable securities,
which were sold in order to preserve our principal as the issuers of those
securities experienced significant
37
Table of
Contents
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 June 30, 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.
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
38
Table of Contents
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
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 pursuant to which Warburg is
entitled to certain registration rights with respect to shares of our common
stock. On July 20, 2009, we filed a
Registration Statement on Form S-3 with the SEC providing for the
registration for resale by Warburg of up to 26,124,430 shares of our common
stock. To date, the SEC has not declared
the registration statement effective.
In addition, we will need
to raise substantial additional capital in the future to fund our
operations. If we raise additional funds by issuing equity securities,
the market price of our common stock may decline and our existing stockholders
may experience significant dilution.
ITEM 2.
|
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
|
|
None
|
|
|
|
|
|
ITEM 3.
|
|
DEFAULTS UPON SENIOR SECURITIES
|
|
None
|
|
|
|
|
|
ITEM 4.
|
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
|
|
We held our 2009 Annual Meeting of Stockholders on June 23,
2009. At such meeting, the following
actions were voted upon:
a.
Election
of Directors
|
|
For
|
|
Withheld
|
|
Stephen J. Hoffman, Ph.D., M.D.
|
|
50,625,541
|
|
23,304,071
|
|
Paul L. Berns
|
|
72,689,616
|
|
1,239,996
|
|
Michael D. Casey
|
|
72,636,428
|
|
1,293,184
|
|
Stewart Hen
|
|
72,124,477
|
|
1,805,135
|
|
Jeffrey R. Latts, M.D.
|
|
72,691,273
|
|
1,238,339
|
|
Jonathan S. Leff
|
|
72,058,848
|
|
1,870,764
|
|
Timothy P. Lynch
|
|
72,640,208
|
|
1,289,404
|
|
David M. Stout
|
|
72,852,909
|
|
1,076,703
|
|
b.
Approval of an
amendment to the Companys 2008 Equity Incentive Plan to increase the aggregate
number of shares of common stock authorized for issuance under the plan by
5,750,000 shares.
For
|
|
Against
|
|
Abstentions
|
|
58,953,764
|
|
5,086,675
|
|
259,438
|
|
c.
Ratification
of the selection by the audit committee of the board of directors of the
Company of PricewaterhouseCoopers LLP as the Companys independent registered
public accounting firm for the fiscal year ending December 31, 2009.
For
|
|
Against
|
|
Abstentions
|
|
73,728,816
|
|
110,158
|
|
90,638
|
|
ITEM 5.
|
|
OTHER INFORMATION
|
|
None
|
39
Table of Contents
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
No.
|
|
Description
|
|
Form
|
|
Filing
Date
|
|
Number
|
|
Filed
Herewith
|
3.1
|
|
Amended and Restated
Certificate of Incorporation.
|
|
8-K
|
|
7/20/2009
|
|
3.1
|
|
|
3.2
|
|
Certificate of
Designation of Series A Junior Participating Preferred Stock.
|
|
8-K
|
|
7/20/2009
|
|
3.2
|
|
|
3.3
|
|
Certificate of
Amendment to Restated Certificate of Incorporation.
|
|
8-K
|
|
7/20/2009
|
|
3.3
|
|
|
3.4
|
|
Certificate of
Amendment to the Certificate of Designations of Series A Junior
Participating Preferred Stock.
|
|
8-K
|
|
7/20/2009
|
|
3.4
|
|
|
4.1
|
|
Amendment to Rights
Agreement, dated as of July 17, 2009, between the Company and Mellon
Investor Services LLC.
|
|
8-K
|
|
7/20/2009
|
|
4.1
|
|
|
10.1
|
|
Summary of Compensation
Arrangements for Non-Employee Directors.
|
|
|
|
|
|
|
|
X
|
10.2
|
|
First Amendment to
Second Amended and Restated Employment Agreement, dated as of May 20, 2009,
between the Company and Paul L. Berns.
|
|
8-K
|
|
5/22/2009
|
|
10.1
|
|
|
10.3
|
|
First Amendment to
Amended and Restated Employment Agreement, dated as of May 20, 2009,
between the Company and Pablo J. Cagnoni, MD.
|
|
8-K
|
|
5/22/2009
|
|
10.2
|
|
|
10.4
|
|
First Amendment to
Amended and Restated Employment Agreement, dated as of May 20, 2009,
between the Company and James V. Caruso.
|
|
8-K
|
|
5/22/2009
|
|
10.3
|
|
|
10.5
|
|
First Amendment to
Amended and Restated Employment Agreement, dated as of May 20, 2009,
between the Company and Marc H. Graboyes.
|
|
8-K
|
|
5/22/2009
|
|
10.4
|
|
|
10.6
|
|
Allos
Therapeutics, Inc. Amendment No. 1 to Change in Control Severance
Benefit Schedule, adopted May 19, 2009.
|
|
8-K
|
|
5/22/2009
|
|
10.5
|
|
|
10.7
|
|
Employment Agreement,
effective June 25, 2009, between the Company and David C. Clark.
|
|
8-K
|
|
6/26/2009
|
|
10.1
|
|
|
10.8
|
|
Allos
Therapeutics, Inc. 2008 Equity Incentive Plan, as amended.
|
|
8-K
|
|
6/26/2009
|
|
10.2
|
|
|
31.1
|
|
Certification of
principal executive officer required by Rule 13a-14(a) / 15d-14(a).
|
|
|
|
|
|
|
|
X
|
31.2
|
|
Certification of
principal financial officer required by Rule 13a-14(a) / 15d-14(a).
|
|
|
|
|
|
|
|
X
|
32.1#
|
|
Section 1350
Certification.
|
|
|
|
|
|
|
|
X
|
|
|
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.
|
40
Table of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 4,
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)
|
41
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