UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K/A-1
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of Report
(Date of earliest event reported):
March 7,
2008
AVANT
IMMUNOTHERAPEUTICS, INC.
(Exact name of
registrant as specified in charter)
Delaware
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0-15006
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13-3191702
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(State or other
jurisdiction
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(Commission file
number)
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(IRS employer
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of
incorporation)
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identification
no.)
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119
Fourth Avenue
Needham,
Massachusetts 02494-2725
(Address of
principal executive offices) (Zip code)
Registrants
telephone number, including area code:
(781)
433-0771
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
o
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
AVANT IMMUNOTHERAPEUTICS, INC.
FORM 8-K/A-1
TABLE OF CONTENTS
i
ITEM 2.01
COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
MERGER OF AVANT AND CELLDEX
On March 7, 2008, AVANT Immunotherapeutics, Inc. (AVANT)
announced it had closed the merger (the Merger) contemplated by the Agreement
and Plan of Merger dated October 19, 2007 by and among AVANT, Callisto
Merger Corporation (Merger Sub), a wholly owned subsidiary of AVANT, and
Celldex Therapeutics, Inc. (Celldex). Pursuant to the terms of the
merger agreement, Merger Sub merged with and into Celldex, with Celldex as the
surviving company and a wholly-owned subsidiary of AVANT. Approximately 8.7 million shares were issued
to the former Celldex shareholders in connection with the merger. Those 8.7
million shares included the assumption by AVANT of stock options held by
Celldex employees, consultants and directors, which now represent options to
purchase approximately 1,446,914 shares of AVANT common stock.
The Merger was accounted for using the purchase method of accounting
and was treated as an acquisition by Celldex of AVANT with Celldex being
considered the accounting acquirer, even though AVANT was the issuer of common
stock and the surviving legal entity in the transaction.
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995:
This report on Form 8-K/A contains forward-looking statements
within the meaning of the federal securities laws. You can identify
forward-looking statements by the use of the words believe, expect, anticipate,
intend, estimate, project, will, should, may, plan, intend, assume
and other expressions which predict or indicate future events and trends and
which do not relate to historical matters. You should not rely on
forward-looking statements, because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond the control of AVANT.
These risks, uncertainties and other factors may cause the actual results,
performance or achievements of AVANT to be materially different from the
anticipated future results, performance or achievements expressed or implied by
the forward-looking statements.
There
are a number of important factors that could cause the actual results to differ
materially from those expressed in any forward-looking statements made by AVANT.
These factors include, but are not limited
to: (1) the successful post-merger integration of the business, multiple
technologies and programs; (2) the ability to adapt AVANTs APC Targeting
Technology
TM
to develop new, safe and effective vaccines against
oncology and infectious disease indications; (3) the ability to adapt
AVANTs vectoring systems to develop new, safe and effective orally
administered vaccines against disease causing agents; (4) the ability to
successfully complete product research and further development, including
animal, pre-clinical and clinical studies, and commercialization of CDX-110,
CDX-1307, CholeraGarde® (Peru-15), Ty800, ETEC E. coli vaccine, and other
products and AVANTs expectations regarding market growth; (5) the cost, timing,
scope and results of ongoing safety and efficacy trials of CDX-110, CDX-1307,
CholeraGarde® (Peru-15), Ty800, ETEC E. coli vaccine and other preclinical and
clinical testing; (6) the ability to negotiate strategic partnerships or
other disposition transactions for AVANTs cardiovascular programs, including
TP10 and CETi; (7) the ability of AVANT to manage multiple clinical trials
for a variety of product candidates;
(8) the volume and profitability of product sales of Megan
®
Vac
1, Megan
®
Egg and other future products; (9) the process of
obtaining regulatory approval for the sale of Rotarix
®
in major
commercial markets,
1
as well
as the timing and success of worldwide commercialization of Rotarix
®
by our partner, GlaxoSmithKline or Glaxo; (10) Glaxos strategy and
business plans to launch and supply Rotarix
®
worldwide, including in
the U.S. and other major markets and its payment of royalties to AVANT;
(11) AVANTs expectations regarding its technological capabilities and
expanding its focus to broader markets for vaccines; (12) changes in existing
and potential relationships with corporate collaborators; (13) the
availability, cost, delivery and quality of clinical and commercial grade
materials produced at AVANTs own manufacturing facility or supplied by
contract manufacturers and partners; (14) the timing, cost and uncertainty of
obtaining regulatory approvals; (15) AVANTs ability to develop and
commercialize products before competitors that are superior to the alternatives
developed by such competitors; (16) AVANTs ability to retain certain members
of management;(17) AVANTs expectations regarding research and development
expenses and general and administrative expenses; (18) AVANTs expectations regarding
cash balances, capital requirements, anticipated royalty payments (including
those from Paul Royalty Fund), revenues and expenses, including infrastructure
expenses;
(19) the ability
to obtain substantial additional funding; (20) AVANTs belief regarding
the validity of
our
patents and potential litigation; (21) Pfizers and our strategy and business
plans concerning the continued development and commercialization of CDX-110;
and (22) certain other factors that might cause AVANTs actual results to
differ materially
from those in the forward-looking statements including
those set forth under the headings Business, Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations in
each of AVANTs Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q
and its current Reports on Form 8-K, as well as those described in AVANTs
other press releases and filings with the Securities and Exchange Commission,
from time to time. You should carefully
review all of these factors, and you should be aware that there may be other
factors that could cause these differences.
In
addition, the factors described under Risk Factors in this report may result
in these differences. You should carefully review all of these factors. These
forward-looking statements were based on information, plans and estimates at
the date of this report, and we do not promise to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes.
BUSINESS
A.
General
As used herein,
the terms we, us, our, or AVANT refer to AVANT Immunotherapeutics, Inc.,
a Delaware corporation organized in 1983 and its direct and indirect
subsidiaries, Celldex, Celldex Therapeutics, Ltd. (Celldex Ltd) and Megan
Health, Inc. (Megan). We are a biopharmaceutical company that uses novel
applications of immunology to develop products for the prevention and treatment
of diseases. We are developing a broad portfolio of vaccines and targeted
immunotherapeutics addressing a wide range of applications including oncology,
infectious and inflammatory diseases. These include
therapeutic
cancer vaccines, monoclonal antibodies, single-dose, oral vaccines that
protect against important disease-causing infectious agents and a treatment to
reduce complement-mediated tissue damage. AVANT is advancing a robust pipeline
of clinical and preclinical product candidates, the most
2
advanced of which are for
treatment of various cancers. Our lead programs are therapeutic cancer vaccines
designed to instruct the patients immune system to recognize and destroy
cancer cells.
Our strategy is to
demonstrate proof-of-concept for our product candidates before leveraging their
value through partnerships or, in appropriate situations, continuing late stage
development ourselves. Demonstrating proof-of-concept for a product candidate
generally involves bringing it through Phase 1 clinical trials and one or more
Phase 2 clinical trials so that we are able to demonstrate, based on human
trials, good safety data for the product candidate and some data indicating its
effectiveness. Our current collaborations encompass the commercialization of an
oral human rotavirus vaccine, the development of a Glioblastoma Multiforme
treatment, and the development of oral
cholera, typhoid fever, ETEC and HIV vaccines, and vaccines addressed to human
food safety and animal health. Our product candidates address large market opportunities
for which we believe current therapies are inadequate or non-existent.
AVANTs web site
is located at http://www.avantimmune.com. On AVANTs web site, investors can
obtain a copy of AVANTs annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
of 1934, as amended, as soon as reasonably practicable after AVANT files such
material electronically with, or furnishes it to, the Securities and Exchange
Commission.
Our focus is on
using the power of the immune system to prevent and treat disease. We have
assembled a broad portfolio of technologies and intellectual property that we
believe will give us a strong competitive position in vaccines and
immunotherapeutics. This portfolio includes:
·
technology and patents for CDX-110;
·
APC Targeting Technology that
utilizes fully human monoclonal antibodies to directly target specialized types
of immune system cells, known as antigen presenting cells;
·
patent rights directed to various
humanized monoclonal antibodies;
·
Cholera
- and
Salmonella
-vectored
vaccine delivery technologies;
·
patent rights directed to a rotavirus
strain;
·
our VitriLife® patented drying system
for the preservation of proteins, cells, bacteria and viruses; and
·
technology and patents for complement
inhibitors based on sCR1 TP10.
We currently have
three products on the market and six products in clinical development. Our goal
is to become a leading developer of innovative vaccines and immunotherapeutics
that address health care needs on a global basis. Our success has depended and
will continue to depend upon many factors, including our ability, and that of
our licensees and collaborators, to successfully develop, obtain regulatory
approval for and commercialize our product candidates. To date, commercial
sales have only been generated from Rotarix® and our Megan poultry
3
vaccines. We have had no
commercial revenues from sales of our human therapeutic or other human vaccine
products and we have had a history of operating losses. It is possible that we
may not be able to successfully develop, obtain regulatory approval for or
commercialize our product candidates, and we are subject to a number of risks
that you should be aware of before investing in AVANT. These risks are
disclosed more fully in Risk Factors.
Using our
expertise in immunology, we are building business franchises in major disease
areas: oncology, infectious and inflammatory diseases. Each of our business
franchises addresses large market opportunities for which we believe current
therapies are inadequate or non-existent. We have pursued some of these
opportunities independently in a highly focused manner. In other cases, we have
leveraged the financial support and development capabilities of corporate and
public sector partners to bring our development projects to fruition. The
research we have pursued over the past several years has matured into an
exciting portfolio of product candidates.
Our products are
derived from a broad set of complementary technologies which have the ability
to utilize the human immune system and enable the creation of preventative and
therapeutic agents. We are using these technologies to develop vaccines and
targeted immunotherapeutics that prevent or treat disease caused by infectious
organisms, and treatment vaccines that modify undesirable activity by the bodys
own proteins or cells. Our products are in various stages of research and
development. Below is a table of our currently active programs:
CURRENT PROGRAMS AND PARTNERSHIPS
Technology
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Product
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Indication/Field
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Partner
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Status
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ONCOLOGY
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CDX-110
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Glioblastoma Multiforme
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Pfizer
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Phase 2b/3
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CDX-1307
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Colorectal, Bladder, Pancreas, Ovarian and Breast
Tumors
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Phase 1
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CDX-1401
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Solid Tumors
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Pre-clinical
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CDX-1189
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Myeloid Leukemias
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Pre-clinical
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INFECTIOUS
DISEASE
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CholeraGarde®
Ty800
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Cholera Typhoid fever
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IVI
NIH
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Phase 2b
Phase 2
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ETEC
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Enterotoxigenic
E coli
infection
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NIH
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Pre-clinical
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Paratyphoid
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Paratyphoid fever
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Pre-clinical
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CDX-2401
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HIV
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Rockefeller University
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Pre-clinical
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INFLAMMATORY
DISEASE
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TP10
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Transplantation AMD
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Phase 2
Pre-clinical
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MARKETED
PRODUCTS
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Rotarix®
Megan®Vac 1
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Rotavirus infection Salmonella infection in chicken
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GlaxoSmithKline
Lohmann
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Marketed
Marketed
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Megan®Egg
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Salmonella infection in laying hens and eggs
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Lohmann
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Marketed
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B.
Development
Strategy
AVANTs strategy
is to utilize our expertise to design and develop vaccines and targeted
immunotherapeutics that have significant and growing market potential; to
establish
4
governmental and
corporate alliances to fund development; and to commercialize our products
either through corporate partners or, in appropriate circumstances, by our own
direct selling efforts. Our goal is to demonstrate clinical proof-of-concept
for each product, and then seek partners to help see those products which we
cannot develop ourselves through to commercialization. This approach allows us
to maximize the overall value of our technology and product portfolios while
best ensuring the expeditious development of each individual product.
Implementation of this strategy is exemplified by our lead programs which are
discussed in the following sections.
Factors that may
significantly harm our commercial success, and ultimately the market price of
our common stock, include but are not limited to, announcements of
technological innovations or new commercial products by our competitors,
disclosure of unsuccessful results of clinical testing or regulatory
proceedings and governmental approvals, adverse developments in patent or other
proprietary rights, public concern about the safety of products developed by
AVANT and general economic and market conditions. See Risk Factors.
C.
Cancer
Vaccine Development Programs
1.
CDX-110
AVANTs lead clinical
development program, CDX-110, is a peptide-based immunotherapy that targets the
tumor specific molecule called EGFRvIII, a functional variant of the naturally
expressed epidermal growth factor receptor (EGFR), a protein which has been
well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII is not
present in normal tissues, and has been shown to be a transforming oncogene
that can directly contribute to the cancer cell growth.
EGFRvIII is commonly
present in Glioblastoma Multiforme, or GBM, the most common and aggressive form
of brain cancer, and has also been observed in various other cancers such as
breast, ovarian, prostate, colorectal, and head & neck cancers. We are
currently pursuing the development of CDX-110 for GBM therapy, and plan to
expand the clinical development into other cancers through additional clinical
studies.
Initial clinical
development of EGFRvIII immunotherapy was led by collaborating investigators at
the Brain Tumor Center at the Duke Comprehensive Cancer Center and at the M.D.
Anderson Cancer Center in Houston, Texas. The results from Phase 1 and
Phase 2a studies, 16 and 23 patients, respectively, have demonstrated a
significant increase in the time to disease progression (greater than 113%) in
the patients which were vaccinated, and also in overall survival rates (greater
than 100%), both relative to appropriately matched historical controls. AVANT
believes that the therapy has been well tolerated, and significant immune
responses to EGFRvIII were generated in many patients. An extension of the
Phase 2a program at the same two institutions has enrolled 18 additional
GBM patients treated with standard of care. The preliminary data support the
observations from the previous studies. Independently, active immunotherapy for
EGFRvIII in prostate and ovarian cancer patients has been conducted in a
Phase 1 trial at the University of Washington.
5
AVANT initiated a Phase 2b/3
randomized study of CDX-110 combined with standard of care, temozolomide
, versus standard of care alone in
patients with GBM in May 2007, and AVANT intends to open a total of 29
sites in the United States and Canada during 2008.
The FDA has granted
orphan drug designation for CDX-110 for the treatment of EGFRvIII expressing
GBM as well as fast track designation.
On April 16, 2008,
AVANT, acting through its wholly owned subsidiary Celldex Therapeutics, Inc.,
and Pfizer, Inc. (Pfizer) entered into a license and development
agreement under which Pfizer will be granted an exclusive worldwide license to
CDX-110. The agreement also gives Pfizer exclusive rights to the use of AVANTs EGFRvIII vaccines in other
potential indications. Under the license and development agreement,
Pfizer will make an upfront payment to AVANT of $40 million and will make a $10
million equity investment in AVANT. Pfizer will fund all development costs for
these programs. AVANT is also eligible to receive milestone payments exceeding
$390 million for the successful development and commercialization of CDX-110
and additional EGFRvIII vaccine products, as well as double-digit royalties on
any product sales.
CDX-110 Clinical Programs Summary
Phase
|
|
Indications
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Design
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Status
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2b/3
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Newly
diagnosed Glioblastoma Multiforme (GBM) with EGFRvIII expression
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Randomized,
multi-institution study with standard of care control arm. Interim analysis
after Phase 2b by independent data monitoring board
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Study
opened in May 2007. Enrollment of Phase 2b portion expected to be
complete in 2008.
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2a Extension
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Newly
diagnosed Glioblastoma Multiforme (GBM) with EGFRvIII expression
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Single
arm with matched historical controls; two centers (Duke, MDACC). CDX-110 +
GM-CSF treatment post Chemo-radiation with concurrent maintenance
temozolomide.
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18
patients enrolled. Preliminary data demonstrate the treatment is well
tolerated and the antibody responses to EGFRvIII were maintained or increased
with concurrent maintenance temozolomide.
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2a
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Newly
diagnosed Glioblastoma Multiforme (GBM) with EGFRvIII expression
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Single
arm with matched historical controls; two centers (Duke, MDACC).
EGFRvIII-peptide-KLH
conjugate (CDX-110) + GM-CSF treatment post Chemo-radiation
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|
23
Patients enrolled, with a further 18 patients enrolled in an extension trial.
Data demonstrate that the treatment was well tolerated and without evidence
of autoimmunity. Humoral and cellular immune responses were generated. Median
TTP from surgery in treated patients is 13 months, comparing favorably
with a historical matched untreated cohort that had a median TTP of
7.1 months (n=39)(p=0.0058). Median survival in this trial has exceeded
30 months which compares favorably to published analyses accounting for
known prognostic indicators.
|
6
1
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Malignant
Glioma
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Single
arm study utilizing ex vivo dendritic cells pulsed with CDX-110; single
center (Duke)
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Complete:
16 patients treated (13 with GBM). Data demonstrate that the therapy was well
tolerated, and most patients developed EGFRvIII specific T cell
responses. Median survival ~20 months, and two of two patients with
measurable disease had long-term tumor regression after therapy.
|
2.
CDX-1307
AVANT has developed an APC
Targeting Technology that utilizes fully human monoclonal antibodies to
directly target specialized types of immune system cells, known as antigen
presenting cells. AVANT is advancing several clinical and preclinical product
candidates that use APC Targeting Technology to manipulate critical types of
antigen presenting cells, known as dendritic cells and macrophages, which are
key cells within the immune system. Because these cells are largely responsible
for initiating the immune systems disease-fighting mechanisms, AVANT believes
that product candidates using AVANTs technology will create more potent immune
responses than standard vaccination strategies.
AVANTs lead APC
Targeting Technology product candidate, CDX-1307, is in development for the
treatment of epithelial tumors such as colorectal, pancreatic, bladder, ovarian
and breast cancers. CDX-1307 targets the beta chain of human chorionic
gonadotropin, known as hCG-
b
, which is an antigen often found
in epithelial tumors. The presence of hCG-
b
in these cancers correlates with
a poor clinical outcome, suggesting that this molecule may contribute to tumor
growth. Normal adult tissues have minimal expression of hCG-
b
; therefore,
targeted immune responses are not expected to generate significant side
effects.
Tissue of Origin
|
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hCGa
prognostic
indicator
|
|
hCG
Expression
|
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|
|
|
|
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Bladder
|
|
Yes
|
|
30-76
|
%
|
Colorectal
|
|
Yes
|
|
17-54
|
%
|
Breast
|
|
No/Yes
|
|
19-80
|
%
|
Pancreas
|
|
Yes
|
|
42
|
%
|
Renal
|
|
Yes
|
|
23
|
%
|
Cervical
|
|
Yes
|
|
26-35
|
%
|
Ovarian
|
|
Yes
|
|
36-41
|
%
|
Lung
|
|
Yes
|
|
14-93
|
%
|
CDX-1307 is human
antibody-based product that consists of the cancer antigen hCG-
b
linked to a human antibody that attaches to mannose receptors on dendritic
cells and macrophages (see illustration below). AVANT believes that preclinical
studies demonstrate that CDX-1307 can efficiently deliver hCG-
b
to antigen presenting cells (APCs) in animals, and leads to strong antibody and
cell-mediated immune responses. The manufacture and purification of CDX-1307
uses procedures already well established for the production of standard
monoclonal antibodies; however, AVANT believes the active dose levels will be
significantly lower for
APC-Targeting Technology products than standard therapeutic antibodies.
7
Thirty-five
(35) patients with epithelial cancers have been treated in Phase 1
clinical trials of CDX-1307 at the Duke Comprehensive Cancer Center. The
immunotherapy has been well tolerated, and one patient with pancreatic cancer
demonstrated a reduction in tumor burden, with only minor adverse events
observed (reddening at the injection site). The investigators at the Duke
Comprehensive Cancer Center were awarded a two year $500,000 grant from the
Avon Foundation and the National Cancer Institute to support Phase 1 work
in breast cancer. The safety of CDX-1307 in combination with defined immune
stimulators will next be evaluated with intent to enter Phase 2 research
in 2009.
3.
CDX-1401
AVANT is developing
CDX-1401, another APC-Targeting vaccine, for treatment of malignant melanoma
and a variety of solid tumors which express the proprietary cancer antigen
NY-ESO-1, which AVANT licensed from the Ludwig Institute for Cancer Research in
2006. AVANT believes that preclinical studies have shown that CDX-1401 is
effective for activation of human T-cell responses against NY-ESO-1. Further
preclinical studies and manufacturing process optimization are in progress,
with an IND filing planned for Q4-2008.
|
DEC-205
receptors
NY-ESO-1
|
8
D.
Infectious Disease
Development Programs
Overview
Modern
biotechnology offers great potential for improving health conditions worldwide.
New vaccine technologies, in particular, can provide avenues to disease
prevention and treatment with notable advantages over drugs in terms of patient
compliance and cost. They also offer strategies to solve global health
problems, to protect both civilians and the military from infectious disease
threats, and to increase the safety of our food supply. Our goal is to become a
leading developer of innovative vaccines that address health care needs on a
global basis. In this regard, we acquired VitriLife
®
, a new
technology with the potential to improve product stability, reducing the need
for vaccine refrigeration. With this technology and our
Cholera
- and
Salmonella
-vectored delivery technologies, named VibrioVec
®
and SalmoVec
®
, we can now develop a new generation of bacterial
vaccines that have an ideal product profile: safe and effective, oral,
single-dose, rapidly protective with temperature stable products.
AVANT is
developing a series of single-dose, genetically-attenuated, live bacterial
vaccines to prevent diarrhea and enteric disease. These diarrheal vaccines are
targeted to address the U.S. and European travelers market as well as the
healthcare requirements of developing countries. AVANTs single-dose oral
vaccine technology is currently addressed to serious bacterial diseases, but
combines the advantages of rapid onset of protection with the flexibility to address
a variety of different causes of disease. The attenuated live bacteria used to
create these vaccines can also serve as vectors for the development of vaccines
against other bacterial and viral diseases. By engineering key disease antigens
into the DNA of the vector organisms, AVANT can extend the protective ability
of its single-dose oral vaccines to a wide variety of illnesses. AVANT has
partnered with Pfizer, Inc. who will apply AVANTs vaccine technology to
animal health and human food safety markets.
1.
Global Health
AVANTs oral,
bacterial vaccine technology can address the healthcare requirements of
developing countries, where, for example, the need for cholera and typhoid
vaccines is particularly acute. These vaccine technologies may provide avenues
to disease prevention and treatment with notable advantages over drugs in terms
of ease of use, patient compliance, thermostability and cost. Thus, they may
offer strategies to solve global health problems. Development of safe and
effective cholera and typhoid vaccines is the first step in establishing AVANTs
single-dose, oral bacterial vaccine franchise.
CholeraGarde
®
Vaccine:
We are
developing an attenuated form of the bacterium
Vibrio
cholerae
as a potential cholera vaccine. In several Phase 1/2
clinical studies, single oral doses of the cholera vaccine, CholeraGarde
®
(or Peru-15), were administered to more than 75 human subjects and shown to be
safe, immunogenic and protective against infection with the virulent organism.
In October 2000,
we initiated a Phase 2b trial in collaboration with the Walter Reed Army
Institute of Research (WRAIR) and the National Institute of Allergy and
Infectious Disease (NIAID) of the National Institutes of Health (NIH) at
Cincinnati Childrens Hospital
9
Medical Center (CCH) to
test the safety, immunogenicity and protective capacity of the vaccine against
a challenge with live virulent cholera. AVANT and WRAIR successfully
manufactured clinical supplies of the vaccine at WRAIRs facility for use in
the study. Results of the study demonstrated the ability of CholeraGarde
®
to provide complete protection against the trials primary endpoint, moderate
and severe diarrhea. During 2002, AVANT completed a Phase 2 dose-ranging
study with CholeraGarde
®
to assess the safety and immunogenicity of
this vaccine and which supported the start of trials in December 2002 with
the International Vaccine Institute (IVI) in Bangladesh where cholera is
endemic.
In January 2004,
we announced positive preliminary results of the adult portion from the
Phase 2 clinical trial of CholeraGarde
®
in Bangladesh. In 70
adult patients, enrolled as part of this ongoing study that is assessing the
safety and immunogenicity of the vaccine in adults prior to moving into
progressively younger pediatric populations, vaccination with the single-dose,
oral cholera vaccine was well tolerated. Moreover, over 70% of the vaccinated
adults responded with a favorable immune response. In July 2005, the Bangladesh
study results in children and infants showed CholeraGarde
®
to be
well tolerated and highly immunogenic, with 77% of children aged 9 months
to 5 years generating protective immune responses. These results showed
the vaccine to be consistently well tolerated and immunogenic against the
cholera organism in all portions of this trial.
In August 2006,
IVI received $21 million in funding from the Bill & Melinda Gates
Foundation for a Cholera Vaccine Initiative (CHOVI), which will include
conducting further clinical trials of CholeraGarde
®
. IVI plans to
conduct Phase 2 clinical trials of CholeraGarde
®
in Bangladesh,
India and Thailand beginning in the second half of 2008 followed by
Phase 3 field studies. IVI will be purchasing clinical materials produced
at AVANTs Fall River, MA manufacturing facility for the trials.
AVANT has decided
to focus only on the fully-funded opportunity for CholeraGarde
®
in
the developing world. AVANT has determined that the high clinical costs of our
own Phase 3 clinical trials in the United States and the investment in a
commercial manufacturing facility are not justified by the limited market
opportunities for a cholera vaccine in developed countries at this time.
Ty800
Typhoid Fever Vaccine:
AVANT has developed an oral vaccine to offer rapid, single-dose
protection against
Salmonella typhi
,
the cause of typhoid fever. Ty800 is targeted for both the travelers market
and global health needs. In 2006, the NIAID initiated a Phase 1/2
in-patient dose-ranging clinical trial aimed at demonstrating the safety and
immunogenicity of the Ty800 typhoid fever vaccine. NIAID funded the production
of Ty800 vaccine for clinical testing and completed the Phase 1/2 trial at
a NIH-funded clinical site in 2007. Results showed the single-dose, oral
vaccine to be well tolerated and immunogenic, with over 90% of vaccinated
subjects generating immune responses. AVANT initiated its own sponsored
Phase 2 trial of Ty800 in July 2007. Enrollment was completed in late
September 2007 and preliminary results reported in April 2008 from
the study showed that the single-dose, oral vaccine was well tolerated and
immunogenic, demonstrating that the desired immune response was achieved.
Incidence of reactogenicity symptoms and adverse events post-vaccination were
similar to placebo. Importantly, immunogenic response was dose-dependent.
Positive immune response or seroconversion (prospectively defined as a 4-fold
increase in anti-LPS titers over pre-dose level)
10
rates were 65.5% (36/55)
and 80% (44/55) in the low and high dose groups, respectively, and was
significantly (p<0.001) higher than placebo.
2.
Travelers Vaccines
AVANT has several
travelers vaccine programs in pre-clinical developmentall addressing
important causes of serious diarrheal diseases worldwide. In November 2007,
AVANT entered into an agreement with the Division of Microbiology and
Infectious Diseases of the NIAID, whereby NIAID will sponsor a Phase 1
study of AVANTs investigational single-dose, oral vaccine designed to offer
combined protection against both enterotoxigenic
Escherichia coli
(ETEC) and cholera. AVANT expects NIAID to
initiate the Phase 1 trial of its ETEC vaccine candidate in the first half
of 2008. AVANTs long-term goal is to develop a combination vaccine containing
Cholera, Ty800,
S. paratyphi
and
ETEC as a super enteric vaccine to address the travelers market.
3.
CDX-2401
AVANT is also using its APC
Targeting Technology to develop vaccines against infectious disease. The lead program is CDX-2401, an
APC-Targeting prophylactic vaccine, aimed at providing protection from
infection with HIV, the virus known to cause AIDS. This program is in a Bill &
Melinda Gates Foundation funded partnership with collaborators at Rockefeller
University in New York City, who have shown in model systems that protective
immunity can be induced with such a vaccine. Preclinical studies and
manufacturing development are in progress and AVANT, with it collaborators,
plans to initiate Phase 1 clinical studies in the first half of 2009.
E.
Inflammatory
Disease Programs
1.
Complement Inhibitors
We have been
developing a new class of immunotherapeutics that inhibit a part of the immune
system called the complement system. The complement system is a series of
proteins that are important initiators of the bodys acute inflammatory
response against disease, infection and injury. Excessive complement activation
also plays a role in some persistent inflammatory conditions. Our lead
compound, TP10, a soluble form of naturally occurring Complement Receptor 1,
has effectively shown to inhibit the activation of the complement cascade in
animal models and in human clinical trials. We believe that regulating the
complement system could have therapeutic and prophylactic applications in
several acute and chronic conditions, including reperfusion injury from surgery
or ischemic disease, organ transplant, multiple sclerosis, rheumatoid arthritis,
age-related macular degeneration (AMD), and myasthenia gravis. Medical
problems that result from excessive complement activation represent
multi-billion dollar market opportunities. In the United States, several
million people are afflicted with these complement-mediated conditions.
We elected to
initially develop and commercialize TP10 for cardiac surgery. The objective of
our clinical studies was to assess the ability of TP10 to mitigate the injury
to the heart, brain and other organs that occurs when patients are placed on
cardiopulmonary bypass (CPB) circuits, thus potentially improving
post-operative outcomes. In February 2002,
11
AVANT announced that TP10
had not achieved a significant reduction in the primary endpoint of death,
myocardial infarction, prolonged intubation or prolonged intra-aortic balloon
pumping following preliminary analysis of a Phase 2 adult cardiac surgery
trial conducted in 564 patients. However, further analysis of the study data
demonstrated an important treatment benefit in male patients participating in
the trial, with no significant treatment benefit observed in female patients.
In February 2006, AVANT reported that results from a females-only study
did not meet the primary endpoint, thus confirming the results for female
subjects in the previous TP10 trial. Because of these study results, AVANT is
seeking a corporate partner to complete the development and commercialization
of TP10 for an organ transplantation indication or an AMD indication.
In addition to
TP10, AVANT has identified other product candidates to inhibit activation of
the complement system. The lead candidate under research evaluation is a form
of sCR1 (TP10) that has been modified by the addition of sialyl
Lewis × (sLe
x
) carbohydrate side chains yielding sCR1sLe
x
.
sLe
x
is a carbohydrate which mediates binding of leukocytes
including neutrophils to selectin proteins. Selectin-mediated binding of
neutrophils to activated endothelial cells is a critical event in inflammation.
sCR1sLe
x
may be effective in complement- and selectin-dependent
indications such as stroke and myocardial infarction. We believe that sCR1sLe
x
has
the ability to target the complement-inhibiting activity of sCR1 to the site of
inflammation and, at the same time, inhibit the leukocyte/endothelial cell
adhesion process.
AVANT plans to
seek partnering arrangements to capture the value inherent in the complement
inhibitor programs and their strong intellectual property. AVANT can offer a
worldwide license for all fields as a part of such a partnership arrangement.
F.
Marketed
Products
1.
Rotavirus Vaccine
AVANT has
developed a novel vaccine against rotavirus infection. Rotavirus, a major cause
of diarrhea and vomiting in infants, affects approximately 80% of the
approximately 4 million infants born each year in the United States. As a
result, on an annual basis, about 500,000 infants require medical attention and
50,000 are hospitalized. The economic burden in the United States is estimated
at over $1 billion in direct medical and indirect societal costs. In the
United States, a vaccine against rotavirus disease has become a universal
pediatric vaccine. In the rest of the world, rotavirus is a cause of
significant infant mortality.
We initiated a
Phase 2 efficacy study in 1997, conducted at four U.S. medical centers,
which examined the vaccines ability to prevent rotavirus disease and to
further studied the safety of the vaccine. A total of 215 infants were enrolled
in the study and were immunized with the vaccine. In 1998, we announced
positive results which showed that approximately 90 percent of the
vaccinated infants were protected from rotavirus disease and demonstrated a
statistical significance at p<0.001 and which were published in
Lancet
in July 1999. Examination of
the safety data revealed that mild fever in a small number of infants was the
only side effect significantly more common in the vaccine group than in the
placebo group.
12
In 1997, AVANT licensed
this rotavirus vaccine to GlaxoSmithKline (Glaxo). AVANT and Glaxo have
collaborated on the development and commercialization of our oral rotavirus
vaccine, Rotarix
®
. As discussed under H. Collaborative
Agreements, with the successful completion of the Phase 2 clinical trial
and the development by Glaxo of a viable manufacturing process, Glaxo has
assumed financial responsibility for all subsequent clinical and development
activities and paid us an initial milestone payment of $500,000. Glaxo
completed Phase 1/2 bridging studies in over 6,500 infants in Europe,
Latin America and Asia using the two-dose oral Rotarix
®
vaccine.
Glaxo initiated global Phase 3 clinical trials of Rotarix
®
in
the third quarter of 2003 and AVANT recognized a $1.0 million milestone
payment.
Glaxo gained
approval for Rotarix
®
in Mexico during 2004, which represented the
first in a series of worldwide approvals and commercial launches for the
product. During 2005, Glaxo launched Rotarix
®
in additional Latin
American countries as well as Asia Pacific countries, and they filed for market
approval with the European regulatory authorities. In February 2006, the
European Commission granted approval of Rotarix
®
in the European
Union. Glaxo filed a Biologics License Application (BLA) with the FDA for
United States market approval in mid-2007. On April 3, 2008, Rotarix
®
received approval from the U.S. Food and Drug Administration (FDA) for the
prevention of rotavirus gastroenteritis in infants. With only two doses,
Rotarix
®
offers protection against the most commonly circulating
rotavirus types in the U.S. and allows infants to complete the vaccination
series by four months of age. The U.S. Centers for Disease Control and
Prevention (CDC) currently recommends that children complete the rotavirus
immunization series by six months of age. Rotavirus infects virtually every
child in the United States by age five and is the leading cause of severe
gastroenteritis in infants and young children worldwide. Rotarix
®
may help prevent many of the 55,000 70,000 hospitalizations by young children
that result from rotavirus in the U.S. each year. AVANT expects Glaxo to launch
Rotarix
®
in the second half of 2008.
AVANT licensed the
Rotarix
®
technology in 1995 from CCH and owes CCH a license fee of
30% on net royalties received from Glaxo. In May 2005, AVANT entered into
an agreement whereby an affiliate of Paul Royalty Fund (PRF) purchased an
interest in the net royalties AVANT will receive on worldwide sales of Rotarix
®
.
To date AVANT has received $50 million in milestone payments under the PRF
agreement. Under the PRF agreement, AVANT retained 50% of the $4 million
and $1.5 million milestones payment from Glaxo for the European Commission and
FDA approvals, respectively, discussed above, with the balance payable to PRF
and CCH. The PRF agreement also provides for a $10 million milestone
payment to AVANT if Rotarix
®
is launched in the United States in
2008. AVANT expects to achieve this milestone in the second half of 2008.
Royalty rates on
Rotarix
®
escalate from 7% to 10% based on net product sales in
countries that have valid patent protection. These royalty rates are discounted
by 30% for non-patent countries (primarily international markets). In September 2006,
AVANT received notice from Glaxo that Glaxo would begin paying royalties on
sales of Rotarix
®
vaccine at the lower of the two royalty rates
under their 1997 license agreement. Glaxos decision to pay the lower royalty
rate (which is 70% of the full rate) is based upon Glaxos assertion that
Rotarix
®
is not covered by the patents Glaxo licensed from AVANT in
Australia and certain European countries.
13
2.
Food Safety Vaccine
Products
Our Megan
subsidiary has commercialized three veterinary vaccines; Argus SC, licensed by
the United States Department of Agriculture (USDA) in March 1998 and
marketed by Intervet, Inc., and Megan
®
Vac 1 and Megan
®
Egg,
licensed by the USDA in November 1998 and 2003, respectively, and marketed
by Lohmann Animal Health International (LAHI).
Megan
®
Vac
1:
Megan
®
Vac
1 is a double gene-deleted modified vaccine for use in chickens for protection
against multiple species and/or strains of Salmonella bacteria. The vaccine is
administered to chicks at the hatchery in a spray cabinet with a field boost
generally given at around two weeks of age. The objective of the vaccine is to
eliminate or reduce the overall load of
Salmonella
spp.
in the bird and environment, thus reducing bacteria levels on
broiler carcasses in the processing plant. While the reduction of
Salmonella spp.
in the broiler may provide
some direct health benefit to the chicken, the primary purpose of the vaccine
is to increase food safety. Megan
®
Vac 1 is also registered in New
Zealand. Registration activities are currently underway for Australia.
Megan
®
Egg:
Megan
®
Egg is from the same master
seed as Megan
®
Vac 1 with titer, dosage recommendations, and product
configuration specifically targeting the layer (commercial table-egg pullets)
and breeder hen markets. Pullets generally receive three vaccinations during
the growing period and are protected throughout the lay period without further
vaccination. In the case of table-egg layers and breeder hens, the primary
objective is elimination or reduction of Salmonella enteritidis levels in the
eggs, birds, and poultry houses.
Because AVANTs
focus is on human health care, in September 2002, we appointed LAHI as the
exclusive distributor of our Megan Health poultry vaccines in North America.
LAHI performs all marketing and distribution activities of Megans marketed
products for the commercial poultry market.
G.
Research
Programs
1.
Overview
AVANTs research programs
focus on further applications of AVANTs APC Targeting, human monoclonal
antibody and other technologies for the development of further therapies for
cancer and infectious diseases, as well as specific immunosuppressive
approaches to allergy and autoimmune disease.
·
Human monoclonal antibody therapies
.
AVANT,
through its licenses from Medarex, Inc. (Medarex), has access to Medarexs
Ultimab® technology to develop up to 10 novel therapeutic monoclonal antibody
product candidates. The initial programs will focus on developing antibody
therapies for cancer, but AVANT also plans to apply this capability to develop
therapeutic approaches for infectious diseases.
·
CDX-1189.
AVANT has proprietary human
monoclonal antibodies to CD89 for the first of these programs which aims to
develop a novel therapy for
14
leukemias. The next steps for this program will be to
identify the lead candidate.
·
APC Targeting
.
AVANT
has several other APC targeted therapeutic vaccine candidates for cancer and
infectious diseases at the preclinical research stage, and AVANT is developing
the technology for use in the induction of antigen-specific immune suppression
for application in the treatment of allergic and autoimmune diseases.
·
CDX-2101
, a Virus-Like Particle, or VLP,
therapeutic vaccine to treat patients chronically infected by the
Hepatitis B virus, or HBV, which can lead to the development of
hepatocellular carcinoma. Chronic HBV infection is a major health problem,
particularly in Asia, where widespread prophylactic HBV vaccination has not
been available. The prophylactic vaccines induce protective antibody responses
to a viral coat protein, blocking infection, but these are ineffective in
patients already chronically infected with the virus. CDX-2101 is designed to
stimulate strong T-cell responses to a key HBV antigen expressed by
virus-infected cells in the liver, which can then mediate viral elimination and
inhibit the progression of liver pathology. Manufacturing and preclinical
development of CDX-2101 has been completed and AVANT is seeking a partner to
further the clinical development of CDX-2101.
·
CDX-S03
, a novel auto-immune targeting
vaccine designed to down-regulate the undesired immune responses involved in
destroying the insulin-producing cells in the pancreas of juvenile-onset,
type I, diabetes patients. This product candidate is based on the Notch
signaling technology platform brought into AVANT through the acquisition of
Lorantis in 2005. Initial preclinical studies have shown this therapy can
significantly inhibit diabetes in model systems. Further dose and regimen
optimization studies in animals are planned prior to beginning clinical
development studies. A manufacturing process for CDX-SO3 has been developed.
This Notch technology should also be applicable for the development of similar
specific immunotherapies for other autoimmune diseases. AVANT is seeking a
collaboration partner to further the clinical development of CDX-S03.
2.
APC Targeting Technology
for Active Immunizations
The bodys immune system
is tasked with recognizing and combating cancer cells, viruses, bacteria and
other disease causing organisms. This defense is carried out mainly by white
blood cells and their specific subsets, T-cells, and B-cells, which utilize
cell-mediated immune responses and antibody based immune responses targeted
against specific disease-associated molecules or antigens. Professional antigen
presenting cells, or APCs, including dendritic cells and macrophages, are additional
subsets of white blood cells that are critical to the development of specific
immune responses by guiding the activity of T cells via a system called
antigen processing and presentations. AVANTs APC Targeting Technology is
designed to boost this process using human monoclonal antibodies linked to
disease-associated antigen to efficiently deliver the attached antigen to APCs.
AVANTs proprietary human antibodies are specific for molecules located on the
surface of these APCs, which are known to be entry portals for antigen
processing pathways. In vivo, the antigen attached to the antibody is
specifically
15
delivered to the
appropriate antigen processing pathways in APCs, particularly dendritic cells,
which are often referred to as professional antigen presenting cells. APCs
internalize these targeted antigens into specific cellular compartments and
then present the processed antigen on the cell surface, thereby initiating the
desired immune response.
The delivery of antigens
into the appropriate intracellular compartments of APCs with AVANTs
proprietary antibodies can enhance antigen processing and presentation to
T cells at least 100 to 1000 fold more efficiently than non-targeted
antigen. Furthermore, APC-Targeting has been shown to be more effective than
other vaccine strategies in animal models for cancer and infectious disease.
AVANTs APC Targeting
Technology has been designed to allow AVANT to take advantage of many
important characteristics of human monoclonal antibodies, including their long
circulating half-life, generally good safety profile, and standardized
manufacturing procedures. AVANT believes that in addition to robust efficacy,
its APC Targeting Technology provides significant manufacturing, regulatory
and other practical advantages over patient specific and other immune-based
treatments and can substantially reduce the dosage and cost currently required
in conventional immunotherapies.
16
Preclinical studies have
demonstrated that the APC Targeting Technology is able to deliver an antigen
in a manner that result in significantly more efficient processing and
presentation by APCs than a non-targeted antigen. AVANT believes this creates a
more potent immune response than standard sub-unit peptides used in competing
immunization strategies. Model systems have demonstrated that the antigens
delivered by AVANTs proprietary monoclonal antibodies are processed and
presented by human dendritic cells substantially more efficiently than a
non-targeted antigen. Furthermore, using animal models, AVANT has shown the
effectiveness of this strategy in protection against tumor challenges. In
addition, using in vitro methods with cells from cancer patients, AVANT has
demonstrated that its product candidates can elicit antigen specific activated
T-cells that killed tumor cells expressing the antigen but spared cells lacking
the antigen. CD4, or helper, T-cells were also elicited. AVANT believes that
activation of these cells are critical for enhancing both humoral and cellular
responses, and that these results support AVANTs strategy of seeking to
develop additional clinical candidates.
AVANT believes that its
studies, and those of other investigators, indicate that this APC targeted
approach induces rapid and significantly heightened immune responses in vivo as
compared with non-targeted agents. Further, AVANT believes that by effectively
targeting antigens to dendritic cells in vivo, its product candidates can
transform weakly immunogenic antigens into viable targets for immunotherapy.
H.
Collaborative
Agreements
We depend on our
collaborative relationships and may enter into more of them in the future. Some
of the above referenced agreements give our collaborator substantial
responsibility to commercialize a product and to make decisions about the
amount and timing of resources that are devoted to developing and
commercializing a product. As a result, we do not have complete control over
how resources are used toward some of our products.
In addition, some
of these agreements relate to products in the early stages of research and
development. Others require AVANT and our collaborator to jointly decide on the
feasibility of developing a particular product using our technologies. In
either case, these agreements may terminate without benefit to us if the
underlying products are not fully developed. Moreover,
17
once specific products
are chosen for development, the agreements relating to them may require AVANT
to meet specified milestones, to invest money and other resources in the
development process or to negotiate additional licenses and other agreements,
which may not be possible or advantageous. If we fail to meet our obligations
under those agreements, they could terminate and we might need to enter into
relationships with other collaborators and to spend additional time, money, and
other valuable resources in the process.
Moreover, we
cannot predict whether our collaborators will continue their development
efforts or, if they do, whether their efforts will achieve success. Many of our
collaborators face the same kinds of risks and uncertainties in their business
that we face. A delay or setback to a collaborator will, at a minimum, delay
the commercialization of any affected products, and may ultimately prevent it.
Moreover, any collaborator could breach its agreement with us or otherwise not
use best efforts to promote our products. A collaborator may choose to pursue
alternative technologies or products that compete with our technologies or
products. In either case, if a collaborator failed to successfully develop one
of our products, we would need to find another collaborator. Our ability to do
so would depend upon our legal right to do so at the time and whether the
product remained commercially viable.
GlaxoSmithKline
(Glaxo) and Paul Royalty Fund (PRF):
In 1997, AVANT entered into an agreement with
Glaxo to collaborate on the development and commercialization of our oral
rotavirus vaccine. Under the terms of the agreement, Glaxo received an
exclusive worldwide license to commercialize our rotavirus vaccine. We were
responsible for continuing the Phase 2 clinical efficacy study of the
rotavirus vaccine, which was completed in August 1998. Subject to the
development by Glaxo of a viable manufacturing process, Glaxo assumed
responsibility for all subsequent clinical trials and all other development
activities. Glaxo made an initial license payment of $250,000 in 1997 upon
execution of the agreement. In June 1999, we received a milestone payment
of $500,000 from Glaxo for successfully completing the Phase 2 clinical
efficacy study and establishing a commercially viable process to manufacture
the vaccine. Glaxo initiated global Phase 3 clinical trials of Rotarix
®
in the third quarter of 2003, and AVANT recognized a $1.0 million
milestone. Glaxo filed for market approval with the European regulatory
authorities in late 2004, triggering a $2 million milestone fee payable to
AVANT. In February 2006, the European Commission granted approval of
Rotarix
®
in the European Union, which triggered a $4 million
milestone payment from Glaxo. On April 3, 2008, Rotarix
®
received approval from the U.S. FDA for the prevention of rotavirus
gastroenteritis in infants which triggered a milestone payment of
$1.5 million from GSK.
Royalty rates on
Rotarix
®
escalate from 7% to 10% based on net product sales in
countries for which we have valid patent protection. These royalty rates are
discounted by 30% for non-patent countries (primarily international markets).
Our internal commercialization models for Rotarix
®
suggest a blended
royalty rate ranging from mid to high single digits over the next three years.
The term of this agreement is through the expiration of the last of the
relevant patents covered by the agreement, although Glaxo may terminate the
agreement upon 90 days prior written notice. In September 2006, AVANT
received notice from Glaxo that Glaxo would begin paying royalties on sales of
Rotarix
®
vaccine at the lower of the two royalty rates under their
1997 license agreement. Glaxos decision to pay the lower royalty rate (which
is 70% of the full rate) is based upon Glaxos assertion that Rotarix
®
is not covered by the patents Glaxo licensed from AVANT in Australia and
certain European countries.
18
AVANT licensed the
Rotarix
®
technology from CCH in 1995 and owes a license fee of 30%
to CCH on net royalties received from Glaxo. In May 2005, AVANT entered
into an agreement whereby an affiliate of PRF purchased an interest in the net
royalties AVANT will receive on worldwide sales of Rotarix
®
. Under
the PRF agreement, AVANT will retain 50% of future Glaxo milestone payments,
with the balance payable to PRF and CCH.
If Glaxos royalty
position stands, the royalties to which PRF is entitled will no longer be
limited by a $27.5 million annual threshold, which AVANT projected may
have been reached in later years as sales of Rotarix
®
increased.
Irrespective of Glaxos position, AVANT will still retain the royalties on
worldwide sales of Rotarix
®
once PRF receives 2.45 times the
aggregate cash payments it makes to AVANT, though the potential amount of such
residual royalties will be lower if Glaxos position stands.
Medarex,
Inc (Medarex):
Under
our agreements with Medarex, AVANT has access to use Medarexs UltiMAb® technology to develop therapeutic monoclonal
antibody product candidates and may be obligated to pay license fees,
milestone payments and royalties relating to the development and regulatory
approval of certain of its technologies.
Under the terms of a
research and commercialization agreement with Medarex, AVANT will be required
to pay Medarex license fees to obtain commercial licenses for antibodies
arising from research licenses granted by Medarex. AVANT will also be required
to pay Medarex milestone payments with respect to the development of any
products containing such licensed antibodies. These fees and milestones may
total up to $7 million to $10 million per licensed antibody if a
product containing such licensed antibody receives approval from the FDA and/or
equivalent foreign agencies. None of AVANTs product candidates currently under
development trigger such milestone payments. In general, potential milestone
payments for AVANTs antibody product candidates may or may not be triggered and
may vary in size depending on a number of variables, almost all of which are
currently uncertain. Typically, the events that trigger these payments per
product candidate include:
·
submission
of investigational new drug application(s) or foreign equivalents;
·
commencement
of Phase I, Phase II and/or Phase III clinical trials or foreign equivalents;
·
submission
of biologic license application(s) or foreign equivalents; and
·
receipt
of marketing approval(s) to sell products in a particular country or
region.
In addition, AVANT will
be required to pay royalties on any sales of products containing licensed
antibodies. The royalties will be payable on a country-by-country and
product-by-product basis until the date which is the later of: (i) the
expiration of the last-to-expire of the Medarex patents covering the product in
such country or (ii) the tenth anniversary of the first commercial sale of
a product in such country. AVANT expects that this will occur no earlier than
2019. AVANT will also be responsible for the payment of any royalties, license
fees and milestone and other payments due to third parties if AVANT licenses
any additional technology in order to commercialize such products.
19
To date, AVANT has not
made any royalty payments on sales of any products and believes it is at least
a number of years away from selling any products that would require AVANT to
make any such royalty payments. Whether AVANT will be obligated to make
milestone or royalty payments in the future is subject to the success of AVANTs
product development efforts and, accordingly, is inherently uncertain.
Pfizer
Inc (Pfizer):
In
connection with AVANT s acquisition of Megan in 2000, we entered into a
licensing agreement with Pfizer whereby Pfizer licensed Megans technology for
the development of animal health and food safety vaccines. Upon execution of
the agreement, Pfizer made an initial license payment of $2.5 million
together with a $3 million equity investment. In December 2002, we
received a milestone payment of $500,000 from Pfizer as a result of the
submission of an application with the USDA for licensure of a food safety
vaccine. Under the agreement, we may receive additional milestone payments of
up to $3 million based upon attainment of specified milestones. We may
receive royalty payments on eventual product sales. The term of this agreement
is through the expiration of the last of the patents covered by the agreement.
AVANT has no obligations to incur any research and development costs in
connection with this agreement.
On June 1,
2006, AVANT entered into a Collaborative Research and Development Agreement
with Pfizer aimed at the discovery and development of vaccines to protect
animals. In 2007, further funded work at AVANT on the joint research program
was terminated by Pfizer. Under this collaboration arrangement, AVANT
recognized $62,500 and $137,500 in product development and licensing revenue
from Pfizer in 2007 and 2006, respectively.
On April 16, 2008,
AVANT, acting through its wholly owned subsidiary Celldex Therapeutics, Inc.,
and Pfizer, Inc. (Pfizer) entered into a license and development
agreement under which Pfizer will be granted an exclusive worldwide license to
CDX-110. The agreement also gives Pfizer exclusive rights to the use of AVANTs EGFRvIII vaccines in other
potential indications. Under the license and development agreement,
Pfizer will make an upfront payment to AVANT of $40 million and will make a $10
million equity investment in AVANT. Pfizer will fund all development costs for
these programs. AVANT is also eligible to receive milestone payments exceeding
$390 million for the successful development and commercialization of CDX-110
and additional EGFRvIII vaccine products, as well as double-digit royalties on
any product sales. The agreement is subject to approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended) and is
expected to close in the second quarter of 2008.
Rockefeller
University (Rockefeller):
On November 1, 2005, AVANT and Rockefeller entered into a license
agreement for the exclusive worldwide rights to human DEC-205 receptor, with
the right to sublicense the technology. The license grant is exclusive except
that Rockefeller may use and permit other nonprofit organizations to use the
human DEC-205 receptor patent rights for educational and research purposes. In
addition, AVANT acknowledges that Rockefeller has granted Howard Hughes Medical
Institute, or HHMI, a paid-up, nonexclusive, irrevocable license to use the
patent rights, biological materials, and technical information for HHMIs
research purposes, but with no right to sublicense. AVANT may also be required
to pay royalties on any product sales. The royalties will be payable on a country-by-country
and licensed product-by-licensed product basis until the date which is the
later of (i) the expiration of the last to expire of the patents covering
the licensed product in such country or (ii) ten years
20
following the first
commercial sale of a licensed product in such country. AVANT may be required to
pay license fees and milestone payments to Rockefeller with respect to
development of the human DEC-205 receptor. These fees and milestones may total
up to $2 million to $4 million per product candidate that receives
approval from the FDA and equivalent foreign agencies.
Duke
University (Duke):
On September 1, 2006, AVANT and Duke University Brain Tumor Cancer
Center of Duke entered into a license agreement that gave AVANT access and
reference to the clinical data generated by Duke and its collaborators in order
for AVANT to generate its own filing with the FDA relating to its product
CDX-110. In exchange for referencing all the Duke data, AVANT paid Duke a
one-time upfront payment of $.175 million and issued to Duke 100,000
shares of its common stock, which AVANT recorded in its consolidated statement
of operations as a licensing expense in research and development. The estimated
aggregate fair value of the common shares issued was $330,000. AVANT may be
required to pay license fees and milestone payments to Duke with respect to
development of the CDX-110. These fees and milestones may total up to
$1.2 million if CDX-110 receives approval from the FDA and equivalent
foreign agencies. AVANT may also be required to pay royalties upon approval of
CDX-110. The royalties will be payable on a country-by-country and licensed
product-by-licensed product basis until the date of the expiration of the last
to expire of the patents covering the licensed product in such country.
Ludwig
Institute for Cancer Research (Ludwig):
On October 20, 2006, AVANT and Ludwig
entered into an agreement for the nonexclusive rights to six cancer tumor
targets for use in combination with AVANTs APC Targeting Technology. The term
of the agreement is for ten years. As consideration for the nonexclusive
license, AVANT agreed to pay an annual license fee of $7,500 and $2,500 for
each full-length antigen and partial-length antigen, respectively, until such
antigens enter a randomized Phase 1 clinical trial. In consideration for a
nonexclusive license, AVANT may be required to pay license fees and milestone
payments to Ludwig for the use of the cancer targets in combination with AVANTs
technology. The fees and milestones may total up to $1.5 million to
$2.5 million on a product candidate that receives approval from the FDA
and equivalent foreign agencies. AVANT may also be required to pay royalties
upon approval of any product candidate. The royalties will be payable on a
country-by-country and licensed product-by-licensed product basis until the
date of the expiration of the last to expire of the patents covering the
licensed product in such country.
BIOSYN
Corporation (Biosyn):
On August 18, 2006, AVANT entered into a nonexclusive supply
agreement with BIOSYN for the supply of Good Manufacturing Grade (GMP)
proprietary formulation of BIOSYNs hemocyanin products, including keyhole
limpet hemocyanin (KLH), to be used in combination with AVANTs lead product
CDX-110. AVANT, as part of this agreement, will gain access to BIOSYNs Drug
Master File (DMF), which will be maintained with the U.S. and Canadian
regulatory authorities. BIOSYN will support all regulatory filings of AVANT and
allow cross-referencing letters by company for U.S. and foreign equivalent
agencies. The term of the agreement is for ten years, and AVANT agreed to
source all of its KLH requirements through BIOSYN, unless BIOSYN cannot meet
AVANTs demand. AVANT will pay $750,000, payable over ten years, for the
license and will pay a per gram cost for product for clinical and commercial
use. This agreement was assigned as part of the Pfizer transaction.
21
Corixa
Corporation (Corixa):
In December, 2005, Corixa Corporation, a wholly-owned subsidiary of
GlaxoSmithKline, and Celldex Ltd (formerly Lorantis Ltd.), a wholly-owned
subsidiary of AVANT, entered into a termination agreement of their collaboration
of CDX-2101 or HepVax for the development of a therapeutic vaccine for
Hepatitis B. Under the terms of the termination agreement and in
consideration for Glaxo terminating the agreement, Glaxo paid to AVANT the sum
of $1.63 million. In addition, and subject to the terms and conditions of
the termination agreement, Glaxo granted to AVANT a worldwide, fully paid up,
royalty-free, perpetual, nonexclusive license to certain technology. AVANT is
recognizing the revenue from the termination agreement with Glaxo in accordance
with EITF No. 00-21. AVANT has concluded that because the original
collaboration between Corixa and Celldex Ltd contained multiple deliverables
(either party was able to opt out only after completion of certain milestone
events) EITF 00-21 applies. For the years ended December 31, 2007,
2006 and 2005, AVANT recognized approximately $466,000, $466,000 and $14,000 of
revenue under the termination agreement, respectively.
DynPort
Vaccine Company LLC (DVC):
In January 2003, AVANT was awarded a
subcontract by DVC in the amount of $2.5 million to develop for the U.S.
Department of Defense an oral combination vaccine against anthrax and plague
using AVANTs proprietary vaccine technologies. AVANT received a number of
additional subcontract modifications from DVC to support further development
and pre-clinical animal testing of vaccine constructs of anthrax and plague
vaccine candidates. Total contract funding awarded by DVC totaled approximately
$12 million. As a result of AVANTs restructuring in 2007, it is no longer
investing its resources in biodefense research and development activities and
terminated its contracts with DVC as of September 30, 2007. Through December 31,
2007, AVANT had received approximately $9.7 million in payments under the
subcontract agreements.
Lohmann
Animal Health International (LAHI):
In September 2002, AVANT appointed LAHI
as the exclusive distributor of its Megan Health poultry vaccines in North
America. LAHI, an established animal health company, markets and distributes
the Megans marketed products for the commercial poultry market. Under the
distribution agreement, AVANT receives a percentage of Megan
®
Vac 1
and Megan
®
Egg product sales in the form of royalty payments. From
the inception of the agreement to December 31, 2007, AVANT has received
approximately $704,600 in royalties under the agreement. Royalties received in
2007, 2006 and 2005 were $115,925, $116,595 and $126,598, respectively. The
initial term of the agreement is five years with automatic extensions thereafter
unless the agreement is terminated by either party.
Biolipox
AB (Biolipox, formerly Inflazyme Pharmaceuticals Ltd. (Inflazyme) and
AdProTech, Ltd (AdProTech)):
In March 2004, AVANT granted a license
to AdProTech for non-exclusive rights to use certain components of its
intellectual property surrounding complement inhibition. In April 2004,
AVANT received an initial license payment of $1 million from AdProTech and
AdProTech was acquired by Inflazyme which assumed the license. In November 2007, Inflazyme sold the
majority of its research and development assets to Biolipox, including the
AVANT license. Under the agreement, AVANT is entitled to annual license fees,
milestone payments of up to $13.5 million in the aggregate and royalties
on eventual product sales. AVANT has no obligations to incur any research and
development costs in connection with this agreement.
22
Select
Vaccines Limited (Select Vaccines):
In February 2007, AVANT entered into a
research and development partnership with Select Vaccines Limited, an
Australian biotechnology company, focused on the use of Select Vaccines
virus-like particles (VLPs) as a platform technology for the development of
viral vaccines. On November 1, 2007, AVANT notified Select Vaccines that,
effective December 31, 2007, AVANT for strategic reasons was exercising
its rights to terminate its Collaboration and License Agreement with Select
Vaccines.
I.
Competition
The biotechnology and
pharmaceutical industries are intensely competitive and subject to rapid and
significant technological change. Many of the products that AVANT is attempting
to develop and commercialize will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
that target the same diseases and conditions that AVANT is targeting. AVANT
faces competition from pharmaceutical and biotechnology companies both in the
United States and abroad. AVANTs competitors may utilize discovery
technologies and techniques or partner with collaborators in order to develop
products more rapidly or successfully than Celldex or its collaborators are
able to do. Many of AVANTs competitors, particularly large pharmaceutical
companies, have substantially greater financial, technical and human resources
than AVANT does. In addition, academic institutions, government agencies and
other public and private organizations conducting research may seek patent
protection with respect to potentially competitive products or technologies and
may establish exclusive collaborative or licensing relationships with AVANTs
competitors.
AVANT is aware of a
number of competitive products currently available in the marketplace or under
development that are used for the prevention and treatment of the diseases that
AVANT has targeted for product development.
Many pharmaceutical and biotechnology companies are actively engaged in
research and development in areas related to prophylactic and therapeutic
vaccines, adjuvants, and vaccine and immunotherapeutic delivery systems,
including Acambis, Anitgenics, Baxter, Cell Genesys, Inc., Crucell,
Dendreon Corporation, Favrille Corporation, Genitope, GlaxoSmithKline,
Intercell, Iomai, Merck, NeoPharm, Inc., Northwest Biotherapeutics,
Novavax, Pfizer, Roche, Sanofi-Aventis SA, VaxGen, Vical. AVANT is aware that
Cell Genesys, Favrille, Genitope, Northwest Biotherapeutics, and Dendreon are
in late stage clinical trials for therapeutic vaccines for the treatment of
lymphoma, GBM, melanoma and prostate cancer, respectively, which may compete
with CDX-1307, CDX-110 and CDX-1401. In addition, companies such as ImClone, Inc.
with its approved product Erbitux for the treatment of colorectal cancer, and
Genentech, Inc. with its product Herceptin® for the treatment of
metastatic breast cancer, have already commercialized antibody-based products
that may compete with CDX-1307, CDX-1401 AND CDX-110.
Product candidates AVANT
may develop are also subject to competition in the treatment of colorectal
cancer from a number of products already approved and on the market, including
the following chemotherapy products: AstraZeneca PLCs Tomudex®,
Hoffman-LaRoches Xeloda® (capecitabine), Immunex Corporations Leucovorin®
calcium, Pfizer, Inc.s Camptosar® (irinotecan) and Aduracil® (5-FU),
Sanofi-Synthelabo Groups Eloxatin (oxaliplatin), Genentechs anti-VEGF
antibody, Avastin, GlaxoSmithKlines Eniluracil, and Titan Pharmaceuticals
CeaVac, in the treatment of patients with advanced-stage colorectal cancer. In
addition, AVANT is aware that other companies such as Cell Genesys, Inc.
and
23
Dendreon Corporation may
be developing additional cancer vaccines that could potentially compete with
other AVANT product candidates. AVANT may also face competition from Medarex
and Bristol-Myers Squibb Company, which are developing a therapeutic vaccine
for the treatment of melanoma using Medarexs MDX-010 product candidate. AVANT
also faces competition from a number of companies working in the fields of
anti-angiogenesis and specific active immunotherapy for the treatment of solid
tumor cancers. AVANT expects that competition among specific active
immunotherapy and anti-angiogenesis products approved for sale will be based on
various factors, including product efficacy, safety, reliability, availability,
price and patent position.
Various other companies
are developing or commercializing products in areas that AVANT has targeted for
product development. Some of these products use therapeutic approaches that may
compete directly with AVANTs product candidates. Many of these companies and
institutions, either alone or together with their partners, have substantially
greater financial resources and larger research and development staffs than
AVANT does. There can be no assurance that our competitors will not develop
technologies and products that are safer or more effective than any which are
being developed by us or which would render our technology and products obsolete
and noncompetitive. These companies may succeed in obtaining approval from the
FDA for products more rapidly than we do. There can be no assurance that the
vaccines and immunotherapeutic products under development by us and our
collaborators will be able to compete successfully with existing products or
products under development by other companies, universities and other
institutions or that they will obtain regulatory approval in the United States
or elsewhere. We believe that the principal competitive factors in the vaccine
and immunotherapeutic market are product quality, measured by efficacy and
safety, ease of administration and price.
AVANT also faces
competition from pharmaceutical and biotechnology companies, academic
institutions, government agencies and private research organizations in
recruiting and retaining highly qualified scientific personnel and consultants
and in the development and acquisition of technologies. Moreover, technology
controlled by third parties that may be advantageous to AVANTs business may be
acquired or licensed by its competitors, thereby preventing us from obtaining
technology on commercially reasonable terms, if at all. AVANT will also compete
for the services of third parties that may have already developed or acquired
internal biotechnology capabilities or made commercial arrangements with other
biopharmaceutical companies to target the diseases on which AVANT has focused
both in the U.S. and outside of the U.S. We will require substantial capital
resources to complete development of some or all of our products, obtain the
necessary regulatory approvals and successfully manufacture and market our
products. In order to secure capital resources, we anticipate having to sell
additional capital stock, which would dilute existing stockholders. We may also
attempt to obtain funds through research grants and agreements with commercial
collaborators. However, these types of fundings are uncertain because they are
at the discretion of the organizations and companies that control the funds. As
a result, we may not receive any funds from grants or collaborations.
Alternatively, we may borrow funds from commercial lenders, likely at high
interest rates, which would increase the risk of any investment in AVANT.
24
J.
Manufacturing
We have no
experience in volume manufacturing and we have relied upon collaborators or
contractors to manufacture our proposed products for both clinical and
commercial purposes. While we believe that there is currently sufficient
capacity worldwide for the production of our potential products by our
collaborators or through contract manufacturers, establishing long-term
relationships with contract manufacturers and securing multiple sources for the
necessary quantities of clinical and commercial materials required can be a
challenge. Qualifying the initial source of clinical and ultimately commercial
material is a time consuming and expensive process due to the highly regulated
nature of the pharmaceutical/biotech industry. These costs are hopefully
mitigated in the economies of scale realized in commercial manufacture and
product sale. The key difficulty in qualifying more than one source for each
product is the duplicated time and expense in doing so without the potential to
mitigate these costs if the secondary source is never utilized.
We intend to
establish manufacturing arrangements with manufacturers that comply with the
FDAs requirements and other regulatory standards, although there can be no assurance
that we will be able to do so. We have established our own manufacturing
facility in Fall River, Massachusetts to produce vaccine and monoclonal
antibody products that we may develop at scale for clinical trials. We are in
the process of converting the Fall River facility to mammalian cell culture
manufacturing capabilities. In order for us to establish a commercial
manufacturing facility, we will require substantial additional funds and will
be required to hire and retain significant additional personnel and comply with
the extensive cGMP regulations of the FDA applicable to such facility. The
commercial manufacturing facility would also need to be licensed for the
production of vaccines by the FDA.
To date, we have
been arranging with contract manufacturers for the manufacture of clinical
trial supplies of CDX-110, CDX-1307, TP10, CETi, and our bacterial vaccines who
have facilities that satisfy current good manufacturing practice requirements.
Manufacture of our rotavirus vaccine is the responsibility of Glaxo, which has
received from us a world-wide exclusive license to commercialize this vaccine.
During the past two
years, AVANT has manufactured three clinical lots of CDX-110
using contract manufacturing organizations in the United
States. AVANT believes that the supplies necessary for the planned clinical
programs will be supplied through our contract manufacturers. In addition to
the contract manufacturers with which we currently have agreements, AVANT
believes there are other contract manufacturers that can manufacture and
release CDX-110.
Two clinical lots of
CDX-1307 have been manufactured and released for clinical studies. The drug was
manufactured and released by Medarex. AVANT believes that it has sufficient
quantities to complete phase 1 clinical trials and that future product can
be manufactured at a contract manufacturing organization with experience at
manufacturing antibody-based products. AVANT does not have an agreement with
Medarex, or any other manufacturer, to manufacture specific additional
quantities of CDX-1307 should they be needed, or any of its other product
candidates.
25
We contracted with
Lonza Biologics plc for process development and scale-up of TP10 for
clinical trials. WRAIR has manufactured CholeraGarde® (Peru-15) and Ty800
vaccines under collaborative agreements with us. LAHI manufactures Megan
®
Vac
1 and Megan
®
Egg.
The manufacturing
processes for our other vaccine and immunotherapeutic delivery systems and
vaccines utilize known technologies. We believe that the products we currently
have under development can be scaled up to permit manufacture in commercial
quantities. However, there can be no assurance that we will not encounter
difficulties in scaling up the manufacturing processes.
Use of third party
manufacturers limits our control over and ability to monitor the manufacturing
process. As a result, we may not be able to detect a variety of problems that
may arise and may face additional costs in the process of interfacing with and
monitoring the progress of our contract manufacturers. If third party
manufacturers fail to meet our manufacturing needs in an acceptable manner, we
would face delays and additional costs while we develop internal manufacturing
capabilities or find alternative third party manufacturers. It may not be
possible to have multiple third party manufacturers ready to supply us with
needed material at all or without incurring significant costs.
K.
Marketing
Under the terms of
existing and future collaborative agreements, we rely and expect to continue to
rely on the efforts of our collaborators for the sale and marketing of our
products. We have agreements with, among others, Glaxo, Pfizer, Biolipox, and
LAHI for the development and commercialization of some of our products. The
relevant aspects of these relationships have been previously discussed under
the heading H. Collaborative Agreements. There can be no assurance that our
collaborators will develop and market vaccine products incorporating our
technologies, or, if marketed, that such efforts will be successful. The
failure of our collaborators to successfully market products would harm our
business.
We have retained,
and in the future intend to retain, marketing rights to some of our product
candidates, including vaccine and immunotherapeutic delivery systems and
vaccine candidates, in selected geographic areas and for specified indications.
We intend to seek marketing and distribution agreements and/or co-promotion
agreements for the distribution of our products in these geographic areas and
for these indications. We believe that these arrangements could enable us to
generate greater financial return than might be obtained from early stage
licensing and collaboration agreements. We have no marketing and sales staff
and limited experience relating to marketing and distribution of commercial
products, including vaccines. If we determine in the future to engage in direct
marketing of our products, we will be required to recruit an experienced
marketing group, develop a supporting distribution capability and incur
significant additional expenditures. There can be no assurance that we will be
able to establish a successful marketing force. We may choose or find it
necessary to enter into strategic partnerships on uncertain, but potentially
unfavorable, terms to sell, market and distribute our products. Any delay in
the marketing or distribution of our products, whether it results from problems
with internal capabilities or with a collaborative relationship, could harm the
value of an investment in AVANT.
26
L.
Patents,
Licenses and Proprietary Rights
AVANTs policy is
to protect our technology by filing patent applications and obtaining patent
rights covering our own technology, both in the United States and in foreign
countries. In addition, we have acquired and will seek to acquire as needed or
desired, exclusive rights of others through assignment or license to complement
our portfolio of patent rights. We also rely on trade secrets, unpatented
know-how and technological expertise and innovation to develop and maintain our
competitive position.
Patents:
The successful development and marketing of
products by AVANT will depend in part on our ability to create and maintain
intellectual property, including patent rights. We have established a
proprietary patent position in the areas of complement inhibitor technology,
cholesterol regulation technology, vaccine technologies, and preservation
technologies, and we are the owner or exclusive licensee of numerous patents
and pending applications around the world. Although we continue to pursue
patent protection for our products, no assurance can be given that any pending
application will issue as a patent, that any issued patent will have a scope
that will be of commercial benefit, or that we will be able to successfully
enforce our patent position against infringers. AVANT routinely reviews its
patent portfolio and adjusts its strategies for prosecution and maintenance of
individual cases according to a number of factors including program priorities,
stage of development, and patent term.
AVANT owns or licenses
rights under more than 600 granted patents and pending patent applications
around the world covering inventions relating to our business. We have certain
exclusive rights under nine issued national or regional patents and three
pending national patent applications relating to the technology used in
CDX-110. One of the pending patent applications (in Japan) is currently under
appeal. Expiration dates for the key issued patents range from 2009 to 2014 in
the United States and from 2010 to 2015 in the United Kingdom, Germany and
France (not including any possible patent term extensions or Supplementary
Protection Certificates, if these are obtained in due course).
In the area of APC
targeting, through agreements with Medarex and Rockefeller, we are the owner or
exclusive licensee of ten issued patents and more than 40 pending national and
regional patent applications worldwide. Through our agreement with Ludwig, we
have an option to obtain certain commercial rights in connection with our APC
targeting technology under more than 100 national and regional patents and
pending patent applications worldwide, relating to NY-ESO-1 and various other
tumor antigens. We have, in the area of Hepatitis B vaccination, certain
exclusive rights under five issued patents and more than 40 pending national
and regional patent applications worldwide, and, in the area of Notch signaling
modulation, control of seven issued patents and more than 20 pending national
and regional patent applications worldwide. AVANT also has non-exclusive rights
under more than 30 national and regional patents and pending patent
applications worldwide relating to the adjuvant formulation currently used with
CDX-2101. We also own patents covering human antibodies to CD89.
In the area of
complement inhibitor technology, we have rights to 46 granted patents and 6
pending patent applications worldwide.
Key patents in this area remain in force in the United States to 2016.
We are co-owner with The Johns Hopkins University and Brigham & Womens
Hospital, whose rights AVANT has exclusively licensed, of patents and
applications covering
27
inventions relating to
soluble complement receptor type I (sCR1). These rights are based in
part on the work of Dr. Douglas Fearon and include U.S. and foreign
patents which claim nucleic acid sequences encoding CR1, sCR1 and active
fragments; purification methods; and therapeutic uses of sCR1. We also own a
number of other issued patents and patent applications relating to
glyco-modification of sCR1 molecules and therapeutic uses for sCR1.
In the area of
cholera and typhoid vaccines, we have rights to 84 patents and patent
applications worldwide with the key patents in this area expiring between 2013
and 2016. In December 2000, we obtained exclusive rights to vaccine
technology patents and applications based on the work of Dr. Roy Curtiss
III. These patent rights complemented and expanded the exclusively licensed
patent rights of AVANT based on the work of Dr. John Mekalanos and
colleagues in this technological area. We have an exclusive license to two
United States patents, and their corresponding foreign patents and
applications, directed to vectors that are used in our VibrioVec
®
vaccine delivery system. We have exclusive licenses to six U.S. patents, and
their corresponding foreign patents and applications, directed to vectors that
are used in our SalmoVec
®
vaccine delivery system. In connection
with our acquisition of Megan, we entered into a licensing agreement with
Pfizer whereby Pfizer has licensed Megans technology for the development of
animal health and food safety vaccines.
In January 2003,
AVANT completed licensing and acquisition agreements which gave us ownership or
exclusive rights in certain defined fields to a portfolio of patents and
applications filed by Universal Preservation Technologies, Inc. and Elan
Drug Delivery Ltd. (now Innovata plc). This portfolio affords AVANT
exclusive rights in a particular technology of foam preservation of
biomolecules and cells. This technology should be especially useful in AVANTs
vaccine programs to produce vaccine dosage forms that are shelf stable at room
temperatures and do not require refrigeration.
In the area of rotavirus
vaccines, we have rights to 20 patents and patent applications worldwide, with
the key patents in this area expiring in 2011 and 2012. We have an exclusive
license to nineteen issued patents in the U.S. and foreign countries directed
to a rotavirus strain that has been developed by a licensee into a commercial
rotavirus vaccine.
AVANT originated
an autoimmunization approach to controlling cholesterol and owns 42 patents and
eight pending patent applications worldwide covering this concept, with the key
patents in this area expiring in 2016 and 2019. Our 2003 acquisition of
intellectual property from Pharmacia relating to immunological control of
cholesterol, coupled with our September 2001 acquisition of a portfolio of
granted and pending patents from The Immune Response Corporation, consolidated
AVANTs ownership of the intellectual property that covers the technology of
anti-atherosclerosis vaccines targeting CETP activity.
AVANT owns one
issued patent and a pending application on the use of a recombinantly produced
single protein of
B. anthracis
for vaccination against anthrax.
There can be no
assurance that patent applications owned by or licensed to AVANT will result in
granted patents or that, if granted, the resultant patents will afford protection
against competitors with similar technology. It is also possible that third
parties may obtain patents or other proprietary rights that may be necessary or
useful to AVANT. In cases where third parties
28
are first to invent a
particular product or technology, it is possible that those parties will obtain
patents that will be sufficiently broad to prevent us from using important
technology or from further developing or commercializing important vaccine and
immunotherapeutic systems and vaccine candidates. If licenses from third
parties are necessary but cannot be obtained, commercialization of the covered
products might be delayed or prevented. Even if these licenses can be obtained,
they would probably require us to pay ongoing royalties and other costs, which
could be substantial.
Although a patent
has a statutory presumption of validity in the United States, the issuance of a
patent is not conclusive as to validity or as to the enforceable scope of the
patent claims. The validity or enforceability of a patent after its issuance by
the Patent and Trademark Office can be challenged in litigation. As a business
that uses a substantial amount of intellectual property, we face a heightened
risk of intellectual property litigation. If the outcome of the litigation is
adverse to the owner of the patent, third parties may then be able to use the
invention covered by the patent without authorization or payment. There can be
no assurance that our issued patents or any patents subsequently issued to or
licensed by us will not be successfully challenged in the future. In addition,
there can be no assurance that our patents will not be infringed or that the
coverage of our patents will not be successfully avoided by competitors through
design innovation.
We are aware that
others, including universities and companies, have filed patent applications
and have been granted patents in the United States and other countries which
claim subject matter potentially useful or necessary to the commercialization
of our products. The ultimate scope and validity of existing or future patents
which have been or may be granted to third parties, and the availability and
cost of acquiring rights in those patents necessary to the manufacture, use or
sale of our products presently cannot be determined by AVANT.
Third parties may have or
obtain valid and enforceable patents or proprietary rights that could block
AVANT from developing products using its technology, including:
·
certain
patents and applications in the United States and Europe owned by
Sanofi-Aventis, which relate to antibody-antigen conjugates and methods of
their use for eliciting an immune response against the antigen;
·
certain
patents and applications in the United States and foreign countries covering
particular antigens and antigenic fragments targeted by AVANTs current vaccine
product candidates, including CDX-1307, CDX-1401, CDX-2401 and CDX-2402;
·
certain
patents and pending applications related to particular receptors and other
molecules on dendritic cells and macrophages that may be useful for generating
monoclonal antibodies and can be employed in AVANTs APC Targeting Technology;
·
two United
States patents and related foreign patents and applications covering methods of
diagnosing gliomas by detecting the presence of the EGFRvIII (tumor specific
splice variant) protein;
·
a United
States patent relating to certain uses of GM-CSF;
·
a European
patent relating to certain tumor antigen splice variants;
29
·
a United States patent
owned by Genentech, Inc., relating to the production of recombinant
antibodies in host cells;
·
a United States patent
owned by GlaxoSmithKline plc related to methods of culturing cells under
certain conditions;
·
certain patents held by
third parties relating to antibody expression in particular types of host
cells;
·
certain patents and
pending applications in the United States and foreign countries relating to
Hepatitis B antigens, formulations and uses; and
·
certain patents and
pending applications in the United States and foreign countries relating to
Notch ligands, sequences and uses.
We use a mutated
Vibrio cholerae
in our CholeraGarde
®
vaccine candidate and our VibrioVec
®
vaccine delivery system. We are
aware of an issued U.S. patent which claims a culture of mutated
Vibrio cholerae
. We believe that only one
claim (the Claim) of the patent may be pertinent to our CholeraGarde
®
and VibrioVec
®
products. The remaining claims of the patent cover
other cultures, which we believe are not pertinent to the CholeraGarde
®
or VibrioVec
®
products. We have received an opinion of counsel from
Fish & Richardson, P.C. that, based on the analysis set forth in their
opinion and the facts known to them, the Claim is invalid. While a party
challenging the validity of a patent has the burden of proving invalidity, the
outcome of any litigation cannot be predicted with certainty. Accordingly,
there can be no assurance that, if litigated, a court would conclude that the
Claim is invalid.
In addition to the
patent and patent applications referred to in the previous paragraphs, there
may be other patent applications and issued patents belonging to competitors
that may require us to alter our vaccine candidates and vaccine and
immunotherapeutic delivery systems, pay licensing fees or cease some of our
activities. If our product candidates conflict with patents that have been or
may be granted to competitors, universities or others, the patent owners could
bring legal action against us claiming damages and seeking to enjoin
manufacturing and marketing of the patented products. If any of these actions
is successful, in addition to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
affected products. There can be no assurance that we would prevail in any such
action or that any license required under any such third party patent would be
made available on acceptable terms or at all. We believe that there may be
significant litigation in the biotechnology and vaccine industries regarding
patent and other intellectual property rights. If we become involved in that
litigation, we could consume substantial resources.
Licenses:
We have entered into several significant
license agreements relating to technology that is being developed by AVANT
and/or its collaborators, including licenses from the following: Johns Hopkins
University, Duke University and Thomas Jefferson University relating to
technology used in or with CDX-110; Medarex and GenPharm International, Inc.
relating to APC targeting technology and antibody technology; Rockefeller
relating to APC targeting technology; Ludwig relating to tumor antigens; Apovia, Inc.
and Celltech R&D Ltd. relating to Hepatitis B core particle
technology; Corixa Corporation relating to adjuvant formulations used with
AVANTs product candidate CDX-2101, Harvard College relating to proprietary
technology involving genetically altered
Vibrio
cholerea
and
Salmonella
strains;
30
Cincinnati Childrens
Hospital involving proprietary rights and technologies relating to an
attenuated rotavirus strain for a rotavirus vaccine. In general, these institutions
have granted us an exclusive worldwide license (with right to sublicense) to
make, use and sell products embodying the licensed technology, subject to the
reservation by the licensor of a non-exclusive right to use the technologies
for non-commercial research purposes.
Generally, the
term of each license is through the expiration of the last of the patents
issued with respect to the technologies covered by the license. We have
generally agreed to use reasonable efforts to develop and commercialize licensed
products and to achieve specified milestones and pay license fees, milestone
payments and royalties based on the net sales of the licensed products or to
pay a percentage of sublicense income. If we breach our obligations, the
licensor has the right to terminate the license, and, in some cases, convert
the license to a non-exclusive license. Generally, we control and are
responsible for the cost of defending the patent rights of the technologies
that we license. However, AVANT does not always fully control the patent rights
of the technologies that it licenses.
Proprietary
Rights:
We also rely
on unpatented technology, trade secrets and confidential information, and no
assurance can be given that others will not independently develop substantially
equivalent information and techniques or otherwise gain access to our know-how
and information, or that we can meaningfully protect our rights in such
unpatented technology, trade secrets and information. We require each of our
employees, consultants and advisors to execute a confidentiality agreement at
the commencement of an employment or consulting relationship with AVANT. The
agreements generally provide that all inventions conceived by the individual in
the course of employment or in providing services to AVANT and all confidential
information developed by, or made known to, the individual during the term of
the relationship shall be the exclusive property of AVANT and shall be kept
confidential and not disclosed to third parties except in limited specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for our information in the event of unauthorized
use or disclosure of such confidential information.
M.
Government Regulation
Our activities and
products are significantly regulated by a number of governmental entities,
including the FDA in the United States and by comparable authorities in other
countries and by the USDA with respect to products developed for animal health
and food safety. These entities regulate, among other things, the manufacture,
testing, safety, effectiveness, labeling, documentation, advertising and sale
of our products. We must obtain regulatory approval for a product in all of
these areas before we can commercialize the product. Product development within
this regulatory framework takes a number of years and involves the expenditure
of substantial resources. Many products that initially appear promising
ultimately do not reach the market because they are found to be unsafe or
ineffective when tested. Our inability to commercialize a product would impair
our ability to earn future revenues.
In the United
States, vaccines and immunotherapeutics for human use are subject to FDA
approval as biologics under the Public Health Service Act and drugs under
the Federal Food, Drug and Cosmetic Act. The steps required before a new
product can be commercialized
31
include: pre-clinical
studies in animals, clinical trials in humans to determine safety and efficacy
and FDA approval of the product for commercial sale.
Data obtained at
any stage of testing is susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. Moreover, during the regulatory
process, new or changed drug approval policies may cause unanticipated delays
or rejection of our product. We may not obtain necessary regulatory approvals
within a reasonable period of time, if at all, or avoid delays or other
problems in testing our products. Moreover, even if we received regulatory
approval for a product, the approval may require limitations on use, which
could restrict the size of the potential market for the product.
The FDA provides
that human clinical trials may begin thirty (30) days after receipt and
review of an Investigational New Drug (IND) application, unless the FDA
requests additional information or changes to the study protocol within that
period. An IND must be sponsored and filed by AVANT for each of our proposed
products. Authorization to conduct a clinical trial in no way assures that the
FDA will ultimately approve the product. Clinical trials are usually conducted
in three sequential phases. In a Phase 1 trial, the product is given to a
small number of healthy volunteers to test for safety (adverse effects).
Phase 2 trials are conducted on a limited group of the target patient
population; safety, optimal dosage and efficacy are studied. A Phase 3
trial is performed in a large patient population over a wide geographic area to
provide evidence for the safety of the product and to prove and confirm
efficacy. The FDA has ongoing oversight over all these trials and can order a
temporary or permanent discontinuation if warranted. Such an action could
materially harm AVANT. Clinical tests are critical to the success of our
products but are subject to unforeseen and uncontrollable delay, including
delay in enrollment of patients. Any delay in clinical trials could delay our
commercialization of a product.
A products safety
and effectiveness in one test is not necessarily indicative of its safety and
effectiveness in another test. Moreover, we may not discover all potential
problems with a product even after completing testing on it. Some of our
products and technologies have undergone only pre-clinical testing. As a
result, we do not know whether they are safe or effective for humans. Also,
regulatory authorities may decide, contrary to our findings, that a product is
unsafe or not as effective in actual use as its test results indicated. This
could prevent the products widespread use, require its withdrawal from the
market or expose us to liability.
The results of the
clinical trials and all supporting data are submitted to the FDA for approval.
A Biologics License Application (BLA) is submitted for a biologic product; a
New Drug Application (NDA) for a drug product. The interval between IND
filing and BLA/NDA filing is usually at least several years due to the length
of the clinical trials, and the BLA/NDA review process can take over a year.
During this time the FDA may request further testing or additional trials or
may turn down the application. Even with approval, the FDA frequently requires
post-marketing safety studies (known as Phase 4 trials) to be performed.
The FDA requires
that the manufacturing facility that produces a licensed product meet specified
standards, undergo an inspection and obtain an establishment license prior to
commercial marketing. Subsequent discovery of previously unknown problems with
a product or its manufacturing process may result in restrictions on the
product or the manufacturer, including withdrawal of the product from the
market. Failure to comply with the applicable regulatory
32
requirements can result
in fines, suspensions of regulatory approvals, product recalls, operating
restrictions and criminal prosecution.
In the United
States, vaccines for animal health and food safety use are subject to USDA
approval. The steps required before a new product can be commercialized
include: pre-clinical studies in animals; clinical trials in animals to
determine safety and efficacy; and USDA approval of the product for commercial
sale. The registration of these vaccines may be subject to numerous delays or
possibly outright rejection of the product by the agency. Delays may occur at
any stage of testing, clinical results may be subject to unfavorable
interpretation by the agency and regulatory approval, if received, may require
limitations on use which could restrict the size of the potential market for
the product. The USDA requires that the manufacturing facility that produces a
licensed product meet specified standards, undergo an inspection and obtain an
establishment license prior to commercial marketing. Under USDA regulations,
this license is held by the manufacturer of the product, not the developer of
the product, such as Megan. Failure to comply with applicable USDA regulatory
requirements can result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution.
The Advisory
Committee on Immunization Practices (ACIP) of the Centers for Disease Control
(CDC) has a role in setting the public market in the United States for the
vaccine products we intend to develop. The ACIP makes recommendations on the
appropriate use of vaccines and related products and the CDC develops
epidemiologic data relevant to vaccine requirements and usage.
Because we may
market our products abroad, we will be subject to varying foreign regulatory
requirements. Although international efforts are being made to harmonize these
requirements, applications must currently be made in each country. The data
necessary and the review time vary significantly from one country to another.
Approval by the FDA does not ensure approval by the regulatory bodies of other
countries.
Our collaborators
are also subject to all of the above-described regulations in connection with
the commercialization of products utilizing our technology.
N.
Product Liability
The risk of
product liability claims, product recalls and associated adverse publicity is
inherent in the testing, manufacturing, marketing and sale of medical products.
If and when we manufacture vaccines that are recommended for routine
administration to children, we will be required to participate in the National
Vaccine Injury Compensation Program. This program compensates children having
adverse reactions to certain routine childhood immunizations with funds
collected through an excise tax from the manufacturers of these vaccines.
We have clinical
trial liability insurance coverage in the amount of $5 million. However,
there can be no assurance that such insurance coverage is or will continue to
be adequate or available. We may choose or find it necessary under our
collaborative agreements to increase our insurance coverage in the future. We
may not be able to secure greater or broader product liability insurance
coverage on acceptable terms or at reasonable costs when needed. Any liability
for mandatory damages could exceed the amount of our coverage. A successful
product
33
liability claim against
us could require us to pay a substantial monetary award. Moreover, a product recall
could generate substantial negative publicity about our products and business
and inhibit or prevent commercialization of other product candidates.
O.
Employees; Scientific
Consultants
As of March 31,
2008, we employed 67 full time persons and 6 part time or temporary persons, 15
of whom have doctoral degrees. Of these employees, 58 were engaged in or
directly support research and development activities. AVANTs success depends
in large part upon its ability to attract and retain employees. AVANT faces
competition for employees from other companies, research and academic
institutions, government agencies and other organizations. The Company believes
that its employee relations are good.
RISK
FACTORS
You should
consider carefully these risk factors together with all of the information
included in this Form 8-K/A. This section includes some forward-looking
statements.
The following is a
discussion of the risk factors that we believe are material to AVANT at this
time. These risks and uncertainties are not the only ones facing AVANT and
there may be additional matters that we are unaware of or that we currently
consider immaterial. All of these could adversely affect our business, results
of operations, financial condition and cash flows. Furthermore, following the
recent closing of the merger with Celldex, there are certain risks to the
combined company. Please see the risks described below under Post-Merger
Risks, which are the most significant risks to the post-merger company
resulting from the consummation of the merger.
Risks Related to Our Business
Our
products and product candidates are subject to extensive regulatory scrutiny.
All of our
products and product candidates are at various stages of development and
commercialization and our activities, products and product candidates are
significantly regulated by a number of governmental entities, including the FDA
in the United States and by comparable authorities in other countries and by
the USDA in the United States with respect to products developed for animal
health and food safety. These entities regulate, among other things, the
manufacture, testing, safety, effectiveness, labeling, documentation,
advertising and sale of our products and product candidates. We must obtain
regulatory approval for a product candidate in all of these areas before we can
commercialize the product candidate. Product development within this regulatory
framework takes a number of years and involves the expenditure of substantial
resources. This process typically requires extensive pre-clinical and clinical
testing, which may take longer or cost more than we anticipate, and may prove
unsuccessful due to numerous factors. Many product candidates that initially
appear promising ultimately do not reach the market because they are found to
be unsafe or ineffective when tested. Companies in the pharmaceutical,
biotechnology and vaccines industries have suffered significant setbacks in
advanced clinical trials, even after obtaining promising results in earlier
trials. Our inability to commercialize a product or product candidate would
impair our ability to earn future revenues.
34
If
our products do not pass required tests for safety and effectiveness, we will
not be able to derive commercial revenue from them.
For AVANT to
succeed, we will need to derive commercial revenue from the products we have
under development. The FDA has not approved any of our lead products for sale
to date. Products in our vaccine programs are in various stages of pre-clinical
and clinical testing. Pre-clinical tests are performed at an early stage of a
products development and provide information about a products safety and
effectiveness on laboratory animals. Pre-clinical tests can last years. If a
product passes its pre-clinical tests satisfactorily, we file an
investigational new drug application for the product with the FDA, and if the
FDA gives its approval we begin phase 1 clinical tests. Phase 1
testing generally lasts between 6 and 24 months. If phase 1 test
results are satisfactory and the FDA gives its approval, we can begin
phase 2 clinical tests. Phase 2 testing generally lasts between 6 and
36 months. If phase 2 test results are satisfactory and the FDA gives
its approval, we can begin phase 3 pivotal studies. Phase 3 studies
generally last between 12 and 48 months. Once clinical testing is
completed and a new drug application is filed with the FDA, it may take more
than a year to receive FDA approval.
In all cases we
must show that a pharmaceutical product is both safe and effective before the
FDA, or drug approval agencies of other countries where we intend to sell the
product, will approve it for sale. Our research and testing programs must
comply with drug approval requirements both in the United States and in other
countries, since we are developing our lead products with companies, including
Glaxo, Pfizer, and Inflazyme, which intend to commercialize them both in the
U.S. and abroad. A product may fail for safety or effectiveness at any stage of
the testing process. The key risk we face is the possibility that none of our
products under development will come through the testing process to final
approval for sale, with the result that we cannot derive any commercial revenue
from them after investing significant amounts of capital in multiple stages of
pre-clinical and clinical testing.
Product
testing is critical to the success of our products but subject to delay or
cancellation if we have difficulty enrolling patients.
As our portfolio
of potential products moves from pre-clinical testing to clinical testing, and
then through progressively larger and more complex clinical trials, we will
need to enroll an increasing number of patients with the appropriate
characteristics. At times we have experienced difficulty enrolling patients and
we may experience more difficulty as the scale of our clinical testing program
increases. The factors that affect our ability to enroll patients are largely
uncontrollable and include principally the following:
·
the nature of the clinical test;
·
the size of the patient population;
·
the distance between patients and clinical test
sites; and
·
the eligibility criteria for the trial.
If we cannot
enroll patients as needed, our costs may increase or it could force us to delay
or terminate testing for a product.
35
Any
delay in obtaining regulatory approval would have an adverse impact on our
ability to earn future revenues.
It is possible
that none of the products or product candidates that we develop will obtain the
regulatory approvals necessary for us to begin commercializing them. The time
required to obtain FDA and other approvals is unpredictable but often can take
years following the commencement of clinical trials, depending upon the nature
of the product candidate. Any analysis we perform of data from clinical
activities is subject to confirmation and interpretation by regulatory
authorities, which could delay, limit or prevent regulatory approval. Any delay
or failure in obtaining required approvals could have a material adverse effect
on our ability to generate revenues from the particular product candidate.
Furthermore, if we, or our partners, do not reach the market with our products
before our competitors offer products for the same or similar uses, or if we,
or our partners, are not effective in marketing our products, our revenues from
product sales, if any, will be reduced.
We face intense
competition in our development activities. We face competition from many
companies in the United States and abroad, including a number of large
pharmaceutical companies, firms specialized in the development and production
of vaccines, adjuvants and vaccine and immunotherapeutic delivery systems and
major universities and research institutions. These competitors include
Acambis, Anitgenics, Baxter, Cell Genesys, Inc., Crucell, Dendreon
Corporation, Favrille Corporation, Genitope, GlaxoSmithKline, Intercell, Iomai,
Merck, NeoPharm, Inc., Northwest Biotherapeutics, Novavax, Pfizer, Roche,
Sanofi-Aventis SA, VaxGen, and Vical. AVANT is aware that Cell Genesys,
Favrille, Genitope, Northwest Biotherapeutics, and Dendreon are in late stage
clinical trials for therapeutic vaccines for the treatment of lymphoma, GBM,
melanoma and prostate cancer, respectively, which may compete with CDX-1307,
CDX-110 and CDX-1401. In addition, companies such as ImClone, Inc. with
its approved product Erbitux for the treatment of colorectal cancer, and
Genentech, Inc. with its product Herceptin® for the treatment of
metastatic breast cancer, have already commercialized antibody-based products that
may compete with CDX-1307, CDX-1401 AND CDX-110. Various other companies are
developing or commercializing products in areas that AVANT has targeted for
product development. Most of our competitors have substantially greater
resources, more extensive experience in conducting pre-clinical studies and
clinical testing and obtaining regulatory approvals for their products, greater
operating experience, greater research and development and marketing
capabilities and greater production capabilities than those of AVANT. These
companies might succeed in obtaining regulatory approval for competitive
products more rapidly than we can for our products, especially if we experience
any delay in obtaining required regulatory approvals.
Failure
to comply with applicable regulatory requirements would adversely impact our
operations.
Even after
receiving regulatory approval, our products are subject to extensive regulatory
requirements, and our failure to comply with applicable regulatory requirements
will adversely impact our operations. In the United States, the FDA and USDA,
as applicable, require that the manufacturing facility that produces a product
meet specified standards, undergo an inspection and obtain an establishment
license prior to commercial marketing. Under USDA regulations, this license is
held by the manufacturer of the product and not the developer of the product.
36
Subsequent discovery of
previously unknown problems with a product or its manufacturing process may
result in restrictions on the product or the manufacturer, including withdrawal
of the product from the market. Failure to comply with the applicable
regulatory requirements can result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.
We
depend greatly on the intellectual capabilities and experience of our key
executives and scientists and the loss of any of them could affect our ability
to develop our products.
The loss of Anthony
S. Marucci, our interim President and Chief Executive Officer, or other key
members of our staff, including Avery W. Catlin, our Chief Financial Officer, Dr. Tibor
Keler, our Chief Scientific Officer, Dr. Thomas Davis, our Chief Medical
Officer, or Dr. Ronald C. Newbold, our Senior Vice President of Business
Development, could harm us. We have employment agreements with Mr. Marucci,
Mr. Catlin, Dr. Keler, Dr. Davis and Dr. Newbold. We do not
have any key-person insurance coverage. We also depend on our scientific and
clinical collaborators and advisors, all of whom have outside commitments that
may limit their availability to us. In addition, we believe that our future
success will depend in large part upon our ability to attract and retain highly
skilled scientific, managerial and marketing personnel, particularly as we
expand our activities in clinical trials, the regulatory approval process and
sales and manufacturing. We routinely enter into consulting agreements with our
scientific and clinical collaborators and advisors, opinion leaders and heads
of academic departments in the ordinary course of our business. We also enter
into contractual agreements with physicians and institutions who recruit
patients into our clinical trials on our behalf in the ordinary course of our
business. Notwithstanding these arrangements, we face significant competition
for this type of personnel from other companies, research and academic
institutions, government entities and other organizations. We cannot predict our
success in hiring or retaining the personnel we require for continued growth.
We
rely on our contract manufacturers. Should the cost, delivery and quality of
clinical and commercial grade materials supplied by contract manufacturers vary
to our disadvantage, our business operations could suffer significant harm.
We are dependent
on sourcing from third-party manufacturers for suitable quantities of clinical
and commercial grade materials essential to pre-clinical and clinical studies
currently underway and to planned clinical trials in addition to those
currently being conducted by third parties or us. The inability to have
suitable quality and quantities of these essential materials produced in a
timely manner would result in significant delays in the clinical development
and commercialization of products, which could adversely affect our business,
financial condition and results of operations. We rely on collaborators and
contract manufacturers to manufacture proposed products in both clinical and
commercial quantities in the future. Our leading bacterial vaccine candidates
use attenuated live bacteria as vectors and therefore require specialized
manufacturing capabilities and processes. We have faced difficulties in
securing commitments from U.S. and foreign contract manufacturers as these
manufacturers have at times been unwilling or unable to accommodate our needs.
Relying on foreign manufacturers involves peculiar and increased risks, and in
one occasion we had to terminate a contract with a foreign manufacturer and
find a substitute source of material for planned clinical trials. These
peculiar and increased risks include risks relating to the difficulties foreign
manufacturers may face in
37
complying with the FDAs
Good Manufacturing Practices, or GMP, as a result of language barriers, lack of
familiarity with GMP or the FDA regulatory process or other causes, economic or
political instability in or affecting the home countries of our foreign
manufacturers, shipping delays, potential changes in foreign regulatory laws
governing the sales of our product supplies, fluctuations in foreign currency
exchange rates and the imposition or application of trade restrictions.
There can be no
assurances that we will be able to enter into long-term arrangements with such
third party manufacturers on acceptable terms or at all. Further, contract
manufacturers must also be able to meet our timetable and requirements, and
must operate in compliance with GMP; failure to do so could result in, among
other things, the disruption of product supplies. As noted above, non-U.S.
contract manufacturers may face special challenges in complying with the FDAs
GMP requirements, and although we are not currently dependent on non-U.S.
collaborators or contract manufacturers, we may choose or be required to rely
on non-U.S. sources in the future as we seek to develop stable supplies of
increasing quantities of materials for ongoing clinical trials of larger scale.
Our dependence upon third parties for the manufacture of our products may
adversely affect our profit margins and our ability to develop and deliver
products on a timely and competitive basis.
We depend on third
party suppliers and manufacturers, including BIOSYN Corporation, American
Peptide Company, WRAIR, Lonza Biologics plc, Bioconcept, Inc., NeoMPS, Inc.,
and LAHI, to provide us with suitable quantities of materials necessary for
clinical tests. If these materials are not available in suitable quantities of
appropriate quality, in a timely manner, and at a feasible cost, our clinical
tests will face delays.
We
rely on third parties to plan, conduct and monitor our clinical tests, and
their failure to perform as required would interfere with our product
development.
We rely on third
parties, including, among others, Accelovance, the International Center for
Diarrhoeal Disease Research, Bangladesh, the International Vaccines Institute,
Cincinnati Childrens Hospital Medical Center, Omnicare Clinical Research, The
Cleveland Clinic, Radiant Research, Inc., Biobridges, LLC, Glaser
Research Group, the NIH and Glaxo to conduct the significant majority of our
clinical research development activities. These activities can be characterized
as clinical patient recruitment and observation, clinical trial monitoring,
clinical data management and analysis, safety monitoring and project
management. We conduct approximately 100% of our project management and 100% of
our medical and safety monitoring in-house and rely on third parties for the
remainder of our clinical development activities. If any of these third parties
fails to perform as we expect or if their work fails to meet regulatory
standards, our testing could be delayed, cancelled or rendered ineffective.
We
depend greatly on third party collaborators to license, develop and
commercialize some of our products, and they may not meet our expectations.
We have agreements
with other companies, including Glaxo, Pfizer, Biolipox and LAHI for the
licensing, development and ultimate commercialization of some of our products.
Some of those agreements give substantial responsibility over the products to
the collaborator. Some collaborators may be unable or unwilling to devote
sufficient resources to develop our products
38
as their agreements
require. They often face business risks similar to ours, and this could
interfere with their efforts. Also, collaborators may choose to devote their
resources to products that compete with ours. If a collaborator does not
successfully develop any one of our products, we will need to find another
collaborator to do so. The success of our search for a new collaborator will
depend on our legal right to do so at the time and whether the product remains
commercially viable.
The success of our
vaccine candidates depends in great part upon our and our collaborators
success in promoting them as superior to other treatment alternatives. We
believe that vaccines like those under development by AVANT can be proven to
offer disease prevention and treatment with notable advantages over drugs in
terms of patient compliance and cost and ease of distribution. However, there
can be no assurance that we will be able to prove these advantages or that the
advantages will be sufficient to support the successful commercialization of
our vaccines.
We
may face delays, difficulties or unanticipated costs in establishing sales,
distribution and manufacturing capabilities for our commercially ready
products.
We have chosen to
retain, rather than license, all rights to some of our lead products, such as
our portfolio of travelers vaccines. If we proceed with this strategy, we will
have full responsibility for commercialization of these products if and when
they are approved for sale. We currently lack the marketing, sales and
distribution capabilities that we will need to carry out this strategy. To
market any of our products directly, we must develop a substantial marketing
and sales force with technical expertise and a supporting distribution
capability. We have little expertise in this area, and we may not succeed. We
may find it necessary to enter into strategic partnerships on uncertain but
potentially unfavorable terms to sell, market and distribute our products when
they are approved for sale.
Some of our
products are difficult to manufacture, especially in large quantities, and we
have not yet developed commercial scale manufacturing processes for any of our
products. We do not currently plan to develop internal manufacturing
capabilities to produce any of our cardiovascular products if they are approved
for sale. To the extent that we choose to market and distribute the
cardiovascular products ourselves, this strategy will make us dependent on
other companies to produce our products in adequate quantities, in compliance
with regulatory requirements, and at a competitive cost. We may not find third
parties capable of meeting those manufacturing needs.
A
decrease in the demand and sales for and profitability of Megan
®
Vac
1 and Megan
®
Egg could adversely affect our revenues.
Both the demand
for and ultimately the profitability of Megan
®
Vac 1 and Megan
®
Egg
are components to our success. Because our focus is on human health care, as of
September 1, 2002 we appointed LAHI as the exclusive distributor of our
Megan poultry vaccines in North America. LAHI, an established animal health
company, markets and distributes Megans currently marketed products for the
commercial poultry market. Under the distribution agreement, we receive a percentage
of Megan
®
Vac 1 and Megan
®
Egg product sales in the form
39
of royalty payments. The
following are potential factors, without limitation, that may negatively affect
the demand for Megan
®
Vac 1 and Megan
®
Egg:
·
Our competitors may develop, manufacture and
market products that are more effective or less expensive than Megan
®
Vac
1 and/or Megan
®
Egg;
·
Megan
®
Vac 1 and Megan
®
Egg
could be replaced by a novel product and may become obsolete;
·
Users may not accept such a recently approved
product without years of proven history;
·
Our competitors in the food safety market have
greater financial and management resources than we do, and significantly more
experience in bringing products to market; and
·
We have no manufacturing or distribution
facilities for Megan
®
Vac 1 and Megan
®
Egg. Instead, we
contract with Maine Biological Laboratories (MBL), a subsidiary of LAHI, to
manufacture Megan
®
Vac 1 and Megan
®
Egg for us.
Any one of these
factors could reduce demand for Megan
®
Vac 1 and Megan
®
Egg
to a level which may lead to LAHIs and/or our discontinuation of the product.
Should LAHI or we be unable to realize acceptable profits from sales of Megan
®
Vac
1 and Megan
®
Egg, LAHI or we may choose to scale back our
commercialization efforts. In addition, if our partner, LAHI, is unable to
continue to distribute Megan
®
Vac 1 and Megan
®
Egg in an
effective manner, or is unable to maintain sufficient personnel with the
appropriate levels of experience to manage this function, LAHI may be unable to
meet the demand for our products and we may lose potential revenues and
royalties.
Certain
factors could negatively affect the demand for and sales and profitability of
Rotarix
®
, which would have a material adverse affect on our
revenues.
Both the demand
and ultimately the profitability of Rotarix
®
are components to our
success. We have licensed our oral rotavirus vaccine, Rotarix
®
, to
Glaxo for the purposes of Glaxo developing and commercializing Rotarix
®
worldwide. Glaxo gained approval for Rotarix
®
in Mexico in July 2004
and in the European Union in February 2006. In May 2005, AVANT
entered into an agreement whereby an affiliate of PRF purchased an interest in
the net royalties we will receive on worldwide sales of Rotarix
®
and
we will retain 50% of future Glaxo milestone payments, with the balance payable
to PRF and CCH. In addition, AVANT retains upside participation in the
worldwide net royalty stream from Rotarix
®
if worldwide net
royalties once PRF receives an agreed upon return on capital invested (2.45
times PRFs aggregate cash payments to AVANT). The following are potential
factors, without limitation, that may negatively affect the demand for Rotarix
®
:
·
Our competitors in the pharmaceuticals,
biotechnology and vaccines market have greater financial and management
resources than we do, and significantly more experience in bringing products to
market, and may develop, manufacture and market products that are more
effective or less expensive than Rotarix
®
;
·
Rotarix
®
could be replaced by a novel
product and may become obsolete;
40
·
We and Glaxo may be unable to prevent third
parties from infringing upon our proprietary rights related to Rotarix
®
;
·
Users may not accept such a recently approved
product without years of proven history; and
·
We are dependent on Glaxo for the manufacturing,
testing, acquisition of regulatory approvals, marketing, distribution and
commercialization of Rotarix
®
.
Any of these
factors could have a material adverse effect on the sales of Rotarix
®
and our results of operations.
Other
factors could affect the demand for and sales and profitability of Megan
®
Vac
1, Megan
®
Egg, Rotarix
®
and any other of our current or
future products.
In general, other
factors that could affect the demand for and sales and profitability of our
products include, but are not limited to:
·
The timing of regulatory approval, if any, of
competitive products;
·
Our, Megans, Glaxos or any other of our
partners pricing decisions, as applicable, including a decision to increase or
decrease the price of a product, and the pricing decisions of our competitors;
·
Government and third-party payer reimbursement
and coverage decisions that affect the utilization of our products and
competing products;
·
Negative safety or efficacy data from new
clinical studies conducted either in the U.S. or internationally by any party
could cause the sales of our products to decrease or a product to be recalled;
·
The degree of patent protection afforded our
products by patents granted to or licensed by us and by the outcome of
litigation involving our or any of our licensors patents;
·
The outcome of litigation involving patents of
other companies concerning our products or processes related to production and
formulation of those products or uses of those products;
·
The increasing use and development of alternate
therapies;
·
The rate of market penetration by competing
products; and
·
The termination of, or change in, existing
arrangements with our partners.
Any of these
factors could also have a material adverse effect on our sales of Megan
®
Vac
1, Megan
®
Egg, Rotarix
®
and any other of our current or
future products and results of operations.
41
We
may be unable to manage multiple late stage clinical trials for a variety of
product candidates simultaneously.
During 2008, we
expect to have one Phase 2 clinical trial in progress under our
management. As our current clinical trials progress, we may need to manage
multiple late stage clinical trials simultaneously in order to continue
developing all of our current products. The management of late stage clinical
trials is more complex and time consuming than early stage trials. Typically
early stage trials involve several hundred patients in no more than 10-20
clinical sites. Late stage (Phase 3) trials involve up to several thousand
patients in up to several hundred clinical sites and may require facilities in
several countries. Therefore, the project management required to supervise and
control such an extensive program is substantially larger than early stage programs.
As the need for these resources is not known until some months before the
trials begin it is necessary to recruit large numbers of experienced and
talented individuals very quickly. If the labor market does not allow this team
to be recruited quickly the sponsor is faced with a decision to delay the
program or to initiate it with inadequate management resources. This may result
in recruitment of inappropriate patients, inadequate monitoring of clinical
investigators and inappropriate handling of data or data analysis. Consequently
it is possible that conclusions of efficacy or safety may not be acceptable to
permit filing of a Biologics License Application or New Drug Application for
any one of the above reasons or a combination of several.
We
face the risk of product liability claims, which could exceed our insurance
coverage, and produce recalls, each of which could deplete our cash resources.
The
pharmaceutical, biotechnology and vaccines industries expose us to the risk of
product liability claims alleging that use of our products or product
candidates caused an injury or harm. These claims can arise at any point in the
development, testing, manufacture, marketing or sale of our products or product
candidates and may be made directly by patients involved in clinical trials of
our products, by consumers or healthcare providers or by individuals,
organizations or companies selling our products. Product liability claims can
be expensive to defend, even if the product or product candidate did not actually
cause the alleged injury or harm.
Insurance covering
product liability claims becomes increasingly expensive as a product candidate
moves through the development pipeline to commercialization. We have clinical
trial liability insurance coverage in the amount of $5 million. However,
there can be no assurance that such insurance coverage is or will continue to
be adequate or available. We may choose or find it necessary under our
collaborative agreements to increase our insurance coverage in the future. We
may not be able to secure greater or broader product liability insurance
coverage on acceptable terms or at reasonable costs when needed. Any liability
for damages resulting from a product liability claim could exceed the amount of
our coverage, require us to pay a substantial monetary award from our own cash
resources and have a material adverse effect on our business, financial
condition and results of operations. Moreover, a product recall, if required,
could generate substantial negative publicity about our products and business
and inhibit or prevent commercialization of other products and product
candidates.
42
In addition, some
of our licensing and other agreements with third parties require or might
require us to maintain product liability insurance. If we cannot maintain
acceptable amounts of coverage on commercially reasonable terms in accordance
with the terms set forth in these agreements, the corresponding agreements
would be subject to termination, which could have a material adverse impact on
our operations.
Our
reliance on third parties requires us to share our trade secrets, which
increases the possibility that a competitor will discover them.
Because we rely on
third parties to develop our products, we must share trade secrets with them.
We seek to protect our proprietary technology in part by entering into
confidentiality agreements and, if applicable, material transfer agreements,
collaborative research agreements, consulting agreements or other similar
agreements with our collaborators, advisors, employees and consultants prior to
beginning research or disclosing proprietary information. These agreements will
typically restrict the ability of our collaborators, advisors, employees and consultants
to publish data potentially relating to our trade secrets. Our academic
collaborators typically have rights to publish data, provided that we are
notified in advance and may delay publication for a specified time in order to
secure our intellectual property rights arising from the collaboration. In
other cases, publication rights are typically controlled exclusively by us,
although in some cases we may share these rights with other parties. We also
conduct joint research and development programs which may require us to share
trade secrets under the terms of research and development partnership or
similar agreements. Despite our efforts to protect our trade secrets, our
competitors may discover our trade secrets, either through breach of these agreements,
independent development or publication of information including our trade
secrets in cases where we do not have proprietary or otherwise protected rights
at the time of publication. A competitors discovery of our trade secrets would
impair our competitive position.
We
may not be able to successfully integrate newly acquired technology with our
existing technology or to modify our technologies to create new vaccines.
As part of AVANTs
acquisition of the assets of UPT in January 2003, we acquired VitriLife
®
,
a patented drying process for the industrial-scale preservation of proteins,
cells, bacteria and viruses. VitriLife
®
may improve product
stability at room temperature or higher, thereby eliminating the need for
costly cold-chain distribution storage of vaccines and rendering vaccines more
affordable. If we are able to integrate VitriLife
®
with our vaccine
technology, we believe that the room temperature stability afforded by
VitriLife
®
will give AVANTs vaccines a competitive advantage for a
wide range of uses in food safety, animal health and biodefense applications.
However, if we are unable to successfully integrate VitriLife
®
, or
other technologies which we have acquired or may acquire in the future, with
our existing technology and potential products currently under development, we
may be unable to realize any benefit from our acquisition of VitriLife
®
,
or other technology which we have acquired or may acquire in the future and may
face the loss of our investment of financial resources and time in the
integration process.
We believe that
AVANTs vaccine technology portfolio may offer opportunities to develop
vaccines that treat a variety of bacterial and viral infections by stimulating
a patients immune system against those disease organisms. However, some
applications of our vaccine
43
technology will require
that we adapt AVANTs vectoring systems to develop new, safe and effective oral
vaccines against other bacterial and viral health threats. It is possible that
the attenuated live bacteria we use in our bacterial vaccine candidates cannot
serve as vectors for the development of further bacterial or viral vaccines. If
our vaccine technology portfolio cannot be used to create vaccines against a
variety of disease organisms, we may lose all or portions of our investment in
development efforts for new bacterial or viral vaccine candidates.
We
license technology from other companies to develop products, and those
companies could influence research and development or restrict our use of it.
Companies that
license technologies to us that we use in our research and development programs
may require us to achieve milestones or devote minimum amounts of resources to
develop products using those technologies. They may also require us to make
significant royalty and milestone payments, including a percentage of any
sublicensing income, as well as payments to reimburse them for patent costs.
The number and variety of our research and development programs require us to
establish priorities and to allocate available resources among competing
programs. From time to time we may choose to slow down or cease our efforts on
particular products. If in doing so we fail to fully perform our obligations
under a license, the licensor can terminate the licenses or permit our
competitors to use the technology. Moreover, we may lose our right to market
and sell any products based on the licensed technology.
We
have many competitors in our field and they may develop technologies that make
ours obsolete.
Biotechnology,
pharmaceuticals and therapeutics are rapidly evolving fields in which
scientific and technological developments are expected to continue at a rapid
pace. We have many competitors in the U.S. and abroad, including Acambis,
Anitgenics, Baxter, Cell Genesys, Inc., Crucell, Dendreon Corporation,
Favrille Corporation, Genitope, GlaxoSmithKline, Intercell, Iomai, Merck,
NeoPharm, Inc., Northwest Biotherapeutics, Novavax, Pfizer, Roche,
Sanofi-Aventis SA, VaxGen, and Vical. Our success depends upon our ability to
develop and maintain a competitive position in the product categories and
technologies on which we focus. Many of our competitors have greater
capabilities, experience and financial resources than we do. Competition is
intense and is expected to increase as new products enter the market and new
technologies become available. Our competitors may:
·
develop technologies and products that are more
effective than ours, making ours obsolete or otherwise noncompetitive;
·
obtain regulatory approval for products more
rapidly or effectively than us; and
·
obtain patent protection or other intellectual property
rights that would block our ability to develop competitive products.
We
rely on patents, patent applications and other intellectual property
protections to protect our technology and trade secrets; which are expensive
and may not provide sufficient protection.
Our success
depends in part on our ability to obtain and maintain patent protection for
technologies that we use. Biotechnology patents involve complex legal,
scientific and factual
44
questions and are highly
uncertain. To date, there is no consistent policy regarding the breadth of
claims allowed in biotechnology patents, particularly in regard to patents for
technologies for human uses like those we use in our business. We cannot
predict whether the patents we seek will issue. If they do issue, a competitor
may challenge them and limit their scope. Moreover, our patents may not afford
effective protection against competitors with similar technology. A successful
challenge to any one of our patents could result in a third partys ability to
use the technology covered by the patent. We also face the risk that others
will infringe, avoid or circumvent our patents. Technology that we license from
others is subject to similar risks and this could harm our ability to use that
technology. If we, or a company that licenses technology to us, were not the
first creator of an invention that we use, our use of the underlying product or
technology will face restrictions, including elimination.
If we must defend
against suits brought against us or prosecute suits against others involving
intellectual property rights, we will incur substantial costs. In addition to
any potential liability for significant monetary damages, a decision against us
may require us to obtain licenses to patents or other intellectual property
rights of others on potentially unfavorable terms. If those licenses from third
parties are necessary but we cannot acquire them, we would attempt to design
around the relevant technology, which would cause higher development costs and
delays, and may ultimately prove impracticable.
Our
business requires us to use hazardous materials, which increases our exposure
to dangerous and costly accidents.
Our research and
development activities involve the use of hazardous chemicals, biological
materials and radioactive compounds. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by applicable laws and regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of an accident, an injured party will likely sue us for any
resulting damages with potentially significant liability. The ongoing cost of
complying with environmental laws and regulations is significant and may
increase in the future. In addition, in connection with our merger with Virus
Research Institute, Inc. in 1998, we assumed the real property lease at
Virus Research Institute, Inc.s former site. We understand that this
property has a low level of oil-based and other hazardous material
contamination. We believe that the risks posed by this contamination are low,
but we cannot predict whether additional hazardous contamination exists at this
site, or that changes in applicable law will not require us to clean up the
current contamination of the property.
Health
care reform and restrictions on reimbursement may limit our returns on
potential products.
Because AVANTs
strategy ultimately depends on the commercial success of our products, we
assume, among other things, that end users of our products will be able to pay
for them. In the United States and other countries, in most cases, the volume
of sales of products like those we are developing depends on the availability
of reimbursement from third-party payors, including national health care
agencies, private health insurance plans and health maintenance organizations.
Third-party payors increasingly challenge the prices charged for medical
products and services. Accordingly, if we succeed in bringing products to
market, and reimbursement is
45
not available or is
insufficient, we could be prevented from successfully commercializing our
potential products.
The health care
industry in the United States and in Europe is undergoing fundamental changes
as a result of political, economic and regulatory influences. Reforms proposed
from time to time include mandated basic health care benefits, controls on
health care spending, creation of large medical services and products
purchasing groups and fundamental changes to the health care delivery system.
We anticipate ongoing review and assessment of health care delivery systems and
methods of payment in the United States and other countries. We cannot predict
whether any particular reform initiatives will result or, if adopted, what
their impact on us will be. However, we expect that adoption of any reform
proposed will impair our ability to market products at acceptable prices.
Risks Related to Our Capital Stock
Our
history of losses and uncertainty of future profitability make our common stock
a highly speculative investment, and the combined company may not be profitable
in the future.
We have had no
commercial revenues to date from sales of our human therapeutic or vaccine
products and cannot predict when we will. We have accumulated significant net
operating losses since inception. We expect to spend substantial funds to continue
research and product testing of the following products they have in the
pre-clinical and clinical testing stages of development:
Product
|
|
Use
|
|
Stage
|
CDX-110
|
|
Glioblastoma Multiforme
|
|
Clinical phase 2b
|
CDX-1307
|
|
Colorectal, bladder,
pancreas, ovarian and breast tumors
|
|
Clinical phase 1
|
CDX-1401
|
|
Solid tumors
|
|
Pre-clinical
|
CDX-1189
|
|
Leukemias
|
|
Pre-clinical
|
CholeraGarde
®
vaccine
|
|
Cholera
|
|
Clinical phase 2b
|
Ty800 vaccine
|
|
Typhoid fever
|
|
Clinical phase 2
|
ETEC vaccine
|
|
Enterotoxigenic
E. coli
infection
|
|
Pre-clinical
|
Paratyphoid vaccine
|
|
Paratyphoid fever
|
|
Pre-clinical
|
CDX-2401
|
|
HIV
|
|
Pre-clinical
|
TP10
|
|
Transplantation
|
|
Clinical phase 2
|
|
|
Age-Related Macular
Degeneration
|
|
Pre-clinical
|
In anticipation of
FDA approval of these products, we will need to make substantial investments to
establish sales, marketing, quality control, and regulatory compliance
capabilities. These investments will increase if and when any of these products
receive FDA approval. We cannot predict how quickly our lead products will
progress through the regulatory approval process. As a result, we may continue
to lose money for several years.
46
We cannot be
certain that the combined company after the merger will achieve or sustain
profitability in the future. Failure to achieve profitability could diminish
the combined companys ability to sustain operations, meet financial covenants,
pay dividends on its common stock, obtain additional required funds and make
required payments on its present or future indebtedness.
If
we cannot sell capital stock to raise necessary funds, we may be forced to
limit our research, development and testing programs.
We will need to
raise more capital from investors to advance our lead products through clinical
testing and to fund our operations until we receive final FDA approval and our
products begin to generate revenues for us. However, based on our history of losses,
we may have difficulty attracting sufficient investment interest. As of March 31,
2008, we had combined cash and cash equivalents of $11.4 million, which,
at that time, we believe, together with payments expected from Pfizer and PRF,
will support expected operations for more than 12 months.
We continue to
seek partnerships with pharmaceutical and biotech companies and with other
organizations to support the clinical development of our programs, in addition
to funded research grants. This kind of funding is at the discretion of other
organizations and companies which have limited funds and many companies compete
with us for those funds. As a result, we may not receive any research grants or
funds from collaborators. If we are unable to raise the necessary funds, we may
have to delay or discontinue the clinical development of programs, license out
programs earlier than expected, raise funds at significant discount or on other
unfavorable terms or evaluate a sale of all or part of our business.
Our
share price has been and could remain volatile.
The market price
of our common stock has historically experienced and may continue to experience
significant volatility. From January 2006 through December 2007, the
market price of our common stock has fluctuated from a high of $31.20 per share
in the first quarter of 2006, to a low of $4.80 per share in the fourth quarter
of 2007 (after adjustment to reflect the one-for-twelve reverse stock split
effected on March 7, 2008). Our progress in developing and commercializing
our products, the impact of government regulations on our products and
industry, the potential sale of a large volume of our common stock by selling
stockholders, our quarterly operating results, changes in general conditions in
the economy or the financial markets and other developments affecting us or our
competitors could cause the market price of our common stock to fluctuate
substantially. In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. This volatility has affected the
market prices of securities issued by many companies for reasons unrelated to
their operating performance and may adversely affect the price of our common
stock. In addition, we could be subject to a securities class action litigation
as a result of volatility in the price of our stock, which could result in
substantial costs and diversion of managements attention and resources and
could harm our stock price, business, prospects, results of operations and
financial condition.
47
Medarex
holds approximately 33% of our shares as of May 6, 2008; if Mederax or
other stockholders were to sell their shares in large volumes, the trading
price of our common stock could suffer.
As a result of our
merger with Celldex, Medarex received 5,312,539 shares of AVANT common stock,
351,691 of which are subject to a lock-up expiring on June 7, 2008, and
the remainder of which are subject to a lock-up expiring on March 7,
2009. In addition, Lorantis Holdings
Limited, or Lorantis, received 2,811,147 shares of AVANT common stock in
connection with the Celldex merger, and Lorantis and its shareholders are
subject to a lock-up on those shares which expires on September 7, 2008,
except that they may sell shares sooner in order to satisfy tax
obligations. As of May 6, 2008, our
former President and Chief Executive Officer Una S. Ryan, Ph.D., owned 94,267
shares of AVANT common stock, and had options to purchase an additional 612,500
shares of AVANT common stock which were subject to vesting over four years
(none of which would have vested until March 7, 2009). If large numbers of shares are sold over a
short period of time, the price of our stock may decline rapidly or experience
significant fluctuation.
Post-Merger Risks
If
we are not successful in integrating our companies, we may not be able to
operate efficiently after the merger, which may harm the value of our common
stock.
Achieving the benefits of
the merger will depend in part on the successful integration of our operations
and personnel in a timely and efficient manner. The integration process
requires coordination of different development, regulatory, manufacturing and
commercial teams, and involves the integration of systems, applications,
policies, procedures, business processes and operations. This may be difficult
and unpredictable because of possible cultural conflicts and different opinions
on scientific and regulatory matters. If we cannot successfully integrate our
operations and personnel, we may not realize the expected benefits of the
merger.
The historical financial information may not be
indicative of our future results as a merged, publicly traded company.
The historical financial
statements of Celldex do not reflect what our financial position, results of
operations and cash flows would have been had we been operated as a combined
business and publicly traded company during the periods prior to the merger or
be indicative of what our results of operations, financial position and cash
flows may be in the future. This is primarily a result of the following
factors:
·
the historical financial
statements do not reflect certain changes that occurred in our funding and
operations as a result of the merger;
48
·
the historical financial
information of Celldex does not reflect any increased costs associated with the
merger to, and status as, a combined, publicly traded company, including
changes that will occur in our cost structure, personnel needs, financing and
operations of the combined business as a result of the merger.
For these and other
reasons, our future financial performance may not be reflective of the
performance implied by the historical information we have presented for periods
prior to March 8, 2008.
Some of the risks that
may affect our ability to integrate or realize any anticipated benefits include
those associated with:
·
conforming standards,
processes, procedures and controls of the businesses;
·
difficulties in transferring processes and know-how,
including integrating to one information technology platform;
·
difficulties in the assimilation of acquired
operations, technologies or product candidates;
·
diversion of managements attention from business
concerns; and
·
adverse effects on employees and business
relationships with contractors and suppliers.
Integrating
our companies may divert managements attention away from our operations.
Successful integration of
our operations, products and personnel may place a significant burden on our
management and our internal resources. The diversion of managements attention
and any difficulties encountered in the transition and integration process
could result in delays in the companies clinical trial programs and could
otherwise harm our business, financial condition and operating results.
We
expect to incur significant costs integrating AVANT and Celldex into a single
business.
We expect to incur
significant costs integrating our operations, products and personnel. These
costs may include costs for:
·
employee redeployment, relocation or severance;
·
conversion of information systems;
·
combining development, regulatory, manufacturing
and commercial teams and processes;
·
reorganization of facilities;
·
new equipment for our Fall River manufacturing
facility; and
·
relocation or disposition of excess equipment.
49
If
we fail to retain key employees, the benefits of the merger could be
diminished.
The successful
combination of AVANT and Celldex will depend in part on the retention of key
personnel. There can be no assurance that we will be able to retain our key
management and scientific personnel. If we fail to retain such key employees,
we may not realize the anticipated benefits of the merger.
The
combined companys ability to use the net operating loss carryforwards of
Celldex and AVANT will be subject to limitation and, under certain
circumstances, may be eliminated.
Generally, a
change of more than 50% in the ownership of a corporations stock, by value,
over a three-year period constitutes an ownership change under Section 382
of the Internal Revenue Code. In general, Section 382 imposes an annual
limitation on a corporations ability to use its net operating losses from
taxable years or periods ending on or before the date of an ownership change to
offset U.S. federal taxable income in any post-change year. We experienced and
Celldex may experience an ownership change as a result of the merger, in which
case the combined company may be subject to the limitation under Section 382
with respect to pre-change net operating losses of Celldex and AVANT. Section 382
imposes significant limitations of the use of net operating loss carryforwards.
Moreover, if a
corporation experiences an ownership change and does not satisfy the
requirement to continue the business enterprise of the corporation under Section 382(c)(1) (which
generally requires that the corporation continue its historic business or use a
significant portion of its historic business assets in a business for the
two-year period beginning on the date of the ownership change), it cannot,
subject to certain exceptions, use any net operating loss from a pre-change
period to offset taxable income in post-change years. As a result of the rules described
above, the extent (if any) to which the combined company will be able to
utilize the net operating losses from any pre-change period to offset taxable
income (and thus reduce tax liability) for post-change periods is uncertain.
We
expect to continue to incur operating losses and the combined company may need
to raise additional funds to cover the cost of operation. If the combined
company is not able to raise necessary additional funds it may have to reduce
or stop operations.
We have had no
commercial revenues to date from sales of our human therapeutic or vaccine
products and cannot predict when we will. We have accumulated significant
deficits since inception. We cannot be certain that the combined company after
the merger will achieve or sustain profitability in the future. Failure to
achieve profitability could diminish the combined companys ability to generate
sufficient working capital to cover the cost of operation. No party has
guaranteed to advance additional funds to AVANT or the combined company to
provide for any operating deficits. Until the combined company begins
generating revenue, it may seek funding through the sale of equity, or
securities convertible into equity, and further dilution to the then existing
stockholders may result. If the combined company raises additional capital through
the incurrence of debt, its business may be affected by the amount of leverage
it incurs, and its borrowings may subject it to restrictive covenants.
Additional funding may not be available to the combined company on acceptable
terms, or at all. If the combined company is
50
unable to obtain adequate financing on a timely basis,
it may be required to delay, reduce or stop operations, any of which would have
a material adverse effect on its business.
UNRESOLVED STAFF COMMENTS
None.
PROPERTIES
In November 2005,
we entered into a lease amendment which extended our lease in Needham,
Massachusetts through April, 2017. The lease amendment calls for the complete
renovation of the Needham facility by the landlord and AVANT and reduces AVANTs
leased space to approximately 35,200 square feet of laboratory and office space
at a current base rent of $879,725. Costs for the tenant improvements portion
of the renovations project were approximately $9.4 million. As an
incentive for AVANT to enter into the lease amendment, the landlord contributed
$3.6 million towards tenant improvement costs. Under this lease amendment,
we are obligated to pay an escalating base annual rent ranging from $879,700 to
$1,161,200 during the extension term.
AVANT leases
approximately 20,000 square feet of office and laboratory space in
Phillipsburg, New Jersey. The lease has an initial seven-year term which
expires in October 2012. Under the lease agreement, we are obligated to
pay an annual rent of approximately $347,700 plus certain common area
maintenance costs.
We also lease a
manufacturing facility of approximately 16,200 square feet in Fall River,
Massachusetts. The lease has an initial seven-year term which expires in December 2010.
Under the lease agreement, we are obligated to pay an annual rent of
approximately $230,100 plus certain common area maintenance costs, subject to
annual rent adjustments in the final two years. The landlord provided a tenant
incentive allowance of $49,740 against the cost of alterations and improvements
required by AVANT to be made to the expanded space.
AVANT ceased
operations at its Overland, Missouri facility near St. Louis and vacated
the premises upon expiration of the lease term at September 30, 2007.
LEGAL PROCEEDINGS
AVANT is not currently a
party to any material legal proceedings.
51
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a)
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Financial Statements
December 31, 2007
Contents
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2007
|
|
F-3
|
Consolidated
Statements of Operations for Each of the Three Years in the Period Ended
December 31, 2007 and the Period from January 1, 1999 (Inception)
to December 31, 2007
|
|
F-4
|
Consolidated Statements of Changes in Stockholders
Equity (Deficit) for the Period from January 1, 1999 (Inception) to
December 31, 1999 and the Eight-Year Period Ended December 31, 2007
|
|
F-5
|
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 2007 and the Period from
January 1, 1999 (Inception) to December 31, 2007
|
|
F-7
|
Notes to Consolidated Financial Statements
|
|
F-8
|
F-1
Report of Independent
Registered Public Accounting Firm
The Board of Directors
and Stockholders
Celldex Therapeutics, Inc.
We have audited the accompanying consolidated
balance sheets of Celldex Therapeutics, Inc. (a development stage company)
and subsidiary as of December 31, 2006 and 2007 and the related
consolidated statements of operations and cash flows for each of the three
years in the period ended December 31, 2007 and the period from January 1,
1999 (inception) to December 31, 2007 and the consolidated statements of
changes in stockholders equity (deficit) for the period from January 1,
1999 (inception) to December 31, 1999 and the eight-year period ended December 31,
2007. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Celldex Therapeutics, Inc. and subsidiary at December 31,
2006 and 2007, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2007 and the
period from January 1, 1999 (inception) to December 31, 2007 in
conformity with U.S. generally accepted accounting principles.
As described in Notes 2 and 8 to the
consolidated financial statements, the Company adopted Statement of Financial
Accounting Standards No. 123(R),
Share-Based Payment,
effective
January 1, 2006.
|
/s/ Ernst &
Young LLP
|
|
|
Metro Park, New Jersey
|
|
May 7, 2008
|
|
F-2
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Consolidated
Balance Sheets
(
In Thousands,
Except Share and Per Share Data
)
|
|
December 31
|
|
|
|
2006
|
|
2007
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
14,000
|
|
$
|
4,910
|
|
Receivable from
sale of certain U.K. facility assets
|
|
2,208
|
|
|
|
Research and
development tax credit receivable Lorantis
|
|
1,052
|
|
88
|
|
Accounts
receivable, other
|
|
954
|
|
44
|
|
Prepaid expenses
|
|
69
|
|
657
|
|
Total current
assets
|
|
18,283
|
|
5,699
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
2,553
|
|
1,918
|
|
Intangible
assets, net
|
|
1,150
|
|
1,033
|
|
AVANT merger
costs
|
|
|
|
545
|
|
Restricted cash
|
|
177
|
|
180
|
|
Total assets
|
|
$
|
22,163
|
|
$
|
9,375
|
|
|
|
|
|
|
|
Liabilities
and stockholders equity (deficit)
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Trade accounts
payable
|
|
$
|
244
|
|
$
|
750
|
|
Accrued
liabilities
|
|
2,804
|
|
2,519
|
|
Payable due
Medarex
|
|
2,533
|
|
5,836
|
|
Deferred revenue
current
|
|
466
|
|
974
|
|
Deferred rent
current
|
|
58
|
|
58
|
|
Total current
liabilities
|
|
6,105
|
|
10,137
|
|
|
|
|
|
|
|
Deferred revenue
|
|
686
|
|
220
|
|
Deferred rent
|
|
228
|
|
150
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity (deficit):
|
|
|
|
|
|
Preferred Stock,
$1.00 par value; 1,000,000 shares authorized; no shares issued and
outstanding at December 31, 2006 and 2007
|
|
|
|
|
|
Class A
Common Stock, $.01 par value, 6,800,000 shares authorized, issued and
outstanding at December 31, 2006 and 2007
|
|
68
|
|
68
|
|
Common Stock,
$.01 par value; 50,000,000 shares authorized; 13,300,000 shares issued and
outstanding at December 31, 2006 and 2007
|
|
133
|
|
133
|
|
Additional paid-in
capital
|
|
71,131
|
|
69,697
|
|
Accumulated
other comprehensive income
|
|
2,387
|
|
2,619
|
|
Deficit
accumulated during development stage
|
|
(58,575
|
)
|
(73,649
|
)
|
Total
stockholders equity (deficit)
|
|
15,144
|
|
(1,132
|
)
|
Total
liabilities and stockholders equity (deficit)
|
|
$
|
22,163
|
|
$
|
9,375
|
|
See
accompanying notes to these consolidated financial statements.
F-3
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements
of Operations
(
In Thousands,
Except Share and Per Share Data
)
|
|
Year Ended December 31
|
|
Period from
January 1, 1999
(Inception) to
December 31,
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Grant revenue
|
|
$
|
57
|
|
$
|
181
|
|
$
|
88
|
|
$
|
419
|
|
Collaboration agreement
revenue
|
|
14
|
|
466
|
|
466
|
|
946
|
|
Research and
development revenue
|
|
|
|
252
|
|
852
|
|
1,104
|
|
Total revenues
|
|
71
|
|
899
|
|
1,406
|
|
2,469
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
4,826
|
|
10,013
|
|
10,009
|
|
42,371
|
|
Acquired
in-process research and development
|
|
8,447
|
|
|
|
|
|
8,447
|
|
U.K. facility
exit costs
|
|
|
|
1,169
|
|
|
|
1,169
|
|
General and
administrative
|
|
4,167
|
|
8,514
|
|
6,906
|
|
25,817
|
|
Total costs and
expenses
|
|
17,440
|
|
19,696
|
|
16,915
|
|
77,804
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(17,369
|
)
|
(18,797
|
)
|
(15,509
|
)
|
(73,335
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
290
|
|
824
|
|
471
|
|
1,585
|
|
Other income
(expense)
|
|
|
|
137
|
|
(36
|
)
|
101
|
|
Net loss
|
|
$
|
(17,079
|
)
|
$
|
(17,836
|
)
|
$
|
(15,074
|
)
|
$
|
(73,649
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per share
|
|
$
|
(1.24
|
)
|
$
|
(0.89
|
)
|
$
|
(0.75
|
)
|
|
|
Weighted-average
number of common shares outstanding basic and diluted
|
|
13,786,301
|
|
20,025,205
|
|
20,100,000
|
|
|
|
See accompanying notes to these
consolidated financial statements.
F-4
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements
of Changes in Stockholders Equity (Deficit)
Period from January 1, 1999 (Inception) to December 31,
1999
and the Eight-Year Period Ended December 31, 2007
(
In Thousands, Except Share Data
)
|
|
Common Stock
|
|
Advances from
Medarex, Inc., and
|
|
|
|
Accumulated
Other
|
|
Deficit
Accumulated
|
|
Total
|
|
|
|
Number of
Shares
|
|
Par
Amount
|
|
Number of
Shares
Class A
|
|
Par
Amount
Class A
|
|
Additional
Paid-In
Capital
|
|
Deferred
Stock
Compensation
|
|
Comprehensive
(Loss)
Income
|
|
During
Development
Stage
|
|
Stockholders
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1, 1999 (inception)
|
|
|
|
$
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
1,914
|
|
|
|
|
|
|
|
1,914
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,867
|
)
|
(1,867
|
)
|
Balance at
December 31, 1999
|
|
|
|
|
|
|
|
|
|
1,914
|
|
|
|
|
|
(1,867
|
)
|
47
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
2,771
|
|
|
|
|
|
|
|
2,771
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,750
|
)
|
(2,750
|
)
|
Balance at
December 31, 2000
|
|
|
|
|
|
|
|
|
|
4,685
|
|
|
|
|
|
(4,617
|
)
|
68
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
3,336
|
|
|
|
|
|
|
|
3,336
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,214
|
)
|
(3,214
|
)
|
Balance at
December 31, 2001
|
|
|
|
|
|
|
|
|
|
8,021
|
|
|
|
|
|
(7,831
|
)
|
190
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
3,926
|
|
|
|
|
|
|
|
3,926
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,645
|
)
|
(3,645
|
)
|
Balance at
December 31, 2002
|
|
|
|
|
|
|
|
|
|
11,947
|
|
|
|
|
|
(11,476
|
)
|
471
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
5,978
|
|
|
|
|
|
|
|
5,978
|
|
Issuance of
common stock to parent, May 2003
|
|
12,000,000
|
|
120
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,118
|
)
|
(6,118
|
)
|
Balance at
December 31, 2003
|
|
12,000,000
|
|
120
|
|
|
|
|
|
17,805
|
|
|
|
|
|
(17,594
|
)
|
331
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
6,297
|
|
|
|
|
|
|
|
6,297
|
|
Deferred
compensation
|
|
|
|
|
|
|
|
|
|
1,152
|
|
(1,152
|
)
|
|
|
|
|
|
|
Amortization of
deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
254
|
|
|
|
|
|
254
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,066
|
)
|
(6,066
|
)
|
Balance at
December 31, 2004
|
|
12,000,000
|
|
120
|
|
|
|
|
|
25,254
|
|
(898
|
)
|
|
|
(23,660
|
)
|
816
|
|
Advances from
Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
4,922
|
|
|
|
|
|
|
|
4,922
|
|
Return of
advance from Medarex, Inc.
|
|
|
|
|
|
|
|
|
|
(455
|
)
|
|
|
|
|
|
|
(455
|
)
|
Amortization of
deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
288
|
|
Issuance of
common stock for acquisition of Alteris Therapeutics, Inc.,
October 2005
|
|
1,200,000
|
|
12
|
|
|
|
|
|
5,988
|
|
|
|
|
|
|
|
6,000
|
|
Issuance of
Class A common stock for acquisition of Lorantis Limited,
October 2005
|
|
|
|
|
|
6,800,000
|
|
68
|
|
33,942
|
|
|
|
|
|
|
|
34,010
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,079
|
)
|
(17,079
|
)
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495
|
)
|
|
|
(495
|
)
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,574
|
)
|
Balance at
December 31, 2005
|
|
13,200,000
|
|
132
|
|
6,800,000
|
|
68
|
|
69,651
|
|
(610
|
)
|
(495
|
)
|
(40,739
|
)
|
28,007
|
|
Elimination of
deferred compensation as a result of the adoption of SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
(610
|
)
|
610
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
1,761
|
|
|
|
|
|
|
|
1,761
|
|
Issuance of
common stock for Duke licensing agreement, September 2006
|
|
100,000
|
|
1
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
330
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,836
|
)
|
(17,836
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,882
|
|
|
|
2,882
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,954
|
)
|
Balance at
December 31, 2006
|
|
13,300,000
|
|
133
|
|
6,800,000
|
|
68
|
|
71,131
|
|
|
|
2,387
|
|
(58,575
|
)
|
15,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-5
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements
of Changes in Stockholders Equity (Deficit) (continued)
Period from January 1, 1999 (Inception) to December 31,
1999
and the Eight-Year Period Ended December 31, 2007
(
In Thousands, Except Share Data
)
|
|
Common Stock
|
|
Advances from
Medarex, Inc., and
|
|
|
|
Accumulated
Other
|
|
Deficit
Accumulated
|
|
Total
|
|
|
|
Number of
Shares
|
|
Par
Amount
|
|
Number of
Shares
Class A
|
|
Par
Amount
Class A
|
|
Additional
Paid-In
Capital
|
|
Deferred
Stock
Compensation
|
|
Comprehensive
(Loss)
Income
|
|
During
Development
Stage
|
|
Stockholders
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2006
|
|
13,300,000
|
|
$
|
133
|
|
6,800,000
|
|
$
|
68
|
|
$
|
71,131
|
|
$
|
|
|
$
|
2,387
|
|
$
|
(58,575
|
)
|
$
|
15,144
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
1,605
|
|
|
|
|
|
|
|
1,605
|
|
Medarex return
of capital
|
|
|
|
|
|
|
|
|
|
(3,039
|
)
|
|
|
|
|
|
|
(3,039
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,074
|
)
|
(15,074
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
232
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,842
|
)
|
Balance at
December 31, 2007
|
|
13,300,000
|
|
$
|
133
|
|
6,800,000
|
|
$
|
68
|
|
$
|
69,697
|
|
$
|
|
|
$
|
2,619
|
|
$
|
(73,649
|
)
|
$
|
(1,132
|
)
|
See accompanying notes to these consolidated
financial statements.
F-6
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements
of Cash Flows
(
In Thousands
)
|
|
Year Ended December 31
|
|
Period from
January 1, 1999
(Inception) to
December 31,
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,079
|
)
|
$
|
(17,836
|
)
|
$
|
(15,074
|
)
|
$
|
(73,649
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
288
|
|
770
|
|
710
|
|
2,220
|
|
Amortization of
deferred compensation
|
|
288
|
|
|
|
|
|
542
|
|
Stock-based
compensation expense
|
|
|
|
1,761
|
|
1,605
|
|
3,366
|
|
Amortization of
intangible asset
|
|
29
|
|
117
|
|
117
|
|
263
|
|
Acquired
in-process research and development
|
|
8,447
|
|
|
|
|
|
8,447
|
|
Noncash license
fees paid with stock
|
|
|
|
330
|
|
|
|
330
|
|
U.K. facilities
exit costs
|
|
|
|
1,102
|
|
|
|
1,102
|
|
Gain on sale of
fixed assets
|
|
|
|
(137
|
)
|
|
|
(137
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
(1,428
|
)
|
940
|
|
4,167
|
|
3,679
|
|
Prepaid expenses
|
|
(157
|
)
|
794
|
|
(587
|
)
|
50
|
|
Trade accounts
payable
|
|
(1,001
|
)
|
(974
|
)
|
501
|
|
(1,091
|
)
|
Accrued
liabilities
|
|
836
|
|
(326
|
)
|
(528
|
)
|
56
|
|
Deferred rent
|
|
|
|
286
|
|
(78
|
)
|
208
|
|
Deferred revenue
|
|
1,618
|
|
(466
|
)
|
42
|
|
1,194
|
|
Net cash used in
operating activities
|
|
(8,159
|
)
|
(13,639
|
)
|
(9,125
|
)
|
(53,420
|
)
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Net cash from
Lorantis acquisition
|
|
30,465
|
|
|
|
|
|
30,465
|
|
Purchase of
Alteris, net of cash acquired
|
|
(2,208
|
)
|
|
|
|
|
(2,208
|
)
|
AVANT merger
costs
|
|
|
|
|
|
(335
|
)
|
(335
|
)
|
Purchase of equipment
|
|
|
|
(2,479
|
)
|
(75
|
)
|
(3,278
|
)
|
Proceeds from
sale of assets
|
|
|
|
144
|
|
|
|
144
|
|
Release of
restriction of segregated cash
|
|
|
|
168
|
|
|
|
168
|
|
Restricted cash
deposits
|
|
(333
|
)
|
|
|
(3
|
)
|
(336
|
)
|
Net cash
provided by (used in) investing activities
|
|
27,924
|
|
(2,167
|
)
|
(413
|
)
|
24,620
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
1,011
|
|
|
|
|
|
|
|
Related party
loan due to Medarex, Inc.
|
|
455
|
|
2,078
|
|
264
|
|
2,797
|
|
Advances from
Medarex, Inc.
|
|
4,467
|
|
|
|
|
|
28,699
|
|
Net cash
provided by financing activities
|
|
5,933
|
|
2,078
|
|
264
|
|
31,496
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
(486
|
)
|
2,516
|
|
184
|
|
2,214
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
25,212
|
|
(11,212
|
)
|
(9,090
|
)
|
4,910
|
|
Cash and cash
equivalents at beginning of period
|
|
|
|
25,212
|
|
14,000
|
|
|
|
Cash and cash
equivalents at end of period
|
|
$
|
25,212
|
|
$
|
14,000
|
|
$
|
4,910
|
|
$
|
4,910
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of noncash flow information
|
|
|
|
|
|
|
|
|
|
Acquisition of
Lorantis with stock
|
|
$
|
34,000
|
|
$
|
|
|
$
|
|
|
$
|
34,000
|
|
Acquisition of
Alteris with stock
|
|
$
|
6,000
|
|
$
|
|
|
$
|
|
|
$
|
6,000
|
|
Deferred stock
compensation
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,152
|
|
Medarex return
of capital
|
|
$
|
|
|
$
|
|
|
$
|
3,039
|
|
$
|
3,039
|
|
Capitalized
AVANT merger costs
|
|
$
|
|
|
$
|
|
|
$
|
210
|
|
$
|
210
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during period for
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Interest
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
See accompanying notes to these
consolidated financial statements
.
F-7
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes to Consolidated Financial Statements
December 31,
2007
(
In Thousands, Unless Otherwise Indicated, Except Share
and Per Share Data
)
1. Organization and Basis of Presentation
In May 2003, Celldex Therapeutics, Inc.
(the Company or Celldex) was incorporated in the State of New Jersey under
the name MabVac, Inc. as a wholly owned subsidiary of Medarex, Inc. (Medarex).
In April 2004, the Company was reincorporated in the State of Delaware as
Celldex. The accompanying financial statements reflect the periods prior to and
after the incorporation of Celldex. Medarex began incurring expenses related to
the Companys current programs in January 1999, and, for accounting
purposes, January 1, 1999 is considered the date of the Companys
inception. Prior to October 12, 2005, the Company was dependent upon
Medarex to provide sufficient capital to meet its operating requirements.
The Companys consolidated financial
statements consolidate its wholly owned subsidiary, Celldex Therapeutics, Ltd.
(formerly Lorantis Ltd.). The Companys operations constitute one business
segment. All significant intercompany balances and transactions have been
eliminated in consolidation. The Companys headquarters and laboratory
facilities are located in Phillipsburg, New Jersey and it has business
development offices in Cambridge, United Kingdom. Certain prior years balances
have been reclassified to conform to the current year presentation.
Prior to the acquisitions of Lorantis Limited
(Lorantis) and Alteris Therapeutics, Inc. (Alteris) on October 12,
2005, the Companys consolidated financial statements had been derived from the
financial statements and accounting records of Medarex using the historical
results of operations and historical basis of the assets of the Companys
business. The balance sheet includes certain assets used by the Company, legal
title to which was transferred to the Company by Medarex on March 5, 2004.
The Companys funding through October 11, 2005 had been from Medarex and
credited to additional paid-in capital in the consolidated balance sheets.
However, the consolidated financial statements included herein may not
necessarily reflect the Companys results of operations, financial position and
cash flows in the future or what its results of operations, financial position
and cash flows would have been had the Company been a stand-alone company
during all periods presented.
F-8
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise
Indicated, Except Share and Per Share Data
)
1. Organization and Basis of Presentation (continued)
From inception through October 11, 2005,
the Companys consolidated financial statements included allocations from
Medarex of research and development (R&D) and general and administrative
(G&A) expenses. The Company allocated expenses based on relative amounts
of salaries incurred and square footage utilized. R&D and G&A expenses
were allocated primarily based on the Companys R&D related salaries as a
percentage of Medarexs total R&D related salaries. Salary expense was used
as the basis for allocations since the majority of costs incurred by the
Company are related to R&D performed by its scientists. R&D expenses
include compensation, facilities, clinical research, preclinical testing and
other R&D expenses related to the Companys technology and product pipeline
development. G&A expenses include salaries and expenses for executive
management, finance, legal, human resources, information services, business
development, and investor relations departments. For certain facility related
items, such as depreciation, repairs and maintenance, rent, etc., for the
facility in which the Companys scientific staff operated, the allocation was
based on the percentage of square footage of the space occupied by the Company
to the total square footage of the facility. In addition, certain R&D
expenses directly attributable to the Company have been specifically charged to
the Companys R&D expenses. Management believes that the assumptions
underlying allocating the expenses included in the consolidated financial
statements are reasonable.
Since October 12, 2005, the Company
accounts for the consolidated financial statements included herein as a
stand-alone development stage company. The Company has incurred annual
operating losses since inception and, as a result, has an accumulated deficit
of $73,649 at December 31, 2007.
On October 22, 2007, Celldex and AVANT
Immunotherapeutics, Inc. (AVANT), a NASDAQ listed company, announced the
signing of a definitive merger agreement.
The merger creates a publicly traded fully integrated and diversified
biopharmaceutical company with a deep pipeline of product candidates in
oncology, infectious and inflammatory diseases.
The all stock transaction, approved by both companies Board of
Directors, will combine the two companies under the name AVANT. Celldex and AVANT shareholders will own 58%
and 42% of the combined company on a fully diluted basis, respectively. The
merger was approved by AVANT shareholders in the first quarter of 2008 (see
Note 14).
F-9
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
1. Organization and Basis of Presentation (continued)
Management believes, based on the Companys
current plans and activities and considering the AVANT merger, that the Companys
working capital resources at December 31, 2007 along with proceeds from
the Companys collaborative arrangements, will be sufficient to satisfy the
Companys liquidity requirements into 2009. In addition, the Company expects to
attempt to raise additional funds in advance of depleting the Companys current
funds.
During 2008, Celldex may take steps to raise
additional capital including, but not limited to, the licensing of technology
programs with existing or new collaborative partners, possible business
combinations, or the issuance of common stock via private placement and public
offering. If Celldex does not raise
additional funds in 2008, it may take one or more cost reducing measures,
including further delays in some of the preclinical and clinical research and
development programs and reduced investment in property and equipment. While
Celldex will continue to seek capital through a number of means, there can be
no assurance that additional financing will be available on acceptable terms,
if at all, and Celldexs negotiating position in capital-raising efforts may
worsen as existing resources are used. There is also no assurance that Celldex
will be able to enter into further collaborative relationships. Additional
equity financing may be dilutive to Celldexs stockholders; debt financing, if
available, may involve significant cash payment obligations and covenants that
restrict Celldexs ability to operate as a business; and licensing or strategic
collaborations may result in royalties or other terms which reduce Celldexs
economic potential from products under development.
As part of an effort to conserve funds, on December 14,
2006, the Company entered into an agreement for the sale and purchase of its
lease at 410 Cambridge Science Park in Cambridge, United Kingdom, with a third
party. With the exit of this lease, the Company also reduced its workforce by
approximately 39% in Cambridge, United Kingdom at that time (see Note 5).
Recapitalization and Stock Split
In May 2003, the Company was
incorporated in New Jersey under the name MabVac, Inc. The Company had 100
shares authorized and 18 shares issued and outstanding to its only shareholder
Medarex, Inc. On April 2, 2004, the Company reincorporated in
Delaware under the name Celldex Therapeutics, Inc. With the Companys
reincorporation in Delaware, the Companys Board of Directors approved a five
hundred thousand-for-one (500,000-for-1) split of the
F-10
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
1. Organization and Basis of Presentation (continued)
Companys outstanding shares of common stock.
The accompanying consolidated financial statements have been adjusted to give
retroactive recognition of the common stock split, effective April 2,
2004, for all periods presented by reclassifying from capital in excess of par
value to common stock an amount equal to the par value of the additional shares
arising from the split. In addition, all references in the consolidated
financial statements to number of shares and per share amounts have been
adjusted. In connection with this reincorporation, the investment by Medarex
has been reclassified to additional paid-in capital.
In April 2004, along with the Companys
reincorporation in Delaware, the Company authorized 1,000,000 shares of
preferred stock with a $1.00 par value. As of December 31, 2007 and 2006,
the Company had no shares of its preferred stock issued and outstanding.
In January 2005, the Companys Board of
Directors approved a one and a third-for-one stock split (1.333333-for-1) which
was affected as a 33.33% common stock dividend for the stockholders of record
as of November 15, 2004. The Companys consolidated financial statements
have been adjusted to give retroactive recognition of the common stock split,
effective January 5, 2005, for all periods presented by reclassifying from
capital in excess of par value to common stock an amount equal to the par value
of the additional shares arising from the split. In addition, all references in
the consolidated financial statements to number of shares and per share amounts
have been adjusted.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
F-11
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents. The Company invests its cash with major financial
institutions; however, amounts held at financial institutions in excess of
federally insured limits potentially subjects the Company to concentration of
credit risk.
Restricted Cash
Restricted cash at December 31, 2007 and
2006 represents security deposits for the Companys facilities in Phillipsburg,
New Jersey, to which the Company took occupancy in 2006.
Fair Value of Financial Instruments
The carrying amounts of the Companys
financial instruments, which include cash, accounts receivable, trade accounts
payable and accrued liabilities, approximate their fair values as of December 31,
2006 and 2007. Receivables are concentrated in the pharmaceutical industry and
from United Kingdom Inland Revenue. Management considers the likelihood of
market credit risk as remote.
Property and Equipment
Property and equipment is stated at cost.
Depreciation is provided on the straight-line method over estimated useful
lives of the various asset classes. Useful lives for building improvements,
furniture and fixtures and machinery and equipment principally range from three
to twenty years. Leasehold improvements are amortized over the estimated useful
lives of the assets or the lease term, whichever is shorter. Repair and
maintenance costs are charged to expenses as incurred.
F-12
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
Management reviews the recoverability of the
carrying value of the Companys long-lived assets, primarily property, plant
and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
Should indicators of impairment exist, the carrying values of the assets are evaluated
in relation to the operating performance and future undiscounted cash flows of
the underlying asset. The net book value of an asset is adjusted to fair value
if its expected future undiscounted cash flows are less than its book value.
Management has identified no indicators of impairment.
Deferred
Rent
Rent expense is recorded on a straight-line
basis over the terms of the leases. The difference between rent expense and
amounts paid under the lease agreements is recorded as deferred rent in the accompanying
consolidated balance sheets. Tenant improvements paid by the landlord are
capitalized as leasehold improvements and amortized over the shorter of their
estimated useful lives or the remaining lease term.
Foreign Currency Translation
The financial statements of the Companys
wholly owned subsidiary have been translated into U.S. dollars in accordance
with the Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 52,
Foreign Currency
Translation
. All asset and liability accounts have been translated
using the exchange rates in effect at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the period.
The gains and losses resulting from the changes in exchange rate from this
period have been reported in other comprehensive (loss) income. As of December 31,
2006 and 2007, the accumulated unrealized foreign exchange translation gains
included in accumulated other comprehensive income was approximately $2,882 and
$232, respectively.
Comprehensive Income
SFAS No. 130,
Reporting
Comprehensive Income
, establishes standards for the reporting and
display of comprehensive income (loss) and its components in the financial
statements. Comprehensive income (loss) consists of foreign currency exchange
translation gains and losses and net losses for the period.
F-13
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
Revenue Recognition
The Company accounts for revenue arrangements
that include multiple deliverables in accordance with Emerging Issues Task
Force No. 00-21,
Accounting for Revenue
Arrangements with Multiple Arrangements
(EITF 00-21). EITF 00-21
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting. In applying the
guidance, revenue arrangements with multiple deliverables can only be
considered as separate units of accounting if a) the delivered item has value
to the customer on a standalone basis, b) there is objective and reliable evidence
of the fair value of the undelivered items and c) if the right of return
exists, delivery of the undelivered items is considered probable and
substantially in the control of the vendor. If these criteria are not met, the
revenue elements must be considered a single unit of accounting for purposes of
revenue recognition.
Payments received to fund certain research
activities are recognized as revenue in the period in which the research
activities are performed. Payments received in advance that are related to
future performance are deferred and recognized as revenue when the research
projects are performed. Upfront nonrefundable fees associated with license and
development agreements where the Company has continuing involvement in the
agreement are recorded as deferred revenue and recognized over the estimated
service period. If the estimated service period is subsequently modified, the
period over which the upfront fee is recognized is modified accordingly on a
prospective basis.
Milestone payments are recognized as revenue
upon the achievement of mutually agreed milestones, provided that (i) the
milestone event is substantive and its achievement is not reasonably assured at
the inception of the agreement, and (ii) there are no continuing
performance obligations associated with the milestone payment. To date, the
Company has not recorded any revenue for milestone payments.
Revenue from U.S. government grants under
Small Business Innovation Research (SBIR) is recognized as the services are
performed.
F-14
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
Research and Development Costs
Research and development expenses relate
primarily to the cost of preclinical development of the programs. Research and
development costs are charged to expense as incurred. Research and development
expenses consist mainly of manufacturing of clinical material, toxicology and
other studies, salaries, depreciation, technology access fees and funding of
outside research. Costs to acquire technologies that are utilized in research
and development that have no alternative future use are expensed as incurred.
Clinical Trial Accruals
Most of the Companys clinical trials are
performed by third-party contract research organizations, or CROs, and clinical
supplies are manufactured by contract manufacturing organizations, or CMOs.
Invoicing from these third parties may be monthly based upon services performed
or based upon milestones achieved. The Company accrues these expenses based
upon its assessment of the status of each study and the work completed, and
upon information obtained from the CROs and CMOs. The Companys estimates are
dependent upon the timeliness and accuracy of data provided by the CROs and
CMOs regarding the status and cost of the studies, and may not match the actual
services performed by the organizations. This could result in adjustments to
the Companys clinical trial and manufacturing expenses in future periods. To
date the Company has had no significant adjustments.
Net Loss Per Share
The Company computes net loss per share in
accordance with SFAS No. 128,
Earnings per Share
(SFAS No. 128). Under the provisions of SFAS No. 128, basic net
loss per common share (Basic EPS) is computed by dividing net loss by the
weighted-average number of common shares outstanding. Diluted net loss per
common share (Diluted EPS) is computed by dividing net loss by the
weighted-average number of common shares and dilutive common share equivalents
then outstanding. Common equivalent shares may consist of the incremental common
shares issuable upon the conversion of preferred stock and shares issuable upon
the
F-15
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
exercise of stock options. Diluted EPS is
identical to Basic EPS since dilutive common share equivalents would be excluded
from the calculation, as their effect is anti-dilutive. A summary of such
potentially dilutive securities is as follows:
|
|
Year Ended December 31
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Stock options
outstanding
|
|
840,000
|
|
2,560,833
|
|
1,904,771
|
|
Income Taxes
The Company uses the asset and liability
method to account for income taxes, including the recognition of deferred tax
assets and deferred tax liabilities for the anticipated future tax consequences
attributable to differences between financial statement amounts and their
respective tax bases. The Company reviews its deferred tax assets for recovery.
A valuation allowance is established when the Company believes that it is more
likely than not that its deferred tax assets will not be realized. Changes in
valuation allowances from period to period are included in the Companys tax
provision in the period of change. For all periods prior to October 2005,
the Company has been included in the tax returns of Medarex.
Stock-Based Compensation
The Companys stock awards are governed by
the 2005 Equity Incentive Plan, as amended (the Plan), which is described
more fully in Note 8. Prior to January 1, 2006, the Company accounted for
the Plan under the recognition and measurement provisions of Accounting Principles
Board (APB) Opinion No. 25,
Accounting for Stock
Issued to Employees
(APB No. 25), and related
Interpretations, as permitted by FASB SFAS No. 123,
Accounting
for Stock-Based Compensation
(SFAS No. 123). Under APB No. 25,
compensation expense was recognized in the consolidated statements of
operations for all stock option grants under the Plan that had an exercise
price which was less than the fair market value of the underlying common stock
on the grant date. However, no compensation expense was recorded in the
consolidated financial statements for all stock option grants with an exercise
price equal to the fair value of the underlying common stock on the date of
grant.
F-16
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
Effective January 1, 2006, the Company
adopted the fair value recognition provisions of FASB SFAS No. 123(R),
Share-Based Payment
(SFAS No. 123(R)). Using the
modified prospective transition method, compensation is recognized in the
financial statements on a prospective basis for (i) all share-based
payments granted prior to, but not vested as of January 1, 2006, based
upon the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (ii) share-based payments granted on
or subsequent to January 1, 2006, based upon the grant date fair value
estimated in accordance with the provisions of SFAS No. 123(R). The grant
date fair value of awards expected to vest is expensed on a straight-line basis
over the vesting periods of the related awards. Under the modified prospective
transition method, results for prior periods are not restated.
SFAS No. 123(R) does not change the
accounting guidance for how the Company accounts for options issued to
nonemployees. The Company accounts for options issued to nonemployees in
accordance with SFAS No. 123(R) and EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services
.
As such, the value of such options is periodically re-measured and income or
expense is recognized during the vesting terms.
Recent Accounting Pronouncements
In December 2007, the EITF reached a
consensus on Issue No. 07-1,
Accounting for
Collaborative Arrangements
(EITF 07-1). The EITF concluded on the definition of a
collaborative arrangement and that revenues and costs incurred with third
parties in connection with collaborative arrangements would be presented gross
or net based on the criteria in EITF 99-19,
Reporting
Revenue Gross as a Principal versus Net as an Agent
, and other
accounting literature. Based on the
nature of the arrangement, payments to or from collaborators would be evaluated
and its terms, the nature of the entitys business, and whether those payments
are within the scope of other accounting literature would be presented. Companies are also required to disclose the
nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial statement
amounts related to the arrangements.
Activities in the arrangement conducted in a separate legal entity
should be accounted for under other accounting literature; however, required
disclosure under EITF 07-1 applies to the entire collaborative agreement. EITF 07-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods
F-17
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
within those fiscal years, and is to be
applied retrospectively to all periods presented for all collaborative
arrangements existing as of the effective date.
The Company is currently evaluating the requirements of EITF 07-1;
however, it does not believe that its adoption will have a significant impact
on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)),
which replaces SFAS No. 141,
Business Combinations
,
and requires an acquirer to recognize the assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of that date, with limited
exceptions. SFAS No. 141(R) also
requires the acquirer in a business combination achieved in stages to recognize
the identifiable assets and liabilities, as well as the noncontrolling interest
in the acquiree, at the full amounts of their fair values. SFAS No. 141(R) makes various other
amendments to authoritative literature intended to provide additional guidance
or confirm the guidance in that literature to that provided in SFAS No. 141(R). SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008. The Company does not expect that
the adoption of SFAS No. 141(R) will have a significant impact on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
(SFAS No. 160), which amends Accounting Research
Bulletin No. 51,
Consolidated Financial
Statements
, to improve the relevance, comparability and transparency
of the financial information that a reporting entity provides in its consolidated
financial statements. SFAS No. 160
establishes accounting and reporting standards that require the ownership
interests in subsidiaries not held by the parent to be clearly identified,
labeled and presented in the consolidated balance sheet within equity, but
separate from the parents equity. SFAS No. 160
also requires the amount of consolidated net income attributable to the parent
and to the noncontrolling interest to be clearly identified and presented on
the face of the consolidated statement of operations. Changes in a parents
ownership interest while the parent retains its controlling financial interest
must be accounted for consistently, and when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary must be
initially measured at fair value. The gain or loss on the deconsolidation of
the subsidiary is measured using the fair value of any noncontrolling equity
investment. SFAS No. 160 also requires entities to provide sufficient
disclosures that clearly identify and distinguish
F-18
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
2. Significant Accounting Policies (continued)
between the interests of the parent and the
interests of the noncontrolling owners.
SFAS No. 160 applies prospectively to all entities that prepare
consolidated financial statements and applies prospectively for all fiscal
years, and interim periods within those fiscal years, beginning on or after December 15,
2008. The Company does not believe that
the adoption of SFAS No. 160 will have a significant impact on its consolidated
financial statements.
In June 2007, the FASB issued EITF Issue
No. 07-3,
Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities,
(EITF 07-3). EITF 07-3 requires that nonrefundable
advance payments for goods or services that will be used or rendered for future
research and development activities be deferred and capitalized. The
capitalized amounts should be expensed as the related goods are delivered or
the services are performed. EITF 07-3 is effective for new contracts entered
into during fiscal years beginning after December 15, 2007. The Company is
currently evaluating the requirements of EITF 07-3; however, it does not
believe that its adoption will have a significant impact on its consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities
(SFAS No. 159). SFAS No. 159
permits all entities to choose to elect, at specified election dates, to
measure eligible financial instruments at fair value. An entity must report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date and recognize upfront
costs and fees related to those items in earnings as incurred and not deferred.
SFAS No. 159 applies to fiscal years beginning after November 15,
2007, with early adoption permitted for an entity that has also elected to
apply provisions of SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). Management is currently evaluating the impact, if any,
the adoption of SFAS No. 159 may have on the Companys consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 157.
SFAS No. 157 defines fair value, establishes a framework for measuring
fair value in accordance with U.S. generally accepted accounting principles and
expands disclosures about fair value measurements. Accordingly, this
pronouncement does not require any new fair value measurements. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after November 15,
2007, and for interim periods within those fiscal years. The Company is
currently evaluating the requirements of SFAS No. 157; however, it does
not believe that its adoption will have a material effect on its consolidated
financial statements.
F-19
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
3. Capital Stock
The total number of shares of capital stock
that Celldex shall have authority to issue is 56,800,000 shares, consisting of (i) 50,000,000
shares of common stock, par value $.01 per share (the Common Stock) and (ii) 6,800,000
shares of Class A Common Stock, par value $.01 per share (the Class A
Common Stock).
The following is a statement of the relative
powers, preferences and participating, optional or other special rights, and
the qualifications, limitations and restrictions of the Common Stock and Class A
Common Stock.
Voluntary Conversion
On or after the later of April 11, 2007
or the final adjudication or settlement of certain specified claims outstanding
on such date (the Voluntary Conversion Date), the holders of shares of Class A
Common Stock may convert such shares into shares of Common Stock as is
determined by dividing (A) $5.00 by (B) the Conversion Price at the
time in effect for such Class A Common Stock (such quotient, the Conversion
Rate). The initial Conversion Price shall be $5.00, subject to adjustment as
set forth below.
Upon the written election of the holders of
at least 75% of the outstanding shares of Class A Common Stock (a Three
Quarters Interest), all (but not less than all) of the outstanding shares of Class A
Common Stock shall be converted into shares of Common Stock at the Conversion
Rate.
Automatic Conversion
Each share of Class A Common Stock shall
automatically be converted into shares of Common Stock at the Conversion Rate
upon the earliest to occur of (a) a Liquidation Event, (b) a
Liquidity Transaction or (c) the closing of the Corporations initial
public offering (an IPO; a Liquidation Event, Liquidity Transaction and an
IPO sometimes hereinafter collectively referred to as a Strategic Event). In
the case of a Strategic Event, all outstanding shares of Class A Common
Stock shall be deemed to have been converted into shares of Common Stock
immediately prior to the completion of such transaction.
F-20
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
3. Capital Stock (continued)
Adjustments to the Conversion Price
Subject to certain exceptions, if the
Corporation shall issue or sell, or is deemed to have issued or sold, any
shares of Common Stock at a price per share less than the Conversion Price in
effect immediately prior to such issuance or sale, the Conversion Price shall
be reduced to the price determined by dividing (i) the sum of (A) the
number of shares of Common Stock then outstanding multiplied by the then
current Conversion Price and (B) the consideration received by the
Corporation upon such issuance or sale by (ii) the Common Stock
outstanding immediately after such issuance or sale.
The Conversion Price shall also be adjusted
upon the issuance of options or other rights to acquire shares of the
Corporations Common Stock or the issuance of any securities convertible into
shares of the Corporations Common Stock, in each case at a price less than the
then current Conversion Price, or if there shall be a change in the option
exercise price of any options or a change in the conversion rate of any such
convertible securities, or if the Corporation shall declare, make or fix a
record date for the payment of a dividend or any other distribution payable in
shares of Common Stock, property, options or convertible securities of the
Corporation.
4. Acquisitions of Lorantis Limited and
Alteris Therapeutics, Inc.
In complement to the Companys APC Targeting
Technology and internal clinical pipeline, in October 2005, the Company
completed the acquisition of all of the issued and outstanding shares of
capital stock of Lorantis, a privately held biotechnology company based in
Cambridge, United Kingdom and substantially all of the assets of Alteris, a
privately held biotechnology company based in Philadelphia, Pennsylvania.
Lorantis Limited
The Company acquired 100% of Lorantis for 6.8
million shares of Celldex Class A Common Stock. Approximately $34,000 of
net assets were acquired, including approximately $31,136 in cash, $2,717 in
fixed assets which included leasehold improvements, machinery and equipment,
furniture and fixtures as well as a $723 deficit in working capital and $870 of
in-process research and development that was expensed in the Companys
consolidated statement of operations for the year ended December 31, 2005.
In addition, the Company incurred $671 of costs related to the acquisition,
which were expensed to in-process research and development in 2005.
F-21
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
4. Acquisitions of Lorantis Limited and
Alteris Therapeutics, Inc. (continued)
The Company also acquired an IND ready
program for the treatment of Hepatitis B called CDX-2101, which is a viral-like
particle (VLP); and a technology platform covering Notch-ligands, which has
produced two preclinical programs: CDX-C03, which triggers antigen specific
suppression of the immune system resulting in inhibition of the immune
response, and CDX-A04, which has been designed to block Notch activation and
thus enhance immune response to antigen. This technology was expensed to
in-process research and development.
Alteris Therapeutics, Inc.
The Company acquired the following assets
from Alteris:
Approximately
$7,500 of net assets, including approximately $6 in fixed assets, $1,296 in
Core/Developed Technology, and $6,198 of in-process research and development
that was expensed in the Companys consolidated statement of operations as of December 31,
2005. In addition, the Company incurred $708 of costs related to the
acquisition which were expensed to in-process research and development in 2005.
A description of the technologies acquired is
as follows:
An
exclusive worldwide nonroyalty-bearing, fully paid-up license to the patents
covering the scientifically validated and proprietary cancer antigen, EGFRvIII,
which is a variant of the epidermal growth factor receptor, or EGFR, for use in
vaccine and immunization approaches to prevent, inhibit and treat tumor
formation and progression; the exclusive rights to commercialize CDX-110
Ô
, a
therapeutic cancer vaccine based on the EGFRvIII cancer antigen that is
currently being studied in an investigator-initiated Phase II clinical
trial for brain cancer at the Brain Tumor Cancer Center at the Duke
Comprehensive Cancer Center and at the M.D. Anderson Cancer Center in Houston,
Texas; and an investigator-initiated Phase I clinical trial for various
other cancers at the University of Washington; and,
An
exclusive worldwide fee and royalty-bearing license to the patent applications
covering the Rapid Identification of Alternative Splicing
Ô
system, or
RIAS
Ô
, a target discovery platform technology
that the Company believes will enable it to discover additional disease-related
antigens to be used as targets for its APC Targeting Technology and for its
out-licensing and collaboration efforts. These technologies were expensed to
in-process research and development.
F-22
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
4. Acquisitions of Lorantis Limited and
Alteris Therapeutics, Inc. (continued)
In exchange, the Company issued to Alteris
for the purchase of its assets 1,200,000 fully registered shares of its Common
Stock valued at $5.00 and $1,500 in cash. In addition, the Company will pay up
to $5.0 million upon obtaining the first approval for commercial sale of
an EGFRvIII-derived product, including CDX-110; and an amount equal to 20% of
any upfront fees or milestone payments that it may receive from a certain
unrelated third-party licensee, in the event that, within 12 months of the
closing, the Company enters into a license agreement with such third party for
any EGFRvIII-derived product developed using the technology that it acquires
from Alteris.
Allocation of Purchase Prices
The purchase prices were allocated as
follows:
|
|
Lorantis
|
|
Alteris
|
|
Total
|
|
Net current
assets (primarily cash and cash equivalents)
|
|
$
|
31,136
|
|
$
|
|
|
$
|
31,136
|
|
Fixed assets
fair value
|
|
2,717
|
|
6
|
|
2,723
|
|
Developed
technology
|
|
|
|
1,296
|
|
1,296
|
|
Working capital
deficiency
|
|
(723
|
)
|
|
|
(723
|
)
|
In-process
research and development, including acquisition costs
|
|
1,541
|
|
6,906
|
|
8,447
|
|
Total
acquisition cost
|
|
$
|
34,671
|
|
$
|
8,208
|
|
$
|
42,879
|
|
The acquired in-process research and
development (IPR&D) was determined not to be technologically feasible and
had no alternative future uses. Therefore, IPR&D was expensed in the
consolidated statement of operations upon acquisition. The developed technology
acquired is recorded in intangible assets in the consolidated balance sheets
and is being amortized over its estimated useful life of 11 years. The
developed technology carrying value is $1,267 ,$1,150 and $1,033 and the
accumulated amortization is $29, $146 and $263 at December 31, 2005, 2006
and 2007, respectively. The estimated aggregate amortization expense for each
of the next five years is $117 per year.
F-23
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
4. Acquisitions of Lorantis Limited and
Alteris Therapeutics, Inc. (continued)
The value of the acquired IPR&D was
determined by estimating the related probability-adjusted net cash flows, which
were then discounted to a present value using a rate of 27.5%. The discount
rate was based upon the Companys weighted-average cost of capital taking into
account the risk associated with the technologies acquired and their respective
stages of development. The projected cash flows for such projects were based on
estimated revenues and operating profit related to such projects considering
the development of each of the technologies acquired, the time and resources
needed to develop the technologies, the estimated life of each potential
commercialized product and associated risks, including the inherent
difficulties and uncertainties in developing a drug compound including
obtaining FDA and other regulatory approvals.
The results from operations for the Lorantis
acquisition and the Alteris asset purchase are included in the consolidated statement
of operations from October 12, 2005.
With the completion of the acquisitions of
Lorantis and Alteris, the shareholders of Celldex include Medarex which owns
approximately 60%, the shareholders of Lorantis who own approximately 34%, and
the shareholders of Alteris who own approximately 6%.
5. Balance Sheet Details
Prepaid expenses consist of the following as
of December 31:
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Prepaid clinical
expense
|
|
$
|
|
|
$
|
566
|
|
Prepaid rent
|
|
10
|
|
29
|
|
Prepaid service
contracts
|
|
6
|
|
17
|
|
Prepaid
insurance
|
|
34
|
|
43
|
|
Other
|
|
19
|
|
2
|
|
|
|
$
|
69
|
|
$
|
657
|
|
F-24
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
5. Balance Sheet Details
(continued)
Accrued liabilities consist of the following
as of December 31:
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Accrued
compensation
|
|
$
|
429
|
|
$
|
1,500
|
|
Accrued United Kingdom
facility exit costs
|
|
1,169
|
|
|
|
Accrued
professional fees and clinical expenses
|
|
914
|
|
975
|
|
Accrued
sponsored research
|
|
89
|
|
4
|
|
Accrued
facilities costs
|
|
47
|
|
20
|
|
Other
|
|
156
|
|
20
|
|
|
|
$
|
2,804
|
|
$
|
2,519
|
|
Exit Activities
In December 2006, the Company adopted a
plan to reduce operating expenses, following its decision to assign its leased
facility in Cambridge, United Kingdom, to a third party. The plan included a
reduction of 18 full-time employees in both research and development and general
and administrative areas of the Company. As a result of staffing reduction, the
Company has recorded severance benefits of $478 as of December 31, 2006.
In December 2006, the Company entered
into an agreement with a third party to assign the lease entered into by
Lorantis (Celldex Therapeutics, Ltd.) in June 2003. Under the assignment,
the assignee will assume all costs and expenses associated with the leased
facilities in Cambridge, United Kingdom. As part of the agreement of
assignment, the Company agreed to a six-month free rent period to the assignee
as incentive to enter into the lease assignment, whereby the Company will pay
the rent for this period that amounts to $691. This amount is reflected in the
2006 consolidated statement of operations (see Note 6 for additional
information).
Celldex and Dr. Robert F. Burns,
President and Chief Executive Officer, entered into a separation and mutual
release agreement dated as of October 19, 2007, under which Dr. Burns
employment was terminated, effective as of February 15, 2008. Until such
date, Dr. Burns has no obligation to render services to Celldex, although
he is to hold himself available to consult with Celldex by telephone at
reasonable times. As severance, Celldex is obligated to pay to Dr. Burns
F-25
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
5. Balance Sheet Details
(continued)
the sum of GBP 33 for nine consecutive
months, commencing with the first payment on March 15, 2008, and a payment
of GBP 100 on December 15, 2008, in each case less applicable withholdings
and other customary payroll deductions. Dr. Burns is also entitled to the
continuation of benefits until February 15, 2010. A portion of Dr. Burns
stock options became fully vested and exercisable on February 15, 2008,
and he may exercise them for up to three years following that date. Dr. Burns
and Celldex provided one another with mutual releases under the separation and
mutual release agreement.
As Dr. Burns has not provided
substantive service to the Company since October 19, 2007, these severance
benefits, that aggregate $1,014, have been accrued in the consolidated
financial statements as of December 31, 2007 in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or
Disposal Activities
. In addition, stock-based compensation has been
adjusted for the modification of Dr. Burns stock option awards in
accordance with SFAS No. 123(R).
The following table sets forth an analysis of
the exit costs, which are included in accrued liabilities in the consolidated
balance sheet as of December 31, 2006 and 2007:
|
|
Balance at
January 1,
2006
|
|
Charges
|
|
Paid Cash
|
|
Balance at
December 31,
2006
|
|
Charges
|
|
Paid Cash
|
|
Balance at
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
benefits
|
|
$
|
|
|
$
|
478
|
|
$
|
|
|
$
|
478
|
|
$
|
1,014
|
|
$
|
(478
|
)
|
$
|
1,014
|
|
Rent
|
|
|
|
691
|
|
|
|
691
|
|
|
|
(691
|
)
|
|
|
|
|
$
|
|
|
$
|
1,169
|
|
$
|
|
|
$
|
1,169
|
|
$
|
1,014
|
|
$
|
(1,169
|
)
|
$
|
1,014
|
|
F-26
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
6. Property and Equipment
Property and equipment consist of the
following as of December 31:
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Leasehold
improvements
|
|
$
|
2,046
|
|
$
|
2,046
|
|
Furniture and
office equipment
|
|
384
|
|
406
|
|
Machinery and
equipment
|
|
2,108
|
|
1,552
|
|
|
|
4,538
|
|
4,004
|
|
|
|
|
|
|
|
Less accumulated
depreciation
|
|
(1,985
|
)
|
(2,086
|
)
|
|
|
$
|
2,553
|
|
$
|
1,918
|
|
Depreciation expense for the years ended December 31,
2005, 2006 and 2007 was $288, $770 and $710, respectively. Depreciation expense
was $2,220 for the period from January 1, 1999 (inception) to December 31,
2007.
In December 2006, in connection with the
assignment of the Companys U.K. lease (see Note 5), the Company sold certain
leasehold improvements, laboratory equipment, and furniture and fixtures for
$2,208, which is recorded as a receivable at December 31, 2006 that is
included in other income. As a result,
the Company has recorded a gain on sale of fixed assets in its consolidated
statement of operations of $137 for the year ended December 31, 2006. At
the time of sale, the leasehold improvements, equipment, and furniture and
fixtures had original cost of $2,202, $1,413, and $103, respectively. The
accumulated depreciation of leasehold improvements, equipment, and furniture
and fixtures at the time of sale was $356, $1,231, and $60, respectively.
F-27
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
7. Income Taxes
In June 2006, the FASB issued
Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement No. 109
(FIN 48),
to create a single model to address accounting for uncertainty in tax
positions. FIN 48 clarifies the
accounting for income taxes by prescribing a minimum recognition threshold a
tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance
on derecognition, measurement and classification of amounts relating to
uncertain tax positions, accounting for and disclosure of interest and
penalties, accounting in interim periods, disclosures and transition relating
to the adoption of the new accounting standard.
The Company adopted FIN 48 as of January 1, 2007. The adoption of FIN 48 had no impact on
the Companys financial position and results of operations. The Company did not recognize interest or
penalties related to income tax during the year ended December 31, 2007
and did not accrue for interest or penalties as of December 31, 2006 or
2007. The Company does not have an
accrual for uncertain tax positions as of December 31, 2006 or 2007. Tax returns for years 2002 and thereafter are
subject to future examination by tax authorities.
There is no tax provision (benefit) for
federal or state income taxes, as the Company incurred operating losses since
its inception. Since its inception, the Company has generated net operating
loss carryforwards for federal and state income tax purposes of approximately
$44.4 million and research tax credit carryforwards for federal tax reporting
purposes of approximately $1.3 million. All net operating loss carryforwards
for federal and state income tax reporting purposes prior to the Companys
incorporation will belong to Medarex.
Since its incorporation in May 2003, the
Company has available for federal and state income tax purposes net operating
loss carryforwards, subject to review by the Internal Revenue Service, of
approximately $30.4 million, which expire through 2027, and has research
tax credit carryforwards at December 31, 2007 of approximately $1.0
million which expire through 2027. The valuation allowance increased
$5.7 million and $5.8 million for the years ended December 31,
2006 and 2007. The Companys ability to use the net operating loss
carryforwards
F-28
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
7. Income Taxes (continued)
may be limited under Section 382 of the
Internal Revenue Code. Significant components of the Companys deferred tax
assets and liabilities are as follows:
|
|
December 31
|
|
|
|
2006
|
|
2007
|
|
Deferred tax
assets (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
loss carryforwards
|
|
$
|
16,213
|
|
$
|
20,960
|
|
Research tax
credits
|
|
1,012
|
|
1,347
|
|
Stock-based
compensation
|
|
704
|
|
1,148
|
|
In-process
research and development
|
|
2,580
|
|
2,267
|
|
Accrued other
|
|
45
|
|
45
|
|
Acquired other
|
|
109
|
|
109
|
|
Deferred revenue
|
|
461
|
|
477
|
|
Depreciation
|
|
287
|
|
571
|
|
Total deferred
tax assets
|
|
21,411
|
|
27,094
|
|
|
|
|
|
|
|
Less valuation
allowance
|
|
(21,411
|
)
|
(27,094
|
)
|
Net deferred tax
assets
|
|
$
|
|
|
$
|
|
|
The deferred tax assets above include $5.5
million of net operating losses and $.3 million of research tax credit that
were generated prior to incorporation and will remain with Medarex.
8. Celldex Stock
Compensation Plans
2005 Equity Incentive
Plan
Celldex has one Stock Option Plan (the Plan)
which permits the grant of share options of up to 3.5 million shares of common
stock. The purchase price of stock options under the Plan is determined by the
Compensation and Organization Committee of the Board of Directors of Celldex
(the Committee). The term is fixed by the Committee, but no incentive stock
option is exercisable after ten years from the date of grant. Stock options
generally vest over a four-year period. At December 31, 2007, a total of
1,595,229 shares were available for future grants to Celldex employees under
the Plan.
F-29
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
8. Celldex Stock Compensation Plans (continued)
The following table illustrates the impact of
the adoption of SFAS No. 123(R) on reported amounts:
|
|
Year Ended December 31, 2006
|
|
|
|
As Reported
|
|
Impact of
Adoption of
SFAS No. 123(R)
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,836
|
)
|
$
|
(1,761
|
)
|
Basic and
diluted net loss per share
|
|
(0.89
|
)
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
The Company has recorded total stock-based
compensation expense of approximately $1.6 million for the year ended December 31,
2007, of which $0.4 million has been included in research and development
expenses and $1.2 million has been included in general and administrative
expenses in the consolidated statement of operations.
The Company has recorded total stock-based
compensation expense of approximately $1.8 million for the year ended December 31,
2006, of which $0.7 million has been included in research and development
expenses and $1.1 million has been included in general and administrative
expenses in the consolidated statement of operations.
F-30
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
8. Celldex Stock Compensation Plans (continued)
A summary of the stock option activity of the
Companys employees under the Plan and related information for the years ended December 31,
2005, 2006 and 2007 are as follows:
|
|
Common
Stock
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
|
|
|
|
|
|
|
|
Options
Outstanding, January 1, 2005
|
|
840,000
|
|
$
|
6.77
|
|
|
|
Granted
|
|
|
|
$
|
|
|
|
|
Exercised
|
|
|
|
$
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
$
|
|
|
|
|
Options
Outstanding, December 31, 2005
|
|
840,000
|
|
$
|
6.77
|
|
|
|
Granted
|
|
1,720,833
|
|
$
|
5.00
|
|
|
|
Exercised
|
|
|
|
$
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
$
|
|
|
|
|
Options
Outstanding, December 31, 2006
|
|
2,560,833
|
|
$
|
5.58
|
|
|
|
Granted
|
|
61,000
|
|
$
|
5.00
|
|
|
|
Exercised
|
|
|
|
$
|
|
|
|
|
Cancelled/Forfeited
|
|
(447,062
|
)
|
$
|
5.79
|
|
|
|
Expired
|
|
(270,000
|
)
|
$
|
7.80
|
|
|
|
Options
Outstanding, December 31, 2007
|
|
1,904,771
|
|
$
|
5.25
|
|
5.81 years
|
|
Exercise Price
|
|
Outstanding Options
at
December 31, 2007
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Exercisable Options
at
December 31, 2007
|
|
|
|
|
|
|
|
|
|
$
|
5.00
|
|
1,424,771
|
|
5.81 years
|
|
1,023,208
|
|
$
|
6.00
|
|
480,000
|
|
6.03 years
|
|
475,000
|
|
|
|
1,904,771
|
|
|
|
1,498,208
|
|
The weightedaverage fair value at the date
of grant for options granted during the years ended December 31, 2007 and
2006 were $1.55 and $2.72, respectively. The fair value of each option grant is
estimated using the Black-Scholes option pricing model. The fair value is then
amortized on a straight-line basis over the requisite service periods of the
awards, which is generally four years. Use of a valuation model requires
management to make certain assumptions with respect to selected model inputs.
In order to estimate the grant date fair value, option pricing models
F-31
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
8. Celldex Stock Compensation Plans (continued)
require the use of estimates and assumptions
as to (i) the expected term of the option, (ii) the expected
volatility of the price of the underlying stock, (iii) the risk-free
interest rate for the expected term of the option, and (iv) pre-vesting
forfeiture rates. The expected term of the option is based upon the contractual
term, taking into account expected employee exercise and expected post-vesting
termination behavior. The expected volatility of the price of the underlying
stock is based on the average volatility of a group of companies that the
Company believes would be considered a peer group had it been a publicly held
company.
The average expected life was determined
using the same peer group average expected life, which ranged from 4 years
6.25 years. The risk-free interest rate is based on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected life assumed at
the date of grant. Forfeitures are estimated based on voluntary termination
behavior, as well as a historical analysis of actual option forfeitures. The
Company is currently using an estimated forfeiture rate of approximately 17%.
The following table sets forth the weighted-average assumptions used to
calculate fair value of options granted for the years ended December 31,
2005, 2006 and 2007:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Expected
dividend yield
|
|
0
|
%
|
0
|
%
|
0
|
%
|
Expected stock
price volatility
|
|
99.1
|
%
|
67.1
|
%
|
79.5
|
%
|
Risk-free
interest rate
|
|
4.29
|
%
|
4.52
|
%
|
3.85
|
%
|
Expected life of
options (years)
|
|
6.25
|
|
5.18
|
|
5.00
|
|
The Company had 406,563 nonvested stock
options outstanding as of December 31, 2007. The total unrecognized
compensation cost related to nonvested stock options was approximately $0.9
million. This cost is expected to be recognized over a weighted-average period
of 1.5 years.
The aggregate intrinsic value of the
outstanding and exercisable options as of December 31, 2007 and 2006 was
not material.
F-32
Celldex Therapeutics, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
8. Celldex Stock Compensation Plans (continued)
Fair Value Disclosures Prior to Adopting SFAS No. 123(R)
Prior to January 1, 2006, the Company
followed the disclosure-only provisions of SFAS No. 123 and, accordingly,
accounted for equity awards pursuant to the recognition and measurement
principles of APB No. 25 and related Interpretations, as permitted by SFAS
No. 123.
Under APB No. 25, compensation expense
was recognized in the consolidated statement of operations for certain stock
option grants under the Plan that had an exercise price which was less than the
deemed fair market value of the underlying common stock on the grant date for
accounting purposes. The following table illustrates the effect on the net loss
and net loss per share for the year ended December 31, 2005 had the
Company applied the fair value recognition provisions of SFAS No. 123:
Net loss
attributable to common stockholders, as reported
|
|
$
|
(17,079
|
)
|
Add stock-based
employee compensation expense included in net loss attributable to common
stockholders
|
|
288
|
|
Deduct total
stock-based employee compensation expense determined under fair value based
method for all awards
|
|
(591
|
)
|
SFAS No. 123 pro forma net loss
|
|
$
|
(17,382
|
)
|
Basic and
diluted loss attributable to common stockholders per share, as reported
|
|
$
|
(1.24
|
)
|
Basic and
diluted loss attributable to common stockholders per share, SFAS No. 123
pro forma
|
|
$
|
(1.26
|
)
|
For the period covered by these consolidated
financial statements, the Company participated in Medarexs Employee Savings
and Retirement Plan (the 401(k) Plan).
9. Retirement Savings Plan
The 401(k) Plan is intended to be a
tax-qualified plan covering substantially all employees. Under the terms of the
401(k) Plan, employees may elect to contribute up to 15% of their compensation,
or the statutory prescribed limits. The Company may make matching contributions
of up to 4% of a participants annual salary. Benefit expense for the 401(k) Plan
was approximately $7.9, $21.1, $39.9 and $107.2 for the years ended December 31,
2005, 2006 and 2007, and the period from January 1, 1999 (inception) to December 31,
2007, respectively.
F-33
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
10. Related Party Transactions
The Company and Medarex have entered into the
following agreements, each of which was approved by a majority of the Companys
independent directors who did not have an interest in the transaction. The
Company believes that each of its agreements with Medarex is on terms as
favorable to the Company as it could have obtained on an arms-length basis
from unaffiliated third parties. These agreements include:
·
An
Assignment and License Agreement that provides for the assignment of certain
patent and other intellectual property rights and a license to certain Medarex
technology;
·
A
Research and Commercialization Agreement that provides the Company with certain
rights to obtain exclusive commercial licenses to proprietary monoclonal
antibodies raised against certain antigens;
·
An
Affiliation Agreement, which, among other things, details Medarexs obligation
to elect independent directors to the Companys board and contains certain
restrictions, effective for a period of 36 months from April 6, 2004, on
Medarexs ability to acquire additional shares of the Companys common stock
and to sell shares of the Companys common stock;
·
A
Master Services Agreement that sets forth Medarexs agreement to provide the
Company with certain services to be mutually agreed upon, which may include,
among others, clinical and regulatory assistance.
Celldex and
Medarex have entered into a settlement and mutual release agreement on October 19,
2007, whereby the parties have agreed to a settlement with respect to a
disputed return of capital related to certain unsuccessful IPO costs that were
funded by Medarex on behalf of Celldex in prior years. Celldex has agreed to
issue to Medarex an amount of AVANT shares equal in value to $3,039, based on
the per share closing price of the AVANT shares on the second trading day prior
to the closing date of the Celldex and AVANT merger. Medarex has agreed to
amend certain terms of the existing Research and Commercialization Agreement
and Assignment and License Agreement.
Both parties have agreed to mutual releases under the agreement. This
return of capital of $3,039 has been recorded in the December 31, 2007
consolidated balance sheet as an increase to the payable due Medarex and a
decrease to additional paid-in capital. Upon closing the merger, the issuance of
AVANT shares will be accounted for as a decrease to payable due Medarex and an
increase to common stock and additional paid-in capital.
F-34
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
10. Related Party Transactions (continued)
Fees, Milestones and Royalties
The Company may be required to pay license
fees and milestone payments to Medarex with respect to any antibodies developed
using its HuMab-Mouse technology. These fees and milestones may total up to
$7 million to $10 million per antibody that receives approval from
the FDA and equivalent foreign agencies.
The Company may also be required to pay
royalties on any product sales. The royalties will be payable on a
country-by-country and licensed product-by-licensed product basis until the
date which is the later of (i) the expiration of the last to expire of the
patents covering the licensed product in such country or (ii) ten years
following the first commercial sale of a licensed product in such country.
11. Commitments and Contingencies
Operating Leases
The Company is obligated under a noncancelable
operating lease for laboratory and office space of the Companys headquarters
in Phillipsburg, New Jersey. This lease expires in August 2011. A summary
of the Companys commitment of the lease as of December 31, 2007 is as
follows:
Years ending December 31:
|
|
|
|
2008
|
|
$
|
348
|
|
2009
|
|
348
|
|
2010
|
|
348
|
|
2011
|
|
231
|
|
Subsequent total
minimum future rentals
|
|
$
|
1,275
|
|
In April 2006, the Company took
occupancy of its leased facilities in Phillipsburg, New Jersey of 19,872 square
feet of office and laboratory space. Under the Lease Agreement, monthly base
rent for the facility is approximately $29 and the terms of the rental lease is
for five years with an option for an additional five years at a cost of $348
per annum. In connection with this lease, the Company entered into a Letter of
Credit facility with a national U.S. financial institution, which is
collateralized by a security deposit. The total amount of the security deposit
is recorded as restricted cash on the Companys consolidated balance sheets.
F-35
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
11. Commitments and Contingencies (continued)
As an incentive to enter into the Lease
Agreement with the landlord, the Company received four months of rent-free
occupancy of the facilities, and the Company is amortizing this over the original
five-year term of the lease. In addition, the landlord provided the Company an
allowance on future rent payments towards tenant improvements that the Company
made to the facilities and that credit is also included in deferred rent and is
being amortized over the lease term. Construction of the tenant
improvements began in March 2006 and was completed in August 2006.
12. Collaboration Agreements
GlaxoSmithKline, plc
On December 21, 2005, Corixa Corporation
(Corixa), a wholly owned subsidiary of GlaxoSmithKline (GSK), and Lorantis,
a wholly owned subsidiary of Celldex, entered into a termination agreement of
their collaboration of CDX-2101 or HepVax for the development of a therapeutic
vaccine for Hepatitis B.
Under the terms of the Termination Agreement
between the Parties and in consideration for GSK terminating the agreement, GSK
paid the Company the sum of $1,632. In addition, and subject to the terms and
conditions of the Termination Agreement, GSK granted to Celldex a worldwide,
fully paid up, royalty-free, perpetual, nonexclusive license under the Corixa
Patent Rights, Corixa Know-How Rights and Corixa Licensed Technology: (a) to
use RC-529SE in products being developed and/or commercialized by Lorantis or
its Permitted Sublicensees in the Lorantis Field; and (b) to make or have
made RC-529SE using RC-529 adjuvant for the limited use permitted by the
license granted to reformulate Corixas proprietary adjuvant.
The Company has concluded that the GSK
Agreement should be accounted for as a single unit of accounting and is
amortizing the $1.6 million payment received over the expected obligation
period, which is estimated to end in December 2009. For the years ended December 31,
2005, 2006 and 2007 the Company recognized $14, $466 and $466 of revenue under
the Termination Agreement, respectively.
F-36
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
12. Collaboration Agreements (continued)
Rockefeller University
On November 1, 2005, the Company and
Rockefeller University (Rockefeller) entered into a license agreement for the
exclusive worldwide rights to human DEC-205 receptor, with the right to
sublicense the technology. The license grant is exclusive except that
Rockefeller may use and permit other nonprofit organizations to use the human
DEC-205 receptor patent rights for educational and research purposes. In
addition, the Company acknowledges that Rockefeller has granted Howard Hughes
Medical Institute (HHMI) a paid-up, nonexclusive, irrevocable license to use
the patent rights, biological materials, and technical information for HHMIs
research purposes, but with no right to sublicense. The Company may also be
required to pay royalties on any product sales. The royalties will be payable
on a country-by-country and licensed product-by-licensed product basis until
the date which is the later of (i) the expiration of the last to expire of
the patents covering the licensed product in such country or (ii) ten
years following the first commercial sale of a licensed product in such
country.
BIOSYN Corporation
On August 18, 2006, the Company entered
into a nonexclusive supply agreement with BIOSYN Corporation (BIOSYN) for the
supply of Good Manufacturing Grade (GMP) proprietary formulation of BIOSYNs
hemocyanin products, including keyhole limpet hemocyanin (KLH), to be used in
combination with the Companys lead product CDX-110. The Company, as part of
this agreement, will gain access to BIOSYNs Drug Master File (DMF), which
will be maintained with the U.S. and Canadian regulatory authorities. BIOSYN
will support all regulatory filings of the Company and allow cross-referencing
letters by company for U.S. and foreign equivalent agencies.
The term of the agreement is for ten years,
and the Company agrees to source all of its KLH requirements through BIOSYN,
unless BIOSYN cannot meet the Companys demand. The Company will pay a total
fee of $750 payable over ten years in equal annual installments for the license
and will pay a per gram cost for product for clinical and commercial use.
F-37
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
12. Collaboration Agreements (continued)
Duke University Brain Tumor Cancer Center
On September 1, 2006, the Company and
Duke University Brain Tumor Cancer Center of Duke University (Duke) entered
into a license agreement that gave the Company access and reference to the
clinical data generated by Duke and its collaborators in order for the Company
to generate its own filing with the FDA relating to its product CDX-110.
In exchange for referencing all the Duke
data, the Company paid Duke a one-time upfront payment of $175 and issued to
Duke 100,000 shares of the Companys common stock, which the Company recorded
in the consolidated statement of operations for the year ended December 31,
2006 as a licensing expense in research and development. The estimated
aggregate fair value of the common shares issued was $330.
Ludwig Institute for Cancer Research
On October 20, 2006, the Company and
Ludwig Institute for Cancer Research (Ludwig) entered into an agreement for
the nonexclusive rights to six cancer tumor targets for use in combination with
the Companys APC Targeting Technology. The term of the agreement is for ten
years. As consideration for the
nonexclusive license, the Company agreed to pay an annual license fee of $8 and
$3 for each full-length antigen and partial-length antigen, respectively, until
such antigens enter a randomized Phase I clinical trial.
Fees, Milestones and Royalties
The Company may be required to pay license
fees and milestone payments to Rockefeller with respect to development of the
human DEC-205 receptor. These fees and milestones may total up to
$2 million to $4 million per product candidate that receives approval
from the FDA and equivalent foreign agencies.
The Company may be required to pay license
fees and milestone payments to Duke with respect to development of the CDX-110.
These fees and milestones may total up to $1.2 million if CDX-110 receives
approval from the FDA and equivalent foreign agencies. The Company may also be
required to pay royalties upon approval of CDX-110. The royalties will be
payable on a country-by-country and licensed product-by-licensed product basis
until the date of the expiration of the last to expire of the patents covering
the licensed product in such country.
F-38
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
12. Collaboration Agreements (continued)
In consideration for the nonexclusive
license, the Company may be required to pay license fees and milestone payments
to Ludwig for the use of the cancer targets in combination with the Companys
technology. The fees and milestones may total up to $1.5 million to $2.5
million on a product candidate that receives approval from the FDA and
equivalent foreign agencies. The Company may also be required to pay royalties
upon approval of any product candidate. The royalties will be payable on a
country-by-country and licensed product-by-licensed product basis until the
date of the expiration of the last to expire of the patents covering the
licensed product in such country.
13. Selected Quarterly Financial Data (Unaudited)
|
|
First
Quarter
2006
|
|
Second
Quarter
2006
|
|
Third
Quarter
2006
|
|
Fourth
Quarter
2006
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
128
|
|
$
|
317
|
|
$
|
199
|
|
$
|
255
|
|
Net loss
|
|
(3,854
|
)
|
(3,908
|
)
|
(4,340
|
)
|
(5,734
|
)
|
Basic and
diluted net loss per common share
|
|
(0.19
|
)
|
(0.19
|
)
|
(0.22
|
)
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
2007
|
|
Second
Quarter
2007
|
|
Third
Quarter
2007
|
|
Fourth
Quarter
2007
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
144
|
|
$
|
609
|
|
$
|
269
|
|
$
|
384
|
|
Net loss
|
|
(3,794
|
)
|
(3,009
|
)
|
(4,053
|
)
|
(4,218
|
)
|
Basic and
diluted net loss per common share
|
|
(0.19
|
)
|
(0.15
|
)
|
(0.20
|
)
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Subsequent Events
On March 7, 2008, Celldex and AVANT
closed the merger pursuant to the Agreement and Plan of Merger dated October 19,
2007 (the Merger Agreement) by and among AVANT, Callisto Merger Corporation (Merger
Sub), a wholly owned subsidiary of AVANT, and Celldex. Pursuant to the terms of the Merger
Agreement, Merger Sub merged with and into Celldex, with Celldex as the
surviving company and a wholly owned subsidiary of AVANT. The total value of
F-39
Celldex
Therapeutics, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to Consolidated Financial Statements (continued)
(
In Thousands, Unless Otherwise Indicated, Except
Share and Per Share Data
)
14. Subsequent Events (continued)
the transaction is approximately $75 million.
Approximately 104.8 million shares of AVANT (on a pre-split basis) were issued
to the former Celldex shareholders in connection with the merger. The merger is
being accounted for as a purchase, with Celldex treated as the acquirer under
U.S. generally accepted accounting principles. Celldex shareholders will
receive approximately 4.96 shares of AVANT common stock in exchange for each
share of Celldex common stock and Class A common stock they own. AVANT
stockholders will retain 42% of, and the former Celldex stockholders will own
58% of, the outstanding shares of AVANTs common stock on a fully-diluted
basis. AVANT will also assume all of Celldexs stock options outstanding at the
time of the merger.
In April 2008, Pfizer, Inc. and
AVANT entered into an agreement under which Pfizer will be granted an exclusive
worldwide license to a therapeutic cancer vaccine candidate, CDX-110, which is
in Phase 2 development for the treatment of glioblastoma multiforme, a form of
brain cancer. This agreement also gives Pfizer exclusive rights to the use of
EGFRvIII vaccines in other potential indications. Under the licensing and
development agreement, Pfizer will make an upfront payment to AVANT of $40
million and will make a $10 million equity investment in AVANT. Pfizer will
fund all development costs for these programs. AVANT is also eligible to
receive milestone payments exceeding $390 million for the successful
development and commercialization of CDX-110 and additional vaccine products,
as well as royalties on any product sales. The agreement is subject to approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended) and
is expected to close in the second quarter of 2008.
F-40
(b)
PRO FORMA FINANCIAL DATA
Contents
F-41
AVANT
and Celldex Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited
pro forma condensed combined financial statements give effect to the merger of
AVANT and Celldex in a transaction accounted for as a purchase with Celldex
treated as the acquirer even though AVANT was the issuer of common stock and
surviving legal entity in the transaction (based in part on the fact that upon
completion of the merger AVANT stockholders retained 42% of, and the former
Celldex stockholders owned 58% of, the outstanding shares of AVANTs common
stock on a fully diluted basis). The unaudited pro forma condensed combined
balance sheet is based on the individual historical consolidated balance sheets
of AVANT and Celldex as of December 31, 2007, and has been prepared to
reflect the merger of AVANT and Celldex as of December 31, 2007. The
unaudited pro forma condensed combined statement of operations is based on the
individual historical consolidated statements of operations of AVANT and
Celldex and combines the results of operations of AVANT and Celldex for the
year ended December 31, 2007, giving effect to the merger as if it
occurred on January 1, 2007 for the pro forma statements of operations,
reflecting only pro forma adjustments expected to have a continuing impact on
the combined results. The following unaudited pro forma condensed combined
financial statements give effect to a 1-for-12 reverse stock split of AVANTs
common stock which became effective on March 7, 2008. As a result of the
reverse stock split, each twelve shares of common stock was combined and
reclassified into one share of common stock and the total number of shares
outstanding was reduced from approximately 180 million shares (including
the shares issued to Celldex stockholders in the merger) to approximately
15 million shares.
These unaudited pro forma
condensed combined financial statements are for informational purposes only.
They do not purport to indicate the results that would have actually been
obtained had the merger been completed on the assumed date or for the periods
presented, or which may be realized in the future. To produce the pro forma
financial information, we allocated the purchase price using our best estimates
of fair value. These estimates are based on the most recently available information.
To the extent there are significant changes to AVANTs business, including
results from ongoing clinical trials, the assumptions and estimates herein
could change significantly. The allocation is dependent upon certain valuations
and other studies. Furthermore, the parties expect to have reorganization and
restructuring expenses as well as potential operating efficiencies as a result
of combining the companies. The pro forma financial information does not
reflect these potential expenses and efficiencies.
F-42
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
As of December 31, 2007
(Amounts in thousands)
|
|
AVANT
|
|
Celldex
|
|
Pro Forma
Adjustments
|
|
Note
Reference
|
|
Pro Forma
Combined
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents
|
|
$
|
15,658
|
|
$
|
4,910
|
|
$
|
|
|
|
|
$
|
20,568
|
|
Accounts and
Other Receivables
|
|
332
|
|
133
|
|
¾
|
|
|
|
465
|
|
Prepaid Expenses
and Other Current Assets
|
|
423
|
|
655
|
|
9,795
|
|
E
|
|
10,875
|
|
Total Current
Assets
|
|
16,413
|
|
5,698
|
|
9,795
|
|
|
|
31,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and
Equipment, Net
|
|
16,441
|
|
1,918
|
|
(4,594
|
)
|
J
|
|
13,765
|
|
Intangible
Assets, Net
|
|
3,017
|
|
1,033
|
|
(3,017
|
)
|
B
|
|
|
|
|
|
|
|
|
|
2,175
|
|
B
|
|
|
|
|
|
|
|
|
|
(608
|
)
|
J
|
|
2,600
|
|
Other Long-Term
Assets
|
|
741
|
|
725
|
|
(545
|
)
|
D
|
|
921
|
|
Goodwill
|
|
1,036
|
|
¾
|
|
(1,036
|
)
|
B
|
|
¾
|
|
Total Assets
|
|
$
|
37,648
|
|
$
|
9,374
|
|
$
|
2,169
|
|
|
|
$
|
49,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
1,262
|
|
$
|
750
|
|
$
|
|
|
|
|
$
|
2,012
|
|
Accrued Expenses
|
|
3,146
|
|
2,519
|
|
164
|
|
D
|
|
5,829
|
|
Payable Due
Medarex
|
|
¾
|
|
5,836
|
|
(3,039
|
)
|
R
|
|
2,797
|
|
Current Portion
of Deferred Revenue
|
|
4,846
|
|
974
|
|
(4,846
|
)
|
F
|
|
974
|
|
Current Portion
of Long-Term Liabilities
|
|
580
|
|
57
|
|
(365
|
)
|
G
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
H
|
|
232
|
|
Total Current
Liabilities
|
|
9,834
|
|
10,136
|
|
(8,128
|
)
|
|
|
11,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
|
42,270
|
|
220
|
|
(42,270
|
)
|
F
|
|
220
|
|
Other Long-Term
Liabilities
|
|
4,588
|
|
150
|
|
(3,305
|
)
|
G
|
|
|
|
|
|
|
|
|
|
(248
|
)
|
H
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock
|
|
¾
|
|
¾
|
|
¾
|
|
|
|
¾
|
|
Common Stock
|
|
6
|
|
17
|
|
(6
|
)
|
I
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
A
|
|
15
|
|
Additional
Paid-In Capital
|
|
259,063
|
|
69,880
|
|
(259,063
|
)
|
I
|
|
|
|
|
|
|
|
|
|
3,039
|
|
R
|
|
|
|
|
|
|
|
|
|
900
|
|
S
|
|
|
|
|
|
|
|
|
|
46,877
|
|
A
|
|
120,697
|
|
Less: Treasury
Stock at Cost
|
|
(228
|
)
|
¾
|
|
228
|
|
Q
|
|
¾
|
|
Accumulated
Deficit
|
|
(277,885
|
)
|
(73,648
|
)
|
277,885
|
|
I
|
|
|
|
|
|
|
|
|
|
(900
|
)
|
S
|
|
|
|
|
|
|
|
|
|
(17,817
|
)
|
C
|
|
|
|
|
|
|
|
|
|
4,979
|
|
J
|
|
(87,387
|
)
|
Other
Comprehensive Income
|
|
¾
|
|
2,619
|
|
¾
|
|
|
|
2,619
|
|
Total
Stockholders Equity (Deficit)
|
|
(19,044
|
)
|
(1,132
|
)
|
56,120
|
|
|
|
35,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders Equity
|
|
$
|
37,648
|
|
$
|
9,374
|
|
$
|
2,169
|
|
|
|
$
|
49,193
|
|
See the accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements,
which are an integral part of
these statements.
F-43
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF
OPERATIONS
Year Ended December 31, 2007
(Amounts in thousands, except per share amounts)
|
|
AVANT
|
|
Celldex
|
|
Pro Forma
Adjustments
|
|
Note
Reference
|
|
Pro Forma
Combined
|
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
Product
Development and Licensing Agreements
|
|
$
|
125
|
|
$
|
1,318
|
|
$
|
|
|
|
|
$
|
1,443
|
|
Government
Contracts and Grants
|
|
491
|
|
88
|
|
¾
|
|
|
|
579
|
|
Product
Royalties
|
|
4,487
|
|
¾
|
|
¾
|
|
K
|
|
4,487
|
|
Total Revenue
|
|
5,103
|
|
1,406
|
|
¾
|
|
|
|
6,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
Research and
Development
|
|
18,496
|
|
10,009
|
|
¾
|
|
L
|
|
|
|
|
|
|
|
|
|
(514
|
)
|
N
|
|
27,991
|
|
Other Operating
Expense
|
|
9,462
|
|
6,906
|
|
¾
|
|
L
|
|
|
|
|
|
|
|
|
|
253
|
|
M
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
N
|
|
16,604
|
|
Total Operating
Expense
|
|
27,958
|
|
16,915
|
|
(278
|
)
|
|
|
44,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and
Other Income, Net
|
|
1,096
|
|
435
|
|
¾
|
|
|
|
1,531
|
|
Loss Before
Provision for Income Taxes
|
|
(21,759
|
)
|
(15,074
|
)
|
278
|
|
|
|
(36,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
Income Taxes
|
|
(120
|
)
|
¾
|
|
¾
|
|
P
|
|
(120
|
)
|
Net Loss
|
|
$
|
(21,639
|
)
|
$
|
(15,074
|
)
|
$
|
278
|
|
|
|
$
|
(36,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
Diluted Net Loss Per Common Share
|
|
$
|
(3.45
|
)
|
|
|
|
|
|
|
$
|
(2.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Used in
Calculating Basic and Diluted Net Loss Per Share
|
|
6,266
|
|
1,675
|
|
6,986
|
|
O
|
|
14,927
|
|
See the accompanying Notes to Unaudited Pro Forma Condensed Combined
Financial Statements,
which are an integral part of
these statements.
F-44
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1.
DESCRIPTION OF TRANSACTION AND
BASIS OF PRESENTATION
On October 19, 2007,
AVANT and Celldex signed an Agreement and Plan of Merger (the Merger) under
which a wholly owned subsidiary of AVANT would merge with and into Celldex in a
transaction to be accounted for as a purchase under accounting principles
generally accepted in the United States of America with Celldex treated as the
accounting acquirer. On March 7, 2008, AVANT announced the completed
Merger of Callisto Merger Corporation, a wholly owned subsidiary of AVANT, with
and into Celldex. Under the purchase method of accounting, the assets and
liabilities of AVANT were recorded as of the acquisition date, at their fair
values and added to those of Celldex. The transaction is expected to qualify as
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. Under the terms of the merger agreement, each share of Celldex
common stock outstanding at the closing of the Merger was exchanged for
4.960848059 shares of AVANT common stock, plus cash in lieu of fractional
shares. In addition, each option to purchase Celldex common stock that was
outstanding on the closing date was assumed by AVANT and thereafter constitutes
an option to acquire the number of shares of AVANT common stock determined by
multiplying the number of shares of Celldex common stock subject to the option
immediately prior to the Merger by 4.960848059, rounded down to the nearest
whole share, with an exercise price equal to the exercise price of the assumed
Celldex option divided by 4.960848059, rounded up to the nearest whole cent.
Each of these options is subject to the same terms and conditions that were in
effect for the related Celldex options. The fair value of AVANTs outstanding
options assumed in the acquisition was considered immaterial. The Merger was
subject to customary closing conditions, including regulatory approvals, as
well as approval by AVANT and Celldex stockholders.
2.
PURCHASE PRICE
The
purchase price is as follows (table in thousands):
Fair value of
AVANT shares issued
|
|
$
|
46,875
|
|
Transaction
costs incurred by Celldex
|
|
696
|
|
|
|
|
|
Purchase price
|
|
$
|
47,571
|
|
The
fair value of the AVANT shares used in determining the purchase price was
$7.481 per share based on the average of the closing price of AVANT common
stock for the period two days before through two days after the October 22,
2007 merger agreement announcement date (after adjustment for the 1-for-12
reverse stock split effective on March 7, 2008).
The
estimated purchase price has been allocated to the acquired tangible and
intangible assets and liabilities assumed based on their estimated fair values
as of December 31, 2007 (table in thousands):
F-45
Cash and cash
equivalents
|
|
$
|
15,658
|
|
Accounts and
other receivable
|
|
332
|
|
Property and
equipment
|
|
11,846
|
|
Acquired
identifiable intangible assets
|
|
1,567
|
|
In-process
research and development
|
|
12,838
|
|
Other current
and long-term assets
|
|
10,947
|
|
Assumed
liabilities
|
|
(5,617
|
)
|
Total
|
|
$
|
47,571
|
|
The allocation of the
purchase price is based on amounts at December 31, 2007. The final
determination of the purchase price allocation will be based on the fair values
of assets acquired, including the fair values of in-process research and
development, other identifiable intangibles and the fair values of liabilities
assumed as of the date that the Merger is consummated. The excess of the purchase price over the fair
value of assets and liabilities acquired is allocated to goodwill. However, the
valuation analysis conducted by AVANT and Celldex determined that the fair
value of assets acquired and the fair value of liabilities assumed by Celldex
exceeded the estimated purchase price for AVANT, resulting in negative goodwill
of approximately $10.2 million. In accordance with SFAS No. 141,
Business Combinations,
the negative
goodwill has been allocated to all of the acquired assets which are
non-financial and non-current assets, including property and equipment,
identifiable intangible assets, and in-process research and development. AVANT
has completed a third-party valuation of significant identifiable intangible
assets acquired (including in-process research and development) and determines
the fair values of other assets and liabilities acquired.
The
amount allocated to acquired identifiable intangible assets (after the negative
goodwill allocation) has been attributed to the following categories (table in
thousands):
Megan developed
technology
|
|
$
|
238
|
|
Core technology
|
|
781
|
|
Pfizer Agreement
|
|
548
|
|
|
|
|
|
Total
|
|
$
|
1,567
|
|
The estimated fair value
attributed to Megan developed technology, which relates to AVANTs existing
approved poultry vaccine products, was determined based on a discounted
forecast of the estimated net future cash flows to be generated from the
technology. The estimated fair value attributed to developed technology will be
amortized over 8 years on a straight-line basis (no other method was deemed
preferable), which is the estimated useful life of the technology from the
expected closing date of the merger based on the contractual provisions of a
distribution agreement.
The estimated fair value
attributed to the Core technology, which relates to AVANTs exclusive rights to
the Megan patents and the VitriLife® process, was determined based on a
discounted forecast of the estimated net future cash flows to be generated from
the technologies.
F-46
The estimated fair value
attributed to Core technology will be amortized over 4.5 to 7.5 years on a
straight-line basis (no other method was deemed preferable), which is the
estimated useful life of the technologies from the expected closing date of the
merger.
The estimated fair value
attributed to AVANTS strategic partner agreement with Pfizer was determined
based on a discounted forecast of the estimated net future cash flows to be
generated from the agreement. The estimated fair value attributed to the Pfizer
Agreement will be amortized over 8 years on a straight-line basis (no
other method was deemed preferable), which is the estimated useful life of the
technology from the expected closing date of the merger based on the
contractual provisions of the Pfizer Agreement.
The market launch of
Rotarix® by Glaxo in the U.S. market will result in a $10 million milestone
payment to AVANT from PRF, which AVANT expects to receive in the second half of
2008. In connection with the Merger, AVANT recorded $9.8 million as an other
current asset, which represents the present value of this milestone adjusted
for probability of success.
The amount allocated to
in-process research and development represents an estimate of the fair value of
purchased in-process technology for research projects that, as of the closing
date of the merger, had not reached technological feasibility and had no
alternative future use. Only those research projects that had advanced to a
stage of development where management believed reasonable net future cash flow
forecasts could be prepared and a reasonable likelihood of technical success
existed were included in the estimated fair value. Accordingly, the in-process
research and development primarily represents the estimated fair value of AVANTs
combination Typhoid-ETEC-Cholera vaccine for enteric diseases, its cholesterol
management vaccine, CETi, and its anti-inflammatory molecule, TP10, for
age-related macular degeneration (AMD), respectively. The estimated fair value
of the in-process research and development was determined based on a discounted
forecast of the estimated net future cash flows for each project, adjusted for
the estimated probability of technical success and FDA approval for each
research project. In-process research and development will be expensed
immediately following consummation of the merger.
F-47
3.
PRO FORMA ADJUSTMENTS
(A)
To
record the fair value of AVANTs outstanding common stock and stock options
assumed in connection with the Merger. Cash paid in lieu of fractional shares
will be from existing cash balances which has not been reflected.
(B)
To
eliminate AVANTs historical intangible assets and goodwill amounts and record
the estimated fair values of acquired identifiable intangible assets arising
from the Merger.
(C)
To
record the estimated fair value of in-process research and development acquired
in the Merger. Because this expense is directly attributable to the acquisition
and will not have a continuing impact, it is not reflected in the pro forma
condensed combined statements of operations. However, this item will be
recorded as an expense immediately following consummation of the Merger.
(D)
To
adjust estimated Celldex transaction costs of $696,000; transaction costs
incurred by AVANT were expensed as incurred. These amounts are not reflected in
the pro forma statement of operations.
(E)
To
record the fair value of milestone payments expected from Paul Royalty Fund
(PRF).
(F)
To
eliminate deferred revenue balances primarily related to AVANTs agreement with
PRF as AVANT has no future performance obligations or continuing obligations to
incur any significant costs in connection with these agreements.
(G)
To
eliminate deferred rent balances related to straight-line rent accruals and
tenant incentive allowances received by AVANT from its landlords for which
AVANT has no obligations to refund these amounts back to the landlords.
(H)
To record the fair
value of AVANTs below-market interest rate debt with MassDevelopment based on
current market rates available for long-term liabilities with similar terms and
maturities.
(I)
To
eliminate AVANTs historical stockholders equity accounts.
(J)
To reflect pro
rata reduction of amounts allocated to non-financial and non-current assets
acquired due to excess of fair value of acquired assets over estimated purchase
price as follows (table in thousands):
Property and
equipment
|
|
$
|
4,594
|
|
Acquired
identifiable intangible assets
|
|
608
|
|
In-process
research and development
|
|
4,979
|
|
Total
|
|
$
|
10,181
|
|
(K)
AVANTs
historical revenues include amortized deferred royalty revenue recognized in
accordance with guidance in EITF 88-18 and recorded in connection with the
PRF
F-48
agreement. No future
revenue related to this deferred revenue will be recognized after the Merger.
See (F) above.
(L)
AVANTs
historical operating expenses include amortization of deferred rent expense
recorded in connection with tenant incentive allowances received from AVANTs
landlords. No future amortization will be recorded after the Merger, see (G) above.
(M)
To
reflect the amortization of acquired identifiable intangible assets on a
straight-line basis over their estimated useful lives.
(N)
To
adjust depreciation expense resulting from the pro rata reduction of amounts
allocated to property and equipment due to the excess of fair value of acquired
net assets over the estimated purchase price. The adjustment to depreciation
expense has been calculated using the remaining useful life of the property and
equipment.
(O)
To
reflect the issuance of AVANT shares to Celldex shareholders in connection with
the Merger at the actual exchange rate.
(P)
The
tax effect of the above pro forma adjustments was calculated at the statutory
rate and was determined to be zero because of net losses incurred. Utilization
of the NOL and R&D credit carryforwards may be subject to a substantial
annual limitation due to ownership change limitations provided by Section 382
of the Internal Revenue Code of 1986, as well as similar state provisions. It
is expected that the combined company will continue to provide a full valuation
allowance on its deferred tax assets.
(Q)
To
eliminate AVANTs treasury stock, which were retired upon acquisition.
(R)
To
reflect the issuance of shares having a value of $3,038,617 in settlement of a
payable due Medarex.
(S)
To record the fair
value of vested stock options that were modified in connection with the Merger.
Approximately $1.7 million of fair value for unvested stock options that were modified
in connection with the Merger will be recognized over their remaining vesting
period.
4.
FORWARD-LOOKING STATEMENTS
The statements contained
in this section may be deemed to be forward-looking statements within the
meaning of Section 21E of the Exchange Act and Section 27A of the
Securities Act. Forward-looking statements are typically identified by the
words believe, expect, anticipate, intend, estimate and similar
expressions. These forward-looking statements are based largely on managements
expectations and are subject to a number of uncertainties. Actual results could
differ materially from these forward-looking statements. AVANT undertakes no
obligation to update publicly or revise any forward-looking statements. For a
more complete discussion of the risks and uncertainties which may affect such
forward-looking statements, please refer to the section entitled Safe Harbor
Statement under the Private Securities Litigation Reform Act of 1995 on page 1
of this Form 8-K/A.
F-49
COMPARATIVE
PER SHARE DATA
The following table sets
forth selected historical share information of AVANT and Celldex and unaudited
pro forma share information after giving effect to the merger between AVANT and
Celldex, using the exchange ratio of 4.960848059 shares of AVANT common stock
for each outstanding share of Celldex common stock and Class A common
stock. The pro forma equivalent information of Celldex was derived using the
historical share information using that exchange ratio. You should read this
information in conjunction with the unaudited pro forma condensed combined
financial statements and the separate historical financial statements of AVANT
and Celldex and the notes thereto included elsewhere in this Form 8-K/A or
filed in AVANTs most recent Form 10-K. The historical share information
is derived from audited consolidated financial statements of AVANT and from
audited consolidated financial statements of Celldex as of and for the year
ended December 31, 2007. The amounts set forth below are in thousands,
except per share amounts and gives effect to the 1-for-12 reverse stock split
of AVANT common stock effective on March 7, 2008. The unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
operating results or financial position that would have been achieved had the
Merger been consummated at the beginning of the period presented and should not
be construed as representative of future operations.
|
|
December 31, 2007
|
|
|
|
AVANT
|
|
Celldex
|
|
|
|
Historical
|
|
Pro Forma
|
|
Historical
|
|
Pro Forma
Equivalent
of
One
AVANT
Share(1)
|
|
Basic and
diluted net loss per common share
|
|
$
|
(3.45
|
)
|
$
|
(2.44
|
)
|
$
|
(9.00
|
)
|
$
|
(1.81
|
)
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
|
$
|
(3.08
|
)
|
$
|
2.41
|
|
$
|
(0.68
|
)
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
Shares used in
calculating:
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss per share
|
|
6,266
|
|
14,927
|
|
1,675
|
|
8,309
|
|
|
|
|
|
|
|
|
|
|
|
Book value per
share(2)
|
|
6,182
|
|
14,927
|
|
1,675
|
|
8,309
|
|
(1)
These amounts were calculated by applying the
exchange ratio of 4.960848059 to
the historical Celldex shares and adjusting to reflect a reverse stock
split of 1-for-12 effective March 7, 2008.
(2)
The historical book value per common share is
computed by dividing total stockholders
F-50
equity by the number of shares of common stock outstanding at the end of
the period. The pro forma book value per share is computed by dividing pro forma
stockholders equity by the pro forma number of shares of common stock as of
each of the periods presented.
F-51
(c)
Exhibits.
The exhibits listed in the
following Exhibit Index are filed as part of this Current Report on Form 8-K/A.
Exhibit
Number
|
|
Description of Exhibit
|
23.1
|
|
Consent
of Ernst & Young LLP, Independent Registered Public Accounting Firm
|
E-1
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, hereunto duly
authorized.
|
AVANT IMMUNOTHERAPEUTICS, INC.
|
|
|
Dated: May 23, 2008
|
By:
|
/s/ Avery W. Catlin
|
|
|
Name: Avery W. Catlin
|
|
|
Title: Senior
Vice President and
|
|
|
Chief Financial
Officer
|
S-1
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