SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ý ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-26866
Sonus Pharmaceuticals, Inc.
(Exact name of the registrant as specified in its charter)
|
Delaware |
95-4343413 |
|
(State or other jurisdiction of |
(I.R.S. Employer |
22026 20th Avenue SE, Bothell, Washington 98021
(Address of principal executive offices)
(425) 487-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
Series A Junior Participating Preferred Stock, par value $0.001 per share
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes ý Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
As of June 30, 2004, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $100,108,074. As of March 8, 2005, 21,352,795 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed in connection with the solicitation of proxies for its 2005 Annual Meeting of Stockholders to be held on May 25, 2005 are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III hereof.
Sonus Pharmaceuticals, Inc.
Table of Contents
2
References in this Form 10-K to “Sonus Pharmaceuticals”, “Sonus”, the “Company”, “we”, “us” or “our” refer to Sonus Pharmaceuticals, Inc. The information in this Form 10-K contains certain forward-looking statements, including statements related to clinical trials, regulatory approvals, markets for the Company’s products, capital requirements and trends in its business that involve risks and uncertainties. The Company’s actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in “Business”, “Certain Factors that May Affect Our Business and Future Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as those discussed elsewhere in this Form 10-K.
ITEM 1. BUSINESS
Sonus Pharmaceuticals is focused on the development of drugs that may offer improved effectiveness, safety, tolerability and administration for the treatment of cancer and related therapies. Our business strategy is as follows:
• Develop proprietary formulations of therapeutic drugs utilizing our TOCOSOL® technology platform; and
• Identify and acquire products/technologies that are complementary to our focus in oncology and related markets in order to broaden our business and market opportunities.
On December 22, 2004, we executed an Amended and Restated Stock Purchase Agreement with the stockholders of Synt:em S.A. for the purchase of all of the outstanding capital stock of Synt:em. On March 15, 2005, we delivered an irrevocable notice to the Chief Executive Officer of Synt:em, S.A., pursuant to Sections 8.1(e) and 8.2 the Amended and Restated Stock Purchase Agreement terminating the Amended and Restated Stock Purchase Agreement effective March 31, 2005.
In reaching our conclusion to terminate the Amended and Restated Stock Purchase Agreement, management weighed the increased human and financial resources required to take advantage of opportunities with TOCOSOL® Paclitaxel, our lead oncology candidate, against the human and financial resources required to complete the transaction and subsequent integration of the Synt:em S.A. business with our business. We concluded that the best course of action was to focus our resources on opportunities with TOCOSOL® Paclitaxel and remain as a standalone company.
According to the terms of the Amended and Restated Stock Purchase Agreement, properly terminating the Amended and Restated Stock Purchase Agreement pursuant to Section 8.1(e) will not result in any material early termination penalties or financial liability to us. Through December 31, 2004, we incurred approximately $1.0 million in legal, accounting and investment banker fees on this transaction. These charges are reflected in our 2004 financial statements as general and administrative expense. We anticipate that we will incur an additional $100,000 to $200,000 in legal, accounting and investment banker fees in 2005 for work done subsequent to December 31, 2004.
Our proprietary TOCOSOL technology platform has been designed to address the formulation challenges of hard-to-formulate therapeutic drugs for cancer. Development of drug products with our TOCOSOL technology may result in products with equivalent or better efficacy, decreased incidences of side effects and dosing convenience. The TOCOSOL technology uses vitamin E oil (α-tocopherol) and tocopherol derivatives to
3
solubilize and stabilize drugs, making them easier to formulate and deliver into the body. While the TOCOSOL technology is particularly suited to injectable drugs that are poorly soluble in water, research continues into the application of new versions of this technology that could prove applicable to oral delivery.
Our lead oncology candidate, TOCOSOL Paclitaxel, is a novel formulation of paclitaxel, one of the world’s most widely prescribed anti-cancer drugs. Paclitaxel, a member of the taxane family of cancer drugs, is the active ingredient in Taxol®, which is approved in the U.S. for the treatment of breast, ovarian and non-small cell lung cancers and Kaposi’s sarcoma. Our product, TOCOSOL Paclitaxel, is a ready-to-use, injectable paclitaxel emulsion formulation. We believe that data from our clinical trials conducted to date suggest that TOCOSOL Paclitaxel compares favorably with approved taxane products and other new paclitaxel formulations under development (safety and efficacy remain to be proven in Phase 3 testing); offers the convenience of a ready-to-use formulation that does not require time consuming preparation prior to administration; can be administered to patients by a short 15-minute infusion, compared to the one- to three-hour infusion that is typically required with Taxotere® and Taxol or generic versions of paclitaxel; does not require any special intravenous, or IV tubing, filters or other apparatus; and does not require reconstitution or dilution, which results in administration of small volumes of 25 to 35 milliliters compared to several hundred milliliters for Taxol.
We concluded a Phase 1 study for TOCOSOL Paclitaxel in August 2002, with a total of 37 patients. The objectives of the Phase 1 study were to estimate the maximum tolerated dose of TOCOSOL Paclitaxel in patients with advanced cancers, and to evaluate the safety of repeated doses of TOCOSOL Paclitaxel given every three weeks. In the Phase 1 study, 30 of the 37 patients were treated at doses ranging from 175 mg/m2 to 225 mg/m2 every three weeks. The maximum tolerated dose (MTD) was estimated in this study to be 200 mg/m2 every three weeks, slightly higher than the approved dose of Taxol at 175 mg/m2 every three weeks. TOCOSOL Paclitaxel was generally well tolerated in all patients treated. All patients in the Phase 1 study had advanced cancers that were no longer responding to previous therapies or for which no standard therapy existed. Five patients with different types of cancers had objective partial responses during the course of the study, including four patients who had previously been treated with taxane-containing chemotherapy regimens (under the RECIST criteria, partial response is defined as reduction in the sum of the longest tumor dimensions of target lesions of ³30% for at least four weeks, and no evidence of progressive disease elsewhere). Dose-limiting toxicities included myalgia (muscle aches), fatigue, and neutropenia (low neutrophilic white blood cell count). No Grade 4 neuropathy (damage to the peripheral nerves) was seen at or below the estimated MTD in the Phase 1 study.
We initiated Phase 2a studies for TOCOSOL Paclitaxel in March 2002 to evaluate the safety and efficacy of TOCOSOL Paclitaxel in ovarian, non-small cell lung and bladder cancers using weekly dosing of the product. These were single agent, open label studies that enrolled patients who had progressive disease despite prior treatment with one standard chemotherapy regimen, but who had not previously received taxane chemotherapy. Each Phase 2a study began with a dose escalation phase to estimate the best tolerated dose of TOCOSOL Paclitaxel using weekly administration. The best tolerated dose was initially estimated to be 120 mg/m² per week in the ovarian and lung cancer trials, and 100 mg/m² per week in the bladder cancer trial, based on observations among a small number of patients treated for a few weeks. However, subsequent retrospective review of actual doses administered across all patients in all studies over extended treatment periods has suggested that patients assigned to receive weekly doses of 100 mg/m² or 120 mg/m² actually received similar cumulative doses over time.
Patient enrollment in the Phase 2a clinical trials was completed in the second quarter of 2003, and all patients have been evaluated by their physicians for efficacy results. A total of 120 patients in the ovarian, non-small cell lung and bladder cancer studies were evaluable for objective response, which means that the patients received at least eight weekly cycles of TOCOSOL Paclitaxel and had at least one CT scan to confirm anti-tumor responses according to the RECIST criteria.
In the ovarian cancer study, 51 enrolled patients were evaluable for anti-tumor effect. Twenty of the 51 evaluable patients (39%) were reported as having objective responses, including three complete responses (under the RECIST criteria, complete response is defined as no evidence of remaining tumor, confirmed on two CT scans
4
at least four weeks apart) and 17 partial responses; 16 additional patients were reported to have stable disease (stable disease is defined as less than a 30% decrease and no more than a 20% increase in the sum of the longest tumor diameters).
In the non-small cell lung cancer study, 42 enrolled patients were evaluable for anti-tumor effect. Nine of the 42 evaluable patients (21%) were reported as having objective responses, including three complete responses and six partial responses; 18 additional patients were reported to have stable disease.
In the bladder cancer study, 27 patients enrolled were evaluable for anti-tumor effect. Nine of the 27 evaluable patients (33%) were reported as having objective responses, including two complete responses and seven partial responses; 11 additional patients were reported to have stable disease.
The Phase 2a investigator-reported efficacy results are summarized in the table below:
|
Cancer |
|
No. |
|
Stable |
|
Objective Responses (OR) |
|
||||||
|
Partial |
|
Complete |
|
Total |
|
% OR |
|
||||||
|
Ovarian |
|
51 |
|
16 |
|
17 |
|
3 |
|
20 |
|
39 |
% |
|
NSCL |
|
42 |
|
18 |
|
6 |
|
3 |
|
9 |
|
21 |
% |
|
Bladder |
|
27 |
|
11 |
|
7 |
|
2 |
|
9 |
|
33 |
% |
In addition to being assessed for anti-tumor efficacy, patients are also monitored for adverse events in clinical studies. The most significant adverse events expected with taxanes are neutropenia and peripheral neuropathy. The incidence of Grade 3 or Grade 4 neutropenia across all the Phase 2a studies conducted was 36%. No peripheral neuropathy was observed in 63% of patients, Grade 3 peripheral neuropathy was reported in only 10% of patients, and no patients experienced Grade 4 peripheral neuropathy in the Phase 2a studies. We believe these adverse event rates compare favorably to the reported neutropenia and peripheral neuropathy experienced when Taxol is administered at the approved dose of 175 mg/m2 every three weeks. Dose reductions or treatment delays due to toxicity from TOCOSOL Paclitaxel did not limit long-term treatment in most patients. At the highest dose tested, 120 mg/m2 weekly, approximately 70% of planned doses were delivered on schedule at full dose, for a median weekly dose over time of 105 mg/m2. At the 100 mg/m2 dose level, approximately 84% of doses were delivered on schedule at full dose, for a median weekly dose of 96 mg/m2. Paclitaxel-mediated infusion reactions, sometimes called “hypersensitivity reactions” and involving pain, flushing, shortness of breath or chest tightness, were infrequently observed following more than 2,200 administered doses. Only 15% of doses led to a reaction of any severity, and only 1% of doses led to reactions that were of Grade 3 severity, i.e., requiring supportive treatment. There were no Grade 4 infusion reactions. Again, we believe these frequencies compare favorably with reported rates of infusion reactions upon administration of Taxol. Investigators have reported that infusion reactions with our product could be ameliorated by temporary (a few minutes) interruption of infusion, while corticosteroid premedications were not helpful. Infusion reactions very rarely prevented delivery of intended doses. Overall, we believe that TOCOSOL Paclitaxel appears to be well tolerated over multiple treatment cycles.
In September 2004, we initiated a Phase 2b study of TOCOSOL Paclitaxel for first line treatment of women with metastatic breast cancer. By October 2004, we had enrolled a total of 47 patients. As of March 4, 2005, investigators reported an overall objective response rate in the mid 30% to 40% range, and 35 patients remained on active treatment. We expect to be able to estimate the median time to progression in the third quarter of this year and evaluation will continue throughout the next two years.
The results of the Phase 2a and 2b clinical trials are preliminary at this time and have not been independently verified by third party radiologists and may or may not be indicative of the final results upon completion of the these studies or of the results of our planned Phase 3 study that is yet to be initiated.
Our objective is to advance the final clinical development, gain marketing approval and then maximize the commercial opportunity of TOCOSOL Paclitaxel. We have outlined a regulatory strategy for TOCOSOL Paclitaxel that includes three potential development paths. Our goal with the regulatory strategy is to gain the
5
fastest possible market entry with a competitive label, while in parallel pursuing opportunities to expand the label indications to further differentiate the product. Our strategy for product approval includes.
• 505(b)(2). We will seek initial approval of TOCOSOL Paclitaxel with a 505(b)(2) New Drug Application (“NDA”) submission, which will rely on the FDA’s previous findings of safety and efficacy for Taxol (the reference paclitaxel product), supplemented by data supporting TOCOSOL Paclitaxel’s safety and efficacy. The FDA’s use of the 505(b)(2) mechanism is designed to streamline the NDA review process by not requiring duplicate work for active ingredients that are already well known. As part of our regulatory strategy, we initiated a randomized crossover clinical pharmacology study in the fourth quarter of 2003, to compare the amount of paclitaxel delivered into circulation over time by TOCOSOL Paclitaxel and Taxol, with both drugs given at 175 mg/m2 every three weeks (the approved dosing regimen for Taxol). We completed patient enrollment in March 2004 and final data were available for analysis in September 2004. The data from this study indicate that TOCOSOL Paclitaxel delivers substantially more active paclitaxel into circulation than can be achieved with Taxol. How this may or may not correlate to the efficacy of TOCOSOL Paclitaxel as compared to Taxol is yet to be proven in Phase 3 clinical testing. In September 2004, Sonus Pharmaceuticals requested and was subsequently granted a meeting with the FDA to discuss its plans for Phase 3 testing of TOCOSOL Paclitaxel. Sonus met with the FDA in December 2004, and based on preclinical and clinical data generated to date, the FDA indicated that it is appropriate for Sonus to pursue Phase 3 testing and submission of a TOCOSOL Paclitaxel New Drug Application under a 505(b)(2) regulatory mechanism. In addition, the FDA recommended that Sonus finalize the design and plan of the TOCOSOL Paclitaxel Phase 3 program under a Special Protocol Assessment (“SPA”), which the Company plans to pursue. Our original guidance for the possible timing of submission of an NDA, seeking approval of TOCOSOL Paclitaxel based on a single confirmatory efficacy trial, was that it might occur as early as late 2005 or early 2006. While we have agreement in concept from the FDA on the use of a single Phase 3 trial, we do not believe that it will be possible to submit the NDA by the end of 2005 or possibly even early 2006 per our original guidance.
• New indication for taxanes. Under this component of our strategy, we will pursue approval for the use of TOCOSOL Paclitaxel as a treatment for inoperable or metastatic urothelial transitional cell cancers (mostly urinary bladder cancers), an indication for which there is an unmet medical need for an effective, less toxic therapy. In October 2003, we announced that we were granted Fast Track designation by the FDA for the development of TOCOSOL Paclitaxel for this indication. We initiated a Phase 2b study in bladder cancer in the U.S. using weekly dosing of TOCOSOL Paclitaxel in the fourth quarter of 2003. Enrollment in this trial has been challenging due to the limited population of patients in this indication and the inconsistent standard of treatment for it. As previously indicated, we are opening additional study sights in Europe to augment enrollment in this trial. In December 2004, the FDA also granted an Orphan Drug designation to TOCOSOL Paclitaxel for the treatment of non-superficial urothelial cancer.
• Life cycle management. We intend to conduct trials in other types of cancer, for which paclitaxel given once every three weeks is already approved, to support labeling of TOCOSOL Paclitaxel for weekly treatment of those diseases or to use higher doses of TOCOSOL Paclitaxel given every three weeks, potentially leading to greater anti-tumor efficacy. The data from such clinical trials could support Supplemental New Drug Applications (SNDAs) following a 505(b)(2) NDA, if successful. We initiated a Phase 2b study in breast cancer during the third quarter of 2004.
The scope, timing and expense of the clinical trials to be conducted under all of the above regulatory strategies are difficult to determine with accuracy until these clinical trials are specifically approved by the FDA. At this time it is our intent to pursue a single pivotal trial in an indication where Paclitaxel is approved as a single
6
agent, with a primary endpoint of objective response rate and secondary endpoints of time to progression and survival duration. We expect to submit the NDA with data on the primary endpoint, followed by supplemental applications when data are mature for the secondary endpoints. We intend the trial to be powered to achieve statistical significance on all three endpoints, which may require us to enroll approximately 700 to 800 patients. We estimate that the total cost to complete the proposed Phase 3 clinical trial for TOCOSOL Paclitaxel and submission of a TOCOSOL Paclitaxel NDA under a 505(b)(2) regulatory mechanism over a period of about three years will be in the mid to upper $30 million range. Should our clinical data support an NDA submission based on the primary endpoint of objective response rates, we anticipate that the NDA could be submitted within twelve months after conclusion of patient enrollment. This trial constitutes the bulk of our clinical trial spending anticipated in the next 12 months. However, these costs may vary significantly depending upon regulatory and other matters that are not within our control and there can be no assurance that such amount will be sufficient to submit an NDA for TOCOSOL Paclitaxel. There can be no assurance that the results of any or all of the anticipated clinical trials will be successful or will support an approved product. The completion of any and all of the anticipated clinical trials is dependent upon our receipt of additional financing, either through debt or equity offerings of our securities or through a corporate or strategic partnership.
If we are unable to secure a corporate partner or raise additional financing in 2005 and beyond through other means, we will have to substantially reduce our expenditures, delay the enrollment of patients in our Phase 3 clinical trial for TOCOSOL Paclitaxel, scale back the development of our other products and new product research and development and reduce personnel costs. In addition, we would likely have to out license products that we otherwise would seek to commercialize ourselves, which could seriously harm our business, and cause us to explore other strategic alternatives.
Research and Development Pipeline
We continue to invest in the research and development of new product candidates, including those that we believe could extend the application of our TOCOSOL technology platform. We are currently evaluating early stage therapeutic drug formulations utilizing the TOCOSOL technology, including potential product candidates based on the camptothecin molecule. The camptothecin molecule family is poorly soluble and difficult to formulate for administration to humans. There are currently two marketed hydrophilic (water-based) camptothecin analogs that are based on chemical modifications to the camptothecin molecule. Irinotecan, which is marketed under the name Camptosar®, is indicated for treatment of colorectal cancer. Topotecan, which is marketed under the name Hycamtin®, is indicated for treatment of ovarian and non-small cell lung cancers. Our research and development efforts on these camptothecin product candidates are preliminary and we cannot give any assurance that any of these compounds will be successful or that they will progress to clinical trials. Advancing one or more of these development candidates into human clinical trials is dependent on several factors including technological feasibility and commercial opportunity.
In addition to our internal research and development efforts, we may also consider other acquisitions of complementary products, development candidates or technologies to expand our pipeline and capabilities.
Cancer is characterized by rapid, uncontrolled cell division resulting in the growth of an abnormal mass of cells generally referred to as a tumor. Cancerous tumors can arise in almost any tissue or organ, and cancer cells, if not eradicated, can spread, or metastasize, throughout the body. As these tumors grow, they cause damage to the surrounding tissue and organs and commonly result in death if left untreated. Cancer is believed to occur as a result of a number of hereditary and environmental factors. According to the American Cancer Society, cancer is the second leading cause of death in the United States and accounts for approximately one in every four deaths. Approximately 570,000 Americans are expected to die of cancer in 2005. The National Institutes of Health estimated the direct medical cost of cancer to be $69 billion in 2004.
Our lead product candidate, TOCOSOL Paclitaxel, is a cancer therapy drug. Paclitaxel, the active ingredient in TOCOSOL Paclitaxel, is a member of the taxane class of chemotherapy drugs, which generate annual worldwide sales in excess of $2 billion. TOCOSOL Paclitaxel, if approved, would address only a portion of this market depending on the approved indication(s). Other products in our pipeline are for the most part, in the early
7
stages of development, and it is difficult to evaluate the potential markets for these products as the areas of potential application are diverse and specific applications are yet to be determined.
We originally used the University of Iowa as the FDA-certified institution to manufacture TOCOSOL Paclitaxel under current Good Manufacturing Practice (“GMP”) requirements for our use in preclinical and clinical studies. In mid-2002, we entered into a manufacturing and supply agreement with SICOR Pharmaceuticals, Inc. The SICOR agreement has an initial term of five years after the market introduction of TOCOSOL Paclitaxel, provided that market introduction occurs before June 2009, and is not terminable at will. During 2003, in collaboration with SICOR, we completed scaling of the drug product manufacturing process for TOCOSOL Paclitaxel to commercial levels under current GMP requirements, ensuring adequate clinical drug supplies for ongoing and planned clinical trials, and providing a commercial scale process to enable regulatory approval and product launch. On the material supply side, we have entered into agreements for the supply of GMP-grade paclitaxel, which is the active pharmaceutical ingredient in TOCOSOL Paclitaxel.
We currently conduct research and development activities at our facilities in Bothell, Washington. We also engage in certain research, preclinical studies and clinical development efforts at third party laboratories and other institutions. Our primary research and development efforts are currently directed at the development and application of the TOCOSOL technology with respect to TOCOSOL Paclitaxel and to a lesser extent, other various compounds to which the technology can bring advantage.
Our research and development activities for the last three years can be divided into research and preclinical programs and clinical development programs primarily for the treatment of cancer. The costs associated with research and preclinical programs and clinical development programs for the last three fiscal years were as follows (in millions):
|
|
|
2004 |
|
2003 |
|
2002 |
|
|||
|
Research and preclinical programs |
|
$ |
5.8 |
|
$ |
4.9 |
|
$ |
5.0 |
|
|
Clinical development programs |
|
$ |
4.9 |
|
$ |
2.8 |
|
$ |
4.0 |
|
|
Total research and development |
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