Attached files
file | filename |
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EX-4.9 - Talon Therapeutics, Inc. | v164071_ex4-9.htm |
EX-4.8 - Talon Therapeutics, Inc. | v164071_ex4-8.htm |
EX-23.1 - Talon Therapeutics, Inc. | v164071_ex23-1.htm |
EX-4.11 - Talon Therapeutics, Inc. | v164071_ex4-11.htm |
EX-4.10 - Talon Therapeutics, Inc. | v164071_ex4-10.htm |
EX-5.1 - Talon Therapeutics, Inc. | v164071_ex5-1.htm |
As filed with the Securities and Exchange
Commission on November 3, 2009
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Registration No. 333-
|
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
HANA BIOSCIENCES,
INC.
(Exact name of registrant as specified
in its charter)
Delaware
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2834
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32-0064979
|
||
(State or other jurisdiction of incorporation or
organization)
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(Primary Standard Industrial Classification
Code Number)
|
(I.R.S. Employer
Identification No.)
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7000 Shoreline Court,
Suite 370
South
San Francisco 94080
(650)
588-6404
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
John
P. Iparraguirre
Vice
President, Chief Financial Officer
Hana
Biosciences, Inc.
7000
Shoreline Court, Suite 370
South
San Francisco, CA 94080
(650)
588-6404
(Name, address,
including zip code, and telephone number,
including
area code, of agent for service)
|
Copies
to:
Christopher
J. Melsha, Esq.
Fredrikson
& Byron, P.A.
200
South Sixth Street, Suite 4000
Minneapolis,
MN 55402-1425
Telephone:
(612) 492-7000
Facsimile:
(612) 492-7077
|
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this registration statement, as shall be determined by the
selling stockholders identified herein.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, check the following box. þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. o
If this
Form is a post effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company þ
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
|
Amount to be
Registered (1)
|
Proposed
Maximum Offering
Price Per Share (2)
|
Proposed Maximum
Aggregate
Offering Price (2)
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Amount of
Registration Fee
|
||||||||||||
Common
stock, par value $0.001 per share
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43,562,142 | $ | 0.46 | $ | 20,038,585.32 | $ | 1,118.15 | |||||||||
Common
stock, par value $0.001 per share (3)
|
16,491,104 | $ | 0.46 | 7,585,907.84 | 423.29 | |||||||||||
Total
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60,053,246 | $ | 27,624,493.16 | $ | 1,541.45 |
(1)
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There
is also being registered hereunder an indeterminate number of additional
shares of common stock as shall be issuable pursuant to Rule 416 to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.
|
(2)
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Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457(c) of the Securities Act of 1933, as amended, based upon the
average of the high and low price of our common stock on October 28,
2009.
|
(3)
|
Represents
shares of common stock issuable upon exercise of outstanding
warrants.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
state.
Subject
to completion, dated November 3, 2009
OFFERING
PROSPECTUS
60,053,246
Shares
Common
Stock
The selling stockholders identified on
pages 21-22 of this prospectus are offering on a resale basis a total of
60,053,246 shares of our common stock, including 16,491,104 shares issuable upon
the exercise of outstanding warrants. We will not receive any
proceeds from the sale of these shares by the selling stockholders.
Our common stock is quoted on the OTC
Bulletin Board under the symbol “HNAB.OB.” On _____________, 2009,
the last sale price of our common stock as reported on the OTC Bulletin Board
was $______.
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 6.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined that this prospectus
is truthful or complete. A representation to the contrary is a
criminal offense.
The
date of this prospectus is ______________, 2009.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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3
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RISK
FACTORS
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6
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NOTE
REGARDING FORWARD-LOOKING STATEMENTS
|
20
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USE
OF PROCEEDS
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21
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SELLING
STOCKHOLDERS
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21
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PLAN
OF DISTRIBUTION
|
23
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DESCRIPTION
OF CAPITAL STOCK
|
25
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
26
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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28
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DESCRIPTION
OF BUSINESS
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35
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MANAGEMENT
AND BOARD OF DIRECTORS
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51
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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57
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
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58
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WHERE
YOU CAN FIND MORE INFORMATION
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58
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VALIDITY
OF COMMON STOCK
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58
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EXPERTS
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59
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TRANSFER
AGENT
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59
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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59
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INDEX
TO FINANCIAL STATEMENTS
|
F-1
|
2
PROSPECTUS
SUMMARY
This summary highlights information
contained elsewhere in this prospectus. Because it is a summary, it may not
contain all of the information that is important to you. Accordingly, you are
urged to carefully review this prospectus in its entirety, including the risks
of investing in our securities discussed under the caption “Risk Factors” and
the financial statements and other information that is contained in or
incorporated by reference into this prospectus or the registration
statement of which this prospectus is a part before making an investment
decision. References to the “Company,” “Hana,”
“we,” “us,” or “our” in this prospectus refer to Hana Biosciences, Inc., a
Delaware corporation, unless the context indicates
otherwise.
Company
Overview
We are a biopharmaceutical company
dedicated to developing and commercializing new, differentiated cancer therapies
designed to improve and enable current standards of care. We
currently have four product candidates in various stages of
development:
·
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Marqibo®
(vincristine sulfate liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vincristine, being developed for the treatment of adult acute
lymphoblastic leukemia.
|
·
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Menadione
Topical Lotion, a novel supportive care product candidate, being
developed for the prevention and/or treatment of the skin toxicities
associated with the use of epidermal growth factor receptor inhibitors
(EGFRI), a type of anti-cancer agent used in the treatment of certain
cancers.
|
·
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Brakiva™
(topotecan liposomes injection), a novel targeted Optisome™ encapsulated
formulation product candidate of the FDA-approved anticancer drug
topotecan, being developed for the treatment of solid tumors including
small cell lung cancer and ovarian
cancer.
|
·
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Alocrest™
(vinorelbine liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vinorelbine, being developed for the treatment of solid tumors such
as non-small-cell lung cancer.
|
Our
executive offices are located at 7000 Shoreline Court, Suite 370, South San
Francisco, California 94080. Our telephone number is (650) 588-6404 and our
Internet address is www.hanabiosciences.com.
Information contained in, or accessible through, our website does not constitute
a part of this prospectus. We were originally incorporated under Delaware law in
2002 under the name Hudson Health Sciences, Inc. In July 2004, we acquired Email
Real Estate.com, Inc., a Colorado corporation and public shell company in a
reverse acquisition. In September 2004, we reincorporated under
Delaware law under the name Hana Biosciences, Inc.
3
Risk
Factors
As with most pharmaceutical product
candidates, the development of our product candidates is subject to numerous
risks, including the risk of being unable to obtain necessary regulatory
approvals to market the products, unforeseen safety issues relating to the
products, dependence on third party collaborators to conduct research and
development of the products, and a lack of adequate capital needed to develop
the product candidates. Because we have only a limited history of operations, we
are also subject to many risks associated with early-stage companies. For a more
detailed discussion of some of the risks you should consider before purchasing
shares of our common stock, you are urged to carefully review and consider the
section entitled “Risk Factors” beginning on page 6 of this
prospectus.
The
Offering
The selling stockholders identified on
pages 21-22 of this prospectus are offering on a resale basis a total of
60,053,246 shares of our common stock, including 16,491,104 shares issuable upon
the exercise of outstanding warrants.
Common
stock offered
|
60,053,246
shares
|
Common
stock outstanding before the offering(1)
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76,145,146
shares
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Common
stock outstanding after the offering(2)
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92,636,250
shares
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Use
of Proceeds
|
We
will receive none of the proceeds from the sale of the shares by the
selling stockholders, except for the warrant exercise price upon exercise
of the warrants, which would be used for working capital and other general
corporate purposes
|
OTC
Bulletin Board Symbol
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HNAB.OB
|
(1)
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Based
on the number of shares outstanding as of October 29, 2009, not
including 23,422,453 shares issuable upon exercise of various
warrants and options to purchase our common
stock.
|
(2)
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Assumes
the issuance of all shares offered hereby that are issuable upon exercise
of warrants.
|
Recent
Developments
Private
Placement Offering
On October 7, 2009, we entered into
a securities purchase agreement with a number of accredited investors pursuant
to which we agreed to sell in a private placement an aggregate of 54,593,864
units of our securities. At the election of the investor and in order
to maintain such investor’s beneficial ownership of our common stock at a level
not to exceed 9.99%, each unit consisted of either of the following
securities:
|
·
|
one
share of our common stock plus a seven-year warrant (referred to in the
purchase agreement as a Series B Warrant) to purchase one-tenth of one
additional share of our common stock at an exercise price of $0.60 per
share; or
|
|
·
|
a
seven-year warrant to purchase, at an exercise price of $0.01 per share,
one share of common stock (referred to in the purchase agreement as a
Series A Warrant), plus a Series B Warrant to purchase one-tenth of one
share of our common stock at an exercise price of $0.60 per
share.
|
The
purchase price per unit was $0.30, except that to the extent an investor
purchased units that included the Series A Warrants, the purchase price was
reduced to $0.29 to give effect to the additional $0.01 that would be paid upon
exercise of the Series A Warrants. Pursuant to the purchase
agreement, we sold an aggregate of 43,562,142 units consisting of an equal
number of shares of our common stock and Series B Warrants to purchase 4,356,212
additional shares of common stock, and 11,031,722 units consisting of Series A
Warrants to purchase an equal number of shares of common stock and Series B
Warrants to purchase 1,103,170 additional shares of common stock. The
aggregate purchase price for all of the securities sold under the purchase
agreement was approximately $16.27 million, before deducting
expenses. Of this total amount, we received approximately $12.4
million in cash and approximately $3.87 million represented the satisfaction of
an outstanding obligation that we owed to one of the investors, as discussed
below. Additionally, we incurred approximately $0.7 million of
expenses related to the financing transaction including legal fees and placement
agent fees. Pursuant to the purchase agreement, we agreed to use the proceeds
from the sale of these securities solely for the clinical and regulatory
development of our Marqibo program.
4
Among the investors who participated in
the private placement were Deerfield Private Design Fund, L.P., Deerfield
Special Situations Fund, L.P., Deerfield Special Situations Fund International
Limited and Deerfield Private Design International, L.P., which we collectively
refer to as Deerfield. Pursuant to an October 2007 loan
facility agreement, we had issued to Deerfield warrants which, prior to the
redemption of these warrants, represented the right to purchase 6,142,754 shares
of our common stock at a price of $1.31 per share. Deerfield had the
right to require us to redeem these warrants upon the occurrence of certain
events, including the delisting of our common stock from the Nasdaq Stock Market
or another national securities exchange. Following our delisting from
the Nasdaq Capital Market in September 2009, Deerfield exercised its right to
have us redeem the warrants at a redemption price equal to the then
Black-Scholes value of the warrants in accordance with a formula described in
the warrants. At the effective date of the redemption, the redemption
price totaled approximately $3.87 million. However, pursuant to a
subsequent agreement, in lieu of cash, Deerfield agreed to accept as payment of
the warrant redemption price the same type of securities as issued by us in a
future financing transaction. Accordingly, pursuant to our October
2009 securities purchase agreement, Deerfield purchased approximately 12,906,145
units consisting of shares and Series B Warrants in full satisfaction of the
warrant redemption price owed by us.
Pursuant to the terms of the securities
purchase agreement, we agreed to file a registration statement under the
Securities Act of 1933, as amended, covering the resale of the shares of our
common stock sold in our October 2009 private placement, including the shares
issuable upon exercise of the Series A and Series B Warrants. We
further agreed to use our reasonable efforts to cause such registration
statement to be declared effective within 90 days following the closing, or 120
days in the event the staff of the Securities and Exchange Commission reviews
and provides comments to the registration statement. The registration statement
of which this prospectus is a part registers the shares of our common stock we
sold pursuant to our October 2009 securities purchase agreement. If such
registration statement is not declared effective by the SEC within such 90 or
120-day period, as applicable, we agreed to pay liquidated damages to the
investors in the amount of 1% of such investor’s aggregate investment amount for
each 30-day period until the registration statement is declared
effective.
In connection with the private
placement, we engaged Piper Jaffray & Co. to serve as our placement agent.
In consideration for its services, we paid Piper Jaffray a placement fee of
approximately $620,000, plus reimbursed its out-of-pocket expenses of
approximately $29,000. Piper Jaffray did not receive any placement fee in
connection with the securities sold to Deerfield in satisfaction of its warrant
redemption obligation.
Changes
in Management
On
October 30, 2009, John P. Iparraguirre submitted his resignation as our Vice
President, Chief Financial Officer and Secretary, effective as of November 16,
2009.
5
RISK
FACTORS
Investment in our common stock
involves significant risk. You should carefully consider the information
described in the following risk factors, together with the other information
appearing elsewhere in this prospectus, before making an investment decision
regarding our common stock. If any of these risks actually occur, our business,
financial conditions, results of operation and future growth prospects would
likely be materially and adversely affected. In these circumstances, the market
price of our common stock could decline, and you may lose all or a part of your
investment in our common stock. Moreover, the risks described below are not the
only ones that we face. Additional risks not presently known to us or that we
currently deem immaterial may also affect our business, operating results,
prospects or financial condition.
Risks
Related to Our Business
We
need to raise additional capital to fund our planned operations
beyond mid-2010. If we are unable to raise additional capital when needed,
we will have to discontinue our product development programs or relinquish our
rights to some or all of our product candidates. The manner in which we raise
any additional funds may affect the value of your investment in our common
stock.
After giving effect to our October
2009 private placement and together with our existing cash, cash equivalents,
available for sale securities and lending commitments, we believe that our
currently available capital is only sufficient to fund our operations into
mid-2010. Given our desired clinical development plans for the next
12 months, our financial statements reflect a going concern uncertainty, which
is also stated in the report from our auditors on the audit of our financial
statements as of and for the year ended December 31,
2008. Accordingly, we need additional capital to fund our operations
beyond such point. Further, our available capital may be consumed
sooner than we anticipate depending on a variety of factors,
including:
· costs
associated with conducting our ongoing and planned clinical trials;
· costs,
timing and outcome of regulatory reviews;
· costs
of establishing arrangements for manufacturing our product
candidates;
· costs
associated with commercializing our lead programs, including establishing sales
and marketing functions;
· payments
required under our current and any future license agreements and
collaborations;
· costs
of obtaining, maintaining and defending patents on our product candidates;
and
· costs
of acquiring any new drug candidates.
Since we do not generate any
recurring revenue, the most likely sources of such additional capital include
private placements of our equity securities, including our common stock, debt
financing or from a potential strategic licensing or collaboration transaction
involving the rights to one or more of our product candidates. To the
extent that we raise additional capital by issuing equity securities, our
stockholders will likely experience significant dilution. We may also grant
future investors rights superior to those of our current stockholders. If we
raise additional funds through collaborations and licensing arrangements, it may
be necessary to relinquish some rights to our technologies, product candidates
or products, or grant licenses on terms that are not favorable to us. If we
raise additional funds by incurring debt, we could incur significant interest
expense and become subject to covenants in the related transaction documentation
that could affect the manner in which we conduct our business.
However, we have no committed sources
of additional capital and our access to capital funding is always uncertain.
This uncertainty is exacerbated due to the current global economic turmoil,
which has severely restricted access to the U.S. and international capital
markets, particularly for biopharmaceutical and biotechnology companies.
Accordingly, despite our ability to secure adequate capital in the past, there
is no assurance that additional equity or debt financing will be available to us
when needed, on acceptable terms or even at all. If we fail to obtain the
necessary additional capital when needed, we will be forced to significantly
curtail our planned research and development activities, which will cause a
delay in our drug development programs. If we do not obtain
additional capital before we have consumed our currently available resources, we
may be forced to cease our operations altogether, in which case you will lose
your entire investment in our company.
Our
business is substantially dependent on the results of our ongoing rALLy study of
Marqibo and our ability to obtain accelerated approval of Marqibo.
A
substantial portion of our current human and financial resources is focused in
the development of Marqibo, our lead product candidate. We are
currently evaluating Marqibo in a global, registration-enabling Phase 2 clinical
trial in adult Philadelphia chromosome negative ALL patients in second relapse
or those who have progressed following two prior lines of therapy. We
refer to this Phase 2 clinical trial as the rALLy study. The primary
outcome measure of the rALLy study is complete remission, or CR, or CR
without full hematological recovery, or CRi. Our target enrollment
for the rALLy study is 56 patients, which we achieved in August
2009. In June 2009, we announced preliminary data indicating that of
the first 33 patients does in the study, 10 patients had achieved a CR or CRi
and that the estimated median overall survival was 6.4
months. Subject to the results of the rALLy study, we plan to file a
new drug application, or NDA, with the FDA seeking accelerated approval of
Marqibo for the treatment of ALL in the first half of 2010. See
“Description of Business – Product Pipeline – Marqibo (vincristine sulfate
liposomes injection).”
We expect
to obtain and release topline data from the rALLy study in December
2009. We believe that if the data are consistent with the preliminary
data that we announced in June 2009 concerning the first 33 patients, the
results of the rALLy study will be sufficient to support our planned NDA
submission. If either the final data in sufficient to support
the submission of an NDA for accelerated approval, or if the FDA accepts
our NDA for review but subsequently denies approval, our business would be
substantially and adversely affected and we would be forced to significantly
curtail or even cease our operations.
6
We
have a limited operating history and may not be able to commercialize any
products, generate significant revenues or attain profitability.
We have not generated significant
revenue and have incurred significant net losses in each year since our
inception. We expect to incur substantial losses and negative cash flow from
operations for the foreseeable future, and we may never achieve or maintain
profitability. For the years ended December 31, 2008 and December 31, 2007,
we had net losses of $22.2 million and $26.0 million,
respectively. For the six months ended June 30, 2009, we had a net
loss of $13.5 million.
We expect our cash requirements to
increase substantially in the foreseeable future as we:
· continue
to undertake clinical development of our current product
candidates;
· seek
regulatory approvals for our product candidates at the appropriate time in the
future;
· implement
additional internal systems and infrastructure;
· seek
to acquire additional technologies to develop; and
· hire
additional personnel.
We expect to incur losses for the
foreseeable future as we fund our operations and capital expenditures. As a
result, we will need to generate significant revenues in order to achieve and
maintain profitability. Even if we succeed in developing and
commercializing/partnering one or more of our product candidates, which success
is not assured, we may not be able to generate significant revenues. Even if we
do generate significant revenues, we may never achieve or maintain
profitability. Our failure to achieve or maintain profitability could negatively
impact the trading price of our common stock.
If
we are unable to successfully manage our growth, our business may be
harmed.
In
the future, if we are able to advance Marqibo or our other product candidates to
the point of, and thereafter through, clinical trials, we may need to expand our
development, regulatory, manufacturing, marketing and sales capabilities or
contract with third parties to provide these capabilities. Any future growth
will place a significant strain on our management and on our administrative,
operational and financial resources. Our future financial performance and our
ability to commercialize Marqibo and our product candidates and to compete
effectively will depend, in part, on our ability to manage any future growth
effectively. We must manage our development efforts and clinical trials
effectively, and hire, train and integrate additional management, administrative
and sales and marketing personnel. We may not be able to accomplish these tasks,
and our failure to accomplish any of them could prevent us from successfully
growing.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We will need to hire additional
qualified personnel with expertise in preclinical testing, clinical research and
testing, government regulation, formulation and manufacturing and sales and
marketing. We compete for qualified individuals with numerous biopharmaceutical
companies, universities and other research institutions. Competition for such
individuals, particularly in the San Francisco Bay Area where we are
headquartered, is intense, and we cannot be certain that our search for such
personnel will be successful. Our ability to attract and retain qualified
personnel is critical to our success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The testing and marketing of
pharmaceutical products entail an inherent risk of product liability. If we
cannot successfully defend ourselves against product liability claims, we may
incur substantial liabilities or be required to limit commercialization of our
product candidates, if approved. Even successful defense would require
significant financial and management resources. Regardless of the merit or
eventual outcome, liability claims may result in:
· decreased
demand for our product candidates;
· injury
to our reputation;
· withdrawal
of clinical trial participants;
7
· withdrawal
of prior governmental approvals;
· costs
of related litigation;
· substantial
monetary awards to patients;
· product
recalls;
· loss
of revenue; and
· the
inability to commercialize our product candidates.
Our
inability to obtain sufficient product liability insurance at an acceptable cost
to protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products we develop, alone or with
collaborators. We currently do not carry product liability insurance but instead
maintain a $10 million clinical trial insurance policy for our ongoing
clinical trials of our product candidates. Even if our agreements with any
future collaborators entitle us to indemnification against damages from product
liability claims, such indemnification may not be available or adequate should
any claim arise.
If
we fail to acquire and develop other product candidates we may be unable to grow
our business.
We hope
to acquire rights to develop and commercialize additional product candidates.
Because we currently neither have nor intend to establish internal research
capabilities, we are dependent upon pharmaceutical and biotechnology companies
and academic and other researchers to sell or license us their product
candidates. The success of our strategy depends upon our ability to identify,
select and acquire pharmaceutical product candidates.
Proposing,
negotiating and implementing an economically viable product acquisition or
license agreement is a lengthy and complex process. We compete for partnering
arrangements and license agreements with pharmaceutical, biopharmaceutical and
biotechnology companies, many of which have significantly more experience than
us and have significantly more financial resources than we do. Our competitors
may have stronger relationships with certain third parties with whom we are
interested in partnering, such as academic research institutions, and may,
therefore, have a competitive advantage in entering into partnering arrangements
with those third parties. We may not be able to acquire rights to additional
product candidates on terms that we find acceptable, or at all.
We expect
that any product candidate to which we acquire rights will require significant
additional development and other efforts prior to commercial sale, including
extensive clinical testing and approval by the FDA and applicable foreign
regulatory authorities. All product candidates are subject to the risks of
failure inherent in pharmaceutical product development, including the
possibility that the product candidate will not be shown to be sufficiently safe
or effective for approval by regulatory authorities. Even if our product
candidates are approved, they may not be manufactured or produced economically
or commercialized successfully.
Risks
Related to the Clinical Testing, Regulatory Approval and Manufacturing of Our
Product Candidates
If
we are unable to obtain regulatory approval to sell our lead product candidate,
Marqibo, or any of our other product candidates, our business will
suffer.
In May
2006, we licensed Marqibo from Inex, which was succeeded by Tekmira
Pharmaceuticals Corp. in April 2007. Marqibo is not currently permitted to be
commercially used. Inex submitted an NDA pursuant to Section 505(b)(2) of the
FDCA for accelerated marketing approval of Marqibo primarily based upon a single
arm, Phase II clinical trial, which was reviewed by the FDA in 2004 and 2005. In
January 2005, the FDA issued a not approvable letter to Inex for the Marqibo NDA
for the treatment of patients with relapsed refractory NHL previously treated
with at least two chemotherapy regimens. The FDA’s not approvable letter cited a
variety of reasons for not approving the NDA, including the
following:
·
|
The
information presented by Inex was inadequate and contained clinical
deficiencies;
|
·
|
The
information presented by Inex failed to provide evidence of an effect on a
surrogate that is reasonably likely to predict clinical
benefit;
|
8
·
|
The
information presented by Inex contained chemistry, manufacturing and
control deficiencies;
|
·
|
A
supportive study in NHL patients and ALL patients was not well conducted
or well controlled; and
|
·
|
The
information presented by Inex did not demonstrate an improvement over
available therapy.
|
In
rejecting the NDA, the FDA recommended that, if Inex planned to pursue
development of Marqibo for the treatment of relapsed refractory NHL, Inex should
conduct additional studies, including but not limited to randomized controlled
studies comparing Marqibo to other chemotherapy regimens. Even if such studies
are successfully performed, Marqibo may not receive FDA approval.
With
respect to Marqibo and any of our other product candidates, additional FDA
regulatory risks exist which may prevent FDA approval of these drug candidates
and thereby prevent their commercial use. Additionally, if Marqibo or any of our
product candidates are approved by the FDA, such approval may be withdrawn by
the FDA for a variety of reasons, including:
·
|
that
clinical or other experience, tests, or other scientific data show that
the drug is unsafe for use;
|
·
|
that
new evidence of clinical experience or evidence from new tests, evaluated
together with the evidence available to the FDA when the NDA was approved,
shows that the drug is not shown to be safe for use under the approved
conditions of use;
|
·
|
that
on the basis of new information presented to the FDA, there is a lack of
substantial evidence that the drug will have the effect it purports or is
represented to have under the approved conditions of
use;
|
·
|
that
an NDA contains any untrue statement of a material fact;
or
|
·
|
for
a drug approved under the FDA’s accelerated approval regulations or as a
fast track drug, if any required post-approval study is not conducted with
due diligence or if such study fails to verify the clinical benefit of the
drug.
|
Other
regulatory risks may arise as a result of a change in applicable law or
regulation or the interpretation thereof, and may result in material
modification or withdrawal of prior FDA approvals.
Many
of our product candidates are in early stages of clinical trials, which are very
expensive and time-consuming. Any failure or delay in completing clinical trials
for our product candidates could harm our business.
Other than Marqibo, the other product
candidates that we are developing, Alocrest, Brakiva, and Menadione, are in
early stages of development and will require extensive clinical and other
testing and analysis before we will be in a position to consider seeking FDA
approval to sell such product candidates. In addition to the risks set forth
above for Marqibo, which also apply to Alocrest, Brakiva and Menadione, these
product candidates also have additional risks as each is in an earlier stage of
development and review.
Conducting clinical trials is a
lengthy, time consuming and very expensive process and the results are
inherently uncertain. The duration of clinical trials can vary substantially
according to the type, complexity, novelty and intended use of the product
candidate. We estimate that clinical trials of our product candidates will take
at least several years to complete. The completion of clinical trials for our
product candidates may be delayed or prevented by many factors,
including:
·
|
delays
in patient enrollment, and variability in the number and types of patients
available for clinical trials;
|
·
|
difficulty
in maintaining contact with patients after treatment, resulting in
incomplete data;
|
·
|
poor
effectiveness of product candidates during clinical
trials;
|
·
|
safety
issues, side effects, or other adverse
events;
|
·
|
results
that do not demonstrate the safety or effectiveness of the product
candidates;
|
·
|
governmental
or regulatory delays and changes in regulatory requirements, policy and
guidelines; and
|
9
·
|
varying
interpretation of data by the FDA.
|
In
conducting clinical trials, we may fail to establish the effectiveness of a
compound for the targeted indication or discover that it is unsafe due to
unforeseen side effects or other reasons. Even if our clinical trials are
commenced and completed as planned, their results may not support our product
candidate claims. Further, failure of product candidate development can occur at
any stage of the clinical trials, or even thereafter, and we could encounter
problems that cause us to abandon or repeat clinical trials. These problems
could interrupt, delay or halt clinical trials for our product candidates and
could result in FDA, or other regulatory authorities, delaying approval of our
product candidates for any or all indications. The results from preclinical
testing and prior clinical trials may not be predictive of results obtained in
later or other larger clinical trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in clinical trials,
even in advanced clinical trials after showing promising results in earlier
clinical trials. Our failure to adequately demonstrate the safety and
effectiveness of any of our product candidates will prevent us from receiving
regulatory approval to market these product candidates and will negatively
impact our business.
In
addition, we or the FDA may suspend or curtail our clinical trials at any time
if it appears that we are exposing participants to unacceptable health risks or
if the FDA finds deficiencies in the conduct of these clinical trials or in the
composition, manufacture or administration of the product candidates.
Accordingly, we cannot predict with any certainty when or if we will ever be in
a position to submit an NDA for any of our product candidates, or whether any
such NDA would ever be approved.
If
we do not obtain the necessary U.S. or foreign regulatory approvals to
commercialize our product candidates, we will not be able to market and sell our
product candidates.
None of
our product candidates have been approved for commercial sale in any country.
FDA approval is required to commercialize all of our product candidates in the
United States and approvals from the FDA equivalent regulatory authorities are
required in foreign jurisdictions in order to commercialize our product
candidates in those jurisdictions. We possess world-wide rights to develop and
commercialize Marqibo and our other product candidates.
In order
to obtain FDA approval of any of our product candidates, we must submit to the
FDA an NDA, demonstrating that the product candidate is safe for humans and
effective for its intended use and otherwise meets the requirements of existing
laws and regulations governing new drugs. This demonstration requires
significant research and animal tests, which are referred to as preclinical
studies, and human tests, which are referred to as clinical trials, as well as
additional information and studies. Satisfaction of the FDA’s regulatory
requirements typically takes many years, depending on the type, complexity and
novelty of the product candidate and requires substantial resources for
research, development and testing as well as for other purposes. To date, none
of our product candidates have been approved for sale in the United States or in
any foreign market. We cannot predict whether our research and clinical
approaches will result in drugs that the FDA considers safe for humans and
effective for indicated uses. Historically, only a small percentage of all drug
candidates that start clinical trials are eventually approved by the FDA for
sale. After clinical trials are completed, the FDA has substantial discretion in
the drug approval process and may require us to conduct additional preclinical
and clinical testing or to perform post-marketing studies. The approval process
may also be delayed by changes in government regulation, future legislation or
administrative action or changes in FDA policy that occur prior to or during our
regulatory review. Delays in obtaining regulatory approvals may:
·
|
delay
or prevent commercialization of, and our ability to derive product
revenues from, our product
candidates;
|
·
|
impose
costly procedures on us;
|
·
|
reduce
the potential prices we may be able to charge for our product candidates,
assuming they are approved for sale;
and
|
·
|
diminish
any competitive advantages that we may otherwise
enjoy.
|
Even if
we comply with all FDA requests, the FDA may ultimately reject one or more of
our NDAs. We cannot be sure that we will ever obtain regulatory approval for any
of our product candidates. Additionally, a change in applicable law or
regulation, or the interpretation thereof, may result in material modification
or withdrawal of prior FDA approvals.
Failure
to obtain FDA approval of any of our product candidates will severely undermine
our business by reducing our number of saleable products and, therefore,
corresponding product revenues. If we do not complete clinical trials and obtain
regulatory approval for a product candidate, we will not be able to recover any
of the substantial costs invested by us in the development of the product
candidate.
10
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We cannot assure you that we will receive the
approvals necessary to commercialize any of our product candidates for sale
outside the United States.
Our
competitive position may be harmed if a competitor obtains orphan drug
designation and approval for the treatment of ALL for a clinically superior
drug.
Orphan
drug designation is an important element of our competitive strategy because the
latest of our licensors’ patents for Marqibo expires in November 2021. In
2007, the FDA granted orphan drug designation for the use of Marqibo in treating
adult ALL and adult metastatic uveal melanoma. The company that obtains the
first FDA approval for a designated orphan drug for a rare disease generally
receives marketing exclusivity for use of that drug for the designated condition
for a period of seven years. However, even though we obtained orphan drug status
for Marqibo in the treatments noted, the FDA may permit other companies to
market a drug for the same designated and approved condition during our period
of orphan drug exclusivity if it can be demonstrated that the drug is clinically
superior to our drug. This could create a more competitive market for
us.
Even
if we obtain regulatory approvals for our products, the terms of approvals and
ongoing monitoring and regulation of our products may limit how we manufacture
and market our products, which could materially impair our ability to generate
revenue.
Even if
regulatory approval is granted in the United States or in a foreign country, the
approved product and its manufacturer, as well as others involved in the
manufacturing and packaging process, remain subject to continual regulatory
review and monitoring. Any regulatory approval that we receive for a product
candidate may be subject to limitations on the indicated uses for which the
product may be marketed, or include requirements for potentially costly
post-approval clinical trials. In addition, if the FDA and/or foreign regulatory
agencies approve any of our product candidates, the labeling, packaging,
storage, advertising, promotion, recordkeeping and submission of safety and
other post-marketing information on the product will be subject to extensive
regulatory requirements which may change over time. We and the manufacturers of
our products, their ingredients, and many aspects of the packaging are also
required to comply with current good manufacturing practice regulations, which
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and documentation. Further,
regulatory agencies must approve these manufacturing facilities before they can
be used to manufacture our products or their ingredients or certain packagings,
and these facilities are subject to ongoing regulatory inspection. Discovery of
problems with a product or manufacturer may result in restrictions or sanctions
with respect to the product, manufacturer and relevant manufacturing facility,
including withdrawal of the product from the market. If we fail to comply with
the regulatory requirements of the FDA and other applicable foreign regulatory
authorities, or if problems with our products, manufacturers or manufacturing
processes are discovered, we could be subject to administrative or judicially
imposed sanctions, including:
·
|
restrictions
on the products, manufacturers or manufacturing
process;
|
·
|
warning
letters or untitled letters;
|
·
|
civil
or criminal penalties or fines;
|
·
|
injunctions;
|
·
|
product
seizures, detentions or import
bans;
|
·
|
voluntary
or mandatory product recalls and publicity
requirements;
|
·
|
suspension
or withdrawal of regulatory
approvals;
|
·
|
total
or partial suspension of production and/or sale;
and
|
·
|
refusal
to approve pending applications for marketing approval of new drugs or
supplements to approved
applications.
|
11
In order
to market any products outside of the United States, we must establish and
comply with the numerous and varying regulatory requirements of other countries
regarding safety and efficacy. Approval procedures vary among countries and can
involve additional product testing and additional administrative review periods.
The time required to obtain approval in other countries might differ from that
required to obtain FDA approval. Regulatory approval in one country does not
ensure regulatory approval in another, but failure or delay in obtaining
regulatory approval in one country may have a negative effect on the regulatory
process in others.
Because
we are dependent on clinical research institutions and other contractors for
clinical testing and for research and development activities, the results of our
clinical trials and such research activities are, to a certain extent, beyond
our control.
We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our preclinical and clinical trials under
agreements with us. These parties are not our employees and we cannot control
the amount or timing of resources that they devote to our programs. These
investigators may not assign as great a priority to our programs or pursue them
as diligently as we would if we were undertaking such programs ourselves. If
outside collaborators fail to devote sufficient time and resources to our
drug-development programs, or if their performance is substandard, the approval
of our FDA applications, if any, and our introduction of new drugs, if any, will
be delayed. These collaborators may also have relationships with other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors at our expense, our competitive position would be
harmed.
Our
reliance on third parties to formulate and manufacture our product candidates
exposes us to a number of risks that may delay the development, regulatory
approval and commercialization of our products or result in higher product
costs.
We have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We contract with one or
more manufacturers to manufacture, supply, store and distribute drug supplies
for our clinical trials. If any of our product candidates receive FDA approval,
we will rely on one or more third-party contractors to manufacture our drugs.
Our anticipated future reliance on a limited number of third-party manufacturers
exposes us to the following risks:
·
|
We
may be unable to identify manufacturers on acceptable terms or at all
because the number of potential manufacturers is limited and the FDA must
approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer would
have to be educated in, or develop substantially equivalent processes for,
production of our products after receipt of FDA approval, if
any.
|
·
|
Our
third-party manufacturers might be unable to formulate and manufacture our
drugs in the volume and of the quality required to meet our clinical
and/or commercial needs, if any.
|
·
|
Our
future contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store and distribute our
products.
|
·
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA and corresponding state agencies to ensure strict compliance with
good manufacturing practice and other government regulations and
corresponding foreign standards. We do not have control over third-party
manufacturers’ compliance with these regulations and standards, but we
will be ultimately responsible for any of their
failures.
|
·
|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the innovation. This may prohibit us from
seeking alternative or additional manufacturers for our
products.
|
Each of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA, or the commercialization of our product
candidates or result in higher costs or deprive us of potential product
revenues.
Risks
Related to Our Ability to Commercialize Our Product Candidates
Our
success depends substantially on our most advanced product candidate, Marqibo,
which is still under development and requires further regulatory approvals. If
we are unable to obtain regulatory approval of and commercialize Marqibo alone
or with a strategic partner, or experience significant delays in doing so, our
ability to generate product revenue and our likelihood of success will be
significantly diminished.
12
In 2007, we commenced a multi-center,
multi-national Phase 2 registration-enabling clinical trial of Marqibo in adult
patients with relapsed ALL, which we refer to as the rALLy study. We intend to
use the results of the rALLy study to file a new drug application, or NDA, with
the FDA under an “accelerated approval” pathway. We also plan to
conduct a confirmatory Phase 3 clinical trial to commence in
2010. The design of this registrational study is still under
review. A significant portion of our time and financial resources for
at least the next twelve months will be used in the development of our Marqibo
program. We anticipate that our ability to generate revenues in the near term
will depend solely on the successful development, regulatory approval and
commercialization of Marqibo or our ability to enter into a partnership or
licensing agreement wherein we receive cash payments. We currently do
not have sufficient funds to continue operations through the time period
required to obtain NDA approval for Marqibo and will need to obtain significant
additional capital before we obtain FDA approval for an NDA in
Marqibo.
All of our other product candidates
are in the very early stages of development. Any of our product candidates could
be unsuccessful if they:
·
|
do
not demonstrate acceptable safety and efficacy in preclinical studies or
clinical trials or otherwise do not meet applicable regulatory standards
for approval;
|
·
|
do
not offer therapeutic or other improvements over existing or future
therapies used to treat the same
conditions;
|
·
|
are
not capable of being produced in commercial quantities at acceptable costs
or pursuant to applicable rules and regulations;
or
|
·
|
are
not accepted in the medical community and by third-party
payors.
|
If we are
unable to commercialize our product candidates, we will not generate product
revenues. The results of our clinical trials to date do not provide assurance
that acceptable efficacy or safety will be shown.
If
we are unable either to create sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will be
unable to commercialize our product candidates successfully.
We
currently have no sales, marketing or distribution capabilities nor do we
currently have funds sufficient to develop these capabilities. To commercialize
our product candidates, we must either develop internal sales, marketing and
distribution capabilities, which will be expensive and time consuming, or make
arrangements with third parties to perform these services. If we decide to
market any of our products directly, we must commit financial and managerial
resources to develop marketing capabilities and a sales force with technical
expertise and with supporting distribution capabilities. Other factors that may
inhibit our efforts to commercialize our product candidates, if approved,
directly and without strategic partners include:
·
|
our
inability to recruit and retain adequate numbers of effective sales and
marketing personnel;
|
·
|
the
inability of sales personnel to obtain access to or persuade adequate
numbers of physicians to prescribe our
products;
|
·
|
the
lack of complementary products to be offered by sales personnel, which may
put us at a competitive disadvantage relative to companies with more
extensive product lines; and
|
·
|
unforeseen
costs and expenses associated with creating an independent sales and
marketing organization.
|
If we are
not able to partner with a third party and are not successful in recruiting
sales and marketing personnel or in building a sales and marketing
infrastructure, we will have difficulty commercializing our product candidates,
which would harm our business. If we rely on pharmaceutical or biotechnology
companies with established distribution systems to market our products, we will
need to establish and maintain partnership arrangements, and we may not be able
to enter into these arrangements on acceptable terms or at all. To the extent
that we enter into co-promotion or other arrangements, any revenues we receive
will depend upon the efforts of third parties which may not be successful and
which will be only partially in our control. Our product revenues would likely
be lower than if we marketed and sold our products directly.
13
The
terms of our license agreements relating to intellectual property ownership
rights may make it more difficult for us to establish collaborations for the
development and commercialization of our product candidates.
The terms
of our license agreements obligate us to include intellectual property
assignment provisions in any sublicenses or collaboration agreements that may be
unacceptable to our potential sublicensees and partners. These terms may impede
our ability to enter into partnerships for some of our existing product
candidates. Under our license agreement with Tekmira, Tekmira will be the owner
of patents and patent applications claiming priority to certain patents licensed
to us, and we not only have an obligation to assign to Tekmira our rights to
inventions covered by such patents or patent applications, but also, when
negotiating any joint venture, collaborative research, development,
commercialization or other agreement with a third party, to require such third
party to do the same. Our license agreement with Elan Pharmaceuticals, Inc., or
Elan, relating to Marqibo, provides that Elan will own all improvements to the
licensed patents or licensed know-how made by us or any of our sublicensees.
Potential collaboration and commercialization partners for these product
candidates may not agree to such intellectual property ownership requirements
and therefore not elect to partner with us for these product
candidates.
If
physicians and patients do not accept and use our product candidates, our
ability to generate revenue from sales of our products will be materially
impaired.
Even if
the FDA approves Marqibo or any of our product candidates, if physicians and
patients do not accept and use them, our business will be adversely affected.
Acceptance and use of our products will depend upon a number of factors
including:
·
|
perceptions
by members of the health care community, including physicians, about the
safety and effectiveness of our
drugs;
|
·
|
pharmacological
benefit and cost-effectiveness of our products relative to competing
products;
|
·
|
availability
of reimbursement for our products from government or other healthcare
payors;
|
·
|
effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any; and
|
·
|
the
price at which we sell our
products.
|
Adequate
coverage and reimbursement may not be available for our product candidates,
which could diminish our sales or affect our ability to sell our products
profitably.
Market
acceptance and sales of our product candidates will depend in significant part
on the levels at which government payors and other third-party payors, such as
private health insurers and health maintenance organizations, cover and pay for
our products. We cannot provide any assurances that third-party payors will
provide adequate coverage of and reimbursement for any of our product
candidates. If we are unable to obtain adequate coverage of and payment levels
for our product candidates from third-party payors, physicians may limit how
much or under what circumstances they will prescribe or administer them and
patients may decline to purchase them. This in turn could affect our ability to
successfully commercialize our products and impact our profitability and future
success.
In both
the U.S. and certain foreign jurisdictions, there have been a number of
legislative and regulatory policies and proposals in recent years to change the
healthcare system in ways that could impact our ability to sell our products
profitably. In 2003, Congress enacted the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, or the MMA, which contains, among
other changes to the law, a wide variety of changes that impact Medicare
reimbursement of pharmaceuticals to physicians and hospitals. The MMA requires
that, as of January 1, 2005, payment rates for most drugs covered under
Medicare Part B, including drugs furnished incident to physicians’
services, are to be based on manufacturer’s average sales price, or ASP, of the
product. Implementation of the ASP payment methodology for drugs furnished in
physician’s offices generally resulted in reduced payments in 2005, and could
result in lower payment rates for drugs in the future.
The MMA
requires that, beginning in 2006, payment amounts for most drugs administered in
physician offices are to be based on either ASP or on amounts bid by vendors
under the Competitive Acquisition Program, or CAP. Under the CAP, physicians who
administer drugs in their offices will be offered an option to acquire drugs
covered under the Medicare Part B benefit from vendors that are selected in a
competitive bidding process. Winning vendors would be selected based on criteria
that included bid prices. The ASP payment methodology and the CAP could
negatively impact our ability to sell our product candidates.
14
The MMA
also revised the method by which Medicare pays for many drugs administered in
hospital outpatient departments beginning in 2005. In addition, the Centers for
Medicare & Medicaid Services, or CMS, which administers the Medicare
program, published a proposed rule on payment amounts for drugs administered in
hospital outpatient departments for 2006. As a result of the changes in the MMA
and, if the methods suggested by CMS in the proposed 2006 rule are implemented,
certain newly introduced drugs administered in hospital outpatient departments,
which we believe would include our therapeutics and supportive care product
candidates, will generally be reimbursed under an ASP payment methodology,
except that during a short introductory period in which drugs have not been
assigned a billing code a higher payment rate is applicable. As in the case of
physician offices, implementation of the ASP payment methodology in the hospital
outpatient department could negatively impact our ability to sell our product
candidates.
The MMA
created a new, voluntary prescription drug benefit for Medicare beneficiaries,
Medicare Part D, which took effect in 2006. Medicare Part D is a new type
of coverage that allows for payment for certain prescription drugs not covered
under Part B. This new benefit will be offered by private managed care
organizations and freestanding prescription drug plans, which, subject to review
and approval by CMS, may, and are expected to, establish drug formularies and
other drug utilization management controls based in part on the price at which
they can obtain the drugs involved. The drugs that will be covered in each
therapeutic category and class on the formularies of participating Part D plans
may be limited, and obtaining favorable treatment on formularies and with
respect to utilization management controls may affect the prices we can obtain
for our products. If our product candidates are not placed on such formularies,
or are subject to utilization management controls, this could negatively impact
our ability to sell them. It is difficult to predict which of our candidate
products will be placed on the formularies or subjected to utilization
management controls and the impact that the Part D program, and the MMA
generally, will have on us.
There
also likely will continue to be legislative and regulatory proposals that could
bring about significant changes in the healthcare industry. We cannot predict
what form those changes might take or the impact on our business of any
legislation or regulations that may be adopted in the future. The implementation
of cost containment measures or other healthcare reforms may prevent us from
being able to generate revenue, attain profitability or commercialize our
products.
In
addition, in many foreign countries, particularly the countries of the European
Union, the pricing of prescription drugs is subject to government control. We
may face competition for our product candidates from lower priced products in
foreign countries that have placed price controls on pharmaceutical products. In
addition, there may be importation of foreign products that compete with our own
products which could negatively impact our profitability.
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will
suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies
developed, manufactured and marketed by others. If approved, Marqibo will
compete with unencapsulated vincristine, which is generic, other cytotoxic
agents such as antimetabolites, alkylating agents, cytotoxic antibiotics, vinca
alkyloids, platinum compounds and taxanes, and other cytotoxic agents that use
different encapsulation technologies. These or other future competing products
and product candidates may provide greater therapeutic convenience or clinical
or other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost. If our products fail to capture and
maintain market share, we may not achieve sufficient product revenues and our
business will suffer.
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs and have substantially greater financial resources than we do, as well
as significantly greater experience in:
·
|
developing
drugs;
|
·
|
undertaking
preclinical testing and human clinical
trials;
|
·
|
obtaining
FDA and other regulatory approvals of
drugs;
|
·
|
formulating
and manufacturing
drugs; and
|
·
|
launching,
marketing and selling drugs.
|
15
Developments
by competitors may render our products or technologies obsolete or
non-competitive.
Alternative
technologies are being developed to treat cancer and immunological disease,
several of which are in advanced clinical trials. In addition, companies
pursuing different but related fields represent substantial competition. Many of
these organizations have substantially greater capital resources, larger
research and development staffs and facilities, longer drug development history
in obtaining regulatory approvals and greater manufacturing and marketing
capabilities than we do. These organizations also compete with us to attract
qualified personnel, parties for acquisitions, joint ventures or other
collaborations.
Risks
Related to Our Intellectual Property
If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in large part on
our ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.
We have
licensed from third parties rights to numerous issued patents and patent
applications. To date, through our license agreements for Marqibo, Alocrest,
Brakiva and Menadione, we hold certain exclusive patent rights, including
rights under U.S. patents and U.S. patent applications. We also have
patent rights to applications pending in several foreign jurisdictions. We have
filed and anticipate filing additional patent applications both in the United
States and internationally, as appropriate.
The
rights to product candidates that we acquire from licensors or collaborators are
protected by patents and proprietary rights owned by them, and we rely on the
patent protection and rights established or acquired by them. We generally do
not unilaterally control, or do not control at all, the prosecution of patent
applications licensed from third parties. Accordingly, we are unable to exercise
the same degree of control over this intellectual property as we may exercise
over internally developed intellectual property.
The
patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and involve complex legal and factual questions. Even if we are able
to obtain patents, any patent may be challenged, invalidated, held unenforceable
or circumvented. The existence of a patent will not necessarily protect us from
competition. Competitors may successfully challenge our patents, produce similar
drugs or products that do not infringe our patents or produce drugs in countries
where we have not applied for patent protection or that do not respect our
patents. Under our license agreements, we generally do not unilaterally control,
or do not control at all, the enforcement of the licensed patents or the defense
of third party suits of infringement or invalidity.
Furthermore,
if we become involved in any patent litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts of
our technical and management personnel will be significantly diverted. As a
result of such litigation or proceedings we could lose our proprietary position
and be restricted or prevented from developing, manufacturing and selling the
affected products, incur significant damage awards, including punitive damages,
or be required to seek third-party licenses that may not be available on
commercially acceptable terms, if at all.
The
degree of future protection for our proprietary rights is uncertain in part
because legal means afford only limited protection and may not adequately
protect our rights, and we will not be able to ensure that:
·
|
we
or our licensors or collaborators were the first to make the inventions
described in patent applications;
|
·
|
we
or our licensors or collaborators were the first to file patent
applications for inventions;
|
·
|
others
will not independently develop similar or alternative technologies or
duplicate any of our technologies without infringing our intellectual
property rights;
|
·
|
any
of our pending patent applications will result in issued
patents;
|
·
|
any
patents licensed or issued to us will provide a basis for commercially
viable products or will provide us with any competitive advantages or will
not be challenged by third
parties;
|
16
·
|
we
will ultimately be able to enforce our owned or licensed patent rights
pertaining to our products;
|
·
|
any
patents licensed or issued to us will not be challenged, invalidated, held
unenforceable or circumvented;
|
·
|
we
will develop or license proprietary technologies that are patentable;
or
|
·
|
the
patents of others will not have an adverse effect on our ability to do
business.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require all of
our employees to enter into agreements which prohibit the disclosure of
confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions
important to our business. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such
information. If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how and other
proprietary rights would be significantly impaired and our business and
competitive position would suffer.
Our
license agreements relating to our product candidates may be terminated in the
event we commit a material breach, the result of which would harm our business
and future prospects.
In the
event any of our license agreements relating to our product candidates are
terminated, we could lose all of our rights to develop and commercialize the
applicable product candidate covered by such license, which would harm our
business and future prospects. Our license agreement with Albert Einstein
College of Medicine, or AECOM, provides that AECOM may terminate the agreement,
after providing us with notice and an opportunity to cure, for our material
breach or default, or upon our bankruptcy. Our license to
Marqibo, Alocrest and Brakiva are governed by a series of agreements which
may be individually or collectively terminated, not only by Tekmira, but also by
M.D. Anderson Cancer Center, British Columbia Cancer Agency or University of
British Columbia under the underlying agreements governing the license or
assignment of technology to Tekmira. Tekmira may terminate these agreements for
our uncured material breach, for our involvement in a bankruptcy, for our
assertion or intention to assert any invalidity challenge on any of the patents
licensed to us for these products or for our failure to meet our development or
commercialization obligations, including the obligations of continuing to sell
each product in all major market countries after its launch. In the event that
these agreements are terminated, not only will we lose all rights to these
products, we will also have the obligation to transfer all of our data,
materials, regulatory filings and all other documentation to our licensor, and
our licensor may on its own exploit these products without any compensation to
us, regardless of the progress or amount of investment we have made in the
products.
Third
party claims of intellectual property infringement would require us to spend
significant time and money and could prevent us from developing or
commercializing our products.
In order
to protect or enforce patent rights, we may initiate patent litigation against
third parties. Similarly, we may be sued by others. We also may become subject
to proceedings conducted in the U.S. Patent and Trademark Office, including
interference proceedings to determine the priority of inventions, or
reexamination proceedings. In addition, any foreign patents that are granted may
become subject to opposition, nullity, or revocation proceedings in foreign
jurisdictions having such proceedings opposed by third parties in foreign
jurisdictions having opposition proceedings. The defense and prosecution, if
necessary, of intellectual property actions are costly and divert technical and
management personnel from their normal responsibilities.
No patent
can protect its holder from a claim of infringement of another patent.
Therefore, our patent position cannot and does not provide any assurance that
the commercialization of our products would not infringe the patent rights of
another. While we know of no actual or threatened claim of infringement that
would be material to us, there can be no assurance that such a claim will not be
asserted.
If such a
claim is asserted, there can be no assurance that the resolution of the claim
would permit us to continue marketing the relevant product on commercially
reasonable terms, if at all. We may not have sufficient resources to bring these
actions to a successful conclusion. If we do not successfully defend any
infringement actions to which we become a party or are unable to have infringed
patents declared invalid or unenforceable, we may have to pay substantial
monetary damages, which can be tripled if the infringement is deemed willful, or
be required to discontinue or significantly delay commercialization and
development of the affected products.
17
Any legal
action against us or our collaborators claiming damages and seeking to enjoin
developmental or marketing activities relating to affected products could, in
addition to subjecting us to potential liability for damages, require us or our
collaborators to obtain licenses to continue to develop, manufacture or market
the affected products. Such a license may not be available to us on commercially
reasonable terms, if at all.
An
adverse determination in a proceeding involving our owned or licensed
intellectual property may allow entry of generic substitutes for our
products.
Risks
Related to Our Securities
Because
our common stock is primarily traded on the OTC Bulletin Board, the volume of
shares traded and the prices at which such shares trade may result in lower
prices than might otherwise exist if our common stock was traded on a national
securities exchange.
We were
delisted from the Nasdaq Capital Market in September 2009 and trading in our
common stock has since been conducted on the OTC Bulletin
Board. Stocks traded on the OTC Bulletin Board are often less liquid
than stocks traded on national securities exchanges, not only in terms of the
number of shares that can be bought and sold at a given price, but also in terms
of delays in the timing of transactions and reduced coverage of us by security
analysts and the media. This may result in lower prices for our common stock
than might otherwise be obtained if our common stock were traded on a national
securities exchange, and could also result in a larger spread between the bid
and asked prices for our common stock.
Our
stock price has, and we expect it to continue to, fluctuate significantly, and
the value of your investment may decline.
From
January 1, 2007 to June 30, 2009, the market price of our common stock
has ranged from a high of $6.38 per share to a low of $0.08 per share.
The volatile price of our stock makes it difficult for investors to predict the
value of their investment, to sell shares at a profit at any given time, or to
plan purchases and sales in advance. You might not be able to sell your shares
of common stock at or above the offering price due to fluctuations in the market
price of the common stock arising from changes in our operating performance or
prospects. In addition, the stock markets in general, and the markets for
biotechnology and biopharmaceutical companies in particular, have experienced
extreme volatility that has often been unrelated to the operating performance of
particular companies. A variety of factors may affect our operating performance
and cause the market price of our common stock to fluctuate. These include, but
are not limited to:
·
|
announcements
by us or our competitors of regulatory developments, clinical trial
results, clinical trial enrollment, regulatory filings, product
development updates, new products and product launches, significant
acquisitions, strategic partnerships or joint
ventures;
|
·
|
any
intellectual property infringement, product liability or any other
litigation involving us;
|
·
|
developments
or disputes concerning patents or other proprietary
rights;
|
·
|
regulatory
developments in the United States and foreign
countries;
|
·
|
market
conditions in the pharmaceutical and biotechnology sectors and issuance of
new or changed securities analysts’ reports or
recommendations;
|
·
|
economic
or other crises and other external
factors;
|
·
|
actual
or anticipated period-to-period fluctuations in our results of
operations;
|
·
|
departure
of any of our key management personnel;
or
|
·
|
sales
of our common stock.
|
These and
other factors may cause the market price and demand of our common stock to
fluctuate substantially, which may limit investors from readily selling their
shares of common stock and may otherwise negatively affect the liquidity or
value of our common stock.
18
If
our results do not meet analysts’ forecasts and expectations, our stock price
could decline.
While
research analysts and others have published forecasts as to the amount and
timing of our future revenues and earnings, we have stated that we will not be
providing any forecasts of the amount and timing of our future revenues and
earnings until after two quarters of our sales and marketing efforts. Analysts
who cover our business and operations provide valuations regarding our stock
price and make recommendations whether to buy, hold or sell our stock. Our stock
price may be dependent upon such valuations and recommendations. Analysts’
valuations and recommendations are based primarily on our reported results and
their forecasts and expectations concerning our future results regarding, for
example, expenses, revenues, clinical trials, regulatory marketing approvals and
competition. Our future results are subject to substantial uncertainty, and we
may fail to meet or exceed analysts’ forecasts and expectations as a result of a
number of factors, including those discussed in this “Risk Factors” section. If
our results do not meet analysts’ forecasts and expectations, our stock price
could decline as a result of analysts lowering their valuations and
recommendations or otherwise.
We
are at risk of securities class action litigation.
In the
past, securities class action litigation has often been brought against a
company following a decline in the market price of its securities. This risk is
especially relevant for us because biotechnology companies have experienced
greater than average stock price volatility in recent years. If we faced such
litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
Our
common stock is considered a “penny stock.”
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. Because the market price of our common stock is currently
less than $5.00 per share, and none of the specific exemptions are applicable,
our common stock is considered a “penny stock” according to SEC rules. This
designation requires any broker or dealer selling our common stock to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser and determine that the purchaser is reasonably suitable to
purchase our common stock. These rules may restrict the ability of brokers or
dealers to sell shares of our common stock.
Because
we do not expect to pay dividends, you will not realize any income from an
investment in our common stock unless and until you sell your shares at
profit.
We have
never paid dividends on our common stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment in
our stock if you require dividend income. Further, you will only realize income
on an investment in our shares in the event you sell or otherwise dispose of
your shares at a price higher than the price you paid for your shares. Such a
gain would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
There
may be issuances of shares of blank check preferred stock in the
future.
Our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares
of preferred stock, none of which are issued or currently outstanding. Our board
of directors will have the authority to fix and determine the relative rights
and preferences of preferred shares, as well as the authority to issue such
shares, without further stockholder approval. As a result, our board of
directors could authorize the issuance of a series of preferred stock that is
senior to our common stock and that would grant to holders preferred rights to
our assets upon liquidation, the right to receive dividends, additional
registration rights, anti-dilution protection, the right to the redemption to
such shares, together with other rights, none of which will be afforded holders
of our common stock.
19
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Any statements about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and may be forward-looking. These forward-looking statements include, but are
not limited to, statements about:
·
|
the
development of our drug candidates, including when we expect to undertake,
initiate and complete clinical trials of our product
candidates;
|
·
|
the
regulatory approval of our drug
candidates;
|
·
|
our
use of clinical research centers and other
contractors;
|
·
|
our
ability to find collaborative partners for research, development and
commercialization of potential
products;
|
·
|
acceptance
of our products by doctors, patients or payors and the availability of
reimbursement for our product
candidates;
|
·
|
our
ability to market any of our
products;
|
·
|
our
history of operating losses;
|
·
|
our
ability to secure adequate protection for our intellectual
property;
|
·
|
our
ability to compete against other companies and research
institutions
|
·
|
the
effect of potential strategic transactions on our
business;
|
·
|
our
ability to attract and retain key
personnel;
|
·
|
the
volatility of our stock price; and
|
·
|
other
risks and uncertainties detailed in “Risk
Factors.”
|
These statements are often, but not
always, made through the use of words or phrases such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe”
“intend” and similar words or phrases. For such statements, we claim the
protection of the Private Securities Litigation Reform Act of 1995. Readers of
this prospectus are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this prospectus.
These forward-looking statements are based largely on our expectations and
projections about future events and future trends affecting our business, and
are subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements. These
forward-looking statements involve risks and uncertainties, including the risks
discussed under “Risk
Factors,” that could cause our actual results to differ materially from
those in the forward-looking statements. Except as required by law, we undertake
no obligation to publicly revise our forward-looking statements, whether
resulting from new information, future events or otherwise. The risks discussed
in this prospectus should be considered in evaluating our prospects and
future financial performance.
In addition, past financial or
operating performance is not necessarily a reliable indicator of future
performance and you should not use our historical performance to anticipate
results or future period trends. We can give no assurances that any of the
events anticipated by the forward-looking statements will occur or, if any of
them do, what impact they will have on our results of operations and financial
condition.
20
USE
OF PROCEEDS
We will
receive none of the proceeds from the sale of the shares by the selling
stockholders, except for the warrant exercise price upon exercise of the
warrants, which would be used for working capital and other general corporate
purposes.
SELLING
STOCKHOLDERS
This
prospectus covers the resale by the selling stockholders identified below of
60,053,246 shares of common stock, including 16,491,104 shares issuable upon the
exercise of outstanding warrants, all of which were issued to the investors in
our October 2009 private placement. The following table sets forth
the number of shares of our common stock beneficially owned by the selling
stockholders as of October 29, 2009 and after giving effect to this offering,
except as otherwise referenced below.
Selling Stockholder
|
Shares
beneficially
owned
before
offering (1)
|
Number of
outstanding
shares
offered by
selling stockholder
|
Number of
shares offered
by selling
stockholder
upon exercise
of warrants
|
Percentage
beneficial
ownership
after
offering(1)
|
||||||||||||
Antecip
Capital LLC (2)
|
1,466,666 | 1,333,333 | 133,333 | - | ||||||||||||
BAM
Opportunity Fund, L.P. (3)
|
2,724,563 | 2,000,000 | 200,000 | * | ||||||||||||
Brian
Wornow
|
1,100,000 | 1,000,000 | 100,000 | - | ||||||||||||
Caduceus
Capital II, L.P. (4)
|
11,090,578 | 1,900,000 | 850,000 | - | ||||||||||||
Caduceus
Capital Master Fund Limited (4)
|
11,090,578 | 2,700,000 | 1,260,000 | - | ||||||||||||
Deerfield
Private Design Fund, L.P. (5)
|
5,111,588 | 4,646,899 | 464,689 | - | ||||||||||||
Deerfield
Private Design International, L.P. (5)
|
8,234,595 | 7,485,997 | 748,598 | - | ||||||||||||
Deerfield
Special Situations Fund International Limited (5)
|
3,608,798 | 1,570,000 | 156,999 | 2.03 | % | |||||||||||
Deerfield
Special Situations Fund, L.P. (5)
|
2,009,974 | 856,580 | 85,658 | 1.15 | % | |||||||||||
Perceptive
Life Sciences Master Fund Ltd. (6)
|
13,935,406 | 7,612,000 | 6,323,406 | - | ||||||||||||
PW
Eucalyptus Fund, Ltd. (4)
|
11,090,578 | 180,000 | 84,000 | - | ||||||||||||
Quogue
Capital LLC (7)
|
12,128,510 | 6,612,000 | 4,516,510 | 1.08 | % | |||||||||||
Straus
Healthcare Partners, L.P. (8)
|
3,116,666 | 773,500 | 77,350 | - | ||||||||||||
Straus
Partners, L.P. (8)
|
3,116,666 | 1,235,900 | 123,590 | - | ||||||||||||
Straus-GEPT
Partners, L.P. (8)
|
3,116,666 | 823,933 | 82,393 | - | ||||||||||||
Summer
Street Life Sciences Hedge Fund Investors LLC (4)
|
11,090,578 | 932,000 | 434,578 | - | ||||||||||||
UBS
Eucalyptus Fund, L.L.C. (4)
|
11,090,578 | 1,900,000 | 850,000 | - | ||||||||||||
TOTAL
|
43,562,142 | 16,491,104 |
* denotes less than
1%
(1)
|
Based
on 92,636,250 shares of outstanding common stock, which assumes the
issuance of all shares offered hereby that are issuable upon exercise of
warrants. Beneficial ownership is determined in accordance with Rule 13d-3
under the Securities Act, and includes any shares as to which
the security or stockholder has sole or shared voting power or investment
power, and also any shares which the security or stockholder has the right
to acquire within 60 days of the date hereof, whether through the exercise
or conversion of any stock option, convertible security, warrant or other
right. The indication herein that shares are beneficially owned is not an
admission on the part of the security or stockholder that he, she or it is
a direct or indirect beneficial owner of those shares.
|
(2)
|
Herriot
Tabuteau, managing member of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(3)
|
BAM
Capital, LLC is the general partner of the selling stockholder, and BAM
Management, LLC is the investment manager of the selling
stockholder. Ross Berman and Hal Mintz are the managing members
of BAM Capital, LLC and BAM Management, LLC. As such, each of
BAM Capital, LLC; BAM Management, LLC; and Messrs. Berman and Mintz have
the power to vote and otherwise direct the disposition of investments held
by the selling stockholder and thereby may be deemed beneficial
owners. Each of the foregoing disclaims beneficial ownership
except to the extent of his/its pecuniary
interest.
|
21
(4)
|
Beneficial
ownership includes (i) 1,900,000 shares of our common stock and warrants
to purchase 850,000 shares of our common stock held by Caduceus Capital
II, L.P.; (ii) 2,700,000 shares of our common stock and warrants to
purchase 1,260,000 shares of our common stock held by Caduceus Capital
Master Fund Limited; (iii) 180,000 shares of our common stock and warrants
to purchase 84,000 shares of our common stock held by PW Eucalyptus Fund,
Ltd.; (iv) 932,000 shares of our common stock and warrants to purchase
434,578 shares of our common stock held by Summer Street Life Sciences
Hedge Fund Investors LLC; and (v) 1,900,000 shares of our common stock and
warrants to purchase 850,000 shares of our common stock held by UBS
Eucalyptus Fund, L.L.C. OrbiMed Advisors LLC is the investment
advisor to Caduceus Capital II, L.P., UBS Eucalyptus Fund, L.L.C., and PW
Eucalyptus Fund, Ltd. OrbiMed Capital LLC is the investment
advisor to Caduceus Capital Master Fund Limited and Summer Street Life
Sciences Hedge Fund Investors LLC. Samuel D. Isaly, managing
member of OrbiMed Advisors LLC and OrbiMed Capital LLC, holds voting
and/or dispositive power over the shares held by the selling
stockholders.
|
(5)
|
Beneficial
ownership includes (i) 4,646,899 shares of our common stock and warrants
to purchase 464,689 shares of our common stock held by Deerfield Private
Design Fund, L.P.; (ii) 7,485,997 shares of our common stock and warrants
to purchase 748,598 shares of our common stock held by Deerfield Private
Design International, L.P.; (iii) 3,451,799 shares of our common stock and
warrants to purchase 156,999 shares of our common stock held by Deerfield
Special Situations Fund International Limited; and (iv) 1,924,316 shares
of our common stock and warrants to purchase 85,658 shares of our common
stock held by Deerfield Special Situations Fund, L.P. Deerfield
Capital, L.P. is the general partner of Deerfield Private Design Fund,
L.P., Deerfield Private Design International, L.P., and Deerfield Special
Situations Fund, L.P. Deerfield Management Company, L.P. is the
investment manager of Deerfield Special Situations Fund International
Limited. James E. Flynn, managing member of Deerfield Capital,
L.P. and Deerfield Management Company, L.P., holds voting and dispositive
power over the shares held by these selling stockholders, which we
collectively refer to as Deerfield. In October 2007, we entered
into a Facility Agreement with Deerfield pursuant to which Deerfield
agreed to loan us up to $30 million. As of the date of this prospectus, we
have drawn down a total of $27.5 million under the Facility
Agreement. Our ability to draw down the remaining $2.5 million
is subject to the achievement of a milestone relating to the clinical
development of our Menadione product candidate. Deerfield’s
obligation to disburse loan proceeds expires October 30, 2010, and we must
repay all outstanding principal and interest owing under the loan no later
than October 30, 2013. We are also required to make quarterly interest
payments on outstanding principal, at a stated annual rate of 9.85%. In
accordance with and upon execution of the Facility Agreement, we paid a
loan commitment fee of $1.1 million to an affiliate of
Deerfield. Our obligations under the Facility Agreement are
secured by all assets owned (or that will be owned in the future) by us,
both tangible and intangible.
|
(6)
|
Joseph
Edelman holds voting and/or dispositive power over the shares held by the
selling stockholder.
|
(7)
|
Wayne
Rothbaum, president of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(8)
|
Beneficial
ownership includes (i) 773,500 shares of our common stock and warrants to
purchase 77,350 shares of our common stock held by Straus Healthcare
Partners, L.P.; (ii) 1,235,900 shares of our common stock and warrants to
purchase 123,590 shares of our common stock held by Straus Partners, L.P.;
and (iii) 823,933 shares of our common stock and warrants to purchase
82,393 shares of our common stock held by Straus-GEPT Partners,
L.P. Ravinder Holder, general partner of each of the selling
stockholders, holds voting and/or dispositive power over the shares held
by the selling
stockholders.
|
22
PLAN
OF DISTRIBUTION
We are
registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein includes donees,
pledgees, transferees or other successors-in-interest selling shares of common
stock or interests in shares of common stock received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices. To the extent any of
the selling stockholders gift, pledge or otherwise transfer the shares offered
hereby, such transferees may offer and sell the shares from time to time under
this prospectus, provided that this prospectus has been amended under Rule
424(b)(3) or other applicable provision of the Securities Act to include the
name of such transferee in the list of selling stockholders under this
prospectus.
The selling stockholders may use any
one or more of the following methods when disposing of shares or interests
therein:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales;
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The selling stockholders may, from time
to time, pledge or grant a security interest in some or all of the shares of
common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
shares of common stock, from time to time, under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
In connection with the sale of our
common stock or interests therein, the selling stockholders may enter into
hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the common stock in the course of hedging
the positions they assume. The selling stockholders may also sell shares of our
common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn may
sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
23
The selling stockholders also may
resell all or a portion of the shares in open market transactions in reliance
upon Rule 144 under the Securities Act of 1933, provided that they meet the
criteria and conform to the requirements of that rule.
The selling shareholders might be, and
any broker-dealers that act in connection with the sale of securities will be,
deemed to be “underwriters” within the meaning of Section 2(11) of the
Securities Act, and any commissions received by such broker-dealers and any
profit on the resale of the securities sold by them while acting as principals
will be deemed to be underwriting discounts or commissions under the Securities
Act.
To the extent required, the shares of
our common stock to be sold, the names of the selling stockholders, the
respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement
or, if appropriate, a post-effective amendment to the registration statement
that includes this prospectus.
In order to comply with the securities
laws of some states, if applicable, the common stock may be sold in these
jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
We have advised the selling
stockholders that the anti-manipulation rules of Regulation M under the Exchange
Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, we will make copies of
this prospectus (as it may be supplemented or amended from time to time)
available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The selling stockholders
may indemnify any broker-dealer that participates in transactions involving the
sale of the shares against certain liabilities, including liabilities arising
under the Securities Act.
We have agreed to indemnify the selling
stockholders against liabilities, including liabilities under the Securities Act
and state securities laws, relating to the registration of the shares offered by
this prospectus. The selling stockholders have agreed to indemnify us
in certain circumstances against certain liabilities, including liabilities
under the Securities Act.
We have
agreed with the selling stockholders to keep the registration statement that
includes this prospectus effective until the earlier of (1) such time as all of
the shares covered by this prospectus have been disposed of pursuant to and in
accordance with the registration statement or (2) the date on which the shares
may be sold pursuant to Rule 144 of the Securities Act. We have
agreed to pay all expenses in connection with this offering, but not including
underwriting discounts, concessions, commissions or fees of the selling
stockholders or any fees and expenses of counsel or other advisors to the
selling stockholders.
Shares
Eligible For Future Sale
Upon
completion of this offering and assuming the issuance of all of the shares
covered by this prospectus that are issuable upon the exercise of warrants,
there will be 92,636,250 shares of our common stock issued and outstanding. The
shares purchased in this offering will be freely tradable without registration
or other restriction under the Securities Act, except for any shares purchased
by an “affiliate” of our company (as defined in the Securities
Act).
The selling stockholders also may
resell all or a portion of the shares in open market transactions in reliance
upon Rule 144 under the Securities Act, provided they meet the criteria and
conform to the requirements of such Rule. Rule 144 governs resale of
“restricted securities” for the account of any person (other than us), and
restricted and unrestricted securities for the account of an “affiliate” of
ours. Restricted securities generally include any securities acquired
directly or indirectly from us or our affiliates, which were not issued or sold
in connection with a public offering registered under the Securities Act.
An affiliate of ours is any person who directly or indirectly controls us,
is controlled by us, or is under common control with us. Our affiliates
may include our directors, executive officers, and persons directly or
indirectly owing 10% or more of our outstanding common stock. In general,
under Rule 144, a person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of ours at the time of, or at any time during
the three months preceding, a sale, and who has beneficially owned restricted
securities for at least six months would be entitled to sell those shares,
subject to the requirements of Rule 144 regarding publicly available information
about us. Accordingly, the shares held by the selling stockholders will
become eligible for sale under Rule 144 in April 2010. Affiliates may
only sell in any three month period that number of shares that does not exceed
the greater of 1 percent of the then-outstanding shares of our common stock or
the average weekly trading volume of our shares of common stock in the
over-the-counter market during the four calendar weeks preceding the
sale.
24
Following
the date of this prospectus, we cannot predict the effect, if any, that sales of
our common stock or the availability of our common stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales by existing
stockholders of substantial amounts of our common stock could adversely affect
prevailing market prices for our stock.
DESCRIPTION
OF CAPITAL STOCK
General
Our
certificate of incorporation authorizes us to issue 110 million shares of
capital stock, par value $0.001 per share, comprised of 100 million shares of
common stock, and 10 million shares of preferred stock.
We have
no shares of preferred stock issued or outstanding. Following the October 2009
private placement, we have issued and outstanding approximately:
|
·
|
76,145,146
shares of our common stock,
|
|
·
|
options
to purchase 5,174,371 shares of our common stock at exercise prices
ranging from $0.07 to $10.98 per share,
and
|
|
·
|
warrants
to purchase 18,248,082 shares of our common stock at exercise prices
ranging from $0.01 to $5.80 per
share.
|
The
holders of common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights. Upon our liquidation, dissolution or winding down,
holders of our common stock will be entitled to share ratably in all of our
assets that are legally available for distribution, after payment of all debts
and other liabilities. The holders of our common stock have no preemptive,
subscription, redemption or conversion rights.
Holders
of our common stock are entitled to receive such dividends, as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. We seek growth and expansion of our business through the
reinvestment of profits, if any, and do not anticipate that we will pay
dividends in the foreseeable future.
Authority to Issue Stock
Our board
of directors has the authority to issue the authorized but unissued shares of
our common stock without action by the shareholders. The issuance of such shares
would reduce the percentage ownership held by current shareholders.
Our board
of directors also has the authority to issue up to 10 million shares of
preferred stock, none of which are issued or currently outstanding. The board of
directors has the authority to fix and determine the relative rights and
preferences of preferred shares, as well as the authority to issue such shares,
without further stockholder approval. As a result, our board of directors could
authorize the issuance of a series of preferred stock that is senior to the
common stock and that would grant to holders preferred rights to our assets upon
liquidation, the right to receive dividends, additional registration rights,
anti-dilution protection, the right to the redemption to such shares, together
with other rights, none of which will be afforded holders of our common stock.
See “Risk Factors – Risks
Related to Our Securities – There may be issuances of shares of blank
check preferred stock in the future.”
25
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
for Common Stock
From
September 22, 2005 through April 13, 2006, our common stock traded on the
American Stock Exchange under the symbol “HBX.” From April 17, 2006
to June 2, 2008 our common stock traded on the NASDAQ Global Market under the
symbol “HNAB.” From June 3, 2008 to September 9, 2009, our common
stock traded on the NASDAQ Capital Market under the same
symbol. Since September 11, 2009, our common stock has traded on the
OTC Bulletin Board under the symbol “HNAB.OB.”
The
following table lists the high and low sale price for our common stock as
quoted, in U.S. dollars, by the NASDAQ Global Market, the NASDAQ Capital Market,
and the OTC Bulletin Board, as applicable, during each quarter within the last
two fiscal years and during each of the first three quarters of fiscal
2009.
Price Range
|
||||||||
Quarter
Ended
|
High
|
Low
|
||||||
March
31, 2007
|
$ |
6.38
|
$ |
1.82
|
||||
June
30, 2007
|
2.42
|
1.45
|
||||||
September
30, 2007
|
1.89
|
1.03
|
||||||
December
31, 2007
|
1.69
|
0.96
|
||||||
March
31, 2008
|
1.48
|
0.74
|
||||||
June
30, 2008
|
1.10
|
0.70
|
||||||
September
30, 2008
|
0.79
|
0.50
|
||||||
December
31, 2008
|
0.63
|
0.15
|
||||||
March
31, 2009
|
0.33
|
0.08
|
||||||
June
30, 2009
|
1.00
|
0.13
|
||||||
September
30, 2009
|
0.94
|
0.42
|
Record
Holders
As of October 29, 2009, we had
approximately 98 holders of record of our common stock, one of which was
Cede & Co., a nominee for Depository Trust Company, or DTC. Shares of common
stock that are held by financial institutions as nominees for beneficial owners
are deposited into participant accounts at DTC, and are considered to be held of
record by Cede & Co. as one stockholder.
Dividends
We have
not paid or declared any dividends on our common stock and we do not anticipate
paying dividends on our common stock in the foreseeable future.
26
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information on the Company's equity based compensation
plans as of December 31, 2008:
Plan
category
|
Number
of
securities
to be
issued
upon
exercise
of
outstanding
options,
warrants
and
rights
(a)
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and
rights
(b)
|
Number
of
Securities
remaining
available
for
future
issuance
(excluding
securities
reflected
in
column
(a)
(c)
|
|||||||||
|
||||||||||||
Equity
compensation plans not approved by stockholders-outside any
plan(1)
|
239,713
|
$
|
0.65
|
N/A
|
||||||||
Equity
compensation plans approved by stockholders-2003 Plan Stock Option
Plan
|
410,497
|
3.53
|
730,893
|
|||||||||
Equity
compensation plans approved by stockholders-2004 Plan Stock Incentive
Plan
|
3,820,661
|
2.34
|
2,711,743
|
|||||||||
Equity
compensation plans approved by stockholders-2006 Employee Stock Purchase
Plan
|
N/A
|
$
|
0.20
|
618,378
|
||||||||
Total
|
4,470,871
|
4,061,014
|
(1)
|
Represents
shares of common stock issuable outside of any stock option
plan.
|
On October 2, 2009, our Board of
Directors adopted amendments to the 2003 Stock Option Plan, or 2003 Plan, and
2004 Stock Incentive Plan, or 2004 Plan. Pursuant to the amendments,
the number of shares of common stock authorized for issuance under the 2003 Plan
was reduced from 1,410,068 to 668,342, of which 399,664 shares are reserved for
issuance pursuant to the exercise of outstanding stock options, and 268,678
shares have previously been issued under the 2003 Plan. Similarly,
the number of shares of common stock authorized for issuance under the 2004 Plan
was reduced from 7,000,000 to 5,013,257, of which 4,545,661 shares are reserved
for issuance pursuant to the exercise of outstanding stock options, and 467,596
shares have previously been issued under the 2004 Plan.
For additional information concerning
our equity compensation plans, please see Note 4 of our audited financial
statements as of and for the year ended December 31, 2008, and Note 5 of our
unaudited condensed financial statements as of and for the interim period ended
June 30, 2009, included in this prospectus.
27
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and the notes to those
statements included in this prospectus. This discussion includes forward-looking
statements that involve risk and uncertainties. As a result of many factors,
such as those set forth in this prospectus under “Risk Factors,” actual results
may differ materially from those anticipated in these forward-looking
statements.
Overview
We are a
biopharmaceutical company dedicated to developing and commercializing new,
differentiated cancer therapies designed to improve and enable current standards
of care. We currently have four product candidates in various stages
of development:
·
|
Marqibo®
(vincristine sulfate liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vincristine, being developed for the treatment of adult acute
lymphoblastic leukemia.
|
·
|
Menadione
Topical Lotion, a novel supportive care product candidate, being developed
for the prevention and/or treatment of the skin toxicities associated with
the use of epidermal growth factor receptor inhibitors (EGFRI), a type of
anti-cancer agent used in the treatment of certain
cancers.
|
·
|
Brakiva™
(topotecan liposomes injection), a novel targeted Optisome™ encapsulated
formulation product candidate of the FDA-approved anticancer drug
topotecan, being developed for the treatment of solid tumors including
small cell lung cancer and ovarian
cancer.
|
·
|
Alocrest™
(vinorelbine liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vinorelbine, being developed for the treatment of solid tumors such
as non-small-cell lung cancer.
|
Revenues
We do not
expect to generate any significant revenue from product sales or royalties in
the foreseeable future. We anticipate that any revenues that we may recognize in
the near future will be related to upfront, milestone development funding
payments received pursuant to strategic license agreements or partnerships and
that we may have large fluctuations of revenue recognized from quarter to
quarter as a result of the timing and the amount of these payments. We may be
unable to control the development of commercialization of these products and may
be unable to estimate the timing and amount of revenue to be recognized pursuant
to these agreements. Revenue from these agreements and partnerships helps us
fund our continuing operations. Our revenues may increase in the future if we
are able to develop and commercialize our products, license our technology
and/or enter into strategic partnerships. If we are unsuccessful, our future
revenues will decrease and we may be forced to limit our development of our
product candidates.
Research
and Development Expenses
Research
and development expenses, which account for the bulk of our expenses, consist
primarily of salaries and related personnel costs, fees paid to consultants and
outside service providers for clinical development, manufacturing, legal
expenses resulting from intellectual property protection, business development
and organizational affairs and other expenses relating to the acquiring, design,
development, testing, and enhancement of our product candidates, including
milestone payments for licensed technology. We expense our research and
development costs as they are incurred.
While
expenditures on current and future clinical development programs are expected to
be substantial, particularly in light of our available resources, they are
subject to many uncertainties, including the results of clinical trials and
whether we develop any of our drug candidates with a partner or independently.
As a result of such uncertainties, we cannot predict with any significant degree
of certainty the duration and completion costs of our research and development
projects or whether, when and to what extent we will generate revenues from the
commercialization and sale of any of our product candidates. The duration and
cost of clinical trials may vary significantly over the life of a project as a
result of unanticipated events arising during clinical development and a variety
of factors, including:
· the number of trials and studies in a
clinical program;
28
· the number of patients who participate
in the trials;
· the number of sites included in the
trials;
· the rates of patient recruitment and
enrollment;
· the duration of patient treatment and
follow-up;
· the costs of manufacturing our drug
candidates; and
· the costs, requirements, timing of, and
the ability to secure regulatory approvals.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and related expenses
for executive, finance and other administrative personnel, recruitment expenses,
professional fees and other corporate expenses, including accounting
and general legal expenses.
Share-based
Compensation
Share-based
compensation expenses consist primarily of expensing the fair-market value of a
share-based award over the vesting term. This expense is included in our
operating expenses for each reporting period.
Results
of Operations
Six
Months Ended June 30, 2009 Compared to Six Months Ended June 30,
2008
General and administrative
expenses. For the six months ended June 30, 2009, general and
administrative, or G&A, expense was $2.0 million, as compared to $3.7
million for the six months ended June 30, 2008. The decrease of $1.7
million is due to decreased personnel related expenses of $1.1 million,
decreased costs for outside services and professional services of $0.4 million
and decreased allocable expenses of $0.2 million.
The $1.1
million decrease in employee-related expenses includes:
·
|
a
decrease of $0.9 million in employee related share-based compensation
expense due to decreased valuation of stock options issued to employees as
a result of the decrease in value of the Company’s stock price
and
|
·
|
a
decrease of $0.2 million in salary and benefits, due mainly to the
reduction in headcount and decreased compensation measures.
|
The $0.4
million decrease in outside services and professional fees
includes:
·
|
a
decrease of $0.2 million in market research on our leading product
candidates and
|
·
|
a
decrease of $0.2 million in legal, accounting and other consulting
fees.
|
The $0.2
million decrease of allocable expenses is mainly a result of cost reduction
measures undertaken by the Company to decelerate our cash burn.
Research and development
expenses. The following table summarizes our R&D expenses incurred
for preclinical support, contract manufacturing for clinical supplies and
clinical trial services provided by third parties, as well as milestone payments
for in-licensed technology for each of our current major product development
programs for the six months ended June 30, 2009 and 2008. The table
also summarizes unallocated costs, which consist of personnel, facilities and
other costs not directly allocable to development programs.
29
For
the Six Months
Ended
June 30,
|
||||||||||||
2009
|
2008
|
Annual %
|
||||||||||
Product candidates ($ in thousands)
for the six months
ended
June 30
|
($ in
thousands)
|
Change
|
||||||||||
Marqibo
|
$
|
2,579
|
$
|
1,992
|
29
|
%
|
||||||
Menadione
|
573
|
816
|
-30
|
%
|
||||||||
Brakiva
|
224
|
852
|
-74
|
%
|
||||||||
Alocrest
|
(7
|
)
|
420
|
NA
|
||||||||
Discontinued/out-licensed
product candidates
|
3
|
(10
|
)
|
NA
|
||||||||
Total
third party costs
|
1,048
|
1,467
|
-29
|
%
|
||||||||
Allocable
costs and overhead
|
603
|
731
|
-18
|
%
|
||||||||
Personnel
related expense
|
2,439
|
2,208
|
10
|
%
|
||||||||
Share-based
compensation expense
|
263
|
208
|
26
|
%
|
||||||||
Total
research and development expense
|
$
|
7,725
|
$
|
8,684
|
-11
|
%
|
Marqibo.
For the six
months ended June 30, 2009, Marqibo costs increased by $0.6 million compared to
the same period in 2008, mostly related to increased spending on the rALLy and
uveal melanoma trials .
Menadione. For
the six months ended June 30, 2009, Menadione costs decreased by $0.2
million. The decrease was due to lower spending on the Phase 1
clinical trial as we reduced our costs to outside service providers for the
study and decreased manufacturing expenses.
Brakiva.
For the six months ended June 30, 2009, Brakiva costs decreased by
$0.6 million. The decrease was due to lower spending on manufacturing
the drug as most manufacturing for the Phase 1 trial was performed in
2008.
Alocrest.
For the three months ended June 30, 2009, Alocrest costs decreased
by $0.4 million. The decrease was due to the decreased cost of the
Phase 1 clinical trail that finished enrollment in 2008
Discontinued/Out-licensed
projects. We did not pursue development on our
discontinued/out-licensed product candidates in the six months ended June 30,
2009, which includes Zensana which was out-licensed in 2007, and IPdR and
Talvesta, which were terminated in 2006 and 2007, respectively. We
may incur only incidental expenses in 2009 related to the continued disposition
of these terminated products.
Other R&D
expenses. Third-party costs related to indirect support of
our clinical trials and product candidates decreased by $0.4 million in the
three months ended June 30, 2009. These costs are not directly
allocable to an individual product candidate and primarily relate to outside
services and professional fees related to indirect support of our R&D
functions including data management, regulatory and clinical
development. We expect these costs to remain low in 2009 compared to
2008 as we seek to reduce external costs in order to reduce our cash burn
rate. If we are able to obtain our desired funding, we expect these
costs to rise in the next twelve months as we finish the rALLy study in Marqibo
and prepare for the confirmatory study for Marqibo as well as prepare for a
possible NDA submission for Marqibo in the ALL indication. Allocable
costs decreased by $0.1 million as a result of cost-cutting measures that we
have pursued. We expect these costs to continue to decrease in 2009
compared to 2008. Personnel related costs increased slightly in the
six months ended June 30, 2009 and we expect these costs to remain slightly
higher in 2009 due to certain executive positions that have been filled in later
2008 and early 2009. Stock compensation expense increased slightly
due to a large credit to expense when certain key executives terminated last
year and a portion of their previously expensed stock compensation expense
previously taken was reversed. This is partially off-set by the
decrease in the value of options issued in recent periods compared to those
issued in previous periods. We expect share-based compensation will
decrease in the future until our stock price increases or the amount of options
issued increases.
Interest income. For the six
months ended June 30, 2009, interest income was approximately $12,000 compared
to interest income of $0.2 million for the six months ended June 30, 2008. The
change is a result of decreased cash balances in our interest bearing accounts
as well as decreasing interest rates.
Interest expense. For the six
months ended June 30, 2009, interest expense was $1.6 million as compared to
interest expense of $0.5 million for the six months ended June 30, 2008. The
increase resulted from a larger average balance outstanding on our loan facility
with Deerfield. We originally entered into this loan agreement in
October 2007.
30
Gain or loss on change in fair
market value of warrant liabilities. For the six months ended June 30,
2009, we recognized a loss related to the change in fair market value of the
warrant liabilities, pursuant to the warrants issued to Deerfield as part of the
Facility Loan Agreement (see Note 4) of $2.2 million. In six months ended
June 30, 2008, we recognized a gain on this warrant liability of approximately
$1.8 million. The value of these warrants is largely dependent on the
price of our common stock, and as the stock price increases, the value of these
warrants will increase and our loss on the change in market value will
increase.
Impairment on
investments. For the six months ended June 30, 2009, we did no
recognize any impairments on our available-for-sale securities. For
six months ended June 30, 2008, we recognized an other-than-temporary impairment
in the available-for-sale securities of $108,000
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
General and administrative
expenses. For the year ended December 31, 2008, general and
administrative, or G&A, expense was $5.8 million, as compared to $8.0
million for the year ended December 31, 2007. The decrease of $2.2
million is due to decreased personnel related expenses of $1.3 million,
decreased costs for outside services and professional services of $0.7 million
and decreased allocable expenses of $0.2 million.
The $1.3
million decrease in employee-related expenses includes:
·
|
a
decrease of $0.7 million in employee related share-based compensation
expense is due to decreased valuation of stock options issued to employees
as a result of the decrease in value of the Company’s stock price
and
|
·
|
a
decrease of $0.6 million in salary and benefits, due mainly to the
reduction in headcount after our rights to Zensana were out-licensed in
mid 2007.
|
The $0.7
million decrease in outside services and professional fees
includes:
·
|
a
decrease of $0.4 million for advertising, market research and other
professional fees mostly related to fees incurred in 2007 for Zensana
and
|
·
|
a
decrease of $0.3 million for legal, accounting and consulting fees in
2008.
|
The $0.2
million decrease of allocable expenses includes a decrease of costs related
to Zensana commercialization in 2007 prior to out-licensing the
program.
Research and development
expenses The following table summarizes our R&D expenses incurred for
preclinical support, contract manufacturing for clinical supplies and clinical
trial services provided by third parties, as well as milestone payments for
in-licensed technology for each of our current major product development
programs for the years ended December 31, 2008 and 2007, plus
the cumulative amounts for the last five years or since we began
development of a product candidate if it has not been in development for five
years. The table also summarizes unallocated costs, which consist of
personnel, facilities and other costs not directly allocable to development
programs.
Product candidates ($ in thousands)
|
2008
|
2007
|
Annual %
Change
|
(5 years) Jan.
1, 2004 to Dec
31, 2008
|
||||||||||||
Marqibo
|
$
|
4,248
|
$
|
2,849
|
49
|
%
|
$
|
8,420
|
||||||||
Menadione
|
2,929
|
2,488
|
18
|
%
|
5,681
|
|||||||||||
Brakiva
|
953
|
1,416
|
-33
|
%
|
3,319
|
|||||||||||
Alocrest
|
699
|
1,877
|
-63
|
%
|
3,413
|
|||||||||||
Discontinued/out-licensed
product candidates
|
(17
|
)
|
1,439
|
N/A
|
12,372
|
|||||||||||
Total
third party costs
|
3,222
|
2,222
|
45
|
%
|
24,644
|
|||||||||||
Allocable
costs and overhead
|
1,421
|
1,927
|
-26
|
%
|
5,517
|
|||||||||||
Personnel
related expense
|
4,309
|
4,540
|
-5
|
%
|
15,112
|
|||||||||||
Share-based
compensation expense
|
663
|
2,535
|
-74
|
%
|
7,452
|
|||||||||||
Total
research and development expense
|
$
|
18,427
|
$
|
21,293
|
-13
|
%
|
$
|
85,930
|
31
Marqibo.
In 2008, we
continued enrollment in our Phase 2, registration-enabling, open-label trial in
relapsed adult ALL and our pilot Phase 2 trial in metastic uveal melanoma. We
achieved target enrollment for both trials in 2009. We plan to
initiate a confirmatory trial in 2010 and we also intend to seek accelerated
approval in the ALL indication in 2010, pending the results of our Phase 2 study
in relapsed adult ALL. We expect to spend approximately $5.0 million
on external project costs relating to Marqibo in 2009. We estimate that we will
need to expend at least an additional aggregate of approximately $45 million in
order for us to obtain full FDA approval for Marqibo, if ever, which includes
milestone payments that would be owed to our licensor upon FDA approval.
We expect that it will take approximately three to four years until we will have
completed development and obtained full FDA approval of Marqibo, if
ever.
Menadione. In
2008, we initiated two Phase 1 clinical trials in Menadione including one in
healthy volunteers and one in cancer patients. We completed the
healthy volunteer trial and are continuing to enroll in the cancer patient
trial. As this drug is early in its clinical development, both the
registrational strategy and total expenditures to obtain FDA approval are still
being evaluated. However, we expect to spend approximately $0.8 million on
external project costs relating to Menadione in 2009, and we estimate that we
will need to expend at least an aggregate of approximately $40 million of
additional funds in order for us to obtain full FDA approval for Menadione, if
ever, which includes milestone payments that would be owed to our licensor upon
FDA approval. We expect that it will take approximately four
to five years until we will have completed development and obtained FDA
approval, if ever. Per the
terms of the securities purchase agreement completed in October 2009, we agreed
to use the proceeds of the sale of those securities solely for the clinical and
regulatory development of our Marqibo program. As such, future development of
Menadione is contingent on obtaining additional funding, if any such funding is
available in the future.
Brakiva.
We initiated a Phase 1 clinical trial in November 2008. We plan to
complete enrollment in this clinical trial in 2010 and expect that we will
expend approximately $0.5 million in 2009. We are exploring options
for further development of Brakiva beyond the phase 1 trial. As this
drug is early in its clinical development, both the registrational strategy and
total expenditures to obtain FDA approval are still being
evaluated.
Alocrest.
We completed enrollment in a Phase 1 clinical trial in early 2008.
This Phase 1 trial was designed to assess safety, tolerability and preliminary
efficacy in patients with advanced solid tumors. We are currently exploring
options for the continued development of Alocrest and do not expect to incur
significant project costs in 2009.
Discontinued/Out-licensed
projects. We did not pursue development on our
discontinued/out-license product candidates in 2008. These include
Zensana which was out-licensed in 2007, IPdR and Talvesta, which were terminated
in 2006 and 2007, respectively. We may incur only incidental expenses
in 2009 related to the continued disposition of these terminated
products.
Other R&D
expenses. Third-party costs related to indirect support of our
clinical trials and product candidates increased in 2008. These costs
are not directly allocable to an individual product candidate. We
expect these costs to remain flat in 2009 as we finish the rALLy study in
Marqibo and prepare for the confirmatory study for Marqibo. Allocable
costs decreased as a result of cost-cutting measures pursued by the
Company. We expect these costs to stay flat in
2009. Personnel related costs decreased in 2008 and we expect these
costs to continue to decrease. Our headcount at the end of 2008 was
lower than at the end of 2007 and we expect the average headcount in 2009 to be
lower than 2008. We expect stock-based compensation will continue to
decrease until our stock price increases or the amount of options issued
increases.
Interest income. For the year
ended December 31, 2008, interest income was $0.3 million as compared to
interest income of $1.2 million for the year ended December 31, 2007. The
decrease of $0.9 million resulted from decreased cash balance in our interest
bearing accounts and lower yields on our deposits.
Interest expense. For the
year ended December 31, 2008, interest expense was $1.4 million as compared to
interest expense of $0.2 million for the year ended December 31, 2007. The
increase resulted from a larger average balance outstanding on our loan facility
with Deerfield. We originally entered into this loan agreement in
October 2007.
Other expense, net. For the
year ended December 31, 2008, net other expense was $0.1 million as compared to
net other expense of $0.5 million for the year ended December 31, 2007.
The decrease of $0.4 million is due mainly to realized losses of $0.4
million due to impairment of our available-for-sale securities in 2007 compared
to a loss of only $0.1 million in 2008.
32
Gain on change in fair market value
of warrant liabilities. For the year ended December 31, 2008, we
recognized a gain related to the change in fair market value of the warrant
liabilities, pursuant to the warrants issued to Deerfield as part of the
Facility Loan Agreement (see Note 3) of $3.2 million. In 2007, our gain on
this warrant liability was $1.6 million. The value of these warrants is
largely dependant the price of our common stock, and as the stock price is
reduced, the value of these warrants will decrease and our gain on the change in
market value will increase.
Income tax expense. There was
no current or deferred income tax expense (other than state minimum tax) for the
years ended December 31, 2008 and 2007 because of our operating losses. A 100%
valuation allowance has been recorded against our $46.3 million of deferred tax
assets as of December 31, 2008. Historical performance leads management to
believe that realization of these assets is uncertain. As a result of the
valuation allowance, our effective tax rate differs from the statutory
rate.
Liquidity
and Capital Resources
As of
June 30, 2009, we had aggregate cash and cash equivalents and available-for-sale
securities of $8.3 million. In connection with our October 2009 private
placement, we received net cash proceeds of approximately $11.7 million after
expenses. In addition, pursuant to the Deerfield loan facility, we have $2.5
million that may become available to us if we achieve a certain milestone in the
development of our product candidate Menadione. We do not anticipate
that we will achieve this milestone by the middle of 2010. We have
drawn down $27.5 million of the total $30 million available under the
agreement.
Through
June 30, 2009, we have an accumulated deficit of $124.5
million. Management expects this deficit to increase in future
periods as we continue to develop our product candidates. We expect
to incur sizeable expenses in our Marqibo development program as we expect to
complete enrollment in the Phase 2 registration-enabling study by the end of
2009. Our continued operations will depend on whether we are able to
raise additional funds through various potential sources, such as equity and
debt financing. Through June 30, 2009, a significant portion of our financing
has been and will continue to be through private placements of common stock,
preferred stock and debt financing.
We can
give no assurances that any additional capital that we are able to obtain will
be sufficient to meet our needs which raises substantial doubt about our ability
to continue operating as a going concern. Given the current and
desired pace of clinical development of our product candidates, we estimate that
we only have sufficient cash on hand to fund clinical development into
mid-2010. We will be forced to raise additional capital in 2010 in
order to fund our future development activities, likely by selling shares of our
capital stock or through debt financing. If we are unable to raise additional
capital or enter into strategic partnerships and/or license agreements, we will
be required to cease operations or curtail our desired development activities,
which will delay the development of our product candidates. There can
be no assurance that such capital will be available to us on favorable terms or
at all, particularly in light of the general economic conditions, which have
severely limited our access to the capital markets. We will need additional
financing thereafter until we can achieve profitability, if ever.
Current and Future Financing
Needs. We currently do not have enough capital resources to fund our
entire development plan through 2010. Our plan of operation for the year ending
December 31, 2009 is to continue implementing our business strategy, including
the continued development of our four product candidates that are currently in
various clinical phases. We expect our principal expenditures during the
next 12 months to include:
·
|
operating
expenses, including expanded research and development and general and
administrative expenses;
|
·
|
product
development expenses, including the costs incurred with respect to
applications to conduct clinical trials in the United States, as well as
outside of the United States, for our product candidates, including
manufacturing, intellectual property prosecution and regulatory
compliance.
|
As part
of our planned research and development, we intend to use clinical research
organizations and third parties to help perform our clinical studies and
manufacturing. As indicated above, at our current and desired pace of clinical
development of our product candidates, over the next 12 months we expect to
spend approximately between $16.0 million and $18.0 million on clinical
development (including milestone payments of $0.3 million that we expect to be
triggered under the license agreements relating to our product candidates, half
of which can be satisfied through the issuance of new shares of our common stock
at our discretion). We expect to spend approximately $4.0 million on
general corporate and administrative expenses as well as $0.6 million on
facilities and rent.
We
believe that our cash, cash equivalents and marketable securities, which totaled
$12.9 million after giving effect to our October 2009 private placement, will be
sufficient to meet our anticipated operating needs through the first half of
2010 based upon current operating and spending assumptions. However, we expect
to incur substantial expenses as we continue our drug development efforts,
particularly to the extent we advance our lead candidate Marqibo through a
pivotal clinical study. As part
of the October 2009 private placement, we agreed to use those proceeds solely
for the clinical and regulatory development of our Marqibo program. Future
development of our other products, including Menadione, is contingent on
obtaining additional financing. We cannot
guarantee that future financing will be available in amounts or on terms
acceptable to us, if at all.
33
The
actual amount of funds we will need to operate is subject to many factors, some
of which are beyond our control. These factors include the
following:
·
|
costs
associated with conducting clinical
testing;
|
·
|
costs
of establishing arrangements for manufacturing our product
candidates;
|
·
|
payments
required under our current and any future license agreements and
collaborations;
|
·
|
costs,
timing and outcome of regulatory
reviews;
|
·
|
costs
of obtaining, maintaining and defending patents on our product candidates;
and
|
·
|
costs
of increased general and administrative
expenses.
|
We have
based our estimate on assumptions that may prove to be wrong. We may need to
obtain additional funds sooner or in greater amounts than we currently
anticipate. Potential sources of financing include strategic relationships,
public or private sales of our stock or debt and other sources. We may seek to
access the public or private equity markets when conditions are favorable due to
our long-term capital requirements. We do not have any committed sources of
financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at
all. If we raise funds by selling additional shares of common stock
or other securities convertible into common stock, the ownership interest of our
existing stockholders will be diluted. If we are not able to obtain
financing when needed, we will be unable to carry out our business plan. As a
result, we will have to significantly limit our operations and our business,
financial condition and results of operations would be materially harmed.
Off-Balance
Sheet Arrangements
We do not
have any “off-balance sheet agreements,” as that term is defined by SEC
regulation.
34
DESCRIPTION
OF BUSINESS
Overview
We are a
South San Francisco, California-based biopharmaceutical company dedicated to
developing and commercializing new and differentiated cancer therapies
designed to improve and enable current standards of care. Our two
lead product candidates target large markets and are in pivotal and/or
proof-of-concept clinical trials. We are developing Marqibo® for the
treatment of acute lymphoblastic leukemia and lymphomas. Menadione
topical lotion is a first-in-class compound that we are developing for the
potential prevention and/or treatment of skin toxicity associated with epidermal
growth factor receptor inhibitors. We have additional pipeline
opportunities that, like Marqibo, we believe may improve delivery and enhance
the therapeutic benefits of well characterized, proven chemotherapies and enable
high potency dosing without increased toxicity.
Our
executive offices are located at 7000 Shoreline Court, Suite 370, South San
Francisco, California 94080. Our telephone number is (650) 588-6404 and our
Internet address is www.hanabiosciences.com.
We were originally incorporated under Delaware law in 2002 under the name Hudson
Health Sciences, Inc. In July 2004, we acquired Email Real Estate.com, Inc., a
Colorado corporation and public shell company in a reverse
acquisition. In September 2004, we reincorporated under Delaware law
under the name Hana Biosciences, Inc.
Our
Research and Development Programs
We
currently have rights to the following product candidates in various stages of
development.
·
|
Marqibo®
(vincristine sulfate liposomes injection), our lead product candidate, is
a novel, targeted Optisome™ encapsulated formulation product candidate of
the FDA-approved anticancer drug vincristine, currently in development for
the treatment of adult acute lymphoblastic leukemia, or ALL, and
metastatic uveal melanoma.
|
·
|
Menadione
Topical Lotion, a novel supportive care product candidate being
developed for the prevention and/or treatment of the skin toxicities
associated with the use of epidermal growth factor receptor inhibitors
(EGFRI), a type of anti-cancer agent used in the treatment of lung, colon,
head and neck and pancreatic
cancer.
|
·
|
Brakiva™
(topotecan liposomes injection), a novel targeted Optisome™ encapsulated
formulation product candidate of the FDA-approved anticancer drug
topotecan, being developed for the treatment of solid tumors including
small cell lung cancer and ovarian cancer.
|
·
|
Alocrest™
(vinorelbine liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vinorelbine.
|
Pursuant
to a license agreement originally entered into with NovaDel, Inc. in October
2004, we also maintain certain rights to Zensana (ondansetron HCI) Oral Spray,
which is being developed to alleviate chemotherapy and radiation-induced and
post-operative nausea and vomiting. In July 2007, we sublicensed our
rights to develop and commercialize Zensana to Par Pharmaceutical, Inc. in
exchange for upfront payment and other future consideration, including
royalties.
Industry
Background and Market Opportunity
Cancer is
a group of diseases characterized by either the uncontrolled growth of cells or
the failure of cells to function normally. Cancer is caused by a series of
mutations, or alterations, in genes that control cells’ ability to grow and
divide. These mutations cause cells to rapidly and continuously divide or lose
their normal ability to die. There are more than 100 different varieties of
cancer, which can be divided into six major categories. Carcinomas, the most
common category, include breast, lung, colorectal and prostate cancer. Sarcomas
begin in tissue that connects, supports or surrounds other tissues and organs.
Lymphomas are cancers of the lymphatic system, a part of the body’s immune
system. Leukemias are cancers of blood cells, which originate in the bone
marrow. Brain tumors are cancers that begin in the brain, and skin cancers,
including melanomas, originate in the skin. Cancers are considered metastatic if
they spread via the blood or lymphatic system to other parts of the body to form
secondary tumors.
According
to the American Cancer Society, nearly 1.4 million new cases of cancer were
expected to be diagnosed in 2008 in the United States alone. Cancer is the
second leading cause of death, after heart disease, in the United States, and
was expected to account for more than 565,000 deaths in 2008.
Major cancer treatments include surgery, radiotherapy and chemotherapy.
Supportive care, such as blood cell growth factors, represents another major
segment of the cancer treatment market. There are many different drugs that are
used to offer supportive care and to treat cancer, including cytotoxics or
antineoplastics, hormones and biologics. Major categories
include:
35
·
|
Chemotherapy. Cytotoxic
chemotherapy refers to anticancer drugs that destroy cancer cells by
stopping them from multiplying. Healthy cells can also be harmed with the
use of cytotoxic chemotherapy, especially those that divide quickly.
Cytotoxic agents act primarily on macromolecular synthesis, repair or
activity, which affects the production or function of DNA, RNA or
proteins. Our product candidates Marqibo, Alocrest and Brakiva are
liposome encapsulated cytotoxic agents that we are currently evaluating
for the treatment of solid tumor and hematological
malignancies.
|
·
|
Supportive care. Cancer
treatment can include the use of chemotherapy, radiation therapy, biologic
response modifiers, surgery or some combination of these or other
therapeutic options. All of these treatment options are directed at
killing or eradicating the cancer that exists in the patient’s body.
Unfortunately, the delivery of many cancer therapies adversely affects the
body’s normal organs. These complications of treatment or side effects not
only cause discomfort, but may also prevent the optimal delivery of
therapy to a patient at its maximal dose and time. Our product
candidate Menadione is a supportive care product candidate designed to
treat and prevent skin rash associated with the use of epideral growth
factor receptor inhibitors, or EGFRIs, a class of anti-cancer
agents.
|
Our
Strategy
We are a
committed to developing and commercializing new, differentiated cancer therapies
designed to improve and enable current standards of care. Key aspects of our
strategy include:
·
|
Focus on developing innovative
cancer therapies. We focus on oncology product candidates in order
to capture efficiencies and economies of scale. We believe that drug
development for cancer markets is particularly attractive because
relatively small clinical trials can provide meaningful information
regarding patient response and safety. Because of our limited
resources and the advanced development stage of Marqibo, we intend to
focus substantially all of our resources on the clinical and regulatory
development of Marqibo over the next several
months.
|
·
|
Build a sustainable pipeline
by employing multiple therapeutic approaches and disciplined decision
criteria based on clearly defined proof of principle goals. We seek
to build a sustainable product pipeline by employing multiple therapeutic
approaches and by acquiring product candidates belonging to known drug
classes. In addition, we employ disciplined decision criteria to assess
product candidates. By pursuing this strategy, we seek to minimize our
clinical development risk and accelerate the potential commercialization
of current and future product candidates. For a majority of our
product candidates, we intend to pursue regulatory approval in
multiple indications.
|
Product
Pipeline
Background
of Optisomal Targeted Drug Delivery
Optisomal
encapsulation is a novel method of liposomal drug delivery, which is designed to
significantly increase tumor targeting and duration of exposure for cell-cycle
specific anticancer agents. Optisomal drug delivery consists of using a generic
FDA-approved cancer agent, such as vincristine, encapsulated in a lipid envelope
composed of a unique, sphingomyelin/cholesterol composition. The encapsulated
agent is carried through the bloodstream and delivered to disease sites where it
is released to carry out its therapeutic action. When used in unencapsulated
form, chemotherapeutic drugs diffuse indiscriminately throughout the body,
diluting drug effectiveness and potentially causing toxic side effects in the
patient’s healthy tissues. Our proprietary Optisomal formulation technology is
designed to permit loading higher concentrations of therapeutic agent inside the
lipid envelope, which promotes accumulation of the drug in tumors and prolongs
the drug’s release at disease sites. Non-clinical studies have demonstrated the
Optisomal formulation technology’s ability to deliver dose intensification to
the tumor, which we believe has the potential to increase the therapeutic
benefit of the drug.
·
|
Targeted delivery with
improved pharmacokinetics. In normal tissues, a continuous
endothelial (blood vessel) lining constrains liposomes within capillaries,
preventing accumulation of the drug in the healthy tissues. In contrast,
the immature blood vessel system within tumors is created during tumor
growth and has numerous gaps up to 800 nanometers in size. With an average
diameter of approximately 100 nanometers, Optisomes can pass through these
gaps. Once lodged within the tumor interstitial space, these
Optisomes slowly release the encapsulated drug. We believe that slow
release of the drug from Optisomes increases drug levels within the tumor,
extends drug exposure through multiple cell cycles, and significantly
increases tumor cell killing. A limited fraction of a patient’s tumor
cells are in a particular drug-sensitive phase at any point in time, which
we believe indicates that duration of drug exposure is critical to
increased drug efficacy.
|
36
·
|
Increased drug
concentration. The link between drug exposure and anti-tumor
efficacy is especially pronounced for cell cycle-specific agents such as
vincristine, vinorelbine and topotecan, which destroy tumor cells by
interfering in one specific phase in cell division (e.g., the mitosis,
synthesis and/or rapid growth
phases).
|
·
|
Prolonged exposure. The
advanced liposomal technology of the capsule which protects the active
drug increases the circulating half-life and is designed to extend the
duration of drug release.
|
Unmet
Medical Needs in ALL and Uveal Melanoma
ALL is a
type of cancer of the blood and bone marrow, the spongy tissue inside bones
where blood cells are made. Acute leukemias progress rapidly and are
characterized by the accumulation of immature blood cells. ALL affects a group
of white blood cells, called lymphocytes, which fight infection and constitute
our immune systems. Normally, bone marrow produces immature cells or stem cells,
in a controlled way, and they mature and specialize into the various types of
blood cells, as needed. In people with ALL, this production process breaks down.
Abnormally large numbers of immature, abnormal lymphocytes called lymphoblasts
are produced and released into the bloodstream. These abnormal cells are not
able to mature and perform their usual functions. Furthermore, they multiply
rapidly and can crowd out healthy blood cells like neutrophils and platelets,
leaving an adult or child with ALL vulnerable to infection or bleeding. Leukemic
cells can also collect in certain areas of the body, including the central
nervous system and spinal cord, which can cause serious problems. According to
the American Cancer Society, over 5,000 people in the United States were
expected to be diagnosed with ALL in 2008, and over 1,400 people were expected
to die. ALL accounts for 72% of all leukemia cases amount children (ages 0 –
19). Multiple clinical trials have suggested the overall survival
rate for adults diagnosed with ALL is approximately 20% to 50%, underscoring the
need for new therapeutic options.
Uveal
melanoma is a relatively rare cancer arising out of the colored part of the eye
and the surrounding areas, called the uvea. Uveal melanoma is the most
common primary intraocular malignant tumor in adults and represents 5-6% of all
melanoma diagnoses. The incidence of uveal melanoma in the U.S is reported
to be 3,500-4,000 per year. The disease metastasizes via the blood stream,
and approximately 40-50% and up to 80% of patients with primary uveal melanoma
will ultimately develop distant metastases. At the time of diagnosis, over
95% of patients have disease limited to the eye, but at least 30% of these
patients will die of systemic metastases at 5 years and 45% at 15 years.
The liver is involved in up to 90% of individuals who develop metastatic
disease. Lung tissue and bone are the other major sites of disease spread. In
general, metastatic uveal melanoma is unresponsive to systemic chemotherapy and
immunotherapy.
Marqibo
® (vincristine sulfate liposomes injection)
Marqibo
is a novel, targeted Optisome™ encapsulated formulation product candidate of the
FDA-approved anticancer drug vincristine that we are developing for the
treatment of adult ALL and metastatic uveal melanoma. This encapsulation is
designed to provide prolonged circulation of the drug in the blood and
accumulation at the tumor site. These characteristics are intended to increase
the effectiveness and reduce the side effects of the encapsulated drug.
Vincristine, a microtubule inhibitor, is FDA-approved for ALL and is widely used
as a single agent and in combination regimens for treatment for hematologic
malignancies such as lymphomas and leukemias.
Marqibo
has been evaluated in 15 clinical trials with over 600 patients, including Phase
2 clinical trials in patients with non-Hodgkin’s lymphoma, or NHL and ALL. Based
on the results from these studies, we are conducting a global,
registration-enabling Phase 2 clinical trial of Marqibo in adult Philadelphia
chromosome negative ALL patients in second relapse, or those who have progressed
following two prior lines of therapy. We refer to this clinical trial as
the rALLy study. The primary outcome measure is complete remission or
CR, or complete remission without full hematologic recovery, or CRi.
The sample size is 56 evaluable subjects from up to 50 sites. In August
2009, we announced achievement of our enrollment goal of 56 evaluable
subjects. In June 2009, we announced preliminary data indicating that
of the first 33 patients dosed, 10 patients, or 30%, had achieved a CR or
CRi. The estimated median overall survival in responders was 10.5
months compared to 5.1 months in non-responders at the time of the data
cutoff. Because six of the nine CRs were still alive at that
time of the data cutoff, the median overall survival in this group may prove to
be longer. Subject to the final results of the rALLy study, we plan
to file an NDA seeking accelerated approval of Marqibo for the treatment of ALL
in the first half of 2010. We also plan to conduct a confirmatory Phase 3 study
with Marqibo. Certain aspects of this planned Phase 3 trial,
including the study design and patient population, are still under
review.
37
In
September 2009 we entered into a five-year clinical trial agreement with the
Center for Cancer Research at the National Cancer Institute for the
co-development of Marqibo in refractory pediatric cancer. Pursuant to this
agreement, development will initially focus on a Phase 1 trial to evaluate the
safety, preliminary efficacy, pharmacokinetic profile, and optimal dose of
weekly Marqibo in children and adolescents with refractory cancer. Following
this Phase I trial, we plan a Phase 2 trial in pediatric ALL, the most common
cancer of childhood. We anticipate that this Phase 2 trial will
facilitate subsequent studies of Marqibo in combination with standard
chemotherapy regimens.
In
addition, we are conducting a Phase 2 study to assess the efficacy of Marqibo in
patients with metastatic malignant uveal melanoma as determined by Disease
Control Rate (CR, partial response or durable stable disease). Secondary
objectives are to assess the safety and antitumor activity of Marqibo as
determined by response rate, progression free survival and overall survival. The
patient population is defined as adults with uveal melanoma and confirmed
metastatic disease that is untreated or that has progressed following one prior
therapy. We plan to enroll up to approximately 50 subjects in this
clinical trial.
Marqibo
received a U.S. orphan drug designation in January 2007 as well as a European
Commission orphan drug designation in June 2008 for the ALL indication. Marqibo
also received a U.S. orphan drug designation in July 2008 for metastatic uveal
melanoma. Marqibo received a fast track designation from the FDA in August 2007
for the treatment of adult ALL.
Menadione
Topical Lotion (Supportive Care Product)
Menadione
Topical Lotion (menadione), which we licensed from the Albert Einstein College
of Medicine, or AECOM, in October 2006, is a novel product candidate under
development for the treatment and/or prevention of skin rash associated with the
use of EGFR inhibitors in the treatment of certain cancers. EGFR inhibitors,
which include Tarceva, Erbitux, Ivessa and Vectibix, are currently approved to
treat non-small cell lung cancer, pancreatic, colorectal, and head and neck
cancer. EGFR inhibitors are associated with significant skin toxicities
presenting as acne-like rash on the face, neck and upper-torso of the body in
approximately 75% of patients. Fifty percent of patients who
manifest skin toxicity experience significant discomfort. This results in
discontinuation or dose reduction in at least 10% and up to 30% of patients that
receive the EGFR inhibitor. Menadione, a small organic molecule, has
been shown to activate the EGFR signaling pathway by inhibiting phosphatase
activity which is an important enzyme in the EGFR pathway. In vivo studies have
suggested that topically-applied Menadione may restore EGFR signaling
specifically in the skin of patients treated systemically with EGFR inhibitors.
Currently, there are no FDA-approved products or therapies available to treat
these skin toxicities. We initiated a Phase 1 clinical trial in cancer patients
in April 2008 and another Phase 1 study in healthy volunteers in September 2008.
Pursuant
to the securities purchase agreement, we agreed to use the proceeds from the
sale of the securities solely for the clinical and regulatory development of our
Marqibo program. As such, future development of Menadione is contingent on
obtaining additional funding, if any such funding is available in the
future.
Brakiva™
(topotecan liposomes injection)
Brakiva
is our proprietary product candidate comprised of the anti-cancer drug topotecan
encapsulated in Optisomes. Topotecan is FDA-approved for the treatment of
metastatic carcinoma of the ovary after failure of initial or subsequent
chemotherapy, and small cell lung cancer sensitive disease after failure of
first-line chemotherapy. In November 2008, we initiated a Phase
1 dose-escalation clinical trial of Brakiva, which is primarily
designed to assess the safety, tolerability and maximum tolerated
dose.
Alocrest™
(vinorelbine liposomes injection)
Alocrest
is a novel Optisomal encapsulated formulation product candidate of the
FDA-approved drug vinorelbine, a microtubule inhibitor for use as a single agent
or in combination with cisplatin for the first-line treatment of unresectable,
advanced non-small cell lung cancer. In February 2008, we completed enrollment
in a Phase 1 study of Alocrest. The trial enrolled 30 adult subjects with
confirmed solid tumors refractory to standard therapy or for which no standard
therapy was known to exist. The objectives of the Phase 1 clinical trial were:
(1) to assess the safety and tolerability of Alocrest; (2) to determine the
maximum tolerated dose of Alocrest; (3) to characterize the pharmacokinetic
profile of Alocrest; and (4) to explore preliminary efficacy of Alocrest. The
study was conducted at the Cancer Therapy and Research Center and South Texas
Accelerated Research Therapeutics (START), both located in San Antonio, Texas
and at McGill University in Montreal. The majority of study subjects had
heavily pretreated disease. Reversible neutropenia, a low white blood cell
count, was the dose-limiting toxicity. The results of this study indicated
promising anti-cancer activity and expected toxicity, and a 50% disease control
rate was achieved across a broad range of doses.
License
Agreements
Marqibo,
Alocrest and Brakiva
In May
2006, we completed a transaction with Tekmira Pharmaceuticals Corporation,
formerly Inex Pharmaceuticals Corporation, pursuant to which we acquired
exclusive, worldwide rights to develop and commercialize Marqibo, Alocrest and
Brakiva, which we collectively refer to as the Optisome products. The following
is a summary of the various agreements entered into to consummate the
transaction.
38
Tekmira
License Agreement
Pursuant
to the terms of a license agreement dated May 6, 2006, which was amended and
restated on April 30, 2007, and amended on June 2, 2009, between us and Tekmira,
Tekmira granted us:
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an exclusive license under
certain patents held by Tekmira to commercialize the Optisome products for
all uses throughout the
world;
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an exclusive license under
certain patents held by Tekmira to commercialize the Optisome products for
all uses throughout the world under the terms of certain research
agreements between Tekmira and the British Columbia Cancer Agency, or
BCCA; and
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an
exclusive license to all technical information and know-how relating to
the technology claimed in the patents held exclusively by Tekmira and to
all confidential information possessed by Tekmira relating to the Optisome
products, including all data, know-how, manufacturing information,
specifications and trade secrets, collectively called the Tekmira
Technology, to commercialize the Optisome products for all uses throughout
the world.
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We have
the right to grant sublicenses to third parties and in such event we and Tekmira
will share sublicensing revenue received by us at varying rates for each
Optisome product depending on such Optisome product’s stage of clinical
development. Under the license agreement, we also granted back to Tekmira
a limited, royalty-free, non-exclusive license in certain patents and
technology owned or licensed to us solely for use in developing and
commercializing liposomes having an active agent encapsulated, intercalated or
entrapped therein.
We agreed
to pay to Tekmira up to an aggregate of $37.0 million upon the achievement of
various clinical and regulatory milestones relating to all Optisome products. At
our option, the milestones may be paid in cash or, subject to certain
restrictions, shares of our common stock. In addition to the milestone payments,
we agreed to pay royalties to Tekmira in the range of 5% to 10% based on net
sales of the Optisome products, against which we may offset a portion of the
research and development expenses we incur. In addition to our obligations to
make milestone payments and pay royalties to Tekmira, we also assumed all of
Tekmira’s obligations to its licensors and collaborators relating to the
Optisome products, which include aggregate milestone payments of up to $2.5
million, annual license fees and additional royalties.
The
license agreement provides that we will use our commercially reasonable efforts
to develop each Optisome product, including causing the necessary and
appropriate clinical trials to be conducted in order to obtain and maintain
regulatory approval for each Optisome product and preparing and filing the
necessary regulatory submissions for each Optisome product. We also agreed to
provide Tekmira with periodic reports concerning the status of each Optisome
product.
We are
required to use commercially reasonable efforts to commercialize each Optisome
product in each jurisdiction where an Optisome product has received regulatory
approval. We will be deemed to have breached our commercialization obligations
in the United States, or in Germany, the United Kingdom, France, Italy or Spain,
if for a continuous period of 180 days at any time following commercial sales of
an Optisome product in any such country, no sales of an Optisome product are
made in the ordinary course of business in such country by us (or a
sublicensee), unless the parties agree to such delay or unless we are prohibited
from making sales by a reason beyond our control. If we breach this obligation,
then Tekmira is entitled to terminate the license with respect to such Optisome
product and for such country.
Under the
license agreement, Tekmira will be the owner of patents and patent applications
claiming priority to certain patents licensed to us, and we have an obligation
to assign to Tekmira our rights to inventions covered by such patents or patent
applications, and, when negotiating any joint venture, collaborative research,
development, commercialization or other agreement with a third party, to require
such third party to do the same.
The
prosecution and maintenance of the licensed patents will be overseen by an IP
committee having equal representation from us and Tekmira. We will have the
right and obligation to file, prosecute and maintain most of the licensed
patents, although Tekmira maintained primary responsibility to prosecute certain
of the licensed patents. The parties agreed to share the expenses of
prosecution at varying rates. We also have the first right, but not
the obligation, to enforce such licensed patents against third party infringers,
or to defend against any infringement action brought by any third
party.
39
We agreed
to indemnify Tekmira for all losses resulting from our breach of our
representations and warranties, or other default under the license agreement,
our breach of any regulatory requirements, regulations and guidelines in
connection with the Optisome products, complaints alleging infringement against
Tekmira with respect to our manufacture, use or sale of an Optisome product, and
any injury or death to any person or damage to property caused by any Optisome
product provided by us or our sublicensee, except to the extent such losses are
due to Tekmira’s breach of a representation or warranty, Tekmira’s default under
the agreement, and the breach by Tekmira of any regulatory requirements,
regulations and guidelines in connection with licensed patent and related
know-how. Tekmira has agreed to indemnify us for losses arising from Tekmira’s
breach of representation or warranty, Tekmira’s default under the agreement, and
the breach by Tekmira of any regulatory requirements, regulations and guidelines
in connection with licensed patent and related know-how, except to the extent
such losses are due to our breach of our representations and warranties, our
default under the agreement, our breach of any regulatory requirements,
regulations and guidelines in connection with the Optisome products, complaints
alleging infringement against Tekmira with respect to our manufacture, use or
sale of an Optisome product, and any injury or death to any person or damage to
property caused by any Optisome product provided by us or our
sublicensee.
Unless
terminated earlier, the license grants made under the license agreement expire
on a country-by-country basis upon the later of (i) the expiration of the last
to expire patents covering each Optisome product in a particular country, (ii)
the expiration of the last to expire period of product exclusivity covered by an
Optisome product under the laws of such country, or (iii) with respect to the
Tekmira Technology, on the date that all of the Tekmira Technology ceases to be
confidential information. The covered issued patents are scheduled to expire
between 2014 and 2021.
Either we
or Tekmira may terminate the license agreement in the event that the other has
materially breached its obligations thereunder and fails to remedy such breach
within 90 days following notice by the non-breaching party. If such breach is
not cured, then the non-breaching party may, upon 6 months’ notice to the
breaching party, terminate the license in respect of the Optisome products or
countries to which the breach relates. Tekmira may also terminate the license if
we assert or intend to assert any invalidity challenge on any of the patents
licensed to us. The license agreement also provides that either party may, upon
written notice, terminate the agreement in the event of the other’s bankruptcy,
insolvency, dissolution or similar proceeding. In the event Tekmira validly
terminates the license agreement, all data, materials, regulatory filings and
all other documentation reverts to Tekmira.
In April
2007, Tekmira assigned to us its right and interest in and to a Patent and
Technology License Agreement dated February 14, 2000 between Tekmira and M.D.
Anderson Cancer Center. As assigned to us, this agreement grants to
us a royalty-bearing license to certain patents relating to Marqibo that are
owned by M.D. Anderson. As consideration for the license, we are
required to pay to M.D. Anderson royalties on net sales of Marqibo, as well as
an annual maintenance fee. The M.D. Anderson license provides that we
have the first right to prosecute and maintain the licensed patents at our
expense. In addition, we also have the first right to control any
infringement claims against third parties. The M.D. Anderson license will be
automatically terminated in the event we become bankrupt or insolvent, and may
be terminated by M.D. Anderson in the event we default on our obligations under
the agreement.
UBC
Sublicense Agreement
In May
2006, we also entered into a sublicense agreement with Tekmira relating to
Tekmira’s rights to certain patents it licensed from the University of British
Columbia, or UBC. Under the UBC sublicense agreement, Tekmira granted to us an
exclusive, worldwide sublicense under several patents relating to Alocrest and
Brakiva, together with all knowledge, know-how, and techniques relating to such
patents, called the UBC Technology. The UBC Technology is owned by UBC and
licensed to Tekmira pursuant to a license agreement dated July 1, 1998. The UBC
sublicense agreement provides that we will undertake all of Tekmira’s
obligations contained in Tekmira’s license agreement with UBC, which includes
the payment of royalties (in addition to the royalties owing to Tekmira under
the license agreement between Tekmira and us) and an annual license fee. The
provisions of the UBC sublicense agreement relating to our obligation to develop
and commercialize the UBC Technology, termination and other material obligations
are substantially similar to the terms of license agreement between Tekmira and
us, as discussed above.
Assignment
of Agreement with Elan Pharmaceuticals, Inc.
Pursuant
to an Amended and Restated License Agreement dated April 3, 2003, between
Tekmira (including two of its wholly-owned subsidiaries) and Elan
Pharmaceuticals, Inc., Tekmira held a paid up, exclusive, worldwide license to
certain patents, know-how and other intellectual property relating to
vincristine sulfate liposomes. In connection with our transaction with Tekmira,
Tekmira assigned to us all of its rights under the Elan license agreement
pursuant to an Assignment and Novation Agreement dated May 6, 2006 among us,
Tekmira and Elan.
40
As
assigned to us, the Elan license agreement provides that Elan will own all
improvements to the licensed patents or licensed know-how made by us or our
sublicensees, which will in turn be licensed to us as part of the technology we
license from Elan. Elan has the first right to file, prosecute and maintain all
licensed patents and we have the right to do so if Elan decides that it does not
wish to do so only pertaining to certain portions of the technology. Elan also
has the first right to enforce such licensed patents and we may do so only if
Elan elects not to enforce such patents. In addition, Elan has the right but not
the obligation to control any infringement claim brought against
Elan.
We have
indemnification obligations to Elan for all losses arising from the research,
testing, manufacture, transport, packaging, storage, handling, distribution,
marketing, advertising, promotion or sale of the products by us, our affiliates
or sublicensees, any personal injury suits brought against Elan, any
infringement claim, certain third party agreements entered into by Elan, and any
acts or omissions of any of our sublicensees.
The Elan
license agreement, unless earlier terminated, will expire on a country by
country basis, upon the expiration of the life of the last to expire licensed
patent in that country. Elan may terminate the Elan license agreement earlier
for our material breach upon 60 days’ written notice if we do not cure such
breach within such 60 day period (we may extend such cure period for up to 90
days if we propose a course of action to cure the breach within the initial
60 day period and act in good faith to cure such breach), for our bankruptcy or
going into liquidation upon 10 days’ written notice, or immediately if we, or
our sublicense, directly or indirectly disputes the ownership, scope or validity
of any of the licensed technology or support any such attack by a third
party.
Menadione
In
October 2006, we entered into a license agreement with the Albert Einstein
College of Medicine of Yeshiva University, a division of Yeshiva University, or
the College. Pursuant to the agreement, we acquired an exclusive, worldwide,
royalty-bearing license to certain patent applications, and other intellectual
property relating to topical menadione. We are required to make milestone
payments in the aggregate amount of $2.8 million upon the achievement of various
clinical and regulatory milestones, as described in the agreement. We also
agreed to pay annual maintenance fees, and to make royalty payments to the
College on net sales of any products covered by a claim in any licensed patent.
We may also grant sublicenses to the licensed patents and the proceeds resulting
from such sublicenses will be shared with the College.
Zensana ™ (ondansetron HCI) Oral
Spray
Our
rights to Zensana were originally subject to the terms of an October 2004
license agreement with NovaDel Pharma, Inc. under which we obtained a
royalty-bearing, exclusive right and license to develop and commercialize
Zensana within the United States and Canada. Zensana is an oral spray
formulation of the FDA approved drug odansetron. The technology licensed to us
under the license agreement currently covers one United States issued patent,
which expires in March 2022. In consideration for the license, we issued 73,121
shares of our common stock to NovaDel and agreed to make double-digit royalty
payments to NovaDel based on a percentage of “net sales” (as defined in the
agreement). In addition, we purchased from NovaDel (and continue to hold)
400,000 shares of its common stock at a price of $2.50 per share for an
aggregate payment of $1 million.
On July
31, 2007, we entered into a sublicense agreement with Par Pharmaceutical,
Inc. and NovaDel, pursuant to which we granted to Par and its affiliates,
and NovaDel consented to such grant, a royalty-bearing exclusive right and
license to develop and commercialize Zensana within the United States and
Canada. As agreed by us and NovaDel, Par assumed primary responsibility for the
development, regulatory approval by the FDA, and sales and marketing of
Zensana.
As
additional consideration for the sublicense, following regulatory approval of
Zensana, Par is required to pay us an additional one-time payment of $6.0
million, of which $5.0 million is payable by us to NovaDel pursuant to our
obligations under our agreement with NovaDel. In addition, the sublicense
agreement provides for an additional aggregate of $44.0 million in
commercialization milestone payments based upon actual net sales of Zensana in
the United States and Canada, which amounts are not subject to
any corresponding obligations to NovaDel. We will also be entitled to
royalty payments based on net sales of Zensana by Par or any of its affiliates
in such territory, however, the amount of such royalty payments is generally
equal to the same amount of royalties that we will owe NovaDel under the License
Agreement, except to the extent that aggregate net sales of Zensana exceed a
specified amount in the first 5 years following FDA approval of an NDA, in which
case the royalty rate payable to us increases beyond its royalty obligation
to NovaDel.
In order
to give effect to and accommodate the terms of the sublicense agreement with
Par, on July 31, 2007, we and NovaDel amended and restated our original October
2004 license agreement. The primary modifications to the amended and restated
license agreement are as follows:
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We relinquished our right under
the original license agreement to reduced royalty rates to NovaDel until
such time as we have recovered one-half of our costs and expenses incurred
in developing Zensana from sales of Zensana or payments or other fees from
a sublicensee;
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NovaDel surrendered for
cancellation all 73,121 shares of our common stock that it acquired upon
the execution of the original license
agreement;
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We will have the right, but not
the obligation, to exploit the licensed product in
Canada;
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We or our sublicensee must
consummate the first commercial sale of the licensed product within 9
months of regulatory approval by the FDA of such product;
and
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If the sublicense agreement is
terminated, we may elect to undertake further development of
Zensana.
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Intellectual
Property
General
Patents
and other proprietary rights are very important to the development of our
business. We will be able to protect our proprietary technologies from
unauthorized use by third parties only to the extent that our proprietary rights
are covered by valid and enforceable patents or are effectively maintained as
trade secrets. It is our intention to seek and maintain patent and trade secret
protection for our product candidates and our proprietary technologies. As part
of our business strategy, our policy is to actively file patent applications in
the United States and internationally to cover methods of use, new chemical
compounds, pharmaceutical compositions and dosing of the compounds and
compositions and improvements in each of these. We also rely on trade secret
information, technical know-how, innovation and agreements with third parties to
continuously expand and protect our competitive position. We own, or license the
rights to, a number of patents and patent applications related to our product
candidates, but we cannot be certain that issued patents will be enforceable or
provide adequate protection or that the pending patent applications will issue
as patents.
The
patent positions of biotechnology and pharmaceutical companies are highly
uncertain and involve complex legal and factual questions. Therefore, we cannot
predict with certainty the breadth of claims allowed in biotechnology and
pharmaceutical patents, or their enforceability. To date, there has been no
consistent policy regarding the breadth of claims allowed in biotechnology
patents. Third parties or competitors may challenge or circumvent our patents or
patent applications, if issued. If our competitors prepare and file patent
applications in the United States that claim technology also claimed by us, we
may have to participate in interference proceedings declared by the United
States Patent and Trademark Office to determine priority of invention, which
could result in substantial cost, even if the eventual outcome is favorable to
us. Because of the extensive time required for development, testing and
regulatory review of a potential product, it is possible that before we
commercialize any of our product candidates, any related patent may expire or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent.
If
patents are issued to others containing preclusive or conflicting claims and
these claims are ultimately determined to be valid, we may be required to obtain
licenses to these patents or to develop or obtain alternative technology. Our
breach of an existing license or failure to obtain a license to technology
required to commercialize our products may seriously harm our business. We also
may need to commence litigation to enforce any patents issued to us or to
determine the scope and validity of third-party proprietary rights. Litigation
would create substantial costs. An adverse outcome in litigation could subject
us to significant liabilities to third parties and require us to seek licenses
of the disputed rights from third parties or to cease using the technology if
such licenses are unavailable.
Optisomal
product candidates
Pursuant
to our license agreement with Tekmira and related sublicense with UBC, we have
exclusive rights to 11 issued U.S. patents, 54 issued foreign patents, 7 pending
U.S. patent applications and 28 pending foreign applications, covering
composition of matter, method of use and treatment, formulation and process.
These patents and patent applications cover sphingosome based pharmaceutical
compositions including Marqibo, Alocrest and Brakiva, formulation, dosage,
process of making the liposome compositions, and methods of use of the
compositions in the treatment cancer, relapsed cancer, and solid tumors. The
earliest of these issued patents expires in 2014 and the last of the issued
patents expires in 2021.
42
Menadione
We have
exclusive, worldwide rights to a patent family consisting of 6 pending foreign
patent applications and 1 pending U.S. patent application pursuant to our
October 2006 license agreement with AECOM. These patent applications cover,
pharmaceutical compositions and methods of use (e.g., methods of treating and
preventing a skin rash secondary to an anti-epidermal growth factor receptor
therapy). If any U.S. or foreign patent issues from these applications, such a
patent would be scheduled to expire in 2026, excluding any patent term
extensions.
In
addition, we solely own 2 pending provisional U.S. patent
applications. These applications cover topical formulations of
menadione and methods of use of the formulations. If any U.S. or foreign patent
issues from these applications, such a patent would be scheduled to expire in
2029, excluding any patent term extensions.
Zensana
On July
31, 2007, we entered into a definitive agreement providing for the sublicense of
all our rights to any patents related to Zensana to Par Pharmaceutical, Inc.
See “License Agreements – Zensana.” Under this agreement, Par
Pharmaceutical agreed to take on full responsibility to discharge patent
prosecution and enforcement for all patents related to the Zensana product
candidate.
Other
Intellectual Property Rights
We also
depend upon trademarks, trade secrets, know-how and continuing technological
advances to develop and maintain our competitive position. To maintain the
confidentiality of trade secrets and proprietary information, we require our
employees, scientific advisors, consultants and collaborators, upon commencement
of a relationship with us, to execute confidentiality agreements and, in the
case of parties other than our research and development collaborators, to agree
to assign their inventions to us. These agreements are designed to protect our
proprietary information and to grant us ownership of technologies that are
developed in connection with their relationship with us. These agreements may
not, however, provide protection for our trade secrets in the event of
unauthorized disclosure of such information.
In
addition to patent protection, we may utilize orphan drug regulations to provide
market exclusivity for certain of our product candidates. The orphan drug
regulations of the FDA provide incentives to pharmaceutical and biotechnology
companies to develop and manufacture drugs for the treatment of rare diseases,
currently defined as diseases that exist in fewer than 200,000 individuals in
the United States, or, diseases that affect more than 200,000 individuals in the
United States but that the sponsor does not realistically anticipate will
generate a net profit. Under these provisions, a manufacturer of a designated
orphan drug can seek tax benefits, and the holder of the first FDA approval of a
designated orphan product will be granted a seven-year period of marketing
exclusivity for such FDA-approved orphan product. We believe that certain of the
indications for our product candidates will be eligible for orphan drug
designation; however, we cannot assure you that our drugs will obtain such
orphan drug designation or will be the first to reach the market and provide us
with such market exclusivity protection.
Government
Regulation and Product Approval
The FDA
and comparable regulatory agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon the testing (preclinical
and clinical), manufacturing, labeling, storage, recordkeeping, advertising,
promotion, import, export, marketing and distribution, among other things, of
drugs and drug product candidates. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve our
marketing applications or allow us to manufacture or market our products, and we
may be criminally prosecuted. We and our manufacturers may also be subject
to regulations under other United States federal, state, and local
laws.
United
States Government Regulation
In the
United States, the FDA regulates drugs under the FDCA and implementing
regulations. The process required by the FDA before our product candidates may
be marketed in the United States generally involves the following (although the
FDA is given wide discretion to impose different or more stringent requirements
on a case-by-case basis):
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completion of extensive
preclinical laboratory tests, preclinical animal studies and formulation
studies, all performed in accordance with the FDA’s good laboratory
practice regulations and other
regulations;
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submission to the FDA of an IND
application which must become effective before clinical trials may
begin;
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performance of multiple adequate
and well-controlled clinical trials meeting FDA requirements to establish
the safety and efficacy of the product candidate for each proposed
indication;
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submission of an NDA to the
FDA;
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satisfactory completion of an FDA
pre-approval inspection of the manufacturing facilities at which the
product candidate is produced, and potentially other involved facilities
as well, to assess compliance with current good manufacturing practice, or
cGMP, regulations and other applicable regulations;
and
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the FDA review and approval of
the NDA prior to any commercial marketing, sale or shipment of the
drug.
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The
testing and approval process requires substantial time, effort and financial
resources, and we cannot be certain that any approvals for our product
candidates will be granted on a timely basis, if at all. Risks to us related to
these regulations are described under “Risk Factors – Risks Related to the
Clinical Testing, Regulatory Approval and Manufacturing of Our Product
Candidates.”
Preclinical
tests may include laboratory evaluation of product chemistry, formulation and
stability, as well as studies to evaluate toxicity and other effects in animals.
The results of preclinical tests, together with manufacturing information and
analytical data, among other information, are submitted to the FDA as part of an
IND application. Subject to certain exceptions, an IND becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, issues a clinical hold to delay a proposed clinical investigation due to
concerns or questions about the conduct of the clinical trial, including
concerns that human research subjects will be exposed to unreasonable health
risks. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Our submission of an IND, or those
of our collaboration partners, may not result in the FDA authorization to
commence a clinical trial. A separate submission to an existing IND must also be
made for each successive clinical trial conducted during product development.
The FDA must also approve changes to an existing IND. Further, an independent
institutional review board, or IRB, for each medical center proposing to conduct
the clinical trial must review and approve the plan for any clinical trial
before it commences at that center and it must monitor the study until
completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk. Clinical testing also must satisfy
extensive Good Clinical Practice requirements and regulations for informed
consent.
Clinical
Trials
For
purposes of NDA submission and approval, clinical trials are typically conducted
in the following three sequential phases, which may overlap (although additional
or different trials may be required by the FDA as well):
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Phase 1
clinical trials are
initially conducted in a limited population to test the drug candidate for
safety, dose tolerance, absorption, metabolism, distribution and excretion
in healthy humans or, on occasion, in patients, such as cancer patients.
In some cases, particularly in cancer trials, a sponsor may decide to
conduct what is referred to as a “Phase 1b” evaluation, which is a
second safety-focused Phase 1 clinical trial typically designed to
evaluate the impact of the drug candidate in combination with currently
FDA-approved drugs.
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Phase 2
clinical trials are
generally conducted in a limited patient population to identify possible
adverse effects and safety risks, to determine the efficacy of the drug
candidate for specific targeted indications and to determine dose
tolerance and optimal dosage. Multiple Phase 2 clinical trials may be
conducted by the sponsor to obtain information prior to beginning larger
and more expensive Phase 3 clinical trials. In some cases, a sponsor
may decide to conduct what is referred to as a “Phase 2b” evaluation,
which is a second, confirmatory Phase 2 clinical trial that could, if
positive and accepted by the FDA, serve as a pivotal clinical trial in the
approval of a drug
candidate.
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Phase 3
clinical trials are
commonly referred to as pivotal trials. When Phase 2 clinical trials
demonstrate that a dose range of the drug candidate is effective and has
an acceptable safety profile, Phase 3 clinical trials are undertaken
in large patient populations to further evaluate dosage, to provide
substantial evidence of clinical efficacy and to further test for safety
in an expanded and diverse patient population at multiple, geographically
dispersed clinical trial
sites.
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In some
cases, the FDA may condition continued approval of an NDA on the sponsor’s
agreement to conduct additional clinical trials with due diligence. In other
cases, the sponsor and the FDA may agree that additional safety and/or efficacy
data should be provided; however, continued approval of the NDA may not always
depend on timely submission of such information. Such post-approval studies are
typically referred to as Phase IV studies.
44
New
Drug Application
The
results of drug candidate development, preclinical testing and clinical trials,
together with, among other things, detailed information on the manufacture and
composition of the product and proposed labeling, and the payment of a user fee,
are submitted to the FDA as part of an NDA. The FDA reviews all NDAs submitted
before it accepts them for filing and may request additional information rather
than accepting an NDA for filing. Once an NDA is accepted for filing, the FDA
begins an in-depth review of the application.
During
its review of an NDA, the FDA may refer the application to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved. The FDA may refuse to approve an NDA and issue a not approvable
letter if the applicable regulatory criteria are not satisfied, or it may
require additional clinical or other data, including one or more additional
pivotal Phase III clinical trials. Even if such data are submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria for approval.
Data from clinical trials are not always conclusive and the FDA may interpret
data differently than we or our collaboration partners interpret data. If the
FDA’s evaluations of the NDA and the clinical and manufacturing procedures and
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which contains the conditions that must be met in order to
secure final approval of the NDA. If and when those conditions have been met to
the FDA’s satisfaction, the FDA will issue an approval letter, authorizing
commercial marketing of the drug for certain indications. The FDA may withdraw
drug approval if ongoing regulatory requirements are not met or if safety
problems occur after the drug reaches the market. In addition, the FDA may
require testing, including Phase IV clinical trials, and surveillance
programs to monitor the effect of approved products that have been
commercialized, and the FDA has the power to prevent or limit further marketing
of a drug based on the results of these post-marketing programs. Drugs may be
marketed only for the FDA-approved indications and in accordance with the
FDA-approved label. Further, if there are any modifications to the drug,
including changes in indications, other labeling changes, or manufacturing
processes or facilities, we may be required to submit and obtain FDA approval of
a new NDA or NDA supplement, which may require us to develop additional data or
conduct additional preclinical studies and clinical trials.
The
Hatch-Waxman Act
Under the
Hatch-Waxman Act, newly-approved drugs and new conditions of use may benefit
from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman
Act provides five-year marketing exclusivity to the first applicant to gain
approval of an NDA for a new chemical entity, meaning that the FDA has not
previously approved any other new drug containing the same active entity. The
Hatch-Waxman Act prohibits the submission of an abbreviated NDA, or ANDA, or a
Section 505(b)(2) NDA for another version of such drug during the five-year
exclusive period; however, submission of a Section 505(b)(2) NDA or an ANDA
for a generic version of a previously-approved drug containing a
paragraph IV certification is permitted after four years, which may trigger
a 30-month stay of approval of the ANDA or Section 505(b)(2) NDA.
Protection under the Hatch-Waxman Act does not prevent the submission or
approval of another “full” 505(b)(1) NDA; however, the applicant would be
required to conduct its own preclinical and adequate and well-controlled
clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act
also provides three years of marketing exclusivity for the approval of new and
supplemental NDAs, including Section 505(b)(2) NDAs, for, among other
things, new indications, dosages, or strengths of an existing drug, if new
clinical investigations that were conducted or sponsored by the applicant are
essential to the approval of the application. Some of our product candidates may
qualify for Hatch-Waxman non-patent marketing exclusivity.
In
addition to non-patent marketing exclusivity, the Hatch-Waxman Act amended the
FDCA to require each NDA sponsor to submit with its application information on
any patent that claims the drug for which the applicant submitted the NDA or
that claims a method of using such drug and with respect to which a claim of
patent infringement could reasonably be asserted if a person not licensed by the
owner engaged in the manufacture, use, or sale of the drug. Generic applicants
that wish to rely on the approval of a drug listed in the Orange Book must
certify to each listed patent, as discussed above. We intend to submit for
Orange Book listing all relevant patents for our product
candidates.
Finally,
the Hatch-Waxman Act amended the patent laws so that certain patents related to
products regulated by the FDA are eligible for a patent term extension if patent
life was lost during a period when the product was undergoing regulatory review,
and if certain criteria are met. We intend to seek patent term extensions,
provided our patents and products, if they are approved, meet applicable
eligibility requirements.
45
Orphan
Drug Designation and Exclusivity
The FDA
may grant orphan drug designation to drugs intended to treat a rare disease or
condition, which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process. If
a product which has an orphan drug designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product
is entitled to seven years of orphan drug exclusivity, meaning that the FDA may
not approve any other applications to market the same drug for the same
indication for a period of seven years, except in limited circumstances, such as
a showing of clinical superiority to the product with orphan exclusivity
(superior efficacy, safety, or a major contribution to patient care). Orphan
drug designation does not prevent competitors from developing or marketing
different drugs for that indication. We received orphan drug status for Marqibo
in January 2007, for the treatment of ALL.
Under
European Union medicines laws, the criteria for designating a product as an
“orphan medicine” are similar but somewhat different from those in the United
States. A drug is designated as an orphan drug if the sponsor can establish that
the drug is intended for a life-threatening or chronically debilitating
condition affecting no more than five in 10,000 persons in the European Union or
that is unlikely to be profitable, and if there is no approved satisfactory
treatment or if the drug would be a significant benefit to those persons with
the condition. Orphan medicines are entitled to ten years of marketing
exclusivity, except under certain limited circumstances comparable to United
States law. During this period of marketing exclusivity, no “similar”
product, whether or not supported by full safety and efficacy data, will be
approved unless a second applicant can establish that its product is safer, more
effective or otherwise clinically superior. This period may be reduced to six
years if the conditions that originally justified orphan designation change or
the sponsor makes excessive profits.
Fast
Track Designation
The FDA’s
fast track program is intended to facilitate the development and to expedite the
review of drugs that are intended for the treatment of a serious or
life-threatening condition and that demonstrate the potential to address unmet
medical needs. Under the fast track program, applicants may seek traditional
approval for a product based on data demonstrating an effect on a clinically
meaningful endpoint, or approval based on a well-established surrogate
endpoint. The sponsor of a new drug candidate may request the FDA to
designate the drug candidate for a specific indication as a fast track drug at
the time of original submission of its IND, or at any time thereafter prior to
receiving marketing approval of a marketing application. The FDA will determine
if the drug candidate qualifies for fast track designation within 60 days
of receipt of the sponsor’s request.
If the
FDA grants fast track designation, it may initiate review of sections of an NDA
before the application is complete. This so-called “rolling review” is available
if the applicant provides and the FDA approves a schedule for the submission of
the remaining information and the applicant has paid applicable user fees. The
FDA’s PDUFA review clock for both a standard and priority NDA for a fast track
product does not begin until the complete application is submitted.
Additionally, fast track designation may be withdrawn by the FDA if it believes
that the designation is no longer supported by emerging data, or if the
designated drug development program is no longer being pursued.
In some
cases, a fast track designated drug candidate may also qualify for one or more
of the following programs:
·
|
Priority
Review. As
explained above, a drug candidate may be eligible for a six-month priority
review. The FDA assigns priority review status to an application if the
drug candidate provides a significant improvement compared to marketed
drugs in the treatment, diagnosis or prevention of a disease. A fast track
drug would ordinarily meet the FDA’s criteria for priority review, but may
also be assigned a standard review. We do not know whether any of our drug
candidates will be assigned priority review status or, if priority review
status is assigned, whether that review or approval will be faster than
conventional FDA procedures, or that the FDA will ultimately approve the
drug.
|
·
|
Accelerated
Approval.
Under the FDA’s accelerated approval regulations, the FDA is
authorized to approve drug candidates that have been studied for their
safety and efficacy in treating serious or life-threatening illnesses and
that provide meaningful therapeutic benefit to patients over existing
treatments based upon either a surrogate endpoint that is reasonably
likely to predict clinical benefit or on the basis of an effect on a
clinical endpoint other than patient survival or irreversible morbidity.
In clinical trials, surrogate endpoints are alternative measurements of
the symptoms of a disease or condition that are substituted for
measurements of observable clinical symptoms. A drug candidate approved on
this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase IV or post-approval clinical trials
to validate the surrogate endpoint or confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies with due
diligence, or to validate a surrogate endpoint or confirm a clinical
benefit during post-marketing studies, may cause the FDA to seek to
withdraw the drug from the market on an expedited basis. All promotional
materials for drug candidates approved under accelerated regulations are
subject to prior review by the
FDA.
|
46
When
appropriate, we and our collaboration partners intend to seek fast track
designation, accelerated approval or priority review for our product candidates.
We cannot predict whether any of our product candidates will obtain fast track,
accelerated approval, or priority review designation, or the ultimate impact, if
any, of these expedited review mechanisms on the timing or likelihood of the FDA
approval of any of our product candidates.
Satisfaction
of the FDA regulations and approval requirements or similar requirements of
foreign regulatory agencies typically takes several years, and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. Typically, if a drug candidate is intended to treat a
chronic disease, as is the case with some of the product candidates we are
developing, safety and efficacy data must be gathered over an extended period of
time. Government regulation may delay or prevent marketing of drug candidates
for a considerable period of time and impose costly procedures upon our
activities. The FDA or any other regulatory agency may not grant approvals for
changes in dosage form or new indications for our product candidates on a timely
basis, or at all. Even if a drug candidate receives regulatory approval, the
approval may be significantly limited to specific disease states, patient
populations and dosages. Further, even after regulatory approval is obtained,
later discovery of previously unknown problems with a drug may result in
restrictions on the drug or even complete withdrawal of the drug from the
market. Delays in obtaining, or failures to obtain, regulatory approvals for any
of our product candidates would harm our business. In addition, we cannot
predict what adverse governmental regulations may arise from future United
States or foreign governmental action.
We plan
to pursue accelerated approval for our product candidate Marqibo, subject to the
results of the rALLy trial. There is no assurance that the FDA will
grant accelerated approval of Marqibo based on the rALLy
trial. Instead, the FDA may require us to conduct the Phase 3
confirmatory study of Marqibo to obtain full approval.
Pediatric
Studies and Exclusivity
The FDCA
provides an additional six months of non-patent marketing exclusivity and patent
protection for any such protections listed in the Orange Book for new or
marketed drugs if a sponsor conducts specific pediatric studies at the written
request of the FDA. The Pediatric Research Equity Act of 2003, or PREA,
authorizes the FDA to require pediatric studies for drugs to ensure the drugs’
safety and efficacy in children. PREA requires that certain new NDAs or NDA
supplements contain data assessing the safety and effectiveness for the claimed
indication in all relevant pediatric subpopulations. Dosing and administration
must be supported for each pediatric subpopulation for which the drug is safe
and effective. The FDA may also require this data for approved drugs that are
used in pediatric patients for the labeled indication, or where there may be
therapeutic benefits over existing products. The FDA may grant deferrals for
submission of data, or full or partial waivers from PREA. PREA pediatric
assessments may qualify for pediatric exclusivity. Unless otherwise required by
regulation, PREA does not apply to any drug for an indication with orphan
designation. We may also seek pediatric exclusivity for conducting any required
pediatric assessments.
Other
Regulatory Requirements
Any drugs
manufactured or distributed by us or our collaboration partners pursuant to
future FDA approvals are subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences associated with
the drug. Drug manufacturers and their subcontractors are required to register
with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with ongoing
regulatory requirements, including cGMP, which impose certain procedural and
documentation requirements upon us and our third-party manufacturers. Failure to
comply with the statutory and regulatory requirements can subject a manufacturer
to possible legal or regulatory action, such as warning letters, suspension of
manufacturing, sales or use, seizure of product, injunctive action or possible
civil penalties. We cannot be certain that we or our present or future
third-party manufacturers or suppliers will be able to comply with the cGMP
regulations and other ongoing FDA regulatory requirements. If our present or
future third-party manufacturers or suppliers are not able to comply with these
requirements, the FDA may halt our clinical trials, require us to recall a drug
from distribution, or withdraw approval of the NDA for that drug.
The FDA
closely regulates the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising, off-label
promotion, industry-sponsored scientific and educational activities and
promotional activities involving the Internet. A company can make only those
claims relating to safety and efficacy that are approved by the FDA. Failure to
comply with these requirements can result in adverse publicity, warning and/or
untitled letters, corrective advertising and potential civil and criminal
penalties.
47
Foreign
Regulation
In
addition to regulations in the United States, we will be subject to a variety of
foreign regulations governing clinical trials and commercial sales and
distribution of our future products. Whether or not we obtain FDA approval for a
product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for
FDA approval. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to
country.
Under
European Union regulatory systems, marketing authorizations may be submitted
either under a centralized or mutual recognition procedure. The centralized
procedure provides for the grant of a single marking authorization that is valid
for all European Union member states. The mutual recognition procedure provides
for mutual recognition of national approval decisions. Under this procedure, the
holder of a national marking authorization may submit an application to the
remaining member states. Within 90 days of receiving the applications and
assessment report, each member state must decide whether to recognize
approval.
In
addition to regulations in Europe and the United States, we will be subject to a
variety of foreign regulations governing clinical trials and commercial
distribution of our future products.
Reimbursement
In many
of the markets where we intend to commercialize a product following regulatory
approval, the prices of pharmaceutical products are subject to direct price
controls by law and to drug reimbursement programs with varying price control
mechanisms.
In the
United States, there has been an increased focus on drug pricing in recent
years. Although there are currently no direct government price controls over
private sector purchases in the United States, federal legislation requires
pharmaceutical manufacturers to pay prescribed rebates on certain drugs to
enable them to be eligible for reimbursement under certain public health care
programs such as Medicaid. Various states have adopted further mechanisms under
Medicaid and otherwise that seek to control drug prices, including by
disfavoring certain higher priced drugs and by seeking supplemental rebates from
manufacturers. Managed care has also become a potent force in the market place
that increases downward pressure on the prices of pharmaceutical products.
Federal legislation, enacted in December 2003, has altered the way in which
physician-administered drugs covered by Medicare are reimbursed. Under the new
reimbursement methodology, physicians are reimbursed based on a product’s
“average sales price,” or ASP. This new reimbursement methodology has generally
led to lower reimbursement levels. The new federal legislation also has added an
outpatient prescription drug benefit to Medicare, effective January 2006.
In the interim, Congress has established a discount drug card program for
Medicare beneficiaries. Both benefits will be provided primarily through private
entities, which will attempt to negotiate price concessions from pharmaceutical
manufacturers.
Public
and private health care payors control costs and influence drug pricing through
a variety of mechanisms, including through negotiating discounts with the
manufacturers and through the use of tiered formularies and other mechanisms
that provide preferential access to certain drugs over others within a
therapeutic class. Payors also set other criteria to govern the uses of a drug
that will be deemed medically appropriate and therefore reimbursed or otherwise
covered. In particular, many public and private health care payors limit
reimbursement and coverage to the uses of a drug that are either approved by the
FDA or that are supported by other appropriate evidence (for example, published
medical literature) and appear in a recognized drug compendium. Drug compendia
are publications that summarize the available medical evidence for particular
drug products and identify which uses of a drug are supported or not supported
by the available evidence, whether or not such uses have been approved by the
FDA. For example, in the case of Medicare coverage for physician-administered
oncology drugs, the Omnibus Budget Reconciliation Act of 1993, with certain
exceptions, prohibits Medicare carriers from refusing to cover unapproved uses
of an FDA-approved drug if the unapproved use is supported by one or more
citations in the American Hospital Formulary Service Drug Information, the
American Medical Association Drug Evaluations, or the U.S. Pharmacopoeia Drug
Information. Another commonly cited compendium, for example under Medicaid, is
the DRUGDEX Information System.
48
Different
pricing and reimbursement schemes exist in other countries. For example, in the
European Union, governments influence the price of pharmaceutical products
through their pricing and reimbursement rules and control of national health
care systems that fund a large part of the cost of such products to consumers.
The approach taken varies from member state to member state. Some jurisdictions
operate positive and/or negative list systems under which products may only be
marketed once a reimbursement price has been agreed. Other member states allow
companies to fix their own prices for medicines, but monitor and control company
profits. The downward pressure on health care costs in general, particularly
prescription drugs, has become very intense. As a result, increasingly high
barriers are being erected to the entry of new products, as exemplified by the
National Institute for Clinical Excellence in the UK, which evaluates the data
supporting new medicines and passes reimbursement recommendations to the
government. In addition, in some countries cross-border imports from low-priced
markets (parallel imports) exert a commercial pressure on pricing within a
country.
Manufacturing
We
currently rely on a number of third-parties, including contract manufacturing
organizations and our collaborative partners, to produce our compounds. Marqibo
requires three separate ingredients, sphingomyelin/cholesterol liposomes for
injection (SCLI), vincristine sulfate injection (VSI), and sodium phosphate for
injection (SPI), all of which are handled by separate suppliers. SCLI is
manufactured by Cangene Corporation, VSI is manufactured by Hospira and SPI is
manufactured by Hollister-Steir Laboratories. Alocrest and Brakiva are
both manufactured by Gilead. For Menadione, we have contracted with Dow
Pharmaceuticals and Menadiona, a Spanish-based company, for its
manufacturing.
Competition
We
compete primarily in the segment of the biopharmaceutical market that addresses
cancer and cancer supportive care, which is highly competitive. We face
significant competition from many pharmaceutical, biopharmaceutical and
biotechnology companies that are researching and selling products designed to
address cancer this market. Many of our competitors have significantly greater
financial, manufacturing, marketing and drug development resources than we do.
Large pharmaceutical companies in particular have extensive experience in
clinical testing and in obtaining regulatory approvals for drugs. These
companies also have significantly greater research capabilities than we do. In
addition, many universities and private and public research institutes are
active in cancer research. We also compete with commercial biotechnology
companies for the rights to product candidates developed by public and private
research institutes. Smaller or early-stage companies are also significant
competitors, particularly those with collaborative arrangements with large and
established companies.
We
believe that our ability to successfully compete will depend on, among other
things:
·
|
our ability to develop novel
compounds with attractive pharmaceutical properties and to secure and
protect intellectual property rights based on our
innovations;
|
·
|
the efficacy, safety and
reliability of our product
candidates;
|
·
|
the speed at which we develop our
product candidates;
|
·
|
our ability to design and
successfully complete appropriate clinical
trials;
|
·
|
our ability to maintain a good
relationship with regulatory
authorities;
|
·
|
the timing and scope of
regulatory approvals;
|
·
|
our ability to manufacture and
sell commercial quantities of future products to the market or enter into
strategic partnership agreements with others;
and
|
·
|
acceptance of future products by
physicians and other healthcare
providers.
|
Research
and Development Expenses
Research
and development expenses, which include salaries and related personnel costs,
fees paid to consultants and outside service providers for laboratory
development, manufacturing, legal expenses resulting from intellectual property
protection, business development and organizational affairs and other expenses
relating to the acquiring, design, development, testing, and enhancement of our
product candidates, including milestone payments for licensed technology, are
the primary source of our overall expenses. Research and development
expenses totaled $18.4 million for the year ended December 31, 2008 and $21.3
million for the year ended December 31, 2007.
49
Legal
Proceedings
We are not a party to any material legal
proceedings.
Description
of Property
Our executive offices are located at
7000 Shoreline Court, Suite 370, South San Francisco, California 94080. We
occupy this space, which consists of 18,788 square feet of office space,
pursuant to a written sublease agreement under which we currently pay rent of
approximately $46,000 per month, decreasing to approximately $36,600 per month
beginning in June 2010. Our sublease currently expires on March 31, 2011. We
believe that our existing facilities are adequate to meet our current
requirements. We do not own any real property.
Employees
As of the date of this prospectus, we
have 28 full-time employees and no part-time employees. All employees
are based at our South San Francisco office. None of our employees are covered
by a collective bargaining agreement. We believe our relationship with our
employees to be good.
50
MANAGEMENT
AND BOARD OF DIRECTORS
Directors
and Executive Officers
The following table lists our executive
officers and directors and their respective ages and positions as of the date of
this prospectus:
Name
|
Age
|
Position(s)
Held
|
||
Arie
S. Belldegrun, M.D.
|
59
|
Director
|
||
Steven
R. Deitcher, M.D.
|
45
|
President,
Chief Executive Officer and Director
|
||
Anne
E. Hagey, M.D.
|
42
|
Vice
President, Chief Medical Officer
|
||
John
P. Iparraguirre
|
33
|
Vice
President, Chief Financial Officer and Secretary
|
||
Paul
V. Maier
|
61
|
Director
|
||
Leon
E. Rosenberg, M.D.
|
76
|
Chairman
of the Board
|
||
Michael
Weiser, M.D.
|
46
|
Director
|
||
Linda
E. Wiesinger
|
56
|
Director
|
Arie S.
Belldegrun, M.D., FACS has served on Hana’s Board of Directors since
April 2004. Dr. Belldegrun is Director of the Institute of Urologic
Oncology at UCLA, Professor of Urology and Chief of the Division of Urologic
Oncology. He holds the Roy and Carol Doumani Chair in Urologic Oncology at the
David Geffen School of Medicine at the University of California, Los Angeles
(UCLA). In 1997, Dr. Belldegrun founded Agensys, Inc., an
early-stage privately-held biotechnology company based in Los Angeles,
California, that is focused on the development of fully human monoclonal
antibodies to treat solid tumor cancers in a variety of cancer
targets. Dr. Belldegrun served as founding Chairman of Agensys
from 1997 to 2002 and then as a director until December 2007, when the company
was acquired by Astellas Pharma. Dr. Belldegrun also serves on the
Board of Directors of Nile Therapeutics, Inc., a publicly-held biopharmaceutical
company. He is also Chairman and Partner of Two River Group Holdings
LLC, a New York based venture capital firm. Dr. Belldegrun’s
prior experience also includes serving as principal investigator of more than 50
clinical trials of anti-cancer drug candidates and
therapies. Dr. Belldegrun completed his M.D. at the Hebrew
University Hadassah Medical School in Jerusalem, his post graduate fellowship at
the Weizmann Institute of Science and his residency in Urological Oncology at
Harvard Medical School. Prior to UCLA, Dr. Belldegrun was at the
National Cancer Institute/NIH as a research fellow in surgical oncology under
Steven A. Rosenberg, M.D., Ph.D. He is certified by the American
Board of Urology and is a Fellow of the American College of Surgeons and the
American Association of Genitourinary Surgeons.
Steven R.
Deitcher, M.D., has been President, Chief Executive Officer and a
director of Hana since August 2007, and served as our Executive Vice President
of Development and Chief Medical Officer from May 2007 to August
2007. Prior to joining Hana, Dr. Deitcher served as Vice President
and Chief Medical Scientist at Nuvelo, Inc. since 2004. Prior to
joining Nuvelo, from 1998 to 2004, Dr. Deitcher held a variety of positions in
both the Department of Vascular Medicine and the Department of
Hematology/Oncology while at The Cleveland Clinic Foundation, including Head of
the Section of Hematology and Coagulation Medicine in the Department of
Hematology/Oncology. Prior to that, he spent four years at The University of
Tennessee in positions including Associate Chairman, Department of Medicine;
Director, Combined Pediatric and Adult Thrombosis Clinic; and Director, Special
Coagulation Laboratory. Dr. Deitcher earned his B.S. and M.D. in the Honors
Program in Medical Education at Northwestern University Medical
School.
Anne E. Hagey,
M.D., was appointed Vice President, Chief Medical Officer of Hana in
April 2008. Prior to joining Hana, from August 2000 to November 2007,
Dr. Hagey was employed at Abbott Laboratories, most recently serving as a Global
Project Head overseeing clinical oncology drug development. Before
becoming a Global Project Head in 2005, Dr. Hagey was an associate medical
director and a graduate of the Physician Development Program at Abbot
Laboratories. Dr. Hagey has been a clinical associate and attending
physician at the University of Chicago in pediatric hematology/oncology since
2001. She conducted her fellowship at the University of California,
Los Angeles in the Department of Microbiology and Molecular Genetics and the
Department of Pediatric Hematology-Oncology and Bone Marrow Transplant. She was
also a Resident and Intern in pediatrics at Baylor College of Medicine, Texas
Children’s Hospital. Dr. Hagey has been a Research Assistant at
Loyola University Medical School, a Research Intern at Case Western Reserve
University Medical School, and a Research Intern at Abbot Laboratories in the
Department of Corporate Molecular Biology. Dr. Hagey earned a Doctor
of Medicine from Loyola University Chicago Stritch School of Medicine and a
Bachelor of Sciences degree in Biochemistry from University of Illinois,
Urbana-Champaign.
51
John P.
Iparraguirre has been our Vice President, Chief Financial Officer and
Secretary since January 2006. From May 2004 to January 2006,
Mr. Iparraguirre served as our Controller and Assistant Secretary, and from
August 2004 to November 2004, served as our interim Chief Financial
Officer and Secretary. Prior to joining Hana, Mr. Iparraguirre
was the Accounting Manager at Discovery Toys, Inc., an educational and
developmental toy company, where he held several roles of responsibility in
Finance Management. From September 1998 to April 2002,
Mr. Iparraguirre was a Senior Audit Associate at BDO Seidman, LLP, an
international accounting firm. Mr. Iparraguirre received a B.S. degree in
Business Economics with an Emphasis in Accounting from the University of
California, Santa Barbara.
Paul V.
Maier was appointed a director of Hana in March 2008. Mr.
Maier is currently an independent financial consultant. From October 1992 to
January 2007, Mr. Maier served as Senior Vice President, Chief Financial Officer
of Ligand Pharmaceuticals, Inc., a publicly-held biopharmaceutical company based
in San Diego, CA. Prior to joining Ligand, Mr. Maier served as Vice President,
Finance at DFS West, a division of DFS Group, L.P., a private multinational
retailer from October 1990 to October 1992. From February 1990 to
October 1990, Mr. Maier served as Vice President and Treasurer of ICN
Pharmaceuticals, Inc., a pharmaceutical and biotechnology research products
company. Mr. Maier held various positions in finance and administration at
SPI Pharmaceuticals, Inc., a publicly held subsidiary of ICN Pharmaceuticals
Group, from 1984 to 1988, including Vice President, Finance from
February 1984 to February 1987. Mr. Maier also serves on the boards of
directors of Pure Bioscience, Inc. and International Stem Cell Corp., both
publicly-held companies. Mr. Maier received an M.B.A. from
Harvard Business School and a B.S. from Pennsylvania State
University.
Leon E.
Rosenberg, M.D., has served on Hana’s Board of Directors since February
2004 and has been non-executive Chairman of the Board since March 2007. Dr.
Rosenberg has been a Professor in the Princeton University Department of
Molecular Biology and the Woodrow Wilson School of Public and International
Public Affairs since September 1997. Since July 1999, he has also been Professor
Adjunct of Genetics at Yale University School of Medicine. From January 1997 to
March 1998, Dr. Rosenberg served as Senior Vice President, Scientific Affairs of
Bristol-Myers Squibb, and from September 1991 to January 1997, Dr. Rosenberg
served as President of the Bristol-Myers Squibb Pharmaceutical Research
Institute. From July 1984 to September 1991, Dr. Rosenberg was Dean of the Yale
University School of Medicine. Dr. Rosenberg also serves on the Boards of
Directors of Lovelace Respiratory Research Institute, Karo Bio AB, and Medicines
for Malaria Venture. Dr. Rosenberg received B.A. and M.D. degrees, both summa
cum laude, from the University of Wisconsin. He completed his internship and
residency training in internal medicine at Columbia Presbyterian Medical Center
in New York City.
Michael Weiser,
M.D., Ph.D., has been a director of Hana since its inception. Since
December 2006, Dr. Weiser has been the co-chairman of Actin Capital, LLC and
Actin Biomed, a New York based healthcare investment firm that he founded. Prior
to Actin, from July 1998 to December 2006, Dr. Weiser was the Director of
Research at Paramount BioCapital where he was responsible for the scientific,
medical and financial evaluation of biomedical technologies and pharmaceutical
products under consideration for development. Dr. Weiser completed his Ph.D. in
Molecular Neurobiology at Cornell University Medical College and received his
M.D. from New York University School of Medicine. Dr, Weiser performed his
post-graduate medical training in the Department of Obstetrics and Gynecology at
New York University Medical Center and also completed a Postdoctoral Fellowship
in the Department of Physiology and Neuroscience at New York University School
of Medicine. Dr. Weiser received his B.A. in Psychology from the University of
Vermont. Dr. Weiser is a member of The National Medical Honor Society, Alpha
Omega Alpha. Dr. Weiser currently serves on the boards of directors of Manhattan
Pharmaceuticals, Inc., Chelsea Therapeutics International Ltd., Emisphere
Technologies Inc., ZIOPHARM Oncology Inc. and VioQuest Pharmaceuticals Inc., all
publicly held biotechnology companies, as well as several privately held
companies.
Linda E.
Wiesinger, a director of Hana since February 2007, is currently the
principal of Strategic Decisions, a pharmaceutical consulting company. From
November 2003 to September 2005, Ms. Wiesinger was Senior Vice President,
Marketing and Market Development at Vicuron Pharmaceuticals, Inc., a publicly
held biopharmaceutical company that was acquired by Pfizer Inc. in September
2005. From May 2002 to February 2003, Ms. Wiesinger was Senior Vice President,
U.S. Marketing of IMS Health Incorporated, a publicly-held company that provides
market data to the pharmaceutical industry. Ms. Wiesinger has also held
management positions with Bristol-Myers Squibb Company, from 1996 to 2000, and
Armour Pharmaceutical Company, a subsidiary of Rhone-Poulenc Rorer, from
1992-1995. Ms. Wiesinger was employed by Pfizer Inc. where she held a series of
positions in strategic planning, investor relations, and product planning,
development and commercialization from 1981 to 1992. Ms. Wiesinger received a
B.A. from the University of Pennsylvania and earned an M.B.A. at The Wharton
School.
Independence
of the Board of Directors
Our Board of Directors consults with
our legal counsel to ensure that the Board’s determinations regarding director
independence are consistent with all relevant securities and other laws and
regulations regarding the definition of “independent,” including those set forth
in the listing standards of the Nasdaq Stock Market. Consistent with these
considerations, and after review of all relevant transactions or relationships
between each director, or any of his or her family members, and Hana, its senior
management and its independent registered public accounting firm, the Board has
determined that all of our directors are independent directors within the
meaning of the Nasdaq listing standards, except for Dr. Deitcher, our President
and Chief Executive Officer.
52
Executive
Compensation
The following summary compensation table
reflects cash and non-cash compensation for the 2007 and 2008 fiscal years
awarded to or earned by (i) each individual serving as our principal executive
officer during the fiscal year ended December 31, 2008; and (ii) each individual
that served as an executive officer at the end of the fiscal year ended December
31, 2008 and who received in excess of $100,000 in total compensation
during such fiscal year. We refer to these individuals as our “named executive
officers.”
Summary
Compensation Table
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
(1)
|
Non-Equity
Incentive
Plan
Compensation(2)
|
All
Other
Compensation
(3)
|
Total
|
|||||||||||||||||||
Steven
R. Deitcher (4)
|
2008
|
$ | 420,000 | $ | – | $ | 372,431 | $ | 150,000 | $ | 15,500 | $ | 957,931 | |||||||||||||
President
& CEO
|
2007
|
235,420 | 227,000 | (5) | 136,696 | – | 3,209 | 602,325 | ||||||||||||||||||
Anne
E. Hagey (6)
|
2008
|
$ | 255,134 | $ | 25,000 | (7) | $ | 91,066 | $ | 65,000 | $ | 20,175 | (8) | $ | 456,375 | |||||||||||
VP,
Chief Medical Officer
|
2007
|
– | – | – | – | – | – | |||||||||||||||||||
John
P. Iparraguirre
|
2008
|
$ | 200,000 | $ | 25,000 | $ | 339,744 | $ | – | $ | 10,000 | $ | 574,744 | |||||||||||||
VP,
CFO
|
2007
|
175,000 | 65,000 | 347,125 | – | 8,750 | 595,875 |
(1)
|
Amount
reflects the compensation cost for the years ended December 31, 2007
and 2008 of the named executive officer’s options, calculated in
accordance with SFAS 123(R) and using a Black-Scholes-Merton
valuation model. Assumptions used in the calculation of these amounts are
included in Note 4 to the Company’s audited financial statements for the
fiscal year ended December 31, 2008, included in this prospectus.
Forfeitures rates attributed to the calculation have been disregarded for
the purposes of this table.
|
(2)
|
Amount
reflects cash incentives both paid and accrued for services related to
2007 and 2008. All accrued bonuses relating to performance in
2007 and 2008 included in totals were paid early in the first quarters of
2008 and 2009, respectively. Cash incentives relate to services performed
during the fiscal year pursuant to performance incentives
earned.
|
(3)
|
Except
as otherwise noted for a named executive officer, these amounts consist
solely of matching contributions made to the named executives’ respective
401(k) plan contributions.
|
(4)
|
Dr.
Deitcher’s employment with us commenced in May 2007. He first
served as our Executive Vice President of Development and Chief Medical
Officer, and was promoted to President and Chief Executive Officer in
August 2007.
|
(5)
|
Consists
of a signing bonus in the amount of $75,000 paid to Dr. Deitcher upon the
commencement of his employment with us in May 2007, as well as an annual
bonus of $152,000 payable pursuant to Dr. Deitcher’s previous employment
agreement. Under the terms of the agreement, Dr. Deitcher was
eligible for an annual performance bonus of up to 40% of his base salary,
which amount was guaranteed for fiscal 2007. For a summary of
the terms of Dr. Deitcher’s current employment agreement, see “–Employment
Agreements and Post-Termination Benefits – Steven R.
Deitcher.”
|
(6)
|
Dr.
Hagey’s employment with us commenced in April
2008.
|
(7)
|
Consists
of a signing bonus paid to Dr. Hagey upon the commencement of her
employment with us in April 2008.
|
(8)
|
Consists
of $15,500 in matching contributions made to Dr. Hagey’s 401(k)
plan and $4,675 paid to Dr. Hagey as reimbursement for certain relocation
costs pursuant to Dr. Hagey’s offer letter signed in April
2008.
|
53
Employment
Agreements and Post-Termination Benefits
Steven R. Deitcher
Dr.
Deitcher’s employment with us is governed by an employment agreement dated June
6, 2008. The employment agreement, which replaced and superseded a
prior agreement dated May 6, 2007, provides for Dr. Deitcher’s employment as
Chief Executive Officer for a term ending December 31, 2010, unless terminated
earlier. The agreement may be renewed for one or more additional one-year
periods upon agreement by the parties. Dr. Deitcher will receive an initial
annual base salary of $420,000, which amount will be reviewed by the board of
directors at least annually and never decreased. Dr. Deitcher may
also, at the discretion of the board of directors, receive an annual bonus in an
amount targeted at 50% of his base salary based upon the achievement of
specified Company goals approved by the board of directors, except that the
bonus shall be equal to 70% of his base salary in the event the Company
satisfies all specified goals in their entirety. Dr. Deitcher is eligible to
participate in all benefits offered to our employees. Dr. Deitcher’s
current annual base salary of $420,000 will not be increased for
2009.
In the
event Dr. Deitcher is terminated upon a “change of control,” he will receive (i)
his then-current annualized base salary and health insurance for a period of 12
months following the date of the termination, (ii) the maximum discretionary
bonus (at the 70% targeted rate) for which he would have been eligible in the
year of the termination, and (iii) an acceleration in the vesting of all options
to purchase shares of our common stock then held by him. If Dr. Deitcher is
terminated by us other than for “cause” or upon a change of control, or if Dr.
Deitcher terminates his employment for “good reason,” or if we elect not to
renew the employment agreement at the end of its term, then Dr. Deitcher will
receive (x) his then-current annualized base salary and health insurance for a
period of 12 months following the date of the termination, (y) the maximum
discretionary bonus (at the 50% targeted rate) for which he would have been
eligible in the year of the termination, prorated for the number of months Dr.
Deitcher was employed by us in the year of termination, and (z) an acceleration
in the vesting of all of his stock options to provide for 12 additional months
of vesting.
The term
“cause” under the employment agreement means the following conduct or actions
taken by Dr. Deitcher: (i) his willful and repeated failure or refusal to
perform his duties under the agreement that is not cured by within 30 days after
written notice thereof is given by us; (ii) any willful, intentional or grossly
negligent act having the effect of injuring, in a material way (whether
financial or otherwise), our business or reputation; (iii) willful and material
misconduct in respect of his duties or obligations; (iv) the conviction of any
felony or a misdemeanor involving a crime of moral turpitude; (v) the
determination by us that Dr. Deitcher engaged in material harassment or
discrimination prohibited by law; (vi) any misappropriation or embezzlement of
our property; (vii) a breach of the non-solicitation, invention assignment and
confidentiality provisions of the employment agreement; or (viii) a material
breach of any other material provision of the employment agreement that is not
cured within 30 days after we provide written notice thereof.
The term
“change of control” means any of the following: (A) the direct or indirect
acquisition by a person in one or a series of related transactions of our
securities representing more than 50% of our combined voting power; or (B) the
disposition by us of all or substantially all of our business and/or assets in
one or a series of related transactions, other than a merger effected to change
our state of domicile.
The term
“good reason” means (1) a material breach by us of the employment agreement,
which we do not cure within 30 days after written notice thereof is given to us;
(2) a change in the lines of reporting such that Dr. Deitcher no longer directly
reports to our Board; (3) a reduction in Dr. Deitcher’s compensation or other
benefits except such a reduction in connection with a general reduction in
compensation or other benefits of all senior executives; (4) a material
reduction in Dr. Deitcher’s authority, duties, responsibilities, or title; or
(5) a relocation of Dr. Deitcher’s principal place of performance by more than
30 miles from our current South San Francisco office location.
Anne
E. Hagey
Dr.
Hagey’s employment with us is governed by the terms of a letter agreement dated
March 16, 2008. The letter agreement provides that Dr. Hagey is entitled to an
initial annual base salary of $335,000 and is eligible for an annual performance
bonus targeted at 40% of her base salary. In addition, Dr. Hagey
received a signing bonus of $25,000 upon the commencement of her employment. We
also agreed to pay relocation expenses on Dr. Hagey’s behalf in an amount up to
$10,000. The relocation expenses must be repaid by Dr. Hagey if she voluntarily
resigns from her employment or if we terminate her employment for cause prior to
April 23, 2010. Pursuant to the terms of the letter agreement, Dr. Hagey also
received a stock option to purchase 200,000 shares of our common stock pursuant
to the 2004 Plan upon commencement of her employment. The option has a term of
10 years, vests in three equal annual installments commencing on April 23, 2009,
and is exercisable at a price of $1.04 per share, the fair market value of our
common stock as of the commencement of her employment. Dr. Hagey’s
current annual base salary of $350,000 will not be increased for
2009.
54
The letter agreement further provides
that if Hana terminates Dr. Hagey’s employment without cause, or if she
terminates her employment for “good reason,” then she is entitled to continue
receiving her then current annualized base salary for a period of six months
following such termination and any obligation she may have to repay the signing
bonus or relocation expenses will be forgiven. For purposes of the letter
agreement, the term “cause” has substantially the same meaning as such term in
Dr. Deitcher’s agreement, which is described above. The term “good
reason” means (i) a reduction in Dr. Hagey’s annual base salary or annual target
bonus rate or a material reduction in the benefits provided to her, taken as a
whole, in each case without her consent, but not if all senior executives also
incur such reduction in compensation or other benefits, or (ii) a significant
reduction in Dr. Hagey’s duties and responsibilities, but in each case after we
have failed to correct such event after 30 days’ written notice from Dr.
Hagey.
John
P. Iparraguirre
Mr.
Iparraguirre’s employment with us is governed by an employment agreement dated
December 18, 2006, as amended on October 31, 2008. The employment
agreement provides for a term ending October 31, 2009, an annual base salary
payable to Mr. Iparraguirre in the amount of $175,000 (which may be subject to
annual increases at the discretion of our board of directors) and an annual
discretionary bonus in an amount up to 30% of the then annual base
salary. For 2007, the amount of Mr. Iparraguirre’s annual
discretionary bonus was $65,000, which exceeded his 30% target maximum
amount. Effective as of January 1, 2008, Mr. Iparraguirre’s annual
base salary was increased to $200,000. For 2008, Mr. Iparraguirre
received a discretionary bonus of $25,000, which represented 12.5% of his annual
base salary. Mr. Iparraguirre’s current annual base salary of $200,000 will not
be increased for 2009.
In
accordance with the terms of the agreement, in the event we terminate Mr.
Iparraguirre’s employment prior to October 31, 2009 other than for “cause” or as
a result of Mr. Iparraguirre’s death or disability, or if Mr. Iparraguirre
terminates his employment for “good reason,” then Mr. Iparraguirre is entitled
to continue receiving his annual base salary plus health insurance benefits for
a period of six months; however, we are entitled to offset such amount to the
extent Mr. Iparraguirre earns income from subsequent employment. In the event
Mr. Iparraguirre’s employment is terminated by us upon a “change of control,”
Mr. Iparraguirre is entitled to receive his base salary plus health insurance
benefits for a six month period. Our obligation to pay any severance benefits to
Mr. Iparraguirre upon the termination of his employment is subject to Mr.
Iparraguirre’s release of all claims against us relating to his
employment. The terms “cause” and “change of control” in Mr.
Iparraguirre’s agreement have substantially the same meaning as such term in Dr.
Deitcher’s agreement, which is described above. The term “good
reason” means: (1) a material breach by us of Mr. Iparraguirre’s employment
agreement which is not cured after 30 days’ written notice; (2) a change in the
lines of reporting such that Mr. Iparraguirre no longer reports to either our
CEO or Board; and (3) a reduction in Mr. Iparraguirre’s compensation or other
benefits other than a reduction in connection with a general reduction in
compensation or other benefits of all senior executives.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information concerning stock options held by the
named executive officers at December 31, 2008:
Name
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
||||||||||
Dr.
Deitcher
|
133,334 | 266,666 | 1.650 |
05/21/2017
|
(1) | |||||||||
33,334 | 66,666 | 1.740 |
08/24/2017
|
(2) | ||||||||||
216,667 | 433,333 | 1.120 |
12/14/2017
|
(3) | ||||||||||
Dr.
Hagey
|
– | 200,000 | 1.04 |
04/23/2018
|
(4) | |||||||||
Mr.
Iparraguirre
|
28,201 | – | 1.684 |
05/09/2014
|
(5) | |||||||||
40,000 | – | 1.330 |
04/11/2015
|
(6) | ||||||||||
50,000 | – | 4.750 |
11/10/2015
|
(7) | ||||||||||
83,333 | 41,667 | 6.820 |
12/12/2016
|
(8) | ||||||||||
36,667 | 73,333 | 1.120 |
12/14/2017
|
(9) |
(1)
|
133,334
shares vested on May 21, 2008. An additional 133,333 shares
vest on each of May 21, 2009 and May 21,
2010.
|
55
(2)
|
33,334
shares vested on August 24, 2008. An additional 33,333 shares
vest on each of August 24, 2009 and August 24,
2010.
|
(3)
|
216,667
shares vested on December 14, 2008. An additional 216,667 and
216,666 shares vest on December 14, 2009 and December 14, 2010,
respectively.
|
(4)
|
66,667
shares vested on April 23, 2009. An additional 66,667 and
66,666 shares vest on April 23, 2010 and April 23, 2011,
respectively.
|
(5)
|
100%
of the shares subject to the option grant became vested on May 9,
2006.
|
(6)
|
13,334
shares vested on April 11, 2006. An additional 13,333 shares
vested on each of April 11, 2007 and April 11,
2008.
|
(7)
|
16,667
shares vested on each of November 10, 2006 and November 10,
2007. An additional 16,666 shares vested on November 10,
2008.
|
(8)
|
41,666
and 41,667 shares vested on December 12, 2007 and December 12, 2008,
respectively. An additional 41,667 shares vest on December 12,
2009.
|
(9)
|
36,667
shares vested on December 14, 2008. An additional 36,667 and
36,666 shares vest on December 14, 2009 and December 14, 2010,
respectively.
|
Compensation
of Directors
Our non-employee directors are entitled
to receive the following in consideration for their service on the Board: (1) a
cash fee of $2,500 for attendance at each regular quarterly meeting of the
Board; (2) an annual fee of $20,000, as compensation for special Board and other
meetings; and (3) an annual stock option grant relating to 40,000 shares of
common stock, which option vests upon the first anniversary of the grant and
accelerates upon a “change of control” of the Company. In lieu of the foregoing
compensation, Dr. Rosenberg, as our non-executive chairman of the Board, is
entitled to an annual retainer of $50,000, a meeting fee of $4,000 and an annual
stock option grant of 75,000 shares. The following table sets forth the
compensation paid to our directors for their service in 2008.
Name
(1)
|
Fees
Earned or
Paid
in Cash
|
Option
Awards
(2)
|
Total
|
|||||||||
Arie
S. Belldegrun
|
$
|
30,000
|
$
|
154,931
|
$
|
184,931
|
||||||
Paul
V. Maier
|
27,500
|
29,365
|
56,865
|
|||||||||
Leon
E. Rosenberg
|
66,000
|
198,700
|
264,700
|
|||||||||
Michael
Weiser
|
30,000
|
162,114
|
192,114
|
|||||||||
Linda
Wiesinger
|
30,000
|
51,292
|
81,292
|
|||||||||
Isaac
Kier (3)
|
22,500
|
—
|
22,500
|
(1)
|
Steven
R. Deitcher, our President and Chief Executive Officer, has been omitted
from this table since he receives no additional compensation for serving
on our Board; his compensation is described above under “Summary of
Compensation.”
|
(2)
|
These
amounts reflect the stock−based compensation expense recognized for
financial statement reporting purposes for the fiscal year ended December
31, 2008, in accordance with FAS 123(R) of stock option award granted from
2005 to 2008. Assumptions used in the calculation of these amounts are
included in Note 4 to the Company’s audited financial statements for the
fiscal year ended December 31, 2008, included in this prospectus.
Forfeitures rates attributed to the calculation have been disregarded for
the purposes of this table. The following are the aggregate number of
option awards outstanding as of December 31, 2008 that have been granted
to each of our non−employee directors: Dr. Belldegrun: 188,201; Mr. Maier:
0; Dr. Rosenberg: 258,201; Dr. Weiser: 160,000; Ms. Wiesinger:
80,000.
|
(3)
|
Mr.
Kier’s service on our Board expired on May 28, 2008, the date of our 2008
annual meeting of stockholders, following his decision not to seek
reelection as a
director.
|
56
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain
information regarding the ownership of our common stock as of October 29, 2009
by: (i) each of our current directors and executive officers; (ii) all of our
directors and executive officers as a group; and (iii) all those known by us to
be beneficial owners of at least 5% of our common stock. Beneficial
ownership is determined under rules promulgated by the SEC. Under
those rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days of the date hereof,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. Inclusion of shares in the table does not,
however, constitute an admission that the named stockholder is a direct or
indirect beneficial owner of those shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power and
investment power (or shares that power with that person’s spouse) with respect
to all shares of capital stock listed as owned by that person or
entity. Unless otherwise indicated, the address of each of the
following persons is c/o Hana Biosciences, Inc., 7000 Shoreline Court, Suite
370, South San Francisco, CA 94080.
Name
|
Shares
Beneficially
Owned
|
Percent
of Class
|
||||||
Steven
R. Deitcher (1)
|
786,668
|
1.0%
|
||||||
Anne
E. Hagey (2)
|
66,667
|
*
|
||||||
John
P. Iparraguirre (3)
|
332,561
|
*
|
||||||
Arie
S. Belldegrun (4)
|
188,201
|
*
|
||||||
Paul
V. Maier (5)
|
57,000
|
*
|
||||||
Leon
E. Rosenberg (6)
|
259,201
|
*
|
||||||
Michael
Weiser (7)
|
750,963
|
*
|
||||||
Linda
E. Wiesinger (8)
|
86,000
|
*
|
||||||
All
directors and officers as a group (8 persons)
|
2,527,261
|
3.2%
|
||||||
James
E. Flynn (9)
780
3rd
Avenue, 37th
Floor
New
York, NY 10017
|
18,964,955
|
24.4%
|
||||||
OrbiMed
Advisors LLC (10)
767
Third Avenue, 30th
Floor
New
York, NY 10017
|
11,090,578
|
9.9%
|
||||||
Perceptive
Life Sciences Master Fund, Ltd. (11)
499
Park Ave., 25th
Floor
New
York, NY 10022
|
13,935,406
|
9.9%
|
||||||
Quogue
Capital LLC (12)
1285
Avenue of the Americas, 35th
Floor
New
York, NY 10019
|
12,128,510
|
9.9%
|
*
|
represents
less than 1%.
|
(1)
|
Includes
766,668 shares issuable upon the exercise of stock
options.
|
(2)
|
Represents
shares issuable upon the exercise of stock
options.
|
(3)
|
Includes
(i) 316,535 shares issuable upon the exercise of stock options, and (ii)
100 shares held by Mr. Iparraguirre’s
spouse.
|
(4)
|
Represents
shares issuable upon the exercise of stock
options.
|
(5)
|
Includes
50,000 shares issuable upon the exercise of stock
options.
|
(6)
|
Includes
258,201 shares issuable upon the exercise of stock
options.
|
(7)
|
Includes
(i) 160,000 shares issuable upon the exercise of stock options, and (ii)
29,296 shares issuable upon the exercise of
warrants.
|
(8)
|
Includes
80,000 shares issuable upon the exercise of stock
options.
|
57
(9)
|
Includes
(i) 4,646,899 shares of our common stock and warrants to purchase 464,689
shares of our common stock held by Deerfield Private Design Fund, L.P.;
(ii) 7,485,997 shares of our common stock and warrants to purchase 748,598
shares of our common stock held by Deerfield Private Design International,
L.P.; (iii) 3,451,799 shares of our common stock and warrants to purchase
156,999 shares of our common stock held by Deerfield Special Situations
Fund International Limited; and (iv) 1,924,316 shares of our common stock
and warrants to purchase 85,658 shares of our common stock held by
Deerfield Special Situations Fund, L.P. Deerfield Capital, L.P. is
the general partner of Deerfield Private Design Fund, L.P., Deerfield
Private Design International, L.P., and Deerfield Special Situations Fund,
L.P. Deerfield Management Company, L.P. is the investment
manager of Deerfield Special Situations Fund International Limited. James
E. Flynn, the managing member of Deerfield Capital, L.P. and Deerfield
Management Company, L.P., holds voting and dispositive power over the
shares held by these stockholders.
|
(10)
|
Includes
(i) 1,900,000 shares of our common stock and warrants to purchase 850,000
shares of our common stock held by Caduceus Capital II, L.P.; (ii)
2,700,000 shares of our common stock and warrants to purchase 1,260,000
shares of our common stock held by Caduceus Capital Master Fund Limited;
(iii) 180,000 shares of our common stock and warrants to purchase 84,000
shares of our common stock held by PW Eucalyptus Fund, Ltd.; (iv) 932,000
shares of our common stock and warrants to purchase 434,578 shares of our
common stock held by Summer Street Life Sciences Hedge Fund Investors LLC;
and (v) 1,900,000 shares of our common stock and warrants to purchase
850,000 shares of our common stock held by UBS Eucalyptus Fund,
L.L.C. The provisions of the warrants restrict the exercise of
such warrants to the extent that, upon such exercise, the number of shares
that are beneficially owned by such holder and its affiliates and any
other persons or entities with which such holder would constitute a
Section 13(d) “group,” would exceed 9.99% of the total number of shares of
our common stock then outstanding. OrbiMed Advisors LLC is the
investment advisor to Caduceus Capital II, L.P., UBS Eucalyptus Fund,
L.L.C., and PW Eucalyptus Fund, Ltd. OrbiMed Capital LLC is the
investment advisor to Caduceus Capital Master Fund Limited and Summer
Street Life Sciences Hedge Fund Investors LLC. Samuel D. Isaly
is the managing member of OrbiMed Advisors LLC and OrbiMed Capital
LLC.
|
(11)
|
Includes
6,323,406 shares issuable upon the exercise of warrants, the provisions of
which restrict the exercise of such warrants to the extent that, upon such
exercise, the number of shares that are beneficially owned by such holder
and its affiliates and any other persons or entities with which such
holder would constitute a Section 13(d) “group,” would exceed 9.99% of the
total number of shares of our common stock then
outstanding.
|
(12)
|
Includes
4,516,510 shares issuable upon the exercise of warrants, the provisions of
which restrict the exercise of such warrants to the extent that, upon such
exercise, the number of shares that are beneficially owned by such holder
and its affiliates and any other persons or entities with which such
holder would constitute a Section 13(d) “group,” would exceed 9.99% of the
total number of shares of our common stock then
outstanding.
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
In connection with our May 2006 direct
registered offering, Mark Ahn, Fred Vitale and Isaac Kier, each of whom are
former executive officers and/or directors of the Company, purchased 5,500,
55,100 and 11,000 shares of our common stock, respectively. The purchase price
paid by the non-affiliated investors in the offering was $8.50 per share;
however, Dr. Ahn, Mr. Vitale and Mr. Kier each paid $9.07 per share, which
represented the closing sale price of our common stock on the date prior to the
entry into the purchase agreements relating to such transactions. Mr. Kier’s
purchase was made through Kier Family, L.P., a limited partnership of which Mr.
Kier is the general partner. Other than the purchase price, all terms of Dr.
Ahn’s and Messrs. Vitale’s and Kier’s purchases were identical to the terms
applicable to the non-affiliated purchasers in the offering.
WHERE
YOU CAN FIND MORE INFORMATION
Federal securities laws require us to
file information with the SEC concerning our business and
operations. Accordingly, we file annual, quarterly, and special
reports, proxy statements and other information with the SEC. You can
inspect and copy this information at the Public Reference Facility maintained by
the SEC at Judiciary Plaza, 100 F Street, N.E., Washington, D.C.
20549. You can receive additional information about the operation of
the SEC’s Public Reference Facilities by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding companies that, like us, file information electronically with the
SEC.
VALIDITY
OF COMMON STOCK
Legal matters in connection with the
validity of the shares offered by this prospectus will be passed upon by
Fredrikson & Byron, P.A., Minneapolis, Minnesota.
58
EXPERTS
The financial statements as of December
31, 2008 and 2007 and for each of the two years in the period ended December 31,
2008 included in this Prospectus and in the Registration Statement have been so
included in reliance on the reports of BDO Seidman, LLP, an independent
registered public accounting firm (the report on the financial statements
contains an explanatory paragraph regarding the Company's ability to continue as
a going concern) appearing elsewhere herein and in the Registration Statement,
given on the authority of said firm as experts in auditing and
accounting.
TRANSFER
AGENT
The transfer agent for our common stock
is Corporate Stock Transfer, Inc., and its address is 3200 Cherry Creek Drive
South, Suite 430, Denver, Colorado 80209.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for
liabilities arising under the Securities Act of may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore
unenforceable.
59
INDEX
TO FINANCIAL STATEMENTS
Hana
Biosciences, Inc. for the years ended December 31, 2008 and
2007
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Balance
Sheets as of December 31, 2008 and 2007
|
F-3
|
|||
Statements
of Operations and Other Comprehensive Loss for the Years Ended December
31, 2008 and 2007
|
F-4
|
|||
Statement
of Changes in Stockholders’ Equity (Deficit) for the period from January
1, 2007 to December 31, 2008
|
F-5
|
|||
Statements
of Cash Flows for the Years Ended December 31, 2008 and
2007
|
F-7
|
|||
Notes
to Financial Statements
|
F-8
|
|||
Hana
Biosciences, Inc. for the three and six months ended June 30, 2009
and 2008 (Unaudited)
|
||||
Condensed
Balance Sheets as of June 30, 2009 and December 31, 2008
|
F-23
|
|||
Condensed
Statements of Operations and Other Comprehensive Loss for the three
and six months ended June 30, 2009 and 2008
|
F-24
|
|||
Condensed
Statement of Changes in Stockholders’ Deficit for the period from
January 1, 2009 to June 30, 2009
|
F-25
|
|||
Condensed
Statements of Cash Flows for the six months ended June 30, 2009 and
2008
|
F-26
|
|||
Notes
to Unaudited Condensed Financial Statements
|
F-27
|
F-1
Board of
Directors and Stockholders
Hana
Biosciences, Inc.
South San
Francisco, California
We have
audited the accompanying balance sheets of Hana Biosciences, Inc. as of December
31, 2008 and 2007 and the related statements of operations and comprehensive
loss, stockholders’ equity (deficit), and cash flows for each of the two years
in the period ended December 31, 2008. These financial statements are
the responsibility of the Company’s 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. The
Company is not required to have, nor were we engaged to perform, an audit of its
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 Company’s
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, as
well as evaluating the overall presentation of the financial statements and
schedules. 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 financial position of Hana Biosciences, Inc. at December
31, 2008 and 2007, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
BDO SEIDMAN, LLP
|
||
BDO
SEIDMAN, LLP
|
||
San
Francisco, California
|
||
March
30, 2009
|
F-2
HANA
BIOSCIENCES, INC.
|
December
31,
2008
|
December
31,
2007
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 13,999,080 | $ | 20,795,398 | ||||
Available-for-sale
securities
|
128,000 | 96,000 | ||||||
Prepaid
expenses and other current assets
|
131,663 | 489,293 | ||||||
Total
current assets
|
14,258,743 | 21,380,691 | ||||||
|
||||||||
Property
and equipment, net
|
400,168 | 432,529 | ||||||
Restricted
cash
|
125,000 | 125,000 | ||||||
Debt
issuance costs
|
1,361,356 | 1,423,380 | ||||||
Total
assets
|
$ | 16,145,267 | $ | 23,361,600 | ||||
|
||||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 4,225,863 | $ | 4,098,039 | ||||
Other
short-term liabilities
|
61,341 | 13,919 | ||||||
Warrant
liabilities, short-term
|
1,450,479 | |||||||
Total
current liabilities
|
5,737,683 | 4,111,958 | ||||||
Notes
payable, net of discount
|
16,851,541 | 2,025,624 | ||||||
Warrant
liabilities, long-term
|
— | 4,232,355 | ||||||
Other
long-term liabilities
|
41,775 | 33,861 | ||||||
Total
long term liabilities
|
18,343,795 | 6,291,840 | ||||||
Total
liabilities
|
22,630,999 | 10,403,798 | ||||||
Commitments
and contingencies (Notes 3 ,7, 11 and 12):
|
||||||||
|
||||||||
Stockholders'
equity (deficit):
|
||||||||
Common
stock; $0.001 par value:
|
||||||||
100,000,000
shares authorized, 32,386,130 and 32,169,553 shares issued and outstanding
at December 31, 2008 and 2007, respectively
|
32,386 | 32,170 | ||||||
Additional
paid-in capital
|
104,431,469 | 101,843,390 | ||||||
Accumulated
other comprehensive income (loss)
|
36,000 | (104,000 | ) | |||||
Deficit
accumulated
|
(110,985,587 | ) | (88,813,758 | ) | ||||
Total
stockholders' equity (deficit)
|
(6,485,732 | ) | 12,957,802 | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 16,145,267 | $ | 23,361,600 |
See
accompanying notes to financial statements.
F-3
HANA
BIOSCIENCES, INC.
AND
COMPREHENSIVE LOSS
Years
Ended
December
31,
|
||||||||
2008
|
2007
|
|||||||
License
revenues
|
$ | — | $ | 1,150,000 | ||||
Operating
expenses:
|
||||||||
General
and administrative
|
5,800,595 | 7,982,388 | ||||||
Research
and development
|
18,426,757 | 21,293,297 | ||||||
Total
operating expenses
|
24,227,352 | 29,275,685 | ||||||
|
||||||||
Loss
from operations
|
(24,227,352 | ) | (28,125,685 | ) | ||||
|
||||||||
Other
income (expense):
|
||||||||
Interest
income
|
336,968 | 1,222,206 | ||||||
Interest
expense
|
(1,415,913 | ) | (167,700 | ) | ||||
Other
income (expense), net
|
(130,622 | ) | (505,688 | ) | ||||
Change
in fair market value of warrant liabilities
|
3,265,090 | 1,619,943 | ||||||
Total
other income
|
2,055,523 | 2,168,761 | ||||||
|
||||||||
Net
loss
|
$ | (22,171,829 | ) | $ | (25,956,924 | ) | ||
Net
loss per share, basic and diluted
|
$ | (0.69 | ) | $ | (0.85 | ) | ||
Weighted
average shares used in computing net loss per share, basic and
diluted
|
32,295,455 | 30,517,328 | ||||||
|
||||||||
Comprehensive
loss:
|
||||||||
Net
loss
|
$ | (22,171,829 | ) | $ | (25,956,924 | ) | ||
Unrealized
holdings gains (losses) arising during the period
|
32,000 | (560,000 | ) | |||||
Less:
reclassification adjustment for losses included in net
loss
|
108,000 | 436,000 | ||||||
Comprehensive
loss
|
(22,031,829 | ) | (26,080,924 | ) |
See
accompanying notes to financial statements.
F-4
HANA
BIOSCIENCES, INC.
Common
Stock
|
||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
Other
Comprehensive
income
(loss)
|
Deficit
accumulated
|
Total
stockholders'
equity
(deficit)
|
|||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Balance
at January 1, 2007
|
29,210,627 | 29,211 | 93,177,445 | 20,000 | (62,856,834 | ) | 30,369,822 | |||||||||||||||||
Issuance
of shares upon exercise of warrants, options and restricted
stock
|
482,593 | 483 | 26,516 | — | — | 26,999 | ||||||||||||||||||
Shares
returned
|
(73,121 | ) | (73 | ) | 73 | — | — | — | ||||||||||||||||
Stock-based
compensation of employees amortized over vesting period of stock
options
|
— | — | 4,943,886 | — | — | 4,943,886 | ||||||||||||||||||
Share-based
compensation to nonemployees for services
|
— | — | (150,165 | ) | — | — | (150,165 | ) | ||||||||||||||||
Issuance
of shares under employee stock purchase plan
|
49,454 | 49 | 115,135 | — | — | 115,184 | ||||||||||||||||||
Repurchase
of employee stock options
|
— | — | (117,000 | ) | — | — | (117,000 | ) | ||||||||||||||||
Sale
of shares – Par Pharma
|
2,500,000 | 2,500 | 3,847,500 | — | — | 3,850,000 | ||||||||||||||||||
Unrealized
loss on marketable securities
|
— | — | — | (124,000 | ) | — | (124,000 | ) | ||||||||||||||||
Net
loss
|
— | — | — | — | (25,956,924 | ) | (25,956,924 | ) |
F-5
HANA
BIOSCIENCES, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Common
Stock
|
||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
Other
Comprehensive
income
(loss)
|
Deficit
accumulated
|
Total
stockholders'
equity
(deficit)
|
|||||||||||||||||||
Balance
at December 31, 2007
|
32,169,553 | $ | 32,170 | $ | 101,843,390 | $ | (104,000 | ) | $ | (88,813,758 | ) | $ | 12,957,802 | |||||||||||
Stock-based
compensation of employees amortized over vesting period of stock
options
|
— | — | 2,410,396 | — | — | 2,410,396 | ||||||||||||||||||
Share-based
compensation to nonemployees for services
|
— | — | (825 | ) | — | — | (825 | ) | ||||||||||||||||
Issuance
of shares under employee stock purchase plan
|
82,168 | 82 | 53,642 | — | — | 53,724 | ||||||||||||||||||
Issuance
of shares-partial consideration of license milestone
|
134,409 | 134 | 124,866 | — | — | 125,000 | ||||||||||||||||||
Unrealized
gain on marketable securities
|
— | — | — | 140,000 | — | 140,000 | ||||||||||||||||||
Net
loss
|
— | — | — | — | (22,171,829 | ) | (22,171,829 | ) | ||||||||||||||||
Balance
at December 31, 2008
|
32,386,130 | $ | 32,386 | $ | 104,431,469 | $ | 36,000 | $ | (110,985,587 | ) | $ | (6.485,732 | ) |
See
accompanying notes to financial statements.
F-6
HANA
BIOSCIENCES, INC.
Years Ended December
31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
|
|
||||||
Net
loss
|
$ | (22,171,829 | ) | $ | (25,956,924 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
191,446 | 169,949 | ||||||
Share-based
compensation to employees for services
|
2,410,396 | 4,943,886 | ||||||
Share-based
compensation to nonemployees for services
|
(825 | ) | (150,165 | ) | ||||
Amortization
of discount and debt issuance costs
|
371,155 | 38,723 | ||||||
Loss
on sale of capital assets
|
5,781 | 1,052 | ||||||
Realized
loss on available for sale securities
|
108,000 | 436,000 | ||||||
Gain
on warrant liability
|
(3,265,090 | ) | (1,619,943 | ) | ||||
Issuance
of shares in partial consideration of milestone payment
|
125,000 | — | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Increase(decrease)
in prepaid expenses and other assets
|
357,630 | 7,225 | ||||||
Increase(decrease)
in accounts payable
|
(1,225,014 | ) | (1,057,217 | ) | ||||
Increase(decrease)
in accrued and other current liabilities
|
1,352,838 | (779,742 | ) | |||||
Net
cash used in operating activities
|
(21,740,512 | ) | (23,967,156 | ) | ||||
|
||||||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(73,823 | ) | (131,298 | ) | ||||
Purchase
of marketable securities
|
— | (4,500,000 | ) | |||||
Sale
of marketable securities
|
— | 9,975,000 | ||||||
Net
cash provided by (used in) investing activities
|
(73,823 | ) | 5,343,702 |
Cash
flows from financing activities:
|
|
|||||||
Payments
on capital leases
|
$ | (35,707 | ) | $ | — | |||
Proceeds
from issuances of notes payable, net of cash issuance costs of $0 in 2008
and $1,084,181 in 2007
|
15,000,000 | 6,415,819 | ||||||
Repurchase
of employee stock options
|
— | (117,000 | ) | |||||
Proceeds
from exercise of warrants and options and issuance of shares under
employee stock purchase plan
|
53,724 | 142,183 | ||||||
Proceeds
from private placements of common stock, net
|
— | 3,850,000 | ||||||
Net
cash provided by financing activities
|
15,018,017 | 10,291,002 | ||||||
|
||||||||
Net
decrease in cash and cash equivalents
|
(6,796,318 | ) | (8,332,452 | ) | ||||
Cash
and cash equivalents, beginning of year
|
20,795,398 | 29,127,850 | ||||||
Cash
and cash equivalents, end of year
|
$ | 13,999,080 | $ | 20,795,398 | ||||
Supplemental
disclosures of cash flow data:
|
||||||||
Cash
paid for interest
|
$ | 566,426 | $ | 167,700 | ||||
Supplemental
disclosures of noncash financing activities:
|
||||||||
Purchase
of equipment through capital lease obligation
|
$ | 91,043 | $ | 47,780 |
See
accompanying notes to financial statements.
F-7
HANA
BIOSCIENCES, INC.
Years
Ended December 31, 2008 and 2007
NOTE
1. BUSINESS
DESCRIPTION AND BASIS OF PRESENTATION
BUSINESS
Hana
Biosciences, Inc. (“Hana,” “we” or the “Company”) is a biopharmaceutical company
based in South San Francisco, California, which seeks to acquire, develop, and
commercialize innovative products to strengthen the foundation of cancer care.
The Company is committed to creating value by accelerating the development
of its product candidates, including entering into strategic partnership
agreements and expanding its product candidate pipeline by being an alliance
partner of choice to universities, research centers and other companies.
Our product candidates consist of the following:
·
|
Marqibo®
(vincristine sulfate liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vincristine, being developed for the treatment of adult acute
lymphoblastic leukemia (ALL) and metastatic uveal
melanoma.
|
·
|
Menadione
Topical Lotion, a novel supportive care product candidate being developed
for the prevention and/or treatment of the skin toxicities associated with
the use of epidermal growth factor receptor inhibitors (EGFRI) in the
treatment of certain cancers.
|
·
|
Brakiva™
(topotecan liposomes injection), a novel targeted Optisome™ encapsulated
formulation product candidate of the FDA-approved anticancer drug
topotecan, being developed for the treatment of solid tumors including
small cell lung cancer and ovarian
cancer.
|
·
|
Alocrest™
(vinorelbine liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vinorelbine, being developed for the treatment of solid tumors such
as non-small-cell lung cancer
(NSCLC).
|
BASIS
OF PRESENTATION AND LIQUIDITY
The
accompanying audited financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP). In the
opinion of the Company’s management, the audited financial statements include
all adjustments, consisting of only normal recurring adjustments, necessary for
the fair presentation of the Company’s financial position for the periods
presented herein.
From
inception to July 31, 2007, when the Company entered into a sublicense agreement
with Par Pharmaceuticals, Inc., the Company was a development stage enterprise
since it had not generated revenue from the sale of its products or through
licensing agreements. Accordingly, prior to July 31, 2007, the financial
statements were prepared in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
Development Stage Enterprises.” Upon execution of the Par sublicense
agreement, the Company has commenced principal operations.
As of
December 31, 2008, the Company has a stockholder's deficit of approximately $6.5
million, and for the fiscal year ended December 31, 2008, the Company
experienced a net loss of $22.2 million. The Company has financed operations
primarily through equity and debt financing and expects such losses to continue
over the next several years. The Company currently has a limited supply of
cash available for operations. As of December 31, 2008 the Company had available
$14.1 million in cash and cash equivalents and available-for-sale securities
from which to draw upon. The Company will have an additional $5.0
million become available on April 30, 2009 pursuant to a loan
facility. Another $2.5 million will become available to the Company
if it reaches a clinical development milestone pursuant to the same loan
facility. See Note 3.
The
Company does not generate any recurring revenue and will require substantial
additional capital before it will generate cash flow from its operating
activities, if ever. The Company’s continued operations are entirely reliant
upon obtaining additional capital. The Company will be unable to continue the
progression of clinical compounds unless it is able to obtain additional funding
through equity or debt financings or from payments in connection with potential
strategic transactions. The Company can give no assurances that any
additional capital that it is able to obtain, if any, will be sufficient to meet
its needs. Moreover, there can be no assurance that such capital will be
available to the Company on favorable terms or at all, especially given the
current economic environment which has severely restricted access to the capital
markets. Based on the anticipated use of cash resources between $5.0 million and
$6.0 million per quarter, including any milestones pursuant to the Company’s
license agreements, the Company estimates that it will be able to continue with
planned development activities into the second half of 2009. If
anticipated costs are higher than planned or if the Company is unable to raise
additional capital, it will have to significantly curtail planned development to
maintain operations through 2009 and beyond. These conditions raise
substantial doubt as to the Company’s ability to continue as a going
concern.
F-8
The
Company has financed operations primarily through equity and debt financing and
expects such losses to continue over the next several years. The Company's
continued operations will depend on whether it is able to continue the
progression of clinical compounds and obtain additional funding through equity
or debt financings. The Company can give no assurances that any additional
capital that it is able to obtain will be sufficient to meet its needs.
The Company does not currently have sufficient capital resources to
complete planned operations through 2009. If the Company is unable to
raise additional capital, it will likely be forced to curtail its desired
development activities beyond the second half of 2009, which will delay the
development of the Company's product candidates. There can be no assurance that
such capital will be available to the Company on favorable terms or at all. The
Company will need additional financing thereafter until it can achieve
profitability, if ever.
NOTE
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
based upon current assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Examples include provisions for deferred taxes, the valuation of the
warrant liabilities, the cost of contracted clinical study activities and
assumptions related to share-based compensation expense. Actual results may
differ materially from those estimates.
CASH
AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The
Company considers all highly-liquid investments with a maturity of three months
or less when acquired to be cash equivalents. Short-term investments
consist of investments acquired with maturities exceeding three months and are
classified as available-for-sale. All short-term investments are reported
at fair value, based on quoted market price, with unrealized gains or losses
included in other comprehensive loss.
CONCENTRATIONS
OF CREDIT RISK
Financial
instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash and cash equivalents. The Company’s credit risk
lies with the exposure to loss in the event of nonperformance by these financial
institutions as balances on deposit exceed federally insured
limits.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Financial
instruments include cash and cash equivalents, marketable securities, and
accounts payable. Marketable securities are carried at fair value. Cash and cash
equivalents and accounts payable are carried at cost, which approximates fair
value due to the relative short maturities of these instruments. The
fair value of the Company’s notes payable at December 31, 2008 is $10.4
million.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost and depreciated over the estimated useful lives
of the assets using the straight-line method. Tenant improvement costs are
depreciated over the shorter of the life of the lease or their economic life,
and equipment, computer software and furniture and fixtures are depreciated over
three to five years.
DEBT
ISSUANCE COSTS
As
discussed in Note 3, the debt issuance costs relate to fees paid in the form of
cash and warrants to secure a firm commitment to borrow funds. These fees
are deferred, and if the commitment is exercised, amortized over the life of the
related loan using the interest method. If the commitment expires
unexercised, the deferred fee is expensed immediately.
WARRANT
LIABILITIES
On
October 30, 2007, the Company entered into a loan facility agreement with
certain affiliates of Deerfield Management (“Deerfield”). Deerfield has
committed funds to assist with the development of the Company’s product
candidates. Under the agreement, the Company may borrow from Deerfield up to an
aggregate of $30 million, of which $20 million may be drawn down by the Company
in as many as four installments every six months commencing October 30, 2007.
As additional consideration for the loan, the Company also issued to
Deerfield warrants to purchase shares of the Company’s common stock at an
exercise price of $1.31 per share. The Company issued similar
warrants to Deerfield on October 14, 2008 upon drawing down funds related to
certain development milestones. A certain portion of these warrants
included an anti-dilution feature. This feature requires that, as the
Company issues additional shares of its common stock during the term of the
warrant, the number of shares purchasable under these series is automatically
increased so that they always represent 17.625% of the Company’s then
outstanding common stock. Pursuant to the agreement, the Company also
entered into a Registration Rights Agreement, so that Deerfield may sell their
shares if the warrants are exercised. These financing transactions were
recorded in accordance with Emerging Issues Task Force Issue No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock” and related interpretations. Because
the warrants are redeemable in the event of a change in control or if the
Company’s shares become delisted, the fair value of the warrants based on the
Black-Scholes-Merton option pricing model is recorded as a liability. The
Company updates its estimate of the fair value of the warrant liabilities in
each reporting period as new information becomes available and any gains or
losses resulting from the changes in fair value from period to period are
included as other income (expense).
F-9
REVENUE
RECOGNITION
The
Company recognizes all revenue in accordance with Staff Accounting Bulletin
No. 104, “Revenue Recognition,” where revenue is recognized when
(i) persuasive evidence of an arrangement exists; (ii) delivery of the
services, supplies or technology license has occurred; (iii) the price is
fixed or determinable; and (iv) collectability is reasonably
assured.
The
Company recognizes revenue from the license or assignment of intellectual
property and rights to third parties, including development milestone payments
associated with such agreements if the funds have been received, the rights to
the property have been delivered, and the Company has no further obligations on
the date(s) when the payment has been received or collection is
assured.
To date,
the Company has only earned revenue from a non-refundable upfront payment
pursuant to a sublicense agreement.
LICENSED
IN-PROCESS RESEARCH AND DEVELOPMENT
Licensed
in-process research and development relates primarily to technology,
intellectual property and know-how acquired from another entity. We evaluate the
stage of development as well as additional time, resources and risks related to
development and eventual commercialization of the acquired technology. As we
historically have acquired non-FDA approved technologies, the nature of the
remaining efforts for completion and commercialization generally include
completion of clinical trials, completion of manufacturing validation,
interpretation of clinical and preclinical data and obtaining marketing approval
from the FDA and other regulatory bodies. The cost in resources, probability of
success and length of time to commercialization are extremely difficult to
determine. Numerous risks and uncertainties exist with respect to the timely
completion of development projects, including clinical trial results,
manufacturing process development results and ongoing feedback from regulatory
authorities, including obtaining marketing approval. Additionally, there is no
guarantee that the acquired technology will ever be successfully commercialized
due to the uncertainties associated with the pricing of new pharmaceuticals, the
cost of sales to produce these products in a commercial setting, changes in the
reimbursement environment or the introduction of new competitive products. Due
to the risks and uncertainties noted above, the Company will expense such
licensed in-process research and development projects when incurred. However,
the cost of acquisition of technology is capitalized if there are alternative
future uses in other research and development projects or otherwise based on
internal review. All milestone payments are expensed in the period the milestone
is reached.
CLINICAL
STUDY ACTIVITIES AND OTHER EXPENSES FROM THIRD-PARTY CONTRACT RESEARCH
ORGANIZATIONS
A
significant amount of the Company’s research and development activities related
to clinical study activity are conducted by various third parties, including
contract research organizations, which may also provide contractually defined
administration and management services. Expense incurred for these contracted
activities are based upon a variety of factors, including actual and estimated
patient enrollment rates, clinical site initiation activities, labor hours and
other activity-based factors. On a regular basis, the Company’s estimates of
these costs are reconciled to actual invoices from the service providers, and
adjustments are made accordingly.
SHARE-BASED
COMPENSATION
During
the first quarter of fiscal 2006, the Company adopted the provisions of
stock-based compensation in accordance with the Financial Accounting Standards
Board’s (“FASB”) Statement of Financial Accounting Standards
No. 123—revised 2004 (“SFAS No. 123R”), “Share-Based Payment.”
The
Company adopted SFAS No. 123(R) using the modified-prospective-transition
method. Under this method, compensation costs recognized through December 31,
2007 include: (a) compensation costs for all share-based payment awards granted
prior to, but not yet vested as of January 1, 2006, based on grant-date
fair value estimated in accordance with the original provisions of SFAS No. 123,
(b) compensation costs for all share-based payment awards granted subsequent to
January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS No. 123(R), and (c) compensation cost for
share-based awards granted by the Company prior to becoming a public entity
which are accounted for under the prospective transition method, and will
continue to be expensed in accordance with the guidance of APB 25. In accordance
with the modified-prospective-transition method, the Company’s financial
statements for prior periods have not been restated to reflect, and do not
include, the impact of SFAS No. 123(R).
INCOME
TAXES
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
COMPUTATION
OF NET LOSS PER COMMON SHARE
Basic net
loss per common share is calculated by dividing net loss by the weighted-average
number of common shares outstanding for the period. Diluted net loss per common
share is the same as basic net loss per common share, since potentially dilutive
securities from stock options, stock warrants and restricted stock would have an
anti-dilutive effect because the Company incurred a net loss during each period
presented. The number of shares potentially issuable at December 31, 2008 and
2007 upon exercise or conversion that were not included in the computation of
net loss per share totaled 12,594,828 and 12,531,372, respectively.
F-10
SEGMENT
REPORTING
The
Company has determined that it currently operates in only one segment, which is
the research and development of oncology therapeutics and supportive care for
use in humans. All assets are located in the United States.
RECLASSIFICATION
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
RECENT
ACCOUNTING PRONOUNCEMENTS
On
September 15, 2006, FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure
assets and liabilities. SFAS No. 157 references fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the reporting
entity transacts. SFAS No. 157 applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value. SFAS No. 157 does
not expand the use of fair value in any new circumstances. Originally, SFAS No.
157 was effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
Accordingly, we adopted SFAS No. 157 in the first quarter of fiscal year 2008.
In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date
of FASB Statement No. 157”, which provides a one year deferral of the
effective date of SFAS No. 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. Therefore, the Company has adopted
the provisions of SFAS No. 157 with respect to its financial assets and
liabilities only. See Note 5 Fair Value Measurements in the Notes to Financial
Statements herein.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” as an amendment to SFAS No. 133. SFAS 161 is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring companies to enhance disclosure about how these instruments and
activities affect their financial position, performance and cash flows. SFAS 161
also improves the transparency about the location and amounts of derivative
instruments in a company’s financial statements and how they are accounted for
under SFAS 133. SFAS 161 is effective for financial statements issued for fiscal
years beginning after November 15, 2008 (the Company’s 2009 fiscal year),
and interim periods within beginning after that date. The Company is currently
evaluating the impact this adoption will have on the Company’s financial
statements.
On May 5,
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles”. SFAS No. 162 identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with generally accepted
accounting principles in the U.S. We are evaluating the impact, if any, this
Standard will have on our financial statements.
In June
2008, the FASB ratified the consensus reached on EITF Issue No. 07-05,
“Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.”
EITF Issue No. 07-05 clarifies the determination of whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which would
qualify as a scope exception under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” EITF Issue No. 07-05 is effective for
financial statements issued for fiscal years beginning after December 15,
2008. Early adoption for existing instruments is not permitted. The Company does
not believe that the pending adoption of EITF Issue No. 07-05 will have a
material effect on the Company’s financial statements.
On
October 10, 2008, the FASB issued FASB Staff Position No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active” (“FSP No. 157-3”), to provide guidance on determining the
fair value of financial instruments in inactive markets. FSP No. 157-3
became effective for the Company upon issuance, and had no material impact on
the Company’s financial position, results of operations or cash
flows.
NOTE
3. FACILITY
LOAN AGREEMENT
On
October 30, 2007, we entered into a Facility Agreement (the “loan agreement”)
with Deerfield under which Deerfield has agreed to loan to us an aggregate
principal amount of up to $30 million. Of the total $30 million funds committed
pursuant to the loan agreement, $20 million is available for disbursement to us
in four installments every six months commencing October 30,
2007. As of December 31, 2008, we have drawn down $15 million
pursuant to these funds. The remaining $10 million
available is subject to disbursement in three installments upon the achievement
of clinical development milestones relating to our Marqibo and Menadione product
candidates, of which we have drawn down $7.5 million as of December 31, 2008.
Deerfield’s obligation to disburse loan proceeds expires October 30, 2010, and
we must repay all outstanding principal and interest owing under the loan no
later than October 30, 2013. We are also required to make quarterly interest
payments on outstanding principal, at a stated annual rate of 9.85%. In
accordance with and upon execution of the loan agreement, we paid a loan
commitment fee of $1.1 million to an affiliate of Deerfield. Our
obligations under the loan are secured by all assets owned (or that will be
owned in the future) by us, both tangible and intangible. The effective interest
rate on the $15 million notes payable for funds available on the six month
installments, including discount on debt, is approximately 17.7%. The
effective interest rate on the $7.5 million notes payable related to the
achievement of development milestones, including discount on debt, is
approximately 11.6%. As of December 31, 2008, we had accrued $0.5
million in interest payable that was paid in January 2009.
F-11
As
additional consideration for the loan, on October 30, 2007, we issued to
Deerfield two series of 6-year warrants to purchase an aggregate of 5,225,433
shares of our common stock at an exercise price of $1.31 per share (subject to
adjustment for stock splits, combinations and similar events), which represented
the closing bid price of our common stock as reported on the Nasdaq Global
Market on the issuance date. One series of such warrants initially represented
the right to purchase 4,825,433 shares, which equaled 15% of our currently
issued and outstanding shares of common stock as of October 30, 2007. These
warrants contain an anti-dilution feature so that, as we issue additional shares
of our common stock during the term of the warrant, the number of shares
purchasable under this series is automatically increased so that they always
represent 15% of our then outstanding common stock. The exercise price for any
incremental shares that become purchasable due to this feature remains fixed at
$1.31 per share (subject to adjustment for stock splits, combinations and
similar events). Pursuant to this anti-dilution feature and as a
result of additional shares of our common stock that we issued following October
30, 2007, this series of warrants represented the right to purchase an aggregate
of 4,857,919 shares of our common stock as of December 31, 2008. The second
series of warrants, representing the right to purchase an aggregate of 400,000
shares, is identical in form except that it does not contain such anti-dilution
feature. When the Company drew down the $7.5 million of funds conditioned upon
the achievement of clinical development milestones relating to the Marqibo and
Menadione programs on October 14, 2008, it was required to issue to Deerfield
additional warrants to purchase up to an additional 2.625% of its then
outstanding Common Stock, which warrants will contain the same anti-dilution
feature as those issued by the Company on October 30, 2007. These
warrants represented the right to purchase 850,136 shares of our common stock as
of October 14, 2008 and December 31, 2008. If the Company draws down
the remaining funds conditioned upon the achievement of clinical development
milestones, it will be required to issue to Deerfield additional warrants to
purchase up to an additional 0.875% of its then outstanding Common Stock, which
warrants will contain the same anti-dilution feature as those issued by the
Company on October 30, 2007 and October 14, 2008.
As of
December 31, 2008, we had drawn down $22.5 million of the entire $30 million
loan facility, which represented the entire amount available to us based on
installments and clinical development milestones achieved related to the Marqibo
and Menadione programs.
Fair Value of Warrants. The
aggregate fair values of the warrant series issued upon execution of the loan
agreement, under which an aggregate of the 5,225,433 shares of our common stock
were issuable upon purchase, pursuant to the loan agreement was $5.9 million.
$5.5 million of the total fair value, related to the warrant series to purchase
an aggregate of 4,825,433 shares with an anti-dilution feature, was recorded as
a discount to the note payable. The remaining $0.4 million fair value, relating
to the additional warrant series to purchase an aggregate of 400,000 shares of
common stock, was recorded as a debt issuance cost and is being amortized, using
the interest method, over the life of the loan. The aggregate fair
values of the warrant series issued when we drew down the funds related to
clinical development milestones, under which an aggregate of the 850,136 shares
of our common stock were issuable upon purchase, pursuant to the loan agreement
was $0.5 million, which was accounted for as a discount to the notes payable in
the balance sheet. Deerfield can elect a cashless exercise of any
portion of shares outstanding in which case they would receive shares equal to
the net settlement price on the date of exercise. Additionally,
pursuant to the loan agreement, Deerfield has certain registration rights and we
would be obligated to make penalty payments to Deerfield in the event we were
unable to maintain effective registration with the SEC.
The
Company used a Black-Scholes-Merton option pricing model to obtain the fair
value of these warrants. In order to estimate the fair value of the
anti-dilution feature, the Company estimated the number of additional shares
potentially purchasable under the warrant agreement using weighted probability
scenarios. A summary of the assumptions used to estimate the fair
value of the warrants issued pursuant to the execution of the loan agreement as
well as the estimated additional shares purchasable under the warrants pursuant
to the anti-dilution feature as of December 31, 2008 and December 31, 2007 is as
follows:
|
December 31
|
December 31
|
||||||
|
2008
|
2007
|
||||||
Warrants
|
||||||||
Risk-free
interest rate
|
1.52 | % | 4.10 | % | ||||
Expected
life (in years)
|
4.83 - 5.79 | 5.83 | ||||||
Volatility
|
116.1 | % | 67.2 | % | ||||
Dividend
yield
|
0 | % | 0 | % | ||||
Estimated
fair value of shares issuable under warrants
|
$ | 0.14 - $0.16 | $ | 0.62 | ||||
F-12
Warrant liabilities. The fair
value of the warrants issued pursuant to the loan agreement was recorded in
accordance with Emerging Issues Task Force Issue No. 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock.” Accordingly, we determined that the fair value of the
warrants represented a liability because the warrants are redeemable in the
event of a change in control or if the Company’s shares become delisted.
The fair value of the warrants is recalculated each reporting period with
the change in value taken as income or expense in the “Statement of Operations.”
During 2008, we issued additional milestone warrants which included the
anti-dilution feature. These additional milestone warrants have the
same accounting treatment as previous warrants issued to Deerfield and the fair
value of the warrants was included as a discount to debt and as a warrant
liability.
On March
5, 2009, we received notice that our common stock would be subject
to delisting from the Nasdaq Capital Market as a result of a listing
requirement deficiency, of which we were previously notified on November 19,
2008. If our common stock is delisted from the Nasdaq Capital Market,
we may be required to redeem the warrants we have issued to Deerfield pursuant
to our October 2007 loan agreement. Those warrants contain a
provision that would require us to redeem the warrants, at Deerfield’s election, in the
event our common stock is no longer listed on the Nasdaq or another national
stock exchange. The redemption price applicable to the warrants is
based upon a Black-Scholes-Merton calculation, as specified in the warrant
agreement. As of December 31, 2008, the total redemption price that
would be applicable to all of the warrants issued to Deerfield is approximately
$1.5 million, which amount also approximates the fair value of the warrant
liability. We have classified an amount equal to the redemption price
at December 31, 2008 as a short-term liability due to the potential risk
that, due to our Nasdaq listing status, Deerfield will have the right to require
redemption of these warrants within a one year period from December 31,
2008. As the warrant redemption price is based on a
Black-Scholes-Merton calculation, the fair value of this liability is highly
dependant on the price of our common shares and the volatility of our
stock. If Deerfield elects redemption of these warrants, the actual
redemption price may be materially different from the amount we have estimated
on December 31, 2008.
A summary
of the activity of the fair value of the warrant liability is as
follows:
Beginning
Value of
Warrant
Liabilities
|
Liability
Incurred for
Warrants Issued
Pursuant to the
Deerfield
Agreement
|
Realized
Gain on
Change in Fair
Value of
Warrant
Liabilities
|
Ending Fair
Value of
Warrant
Liabilities
|
|||||||||||||
2008
|
$ | 4,232,355 | $ | 483,214 | $ | (3,265,090 | ) | $ | 1,450,479 | |||||||
2007
|
$ | — | $ | 5,852,298 | $ | (1,619,943 | ) | $ | 4,232,355 |
Summary of Notes Payable. On
November 1, 2007, the Company drew down $7.5 million of the $30.0 million in
total loan proceeds available. On October 14, 2008 and November 12, 2008, the
Company drew down an additional $12.5 million and $2.5 million, respectively.
The Company is not required to pay back any portion of the principal
amount until October 30, 2013. Of the $12.5 million borrowed on October 14,
2008, $7.5 million related to development milestones the Company had previously
achieved and was subsequently entitled to draw down additional funds pursuant to
the Deerfield agreement. These warrants contained an anti-dilution
feature that provided Deerfield with the right to purchase shares of the
Company’s common stock equal to 2.625% of the total shares
outstanding. Upon issuance of these shares, the fair value of the
warrants was determined and included as additional discount on the debt to
Deerfield. Because the Company issued the warrants pursuant to the
loan, the Company recognized a discount on the note. The table below
is a summary of the change in carrying value of the notes payable, including the
discount on debt for the years ended December 31, 2008 and 2007:
Carrying
Value at
January 1,
|
Gross
Borrowings
Incurred
|
Debt
Discount
Incurred
|
Amortized
Discount
|
Carrying
Value at
December 311,
|
||||||||||||||||
2008
|
||||||||||||||||||||
Notes
payable
|
$ | 7,500,000 | $ | 15,000,000 | $ | — | $ | — | $ | 22,500,000 | ||||||||||
Discount
on debt
|
(5,474,376 | ) | — | (483,214 | ) | 309,131 | (5,648,459 | ) | ||||||||||||
Carrying
value
|
2,025,624 | 16,851,541 | ||||||||||||||||||
2007
|
||||||||||||||||||||
Notes
payable
|
$ | — | $ | 7,500,000 | $ | — | $ | — | $ | 7,500,000 | ||||||||||
Discount
on debt
|
— | — | (5,507,389 | ) | 33,013 | (5,474,376 | ) | |||||||||||||
Carrying
value
|
$ | — | $ | 2,025,624 |
1 As of December 31, 2008 and 2007, there was unallocated debt discount related to undrawn funds on the Deerfield loan facility of $1.4 million and $3.4 million, respectively. We will not begin to amortize these amounts until the additional funds are drawn down.
F-13
A summary
of the debt issuance costs and changes during the periods ending December 31,
2008 and 2007 is as follows:
Deferred
Transaction
Costs on
January 1,
|
Amortized
Debt Issuance
Costs
|
Carrying
Value2
|
||||||||||
2008
|
$ | 1,423,380 | $ | (62,024 | ) | $ | 1,361,356 | |||||
|
||||||||||||
2007
|
$ | 1,429,091 | $ | (5,711 | ) | $ | 1,423,380 |
NOTE
4. STOCKHOLDERS'
EQUITY
Share Issuances. In September
2007, the Company
issued 2,500,000 shares of common stock to Par Pharmaceuticals, Inc. in
connection with a sublicense agreement.
In May
2008, the Company issued 134,409 shares as partial consideration of a milestone
achieved under a license agreement for AECOM.
Stock Incentive Plans. The
Company has two stockholder approved stock incentive plans under which it grants
or has granted options to purchase shares of its common stock and restricted
stock awards to employees: the 2003 Stock Option Plan (the “2003 Plan”) and the
2004 Stock Incentive Plan (the “2004 Plan”). The Board of Directors or the Chief
Executive Officer, when designated by the Board, is responsible for
administration of the Company’s employee stock incentive plans and determines
the term, exercise price and vesting terms of each option. In general, stock
options issued under the 2003 Plan and 2004 Plan have a vesting period of three
years and expire ten years from the date of grant.
The 2003
Plan was adopted by the Company's Board of Directors in October 2003. The 2003
Plan authorizes a total of 1,410,068 shares of common stock for issuance. In May
2006, the Company's stockholders ratified and approved the 2003 Plan. The
Company may make future stock option issuances from this plan.
In
September 2004, the Company's Board of Directors approved and adopted the 2004
Plan, which initially authorized 2,500,000 shares of common stock for issuance.
On March 31, 2006, the Board approved, subject to stockholder approval, an
amendment to the 2004 Plan to increase the total number of shares authorized for
issuance thereunder to 4,000,000. At the Company’s May 2006 Annual Meeting, the
Company's stockholders ratified and approved the 2004 Plan, as amended. At the
2007 Annual Meeting on June 22, 2007, the Company's stockholders approved an
additional increase of shares authorized for issuance from 4,000,000 to
7,000,000. The Company may make future stock option issuances from this
plan.
At the
May 2006 Annual Meeting, the Company's Stockholders also ratified and approved
the Company's 2006 Employee Stock Purchase Plan (the “2006 Plan”), which had
been approved by the Company’s Board of Directors on March 31, 2006. The 2006
Plan provides the Company's eligible employees with the opportunity to purchase
shares of Company common stock through lump sum payments or payroll deductions.
The 2006 Plan is intended to qualify as an “employee stock purchase plan” under
Section 423 of the Internal Revenue Code. As adopted, the 2006 Plan
authorized the issuance of up to a maximum of 750,000 shares of common
stock.
At
December 31, 2008, there were a total of 730,893 shares available for grant
under our 2003 Plan and 2,711,743 shares available for grant under our 2004
Stock Option Plans. Additionally, at December 31, 2008, there were 618,378
shares available for issuance related to the 2006 Plan, with an additional
65,054 issued in January 2009.
2 As of December 31, 2008 and 2007, there were unallocated deferred transaction costs relating to the undrawn portions of the Deerfield loan facility amounting to $0.4 million and $1.1 million, respectively. We will not amortize these amounts until the additional funds are drawn down.
F-14
Share-Based Compensation. The
Company currently awards stock option grants under its 2003 and 2004 Plan. Under
the 2003 Plan, the Company may grant incentive and non-qualified stock options
to employees, directors, consultants and service providers to purchase up to an
aggregate of 1,410,068 shares of its common stock. Under the 2004 Plan, the
Company may grant incentive and non-qualified stock options to employees,
directors, consultants and service providers to purchase up to an aggregate of
7,000,000 shares. Historically, stock options issued under these plans primarily
vest ratably on an annual basis over the vesting period, which has generally
been three years.
The
following tables summarize information about the Company’s stock options
outstanding at December 31, 2008 and changes in outstanding options in the two
years then ended, all of which are at fixed prices:
Number Of
Shares Subject To
Options Outstanding
|
Weighted Average
Exercise Price
Per Share
|
Weighted Average
Remaining
Contractual Term
(In Years)
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
January 1, 2007
|
5,123,918 | $ | 4.27 | ||||||||||
Options
granted
|
3,113,000 | 1.67 | |||||||||||
Options
exercised
|
(226,830 | ) | 0.89 | $ | 307,163 | ||||||||
Options
cancelled
|
(2,720,050 | ) | 4.18 | ||||||||||
Outstanding
December 31, 2007
|
5,290,038 | $ | 4.27 | ||||||||||
Options
granted
|
760,500 | 0.89 | |||||||||||
Options
exercised
|
— | — | |||||||||||
Options
cancelled
|
(1,579,667 | ) | 4.19 | ||||||||||
Outstanding
December 31, 2008
|
4,470,871 | $ | 2.36 |
8.1
|
$ | 12,125 | |||||||
Exercisable
at December 31, 2008
|
2,131,872 | $ | 2.80 |
7.4
|
$ | 11,915 |
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Exercise
Price
|
Number
of
Shares
Subject
to
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
of
Options
Outstanding
|
Number
of
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||||
$
0.07 - $ 1.35
|
2,413,048 | $ | 1.00 |
8.6 yrs
|
934,549 | $ | 1.00 | ||||||||||
$
1.36 - $ 1.74
|
994,490 | 1.67 |
7.8 yrs
|
493,490 | 1.67 | ||||||||||||
$
1.75 - $ 4.97
|
315,000 | 4.06 |
7.2 yrs
|
263,333 | 4.22 | ||||||||||||
$
4.98 - $ 7.40
|
687,833 | 6.72 |
7.8 yrs
|
390,000 | 6.72 | ||||||||||||
$
7.41 - $ 10.98
|
60,500 | 9.40 |
4.6 yrs
|
50,500 | 9.44 | ||||||||||||
$
0.07 - $ 10.98
|
4,470,871 | $ | 2.36 |
8.1 yrs
|
2,131,872 | $ | 2.80 |
The
weighted-average grant date fair value of options granted during the years 2008
and 2007 was $0.65 and $1.17, respectively. The total aggregate intrinsic value
of stock options on the date of exercise during the year ended December 31, 2008
was approximately $12,000. During the years ended December 31, 2008
and 2007, the Company recorded share-based compensation cost of $2.4 million and
$4.8 million, respectively. As of December 31, 2008, the Company estimates
that there is $2.1 million, in total, of unrecognized compensation costs related
to non-vested stock option agreements, which is expected to be recognized over a
weighted average period of 1.51 years. We expect our share-based compensation to
decrease in 2009 as our stock price has continued to decrease compared to
previous years. Included in the stock-based compensation expense for
the year ending December 31, 2008 is approximately $0.4 million of expense
related to the correction of an error related to prior periods.
F-15
The
following table summarizes the assumptions used in applying the
Black-Scholes-Merton option-pricing model to determine the fair value of
employee stock options granted during the year ended:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
Stock
options
|
||||||||
Risk-free interest rate
|
2.65 | % | 4.5 | % | ||||
Expected life (in years)
|
5.5 - 6.0 | 5.5 - 6.0 | ||||||
Volatility
|
90 | % | 80 | % | ||||
Dividend Yield
|
0 | % | 0 | % | ||||
Employee stock purchase plan
|
||||||||
Risk-free interest rate
|
0.27% - 2.63 | % | 4.82% - 5.09 | % | ||||
Expected life (in years)
|
0.5 - 2.0 | 0.5 - 2.0 | ||||||
Volatility
|
85% - 199 | % | 55% - 103 | % | ||||
Dividend Yield
|
0 | % | 0 | % |
The Company's computation of expected volatility of stock options for the year ended December
31, 2008 is based on historical volatilities of peer companies. Peer companies'
historical volatilities are used in the determination of expected volatility due
to the short trading history of the Company's common stock, which is
approximately four years as of December 31, 2008. In selecting the peer
companies, the Company considered the following factors: industry, stage of life
cycle, size, and financial leverage. For share-based compensation related to the
Employee Stock Purchase Plan (the 2006 ESPP Plan), the Company used actual
volatilities as the Company had sufficient historical data for the expected term
used in the Black-Scholes-Merton calculation. To determine the expected term of
the Company's employee stock options granted in fiscal 2008 and 2007, the
Company utilized the simplified approach as defined by SEC Staff Accounting
Bulletin No. 107. This approach resulted in expected terms of 5.5 to 6
years for options granted during the year ended December 31, 2008. The interest
rate for periods within the contractual life of the award is approximated based
on the U.S. Treasury yield curve in effect at the time of
grant.
The
Company has elected to track the portion of its federal and state net operating
loss carryforwards attributable to stock option benefits in a separate memo
account pursuant to SFAS No. 123(R). Therefore, these amounts are no longer
included in our gross or net deferred tax assets. Pursuant to SFAS No. 123(R),
footnote 82, the benefit of these net operating loss carryforwards will only be
recorded in equity when they reduce cash taxes payable.
On
November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position No. FAS 123(R)-3 "Transition Election Related to Accounting for
Tax Effects of Share-Based Payment Awards." The Company has elected to adopt the
alternative transition method provided in the FASB Staff Position for
calculating the tax effects of stock-based compensation pursuant to SFAS No.
123(R). The alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in capital pool ("APIC
pool") related to the tax effects of employee stock-based compensation and to
determine the subsequent impact on the APIC pool and Consolidated Statements of
Cash Flows of the tax effects of employee stock-based compensation awards that
are outstanding upon adoption of SFAS No. 123(R).
Employee Stock Purchase Plan.
The 2006 Plan allows employees to contribute a percentage of their gross salary
toward the semi-annual purchase of shares of common stock of the Company. The
price of each share will not be less than the lower of 85% of the fair market
value of the Company’s common stock on the last trading day prior to the
commencement of the offering period or 85% of the fair market value of the
Company’s common stock on the last trading day of the purchase period. A total
of 750,000 shares of common stock were initially reserved for issuance under the
2006 ESPP Plan.
Through
December 31, 2008, the Company had issued 131,622 shares under the 2006 Plan
with an additional 65,054 issued in January 2009. For both the years ended
December 31, 2008 and 2007, the total stock-based compensation expense
recognized related to the 2006 Plan under SFAS No. 123(R) was approximately $0.1
million.
F-16
Warrants. As of December 31,
2008, all outstanding warrants were available for exercise. Warrants to acquire
258,927 shares of common stock at $1.85 per share expired in February of 2009.
Warrants to acquire 892,326 shares of common stock at $1.57 per share
expire in April of 2010. Warrants to acquire 864,648 shares of common
stock at $5.80 per share expire in October of 2010. Additionally, the
Company has issued warrants to acquire 6,108,055 shares of common stock to
Deerfield in accordance with the Company’s October 2007 loan
agreement. Certain of these warrants contain an anti-dilution feature
that automatically increases the number of shares purchasable so that they
always represent 17.625% of the Company’s then outstanding common stock.
The majority of the warrants issued to Deerfield expire in October 2013
with a smaller portion expiring in October 2014. The following table
summarizes the warrants outstanding as of December 31, 2008 and the changes in
outstanding warrants in the year then ended:
|
Number Of
Shares Subject
To Warrants
Outstanding
|
Weighted-Average
Exercise Price
|
||||||
Warrants outstanding
January 1, 2007
|
2,015,901 | $ | 3.41 | |||||
Warrants
granted
|
5,225,433 | 1.31 | ||||||
Warrants
cancelled
|
— | — | ||||||
Warrants
outstanding December 31, 2007
|
7,241,334 | 1.90 | ||||||
Warrants
granted
|
882,622 | 1.31 | ||||||
Warrants
cancelled
|
— | — | ||||||
Warrants
outstanding December 31, 2008
|
8,123,956 | $ | 1.83 |
NOTE
5. FAIR
VALUE MEASUREMENTS
SFAS No.
157 defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures about fair
value measurements. Fair value is defined under SFAS No. 157 as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value under SFAS No.
157 must maximize the use of observable inputs and minimize the use of
unobservable inputs. The standard describes a fair value hierarchy based on
three levels of inputs, of which the first two are considered observable and the
last unobservable, that may be used to measure fair value which are the
following:
·
|
Level
1 - Quoted prices in active markets for identical assets or
liabilities;
|
·
|
Level
2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities;
and.
|
·
|
Level
3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
In
accordance with SFAS 157, the following table represents the fair value
hierarchy for our financial assets and liabilities held by the Company measured
at fair value on a recurring basis as of December 31, 2008:
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Money
market funds
|
$ | 13,671,135 | $ | — | $ | — | $ | 13,671,135 | ||||||||
Available-for-sale
equity securities
|
128,000 | — | — | 128,000 | ||||||||||||
Total
|
$ | 13,799,135 | $ | — | $ | — | $ | 13,799,135 |
Liabilities
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Warrant
liabilities
|
— | — | $ | 1,450,479 | $ | 1,450,479 | ||||||||||
Total
|
$ | — | $ | — | $ | 1,450,479 | $ | 1,450,479 |
F-17
NOTE
6. SHORT-TERM
INVESTMENTS
On
December 31, 2008, the Company had $128,000 in total marketable securities which
consisted of shares of NovaDel Pharma, Inc. (“NovaDel”) purchased in conjunction
with the Zensana license agreement originally entered into in October 2004.
During
2008, the Company recorded realized losses of $108,000 and unrealized gains of
$140,000. The Company recorded realized losses in 2008, as the decline in
value of the shares, in the opinion of management, was considered
other-than-temporary. The following table summarizes the NovaDel shares
classified as available-for-sale securities during the year 2008 and
2007:
|
Beginning
Value
|
Net
Unrealized
Gain/(Loss)
|
Gross
Realized
Gain/(Loss)
|
Ending Value
|
||||||||||||
Year
ended December 31, 2007
|
$ | 656,000 | $ | (124,000 | ) | $ | (436,000 | ) | $ | 96,000 | ||||||
Year
ended December 31, 2008
|
$ | 96,000 | $ | 140,000 | $ | (108,000 | ) | $ | 128,000 |
NOTE
7. LICENSE
AGREEMENTS
Tekmira License
Agreement.
In May 2006, The Company entered into a series of related agreements with
Tekmira Pharmaceuticals Corporation. Pursuant to a license agreement with
Tekmira, as amended in April 2007, the Company received an exclusive, worldwide
license to patents, technology and other intellectual property relating to its
Marqibo, Alocrest and Brakiva product candidates.
In
consideration for the rights and assets acquired from Tekmira, we paid to
Tekmira aggregate consideration of $11.8 million, which payment consisted of
$1.5 million in cash and 1,118,568 shares of our common stock. We also agreed to
pay to Tekmira royalties on sales of the licensed products, as well as upon the
achievement of specified development and regulatory milestones and up to a
maximum aggregate amount of $30.5 million for all product candidates. The
milestones and other payments may include annual license maintenance fees and
milestones. To date, we have achieved two development milestones related to our
Tekmira product candidates for which we have paid or will pay a total of $1.5
million to Tekmira.
Menadione License
Agreement. In October 2006, the Company entered into a license agreement
with the Albert Einstein’s College of Medicine (AECOM). In consideration for the
license, we agreed to issue the college $0.2 million of our common
stock. We also made a cash payment within 30 days of signing the
agreement and we agreed to pay annual maintenance fees. Further, we agreed
to make milestone payments in the aggregate amount of $2.8 million upon the
achievement of various clinical and regulatory milestones, as described in the
agreement, of which we have achieved one milestone and have paid AECOM total
consideration of $0.3 million. We may also make annual maintenance fees as part
of the agreement. We also agreed to make royalty payments to the College on net
sales of any products covered by a claim in any licensed patent.
Zensana License.
On July 31, 2007, the Company (as sublicensor) entered into a sublicense
agreement with Par Pharmaceutical, Inc. and NovaDel, pursuant to which the
Company granted to Par and its affiliates, and NovaDel consented to such grant,
a royalty-bearing exclusive right and license to develop and commercialize
Zensana within the United States and Canada. The Company previously had acquired
such exclusive, sublicensable rights from NovaDel and commenced development of
Zensana™, a pharmaceutical product that contains ondansetron, pursuant to a
License Agreement with NovaDel dated October 24, 2004, as amended. As agreed by
the Company and NovaDel, Par assumed primary responsibility for the development,
regulatory approval by the FDA, and sales and marketing of Zensana.
In
consideration for the license grant, Par purchased 2,500,000 newly-issued shares
of the Company’s common stock at a price per share of $2.00 per share for
aggregate consideration of $5.0 million. On July 31, 2007, the market value of
the Company’s common stock was $1.54 per share. The difference between the sale
price of $2.00 and the market value of the common stock on the purchase date was
$0.46 per share premium. Of the total proceeds received from Par of $5.0
million, $1.15 million is related to the premium paid and represents revenues
that will be recognized over the service period required by the sublicense
agreement, with the remaining $3.85 million recorded in stockholder’s equity. As
of September 30, 2007, the Company has recognized the entire $1.15 million in
license fee revenue related to the sublicense agreement in accordance with the
requirements of Staff Accounting Bulletin No. 104, as the Company fulfilled all
obligations related to the upfront payment received from Par as part of the
sublicense agreement.
In
December 2007, the Company entered into a purchase agreement with Par wherein
they have purchased raw materials and equipment stored at the Company’s contract
manufacturer. The total amount of the purchase agreement was $0.2 million.
The purchase was recorded as a decrease in R&D
expenses.
F-18
NOTE
8. PROPERTY
AND EQUIPMENT
Property
and equipment consists of the following at December 31:
|
2008
|
2007
|
||||||
Property
and equipment:
|
||||||||
Furniture
& fixtures
|
$ | 35,813 | $ | 35,813 | ||||
Computer
hardware
|
266,451 | 272,587 | ||||||
Computer
software
|
231,907 | 110,221 | ||||||
Manufacturing
equipment
|
163,836 | 163,836 | ||||||
Tenant
improvements
|
144,340 | 144,340 | ||||||
|
842,347 | 726,797 | ||||||
Less
accumulated depreciation
|
(442,179 | ) | (294,268 | ) | ||||
Property
and equipment, net
|
$ | 400,168 | $ | 432,529 |
For the
years ended December 31, 2008 and 2007, depreciation expense was $191,446
and $169,949, respectively.
NOTE
9. ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consist of the following at December
31:
2008
|
2007
|
|||||||
Trade
accounts payable
|
$ | 457,725 | $ | 1,682,739 | ||||
Clinical
research and other development related costs
|
2,554,374 | 1,156,011 | ||||||
Accrued
personnel related expenses
|
549,469 | 763,050 | ||||||
Interest
payable
|
478,332 | — | ||||||
Accrued
other expenses
|
185,963 | 496,239 | ||||||
Total
|
$ | 4,225,863 | $ | 4,098,039 |
NOTE
10. INCOME
TAXES
There was
no current or deferred income tax expense (other than state minimum tax) for the
years ended December 31, 2008 and 2007 because of the Company’s operating
losses.
The
components of deferred tax assets (there were no deferred tax liabilities) as of
December 31, 2008 and 2007 are as follows:
Deferred
tax assets consist of the following (in thousands):
|
December
31,
|
|||||||
Deferred
tax assets:
|
2008
|
2007
|
||||||
Net
operating loss carryforwards
|
$ | 17,364 | $ | 11,570 | ||||
Research
and development credit
|
3,387 | 1,371 | ||||||
Basis
difference in capitalized assets
|
18,193 | 15,861 | ||||||
Stock-based
compensation
|
6,885 | 5,997 | ||||||
Accruals
and reserves
|
484 | 119 | ||||||
Total
deferred tax asset
|
46,313 | 34,918 | ||||||
Less
valuation allowance
|
(46,313 | ) | (34,918 | ) | ||||
Net
deferred tax asset
|
$ | — | $ | — |
F-19
A
reconciliation between our effective tax rate and the U.S. statutory tax rate
follows:
For the Years Ended,
|
||||||||
December 31, 2008
|
December 31, 2007
|
|||||||
Footnote Disclosure:
|
||||||||
Tax
at Federal Statutory Rate
|
34.0 | % | 34.0 | % | ||||
State
Taxes, Net of Federal Benefit
|
5.8 | % | 5.8 | % | ||||
Permanent
Book/Tax Differences
|
5.8 | % | -2.1 | % | ||||
Prior
Year True-ups
|
3.8 | % | 7.5 | % | ||||
NOLs
Adjusted for Sec. 382 limitation
|
-8.8 | % | -9.7 | % | ||||
R&D
Credit Adjustments
|
1.5 | % | -7.4 | % | ||||
Current
Year R&D Credit
|
9.3 | % | 2.9 | % | ||||
Change
in Valuation Allowance
|
-51.4 | % | -31.0 | % | ||||
Provision
(Benefit) for Taxes
|
0.0 | % | 0.0 | % |
On July
21, 2004 and July 31, 2007, the Company experienced ownership changes as defined
by section 382 of the Internal Revenue Code. Sections 382 and 383
establish an annual limit on the deductibility of pre-ownership change net
operating loss and credit carryforwards. As such, the Company has derecognized
deferred tax assets related to net operating losses of $3.3 million and $1.2
million for federal and state purposes, respectively, through December 31,
2008. Additionally, the Company has limited the amount of deferred
tax asset related to its federal R&D credit carryforward by $1.2
million. State R&D credits have an indefinite carryover period,
and thus are not limited. The remaining balance of the pre-ownership
net operating loss and credit carryforwards at December 31, 2008 will be
available to reduce taxable income generated subsequent to 2008.
At
December 31, 2008, the Company had potentially utilizable federal and state net
operating loss tax carryforwards of approximately $45.0 million and $33.0
million, respectively. The net operating loss carryforwards expire in various
amounts for federal tax purposes from 2022 through 2028 and for state tax
purposes from 2016 through 2019. At December 31, 2008, the Company
also had research and development credit carryforwards of approximately $0.5 and
$1.4 million for federal and state tax reporting purposes, and orphan drug
credit carryfowards of approximately $1.4 million for federal purposes. The
research and development credit carryforwards expire in various amounts, for
federal purposes, from 2027 through 2028 and carryforward indefinitely for state
purposes. The orphan drug credit carry forward expires in 2028 for federal
purposes.
Management
maintains a valuation allowance for its deductible temporary differences (i.e.
deferred tax assets) when it is more likely than not that the benefit of such
deferred tax assets will not be recognized. The ultimate realization of deferred
tax assets is dependent upon the Company’s ability to generate taxable income
during the periods in which the temporary differences become deductible.
Management considers the historical level of taxable income, projections for
future taxable income, and tax planning strategies in making this assessment.
Management’s assessment in the near term is subject to change if estimates of
future taxable income during the carryforward period are reduced. The Company’s
valuation allowance increased by $11.4 million and $8.1 million in the years
ended December 31, 2008 and 2007, respectively.
F-20
Effective
January 1, 2007, the Company adopted the provisions of FIN No. 48, which
prescribes a comprehensive model for how a company should recognize, measure,
present and disclose in its financial statements uncertain tax positions that
the company has taken or expects to take on a tax return. The cumulative
effect of adopting FIN No. 48 resulted in no adjustment to retained
earnings as of January 1, 2007. A reconciliation of the unrecognized tax
benefits for the years ended December 31, 2008 and 2007 is as
follows:
Unrecognized
Tax Benefits
(in
thousands)
|
2008
|
2007
|
||||||
Balance
as of January 1,
|
$ | 764 | $ | 217 | ||||
Additions
for current year tax positions
|
155 | 547 | ||||||
Reductions
for current year tax positions
|
- | - | ||||||
Additions
for prior year tax positions
|
- | - | ||||||
Reductions
for prior year tax positions
|
(482 | ) | - | |||||
Settlements
|
- | - | ||||||
Reductions
related to expirations of statute of limitations
|
- | - | ||||||
Balance
as of December 31,
|
$ | 437 | $ | 764 |
None of
the unrecognized tax benefits as of December 31, 2008 would affect the Company’s
effective tax rate if recognized. As the Company would currently need to
increase their valuation allowance for any additional amounts benefited, the
effective rate would not be impacted until the valuation allowance was
removed.
Penalties
and interest expense related to income taxes are included as a component of
other expense and interest expense, respectively, if they are incurred.
For the years ended December 31, 2008 and 2007, no penalties or interest
expense related to income tax positions were recognized. As of December
31, 2008 and 2007, no penalties or interest related to income tax positions were
accrued. The Company does not anticipate that any of the unrecognized tax
benefits will increase or decrease significantly in the next twelve
months.
The
Company is subject to federal and California state income tax. As of December
31, 2008, the Company’s federal returns for the years ended 2005 through the
current period and state returns for the years ended 2004 through the current
period are still open to examination. Net operating losses and research and
development carryforwards that may be used in future years are still
subject to inquiry given that the statute of limitation for these items would be
from the year of the utilization. There are no tax years under examination by
any jurisdiction at this time.
NOTE
11. COMMITMENTS AND
CONTINGENCIES
Lease Agreements. The Company
entered into a three year sublease, which commenced on May 31, 2006, for
property at 7000 Shoreline Court in South San Francisco, California, where the
Company’s executive offices are located. In May 2008, the Company and its
sublessor entered into an amendment to the sublease agreement, which increased
the term of the lease from three years to four years. The total cash payments
due for the duration of the sublease equaled approximately $0.9 million at
December 31, 2008, including $0.6 million in 2009 and $0.3 million in
2010.
Approximate
expenses associated with operating leases were as follows:
|
Years Ended December 31,
|
|||||||
|
2008
|
2007
|
||||||
Rent
expense
|
$ | 598,000 | $ | 575,000 |
Employment Agreements. On
June 6, 2008, the Company entered into a new employment agreement with its
President and Chief Executive Officer. This agreement provides for an employment
term that expires in December 2010. The minimum aggregate amount of gross salary
compensation to be provided for over the remaining term of the agreement
amounted to approximately $0.8 million at December 31, 2008.
The
Company entered into a written employment agreement with its Vice President and
Chief Financial Officer on December 18, 2006. As amended on October 31, 2008,
this agreement provides for an employment term that expires on October 31, 2009.
The minimum aggregate amount of gross salary compensation to be provided for
over the remaining term of the agreement amounted to less than $0.2 million at
December 31, 2008.
F-21
NOTE
12. 401(K) SAVINGS
PLAN
During
2004, the Company adopted a 401(k) Plan (the “401(k) Plan”) for the benefit of
its employees. The Company elects to match contributions to the 401(k) Plan
equal to 100% of the first 5% of wages deferred by each participating employee.
During 2008 and 2007, the Company incurred total charges of approximately
$225,000 and $180,000, respectively, for employer matching
contributions.
NOTE
13. RESTRICTED
CASH
On May
31, 2006, the Company entered into a sublease agreement. The sublease required
the Company to issue a security deposit in the amount of $125,000. To satisfy
this obligation the Company opened a $125,000 letter of credit, with the
sublessor as the beneficiary in case of default or failure to comply with the
sublease requirements. In order to fund the letter of credit, the Company was
required to deposit a compensating balance of $125,000 into a restricted money
market account with its financial institution. This compensating balance for the
line of credit will be restricted for the entire period of the sublease or at
least until May 2010.
F-22
HANA
BIOSCIENCES, INC.
CONDENSED
BALANCE SHEETS
|
June
30,
2009
|
December
31,
2008
|
||||||
ASSETS
|
(Unaudited)
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
8,190,250
|
$
|
13,999,080
|
||||
Available-for-sale
securities
|
124,000
|
128,000
|
||||||
Prepaid
expenses and other current assets
|
55,405
|
131,663
|
||||||
Total
current assets
|
8,369,655
|
14,258,743
|
||||||
|
||||||||
Property
and equipment, net
|
310,574
|
400,168
|
||||||
Restricted
cash
|
125,000
|
125,000
|
||||||
Debt
issuance costs
|
1,286,141
|
1,361,356
|
||||||
Total
assets
|
$
|
10,091,370
|
$
|
16,145,267
|
||||
|
||||||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$
|
3,559,038
|
$
|
4,225,863
|
||||
Other
short-term liabilities
|
53,508
|
61,341
|
||||||
Warrant
liabilities, short-term
|
2,927,761
|
1,450,479
|
||||||
Total
current liabilities
|
6,540,307
|
5,737,683
|
||||||
Notes
payable, net of discount
|
22,176,876
|
16,851,541
|
||||||
Other
long-term liabilities
|
28,726
|
41,775
|
||||||
Warrant
liabilities, non-current
|
679,827
|
--
|
||||||
Total
long term liabilities
|
22,885,429
|
16,893,316
|
||||||
Total
liabilities
|
29,425,736
|
22,630,999
|
||||||
Commitments
and contingencies (Notes 4, 9 and 10):
|
||||||||
|
||||||||
Stockholders'
deficit:
|
||||||||
Common
stock; $0.001 par value:
|
||||||||
100,000,000
shares authorized, 32,451,184 and 32,386,130 shares issued and outstanding
at June 30, 2009 and December 31, 2008, respectively
|
32,451
|
32,386
|
||||||
Additional
paid-in capital
|
105,064,006
|
104,431,469
|
||||||
Accumulated
other comprehensive income
|
32,000
|
36,000
|
||||||
Accumulated
deficit
|
(124,462,823)
|
(110,985,587)
|
||||||
Total
stockholders' deficit
|
(19,334,366)
|
(6,485,732)
|
||||||
Total
liabilities and stockholders' deficit
|
$
|
10,091,370
|
$
|
16,145,267
|
See
accompanying notes to unaudited condensed financial statements.
F-23
HANA
BIOSCIENCES, INC.
CONDENSED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(Unaudited)
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
$ | 934,637 | $ | 1,749,555 | $ | 2,042,526 | $ | 3,650,475 | ||||||||
Research
and development
|
3,262,507 | 4,419,464 | 7,724,701 | 8,683,796 | ||||||||||||
Total
operating expenses
|
4,197,144 | 6,169,019 | 9,767,227 | 12,334,271 | ||||||||||||
Loss
from operations
|
(4,197,144 | ) | (6,169,019 | ) | (9,767,227 | ) | (12,334,271 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income
|
574 | 60,457 | 12,156 | 231,365 | ||||||||||||
Interest
expense
|
(833,142 | ) | (252,477 | ) | (1,560,149 | ) | (501,641 | ) | ||||||||
Other
expense, net
|
-- | (36,802 | ) | (4,907 | ) | (42,864 | ) | |||||||||
Gain
(loss) on derivative
|
(2,821,169 | ) | 1,827,611 | (2,157,109 | ) | 1,817,681 | ||||||||||
Realized
loss on marketable securities
|
-- | (108,000 | ) | -- | (108,000 | ) | ||||||||||
Total
other income (expense)
|
(3,653,737 | ) | 1,490,789 | (3,710,009 | ) | 1,396,541 | ||||||||||
Net
loss
|
$ | (7,850,881 | ) | $ | (4,678,230 | ) | $ | (13,477,236 | ) | $ | (10,937,730 | ) | ||||
Net
loss per share, basic and diluted
|
$ | (0.24 | ) | $ | (0.15 | ) | $ | (0.42 | ) | $ | (0.34 | ) | ||||
Weighted
average shares used in computing net loss per share, basic and
diluted
|
32,451,184 | 32,227,195 | 32,450,465 | 32,204,171 | ||||||||||||
Comprehensive
loss:
|
||||||||||||||||
Net
loss
|
$ | (7,850,881 | ) | $ | (4,678,230 | ) | $ | (13,477,236 | ) | $ | (10,937,730 | ) | ||||
Unrealized
holdings gains (losses) arising during the period
|
28,000 | (28,000 | ) | (4,000 | ) | (4,000 | ) | |||||||||
Less:
reclassification adjustment for losses included in net
loss
|
-- | 108,000 | -- | 108,000 | ||||||||||||
Comprehensive
loss
|
$ | (7,822,881 | ) | $ | (4,598,230 | ) | $ | (13,481,236 | ) | $ | (10,833,730 | ) |
See
accompanying notes to unaudited condensed financial statements.
F-24
HANA
BIOSCIENCES, INC.
CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
Period
from January 1, 2009 to June 30, 2009
|
Common stock
|
Additional
paid-in
|
Accumulated
Other
Comprehensive
|
Accumulated
|
Total
stockholders'
|
|||||||||||||||||||
Shares
|
Amount
|
capital
|
income
|
deficit
|
Deficit
|
|||||||||||||||||||
Balance
at January 1, 2009
|
32,386,130
|
$
|
32,386
|
$
|
104,431,469
|
$
|
36,000
|
$
|
(110,985,587)
|
$
|
(6,485,732)
|
|||||||||||||
Share-based
compensation of employees amortized over vesting period of stock
options
|
619,331
|
619,331
|
||||||||||||||||||||||
Issuance
of shares under employee stock purchase plan
|
65,054
|
65
|
13,206
|
13,271
|
||||||||||||||||||||
Unrealized
loss on available-for-sale securities
|
(4,000)
|
(4,000)
|
||||||||||||||||||||||
Net
loss
|
(13,477,236)
|
(13,477,236)
|
||||||||||||||||||||||
Balance
at June 30, 2009
|
32,451,184
|
$
|
32,451
|
$
|
105,064,006
|
$
|
32,000
|
$
|
(124,462,823)
|
$
|
(19,334,366)
|
See
accompanying notes to unaudited condensed financial statements.
F-25
HANA
BIOSCIENCES, INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
|
|
||||||
Net
loss
|
$ | (13,477,236 | ) | $ | (10,937,730 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
99,489 | 91,245 | ||||||
Share-based
compensation to employees for services
|
619,331 | 1,435,314 | ||||||
Share-based
compensation to nonemployees for services
|
-- | (825 | ) | |||||
Shares
issued for license milestone
|
-- | 125,000 | ||||||
Amortization
of discount and debt issuance costs
|
400,550 | 127,647 | ||||||
Realized
loss on available for sale securities
|
-- | 108,000 | ||||||
Unrealized
(gain)loss on derivative liability
|
2,157,109 | (1,817,681 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Increase
in prepaid expenses and other assets
|
76,258 | 341,833 | ||||||
Decrease
in accounts payable and accrued liabilities
|
(666,825 | ) | (999,310 | ) | ||||
Net
cash used in operating activities
|
(10,791,324 | ) | (11,526,507 | ) | ||||
|
||||||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
-- | (64,680 | ) | |||||
Net
cash used in investing activities
|
-- | (64,680 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from exercise of warrants and options and issuance of shares under
employee stock purchase plan
|
13,271 | 10,680 | ||||||
Payments
on capital leases
|
(30,777 | ) | (17,550 | ) | ||||
Proceeds
from issuances of notes payable
|
5,000,000 | -- | ||||||
Net
cash provided by (used in) financing activities
|
4,982,494 | (6,870 | ) | |||||
|
||||||||
Net
decrease in cash and cash equivalents
|
(5,808,830 | ) | (11,598,057 | ) | ||||
Cash
and cash equivalents, beginning of period
|
13,999,080 | 20,795,398 | ||||||
Cash
and cash equivalents, end of period
|
$ | 8,190,250 | $ | 9,197,341 | ||||
Supplemental
disclosures of cash flow data:
|
||||||||
Cash
paid for interest
|
$ | 1,140,301 | $ | 373,994 | ||||
Supplemental
disclosures of noncash financing activities:
|
||||||||
Equipment
financed with capital leases
|
9,895 | 64,476 | ||||||
Unrealized
loss on available-for-sale securities
|
$ | (4,000 | ) | $ | (4,000 | ) |
See
accompanying notes to unaudited condensed financial
statements.
F-26
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
BUSINESS
Hana
Biosciences, Inc. (“Hana,” “we” or the “Company”) is a South San Francisco,
California-based biopharmaceutical company dedicated to developing and
commercializing new and differentiated cancer therapies designed to improve and
enable current standards of care. Our two lead product candidates target large
markets and are in pivotal and/or proof-of-concept clinical trials. We are
developing Marqibo ® for the treatment of acute lymphoblastic leukemia and
lymphomas. Menadione topical lotion is a first-in-class compound that we are
developing for the potential prevention and/or treatment of skin toxicity
associated with epidermal growth factor receptor inhibitors. We have additional
pipeline opportunities that, like Marqibo, we believe may improve delivery and
enhance the therapeutic benefits of well-characterized, proven chemotherapies
and enable high potency dosing without increased toxicity.
Our
product candidates consist of the following:
·
|
Marqibo®
(vincristine sulfate liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vincristine, being developed for the treatment of adult acute
lymphoblastic leukemia.
|
·
|
Menadione
Topical Lotion, a novel supportive care product candidate, being developed
for the prevention and/or treatment of the skin toxicities associated with
the use of epidermal growth factor receptor inhibitors in the treatment of
certain cancers.
|
·
|
Brakiva™
(topotecan liposomes injection), a novel targeted Optisome™ encapsulated
formulation product candidate of the FDA-approved anticancer drug
topotecan, being developed for the treatment of solid tumors including
small cell lung cancer and ovarian
cancer.
|
·
|
Alocrest™
(vinorelbine liposomes injection), a novel, targeted Optisome™
encapsulated formulation product candidate of the FDA-approved anticancer
drug vinorelbine, being developed for the treatment of solid tumors such
as non-small-cell lung cancer.
|
BASIS
OF PRESENTATION AND LIQUIDITY
The
accompanying unaudited condensed financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles (GAAP)
for interim financial information. In the opinion of the Company’s management,
the unaudited condensed financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for the fair
presentation of the Company’s financial position for the periods presented
herein. These interim financial results are not necessarily indicative of the
results to be expected for the full fiscal year ending December 31, 2009 or
any subsequent interim period.
As of
June 30, 2009, the Company has an accumulated deficit of approximately $124.5
million, and for the six months ended June 30, 2009, the Company experienced a
net loss of $13.5 million. The Company has financed operations primarily through
equity and debt financing and expects such losses to continue over the next
several years. The Company currently has a limited supply of cash
available for operations. As of June 30, 2009, the Company had available $8.3
million in cash and cash equivalents and available-for-sale securities from
which to draw upon. An additional $2.5 million will become available
to the Company if it reaches a clinical development milestone pursuant to a loan
facility with Deerfield Management. We do not anticipate achieving
this milestone unless we are able to obtain additional
financing. See Note 4 below.
The
Company does not generate any recurring revenue and will require substantial
additional capital before it will generate cash flow from its operating
activities, if ever. The Company’s continued operations depend entirely on its
ability to obtain additional capital. The Company will be unable to continue the
progression of clinical compounds unless it is able to obtain additional funding
through equity or debt financings or from payments in connection with potential
strategic transactions. The Company can give no assurances that any
additional capital that it is able to obtain, if any, will be sufficient to meet
its needs. Moreover, there can be no assurance that such capital will be
available to the Company on favorable terms or at all, especially given the
current economic environment which has severely restricted access to the capital
markets. Based on the anticipated use of cash resources of between $5.0 million
and $6.0 million per quarter, which includes any milestones pursuant to the
Company’s license agreements, the Company estimates that its current cash
resources are only sufficient to fund its planned research and development
activities through the third quarter and into the fourth quarter of 2009.
However, if anticipated costs are higher than planned, or if the Company is
unable to raise additional capital, it will have to significantly curtail its
development activities to maintain operations through 2009 and
beyond.
Further, the terms of certain
warrants issued to Deerfield pursuant to the Company’s loan facility provide
that Deerfield may require the Company to redeem the warrants upon the
occurrence of certain events, including the delisting of the Company’s common
stock from a national securities exchange. The foregoing estimates
concerning the Company’s available cash resources assume that the Company would
not be required to redeem the Deerfield warrants. As of June 30,
2009, the redemption price that would be payable to Deerfield in the event it
made such election was approximately $2.9 million. If one of the
events that trigger Deerfield’s right to require the Company to redeem the
warrants occurs, and Deerfield exercises such right, the Company’s remaining
cash resources available to fund its product development activities would be
substantially reduced and would have a material adverse impact on our business
prospects and financial condition. In such event, the Company would
be required to significantly curtail its activities and may be required to cease
operating activities altogether, unless it is able to secure additional capital
from a financing or other strategic transaction. These conditions, as
well as the general financial condition of the Company discussed in the
preceding paragraph, raise substantial doubt as to the Company’s ability to
continue as a going concern.
F-27
NOTE
2. SIGNIFICANT ACCOUNTING POLICIES
Use
of Management's Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates based upon current assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Examples include provisions for deferred
taxes, the valuation of the warrant liabilities, the cost of contracted clinical
study activities and assumptions related to share-based compensation expense.
Actual results may differ materially from those estimates.
Segment
Reporting
The
Company has determined that it currently operates in only one segment, which is
the research and development of oncology therapeutics and supportive care for
use in humans. All assets are located in the United States.
Fair
Value of Financial Instruments
Financial
instruments include cash and cash equivalents, marketable securities, and
accounts payable. Marketable securities are carried at fair value. Cash and cash
equivalents and accounts payable are carried at cost, which approximates fair
value due to the relative short maturities of these instruments. The
fair value of the Company’s notes payable at June 30, 2009 is $12.4 million.
Loss
Per Share
Basic net
loss per common share is calculated by dividing net loss by the weighted-average
number of common shares outstanding for the period. Diluted net loss per common
share is the same as basic net loss per common share, since potentially dilutive
securities from stock options and stock warrants would have an anti-dilutive
effect because the Company incurred a net loss during each period presented. The
number of shares potentially issuable at June 30, 2009 and 2008 upon exercise or
conversion that were not included in the computation of net loss per share
totaled 13,275,200 and 12,059,477, respectively.
Cash
and Cash Equivalents and Concentration of Risk
The
Company considers all highly-liquid investments with a maturity of three months
or less when acquired to be cash equivalents. Short-term investments
consist of investments acquired with maturities exceeding three months and are
classified as available-for-sale. All short-term investments are reported
at fair value, based on quoted market price, with unrealized gains or losses
included in other comprehensive loss.
Debt
Issuance Costs
As
discussed in Note 4, the debt issuance costs relate to fees paid in the form of
cash and warrants to secure a firm commitment to borrow funds. These fees
are deferred, and if the commitment is exercised, amortized over the life of the
related loan using the interest method. If the commitment expires
unexercised, the deferred fee is expensed immediately.
F-28
Warrant
Liabilities
On
October 30, 2007, the Company entered into a loan facility agreement with
certain affiliates of Deerfield Management (“Deerfield”). Deerfield has
committed funds to assist with the development of the Company’s product
candidates. The facility agreement allowed the Company to borrow from Deerfield
up to an aggregate of $30 million, of which $20 million was subject to being
drawn down by the Company in as many as four installments every six months
commencing October 30, 2007. As additional consideration for the loan, the
Company also issued to Deerfield warrants to initially purchase 5,225,433 shares
of the Company’s common stock at an exercise price of $1.31 per
share. The Company issued similar warrants to initially purchase
851,844 shares to Deerfield on October 14, 2008 upon drawing down funds related
to certain development milestones. A certain portion of these
warrants includes an anti-dilution feature. This feature requires that, as
the Company issues additional shares of its common stock during the term of the
warrant, the number of shares purchasable under these series is automatically
increased so that they always represent 17.625% of the Company’s then
outstanding common stock. Pursuant to the facility agreement, the Company
also entered into a registration rights agreement, so that Deerfield may sell
their shares if the warrants are exercised. These financing transactions were
recorded in accordance with Emerging Issues Task Force Issue No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock” and related interpretations. Because
the warrants are redeemable in the event of a change in control or if the
Company’s shares become delisted, the fair value of the warrants based on the
Black-Scholes-Merton option pricing model is recorded as a liability. The
Company updates its estimate of the fair value of the warrant liabilities in
each reporting period as new information becomes available and any gains or
losses resulting from the changes in fair value from period to period are
included as other income (expense).
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
NOTE
3. RECENT ACCOUNTING PRONOUNCEMENTS
In
June 2009, FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles – a replacement of FASB Statement No. 162,” or SFAS 168. SFAS 168
establishes the FASB
Accounting Standards Codification, or Codification, which will become the
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-SEC accounting literature
which is not grandfathered or not included in the Codification will no longer be
authoritative. Once the Codification is in effect, all of its content will carry
the same level of authority. SFAS 168 will be effective for financial
statements for interim or annual reporting periods ending after
September 15, 2009. The Company expects to adopt SFAS 168 for the
quarter ending September 30, 2009.
In May
2009, FASB issued SFAS No. 165, Subsequent Events, or
SFAS 165. SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 requires
the disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date, that is, whether that date represents the
date the financial statements were issued or were available to be issued. The
adoption of SFAS 165 had no material effect on the Company’s financial condition
or presentation of financial statements.
In April
2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1,
Interim Disclosures about Fair
Value of Financial Instruments. FSP No. FAS 107-1 and APB 28-1
requires that publicly-traded companies enhance interim disclosures of fair
value instruments consistent with disclosures required for annual reporting
periods. FSP No. FAS 107-1 and APB 28-1 is effective for periods
ending after June 15, 2009. This FSP does not require disclosures for
earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, this FSP requires comparative disclosures only
for periods ending after initial adoption. The adoption of FSP No.
FAS 107-1 and APB 28-1did not have a material effect on the Company’s financial
statements and disclosures.
NOTE
4. FACILITY AGREEMENT
On
October 30, 2007, we entered into a Facility Agreement (the “loan agreement”)
with Deerfield under which Deerfield agreed to lend to us an aggregate principal
amount of up to $30 million. Of the total $30 million funds committed pursuant
to the loan agreement, $20 million is available for disbursement to us in four
installments every six months commencing October 30, 2007. As of
June 30, 2009, we have drawn down the entire $20 million pursuant to these
funds. The remaining $10 million is subject to disbursement
in three installments upon the achievement of clinical development milestones
relating to our Marqibo and Menadione product candidates, of which we have drawn
down $7.5 million as of June 30, 2009. Deerfield’s obligation to disburse loan
proceeds expires October 30, 2010, and we must repay all outstanding principal
and interest owing under the loan no later than October 30, 2013. We are also
required to make quarterly interest payments on outstanding principal, at a
stated annual rate of 9.85%. In accordance with and upon execution of the loan
agreement, we paid a loan commitment fee of $1.1 million to an affiliate of
Deerfield. Our obligations under the loan are secured by all assets
owned (or that will be owned in the future) by us, both tangible and intangible.
The effective interest rate on the $20 million notes payable for funds available
on the six month installments, including discount on debt, is approximately
18.0%. The effective interest rate on the $7.5 million notes payable
related to the achievement of development milestones, including discount on
debt, is approximately 11.6%. As of June 30, 2009, we had accrued
$0.6 million in interest payable that was paid in July 2009.
F-29
As
additional consideration for the loan, on October 30, 2007, we issued to
Deerfield two series of 6-year warrants to purchase an aggregate of 5,225,433
shares of our common stock at an exercise price of $1.31 per share (subject to
adjustment for stock splits, combinations and similar events), which represented
the closing bid price of our common stock as reported on the Nasdaq Global
Market on the issuance date. One series of such warrants initially represented
the right to purchase 4,825,433 shares, which equaled 15% of our currently
issued and outstanding shares of common stock as of October 30, 2007. These
warrants contain an anti-dilution feature so that, as we issue additional shares
of our common stock during the term of the warrant, the number of shares
purchasable under this series is automatically increased so that they always
represent 15% of our then outstanding common stock. The exercise price for any
incremental shares that become purchasable due to this feature remains fixed at
$1.31 per share (subject to adjustment for stock splits, combinations and
similar events). Pursuant to this anti-dilution feature and as a
result of additional shares of our common stock that we issued following October
30, 2007, this series of warrants represented the right to purchase an aggregate
of 4,867,678 shares of our common stock as of June 30, 2009. The second series
of warrants, representing the right to purchase an aggregate of 400,000 shares,
is identical in form except that it does not contain such anti-dilution feature.
When the Company drew down the $7.5 million of funds conditioned upon the
achievement of clinical development milestones relating to the Marqibo and
Menadione programs on October 14, 2008, it was required to issue to Deerfield
additional warrants to purchase up to an additional 2.625% of its then
outstanding common stock, which warrants will contain the same anti-dilution
feature as those issued by the Company on October 30, 2007. These
warrants represented the right to purchase 851,844 shares of our common stock as
of June 30, 2009. If the Company draws down the remaining funds
conditioned upon the achievement of clinical development milestones, it will be
required to issue to Deerfield additional warrants to purchase up to an
additional 0.875% of its then outstanding common stock, which warrants will
contain the same anti-dilution feature as those issued by the Company on October
30, 2007 and October 14, 2008.
As of
June 30, 2009, the Company had drawn down $27.5 million of the entire $30
million loan facility, which represented the entire amount available based on
installments and clinical development milestones achieved related to the Marqibo
and Menadione programs.
Fair Value of Warrants. The
aggregate fair values of the warrant series issued upon execution of the loan
agreement, under which an aggregate of the 5,225,433 shares of our common stock
were issuable upon purchase, pursuant to the loan agreement was $5.9 million.
$5.5 million of the total fair value, related to the warrant series to purchase
an aggregate of 4,825,433 shares with an anti-dilution feature, was recorded as
a discount to the note payable. The remaining $0.4 million fair value, relating
to the additional warrant series to purchase an aggregate of 400,000 shares of
common stock, was recorded as a debt issuance cost and is being amortized, using
the interest method, over the life of the loan. The aggregate fair
values of the warrant series issued when we drew down the funds related to
clinical development milestones, under which an aggregate of the 850,136 shares
of our common stock were issuable upon purchase, pursuant to the loan agreement
was $0.5 million, which was accounted for as a discount to the notes payable in
the balance sheet. Deerfield can elect a cashless exercise of any
portion of shares outstanding in which case they would receive shares equal to
the net settlement price on the date of exercise. Additionally,
pursuant to the loan agreement, Deerfield has certain registration rights and we
would be obligated to make penalty payments to Deerfield in the event we were
unable to maintain effective registration with the SEC.
The
Company used a Black-Scholes-Merton option pricing model to obtain the fair
value of these warrants. In order to estimate the fair value of the
anti-dilution feature, the Company estimated the number of additional shares
potentially purchasable under the warrant agreement using weighted probability
scenarios. A summary of the assumptions used to estimate the fair
value of the warrants issued pursuant to the execution of the loan agreement as
well as the estimated additional shares purchasable under the warrants pursuant
to the anti-dilution feature as of June 30, 2009 and June 30, 2008 is as
follows:
|
June
30
|
June
30
|
||||||
|
2009
|
2008
|
||||||
Warrants
|
||||||||
Risk-free
interest rate
|
$ | 1.2 | % | $ | 4.1 | % | ||
Expected
life (in years)
|
4.3 – 5.3 | 5.28 | ||||||
Volatility
|
134.0 | % | 69.3 | % | ||||
Dividend
yield
|
0 | $ | 0 | |||||
Estimated
fair value of shares issuable under warrants
|
$ | 0.36 – 0.39 | $ | 0.36 |
Warrant Liabilities. The fair
value of the warrants issued pursuant to the loan agreement was recorded in
accordance with Emerging Issues Task Force Issue No. 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock.” Accordingly, we determined that the fair value of the
warrants represented a liability because the warrants are redeemable in the
event of a change in control or if the Company’s shares become delisted.
The fair value of the warrants is recalculated each reporting period with
the change in value taken as income or expense in the “Statement of Operations.”
On March
5, 2009, we received notice that our common stock would be subject
to delisting from the Nasdaq Capital Market as a result of a listing
requirement deficiency, of which we were previously notified on November 19,
2008. Specifically,
we fail to comply with a Nasdaq listing rules that requires us to have
stockholders’ equity of at least $2.5 million or an aggregate market value of
all outstanding common stock of at least $35 million. Following an
appeal by us to a Nasdaq hearings panel, we have until September 1, 2009 to
regain compliance with Nasdaq’s listing requirements, or our common stock will
be delisted. If our common stock is delisted from the Nasdaq Capital
Market, we may be required to redeem the warrants we have issued to Deerfield
pursuant to our October 2007 loan agreement. Those warrants contain a
provision that would require us to redeem the warrants, at Deerfield’ s
election, in the event our common stock is no longer listed on the Nasdaq or
another national stock exchange. The redemption price applicable to
the warrants is based upon a Black-Scholes-Merton calculation, as specified in
the warrant agreement. As of June 30, 2009, the total redemption
price that would be applicable to all of the warrants issued to Deerfield is
approximately $2.9 million. We have classified an amount equal to the
redemption value at June 30, 2009 as a short-term liability due to the
potential risk that, due to our Nasdaq listing status, Deerfield will have the
right to require redemption of these warrants within a one year period from June
30, 2009. As the warrant redemption price is based on a
Black-Scholes-Merton calculation, the fair value of this liability is highly
dependent on the price of our common shares and the volatility of our
stock. If Deerfield elects redemption of these warrants, the actual
redemption price may be materially different from the amount we have estimated
on June 30, 2009.
F-30
A summary
of the activity of the fair value of the warrant liability is as
follows:
Beginning
Value of
Warrant
Liabilities
|
Liability
Incurred for
Warrants Issued
Pursuant to the
Deerfield
Agreement
|
Realized
(Gain)/Loss on
Change in Fair
Value of
Warrant
Liabilities
|
Ending Fair
Value of
Warrant
Liabilities
|
|||||||||||||
For
the period ended June 30, 2009
|
$ | 1,450,479 | $ | — | $ | 2,157,109 | $ | 3,607,588 | ||||||||
For
the period ended June 30, 2008
|
$ | 4,232,355 | $ | — | $ | (1,817,681 | ) | $ | 2,414,674 |
Summary of Notes Payable. On
November 1, 2007, the Company drew down $7.5 million of the $30.0 million in
total loan proceeds available. On October 14, 2008 and November 12, 2008, the
Company drew down an additional $12.5 million and $2.5 million, respectively.
The Company is not required to pay back any portion of the principal
amount until October 30, 2013. Of the $12.5 million borrowed on October 14,
2008, $7.5 million related to development milestones the Company had previously
achieved and was subsequently entitled to draw down additional funds pursuant to
the Deerfield agreement. These warrants contained an anti-dilution
feature that provided Deerfield with the right to purchase shares of the
Company’s common stock equal to 2.625% of the total shares
outstanding. Upon issuance of these shares, the fair value of the
warrants was determined and included as additional discount on the debt to
Deerfield. Because the Company issued the warrants pursuant to the
loan, the Company recognized a discount on the note. On May 20, 2009,
the Company drew down $5.0 million which was available pursuant to the terms of
the loan agreement. The table below is a summary of the change in
carrying value of the notes payable, including the discount on debt for the six
months ended June 30, 2009 and 2008:
Carrying
Value at
January 1,
|
Gross
Borrowings
Incurred
|
Debt
Discount
Incurred
|
Amortized
Discount
|
Carrying
Value at
June
30,
|
||||||||||||||||
2009
|
||||||||||||||||||||
Notes
payable
|
$
|
22,500,000
|
$
|
5,000,000
|
$
|
—
|
$
|
—
|
$
|
27,500,000
|
||||||||||
Discount
on debt
|
(5,648,459)
|
—
|
—
|
325,335
|
(5,323,124)
|
|||||||||||||||
Carrying
value
|
$
|
16,851,541
|
$
|
22,176,876
|
||||||||||||||||
2008
|
||||||||||||||||||||
Notes
payable
|
$
|
7,500,000
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
7,500,000
|
||||||||||
Discount
on debt
|
(5,474,376)
|
—
|
—
|
109,049
|
(5,365,297)
|
|||||||||||||||
Carrying
value
|
$
|
2,025,624
|
$
|
2,134,703
|
A summary
of the debt issuance costs and changes during the periods ending June 30, 2009
and 2008 is as follows:
Deferred
Transaction
Costs on
January 1,
|
Amortized
Debt Issuance
Costs
|
Deferred
Transaction
Costs
on
June
30,
|
||||||||||
2009
|
$
|
1,361,356
|
$
|
(75,215)
|
$
|
1,286,141
|
||||||
2008
|
$
|
1,423,380
|
$
|
(18,568)
|
$
|
1,404,812
|
Stock Incentive Plans. We
have two stockholder-approved stock incentive plans under which we grant or have
granted options to purchase shares of our common stock and restricted stock
awards to employees: the 2003 Stock Option Plan (the “2003 Plan”) and the 2004
Stock Incentive Plan (the “2004 Plan”). The Board of Directors or the Chief
Executive Officer, to the extent authorized by the Board, is responsible for
administration of the Company’s employee stock incentive plans and determines
the term, exercise price and vesting terms of each option. In general, stock
options issued under the 2003 Plan and 2004 Plan have a vesting period of three
years and expire ten years from the date of grant. We may grant a maximum of
7,000,000 shares for issuance under the 2004 plan and a maximum of 1,410,068
shares under the 2003 plan.
F-31
The
Company also has adopted the 2006 Employee Stock Purchase Plan (the “2006 Plan”)
under which the Company's eligible employees may purchase shares of the
Company’s common stock through lump sum payments or payroll deductions. The 2006
Plan is intended to qualify as an “employee stock purchase plan” under
Section 423 of the Internal Revenue Code. As adopted, the 2006 Plan
authorized the issuance of up to a maximum of 750,000 shares of common
stock.
Stock Options. The following
table summarizes information about stock options outstanding at June 30, 2009
and changes in outstanding options in the six months then ended, all of which
are at fixed prices:
Number of
Shares Subject
to Options
Outstanding
|
Weighted
Average
Exercise
Price per
Share
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
January 1, 2009
|
4,470,871 | $ | 2.36 | |||||||||||||
Options
granted
|
1,265,000 | 0.15 | ||||||||||||||
Options
cancelled
|
(337,166 | ) | 1.88 | |||||||||||||
Options
exercised
|
— | — | ||||||||||||||
Outstanding
June 30, 2009
|
5,398,705 | 1.87 | 8.06 | $ | 34,787 | |||||||||||
Exercisable
at June 30, 2009
|
2,662,200 | $ | 2.77 | 7.15 | $ | 32,897 |
Total
share-based compensation expense was approximately $0.6 million and $1.4 million
related to employee stock options recognized in the operating results for the
six months ended June 30, 2009 and 2008, respectively.
The
following table summarizes information about stock options outstanding at June
30, 2009:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||
Exercise Price
|
Number of
Shares
Subject to
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life of
Options
Outstanding
|
Number
of Options
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||
$0.07 - $ 0.14
|
1,175,505 | $ | 0.14 |
9.3
yrs
|
70,505 | $ | 0.07 | |||||||||||
$0.21 - $ 1.18
|
2,194,377 | 0.98 |
8.3
yrs
|
970,711 | 1.02 | |||||||||||||
$1.33 - $ 2.41
|
1,105,156 | 1.69 |
7.2
yrs
|
831,319 | 1.68 | |||||||||||||
$4.51 - $ 10.98
|
923,667 | 6.41 |
6.9
yrs
|
789,665 | 6.34 | |||||||||||||
$0.07 - $10.98
|
5,398,705 | $ | 1.87 |
8.1
yrs
|
2,662,200 | $ | 2.77 |
Employee Stock Purchase Plan.
The 2006 Plan allows employees to contribute a percentage of their gross salary
toward the semi-annual purchase of shares of our common stock. The price of each
share will not be less than the lower of 85% of the fair market value of our
common stock on the last trading day prior to the commencement of the offering
period or 85% of the fair market value of our common stock on the last trading
day of the purchase period. A total of 750,000 shares of common stock were
initially reserved for issuance under the 2006 Plan. As of June 30,
2009, there were 553,324 shares available for issuance under this plan and an
additional 131,820 shares were issued on July 6, 2009.
Through
June 30, 2009, we have issued 198,676 shares under the 2006 Plan. For the six
months ended June 30, 2009 and 2008, the total share-based compensation expense
recognized related to the 2006 Plan under was approximately $9,000 and $62,000,
respectively.
F-32
Assumptions. The following
table summarizes the assumptions used in applying the Black-Scholes-Merton
option pricing model to determine the fair value of awards granted during the
three and six months ended June 30, 2009 and 2008, respectively:
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Employee stock
options
|
||||||||||||||||
Risk-free
interest rate
|
1.90 | % | 2.65 | % | 1.90 | % | 2.65 | % | ||||||||
Expected
life (in years)
|
5.5 – 6.0 | 5.5 – 6.0 | 5.5 – 6.0 | 5.5 – 6.0 | ||||||||||||
Volatility
|
0.85 | 0.9 | 0.85 – 0.95 | 0.9 | ||||||||||||
Dividend
Yield
|
0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Employee stock
purchase plan
|
||||||||||||||||
Risk-free
interest rate
|
0.27 - 1.11 | % | 3.05-3.49 | % | 0.27 - 1.11 | % | 3.05-49 | % | ||||||||
Expected
life (in years)
|
0.5 - 2.0 | 0.5 - 2.0 | 0.5 - 2.0 | 0.5 - 2.0 | ||||||||||||
Volatility
|
1.73 – 2.45 | 0.75-0.80 | 1.30 – 2.45 | 0.75-0.80 | ||||||||||||
Dividend
Yield
|
0 | % | 0 | % | 0 | % | 0 | % |
Warrants. As of June 30,
2009, all outstanding warrants were available for exercise. Warrants to acquire
258,927 shares of common stock at $1.85 per share expired in February of 2009.
Warrants to acquire 892,326 shares of common stock at $1.57 per share
expire in April 2010. Warrants to acquire 864,648 shares of common stock at
$5.80 per share expire in October 2010. Additionally, the Company has
issued warrants to acquire 6,119,521 shares of common stock to Deerfield in
accordance with the Company’s October 2007 loan agreement. Certain of
these warrants contain an anti-dilution feature that automatically increases the
number of shares purchasable so that they always represent 17.625% of the
Company’s then outstanding common stock. The majority of the warrants
issued to Deerfield expire in October 2013 with a smaller portion expiring in
October 2014. The following table summarizes the warrants outstanding as
of June 30, 2009 and the changes in outstanding warrants in the period then
ended:
Number Of
Shares Subject
To Warrants
Outstanding
|
Weighted-Average
Exercise Price
|
|||||||
Warrants
outstanding January 1, 2009
|
8,123,956
|
$
|
1.83
|
|||||
Warrants
granted
|
11,466
|
1.31
|
||||||
Warrants
cancelled
|
(258,927
|
)
|
1.85
|
|||||
Warrants
outstanding June 30, 2009
|
7,876,495
|
$
|
1.83
|
F-33
NOTE
6. FAIR VALUE MEASUREMENTS
SFAS No.
157 defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures about fair
value measurements. Fair value is defined under SFAS No. 157 as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value under SFAS No.
157 must maximize the use of observable inputs and minimize the use of
unobservable inputs. The standard describes a fair value hierarchy based on
three levels of inputs, of which the first two are considered observable and the
last unobservable, that may be used to measure fair value which are the
following:
•
|
Level
1 - Quoted prices in active markets for identical assets or
liabilities;
|
•
|
Level
2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities;
and
|
•
|
Level
3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
In
accordance with SFAS 157, the following table represents the fair value
hierarchy for our financial assets and liabilities held by the Company measured
at fair value on a recurring basis as of June 30, 2009:
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Money
market funds
|
$ | 69,157 | $ | — | $ | — | $ | 69,157 | ||||||||
Available-for-sale
equity securities
|
124,000 | — | — | 124,000 | ||||||||||||
Total
|
$ | 193,157 | $ | — | $ | — | $ | 193,157 |
Liabilities
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Warrant
liabilities
|
— | — | $ | 3,607,588 | $ | 3,607,588 | ||||||||||
Total
|
$ | — | $ | — | $ | 3,607,588 | $ | 3,607,588 |
NOTE
7. AVAILABLE-FOR-SALE SECURITIES
On June
30, 2009, the Company had $124,000 in total marketable securities which
consisted of shares of NovaDel Pharma, Inc. (“NovaDel”) purchased in conjunction
with the Zensana license agreement.
During
the six months ended June 30, 2009, the Company recorded an unrealized loss of
$4,000, compared to an unrealized gain of $104,000 and a realized loss of
$108,000 for the six months ended June 30, 2008. The following table
summarizes the NovaDel shares classified as available-for-sale securities during
the six months ended June 30, 2009 and 2008:
Beginning
Value
|
Net
Unrealized
Gain/(Loss)
|
Gross
Realized
Gain/(Loss)
|
Ending Value
|
|||||||||||||
Six
months ended June 30, 2009
|
$ | 128,000 | $ | (4,000 | ) | $ | — | $ | 124,000 | |||||||
Six
months ended June 30, 2008
|
$ | 96,000 | $ | 104,000 | $ | (108,000 | ) | $ | 92,000 |
NOTE
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consist of the following at June 30, 2009 and
December 31, 2008:
June
30,
2009
|
December
31,
2008
|
|||||||
Trade
accounts payable
|
$
|
1,097,623
|
$
|
457,725
|
||||
Clinical
research and other development related costs
|
1,440,595
|
2,554,374
|
||||||
Accrued
personnel related expenses
|
223,554
|
549,469
|
||||||
Interest
payable
|
606,517
|
478,332
|
||||||
Accrued
other expenses
|
190,749
|
185,963
|
||||||
Total
|
$
|
3,559,038
|
$
|
4,225,863
|
F-34
NOTE
9. COMMITMENTS
Employment
Agreements. On June 6, 2008, the Company entered into a new
employment agreement with its President and Chief Executive Officer. This
agreement provides for an employment term that expires in December 2010. The
minimum aggregate amount of gross salary compensation to be provided for over
the remaining term of the agreement amounted to approximately $0.6 million at
June 30, 2009.
The
Company entered into a written employment agreement with its Vice President and
Chief Financial Officer on December 18, 2006. As amended on October 31, 2008,
this agreement provides for an employment term that expires on October 31, 2009.
The minimum aggregate amount of gross salary compensation to be provided for
over the remaining term of the agreement amounted to approximately $0.1 million
at June 30, 2009.
Lease. The
Company entered into a three year sublease, which commenced on May 31, 2006, for
property at 7000 Shoreline Court in South San Francisco, California, where the
Company’s executive offices are located. In May 2008, the Company and its
sublessor entered into an amendment to the sublease agreement, which increased
the term of the lease from three years to four years. Effective June 24, 2009,
the Company entered into a further amendment to the sublease, which extended the
term of the lease through March 2011 and reduced the monthly lease payments from
$2.80 per square foot to $2.45 per square foot for the eleven month period from
July 2009 through May 2010 and reduced the lease payments from $2.90 per square
foot to $1.95 per square feet for the ten month period from June 2010 through
March 2011. The total cash payments due for the duration of the
sublease equaled approximately $0.9 million at June 30, 2009.
NOTE
10. RESTRICTED CASH
On May
31, 2006, the Company entered into a sublease agreement relating to its South
San Francisco, CA offices. The sublease required the Company to provide a
security deposit in the amount of $125,000. To satisfy this obligation the
Company obtained a $125,000 letter of credit with the sublessor as the
beneficiary in case of default or failure to comply with the sublease
requirements. In order to obtain the letter of credit, the Company was required
to deposit a compensating balance of $125,000 into a restricted money market
account with its financial institution. This compensating balance for the letter
of credit will be restricted for the entire five-year period of the
sub-lease.
NOTE
11. AMENDMENT TO TEKMIRA LICENSE AGREEMENT
On June
2, 2009, the Company and Tekmira executed an amendment to the license agreement
(the “Agreement”) originally entered into on May 6, 2006 and which was amended
on April 30, 2007. The amendment, which was effective on May 27,
2009, makes the following material amendments to the Agreement:
·
|
As
amended, the amount of the milestone payment required to be made by the
Company to Tekmira upon the FDA’s approval of a Marqibo new drug
application (“NDA”) was increased.
|
·
|
The
Agreement previously required the Company to make milestone payments upon
the dosing of the first patient in any clinical trial of each of Alocrest
and Brakiva. After giving effect to the Amendment, the
Agreement now provides that such milestones are payable following the
FDA’s acceptance for review of an NDA for such product
candidates. In addition, the milestone payments payable under
the Agreement upon the FDA’s approval of an NDA for Alocrest and Brakiva
were both increased in amount.
|
·
|
The
Amendment reduces the amount of Tekmira’s share of any payments received
by the Company from third parties in consideration of sublicenses granted
to such third parties or for royalties received by Hana from such third
parties.
|
·
|
The
maximum aggregate amount of milestone payments for all product candidates
was increased from $30.5 million to $37.0
million.
|
As a
result of this amendment, the Company reversed recognition of a previously
accrued milestone payment to Tekmira which was achieved upon the enrollment of
the first patient in the Company’s phase 1 clinical trial in
Brakiva.
NOTE
12. SUBSEQUENT EVENTS
The
Company performed an evaluation of subsequent events through August 14,
2009, the
date the Company filed its Form 10-Q for the period ending June 30, 2009 with
the SEC. No
material subsequent events occurred that have not been previously discussed or
included in the financial statements or the notes to the financial statements
for the period ending June 30, 2009.
F-35
60,053,246
Shares
Common
Stock
PROSPECTUS
,
2009
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION.
The
following table sets forth all costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of the
common stock being registered. All amounts shown are estimates except for the
SEC registration fee.
Amount
to be Paid
|
||||
SEC
registration fee
|
$
|
1,541.45
|
||
Legal
fees and expenses
|
25,000
|
|||
Accounting
fees and expenses
|
15,000
|
|||
Printing
and engraving and miscellaneous expenses
|
5,000
|
|||
Total
|
$
|
46,541.45
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
Section 145 of the General
Corporation Law of the State of Delaware provides as follows:
A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person’s conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that the person’s conduct was
unlawful.
A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification will be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Our
certificate of incorporation and bylaws provide that we will indemnify any
person, including persons who are not our directors and officers, to the fullest
extent permitted by Section 145 of the Delaware General Corporation
Law.
Reference
is made to Item 17 for our undertakings with respect to indemnification for
liabilities arising under the Securities Act of 1933.
II-1
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 7, 2009, Hana entered
into a securities purchase agreement (the “Purchase Agreement”) with certain
accredited investors pursuant to which the Company agreed to sell in a private
placement (the “Offering”) an aggregate of 54,593,864 units (the “Units”), each
Unit consisting of (i) either (a) one share of common stock (each a “Share,” and
collectively, the “Shares”), or (b) a seven-year warrant to purchase one share
of common stock (collectively, the “Series A Warrant Shares”) at an exercise
price of $0.01 per share (collectively, the “Series A Warrants”), and (ii) a
seven-year warrant to purchase one-tenth of one share of common stock, rounded
down to the nearest whole number (collectively, the “Series B Warrant Shares,”
and together with the Series A Warrant Shares, the “Warrant Shares”), at an
exercise price of $0.60, which represents the closing bid price of the Company’s
common stock on October 7, 2009 (collectively, the “Series B Warrants,” and
together with the Series A Warrants, the “Warrants”). The closing of
the transactions contemplated by the Purchase Agreement occurred on October 8,
2009.
The Offering resulted in the sale of
43,562,142 Units consisting of Shares and Series B Warrants at a purchase price
of $0.30 per Unit, and 11,031,722 Units consisting of Series A Warrants and
Series B Warrants at a purchase price of $0.29 per Unit, for total consideration
to the Company of approximately $16.27 million, before deducting
expenses. Of this total amount, approximately $12.4 million was paid
to the Company in cash and approximately $3.87 million represented the
satisfaction of an outstanding obligation of the Company to certain of the
investors, as discussed below.
Among
the investors who participated in the Offering were Deerfield Private Design
Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield Special
Situations Fund International Limited and Deerfield Private Design
International, L.P. (collectively, “Deerfield”). Prior to the
Offering, the Company owed Deerfield approximately $3.87 million (the “Warrant
Redemption Price”), representing the redemption price of certain warrants issued
to Deerfield in connection with an October 2007 loan agreement between the
parties. Pursuant to a letter agreement between the Company and
Deerfield dated September 3, 2009, Deerfield agreed to accept, in lieu of cash
and subject to additional terms and conditions as set forth therein, payment of
the Warrant Redemption Price in the form of the same type of securities as
issued by the Company in a future financing transaction. As
contemplated by the September 2009 letter agreement, and in full satisfaction of
the Warrant Redemption Price, Deerfield received 12,906,145 Units consisting of
Shares and Series B Warrants (the “Deerfield Warrant Redemption Securities”) in
the Offering.
For the issuances of Shares and Warrants
in connection with the Offering, the Company relied on the exemption from
federal registration under Section 4(2) of the Securities Act and/or Rule
506 promulgated thereunder, based on the Company’s belief that the offer and
sale of the Shares and Warrants did not involve a public offering, as each
purchaser of such securities was an “accredited investor” and no general
solicitation was involved in connection with the
Offering.
On October 30, 2007, in connection with
the loan agreement referenced above, the Company issued Deerfield six-year
warrants to purchase an aggregate of 5,225,433 shares of the Company’s common
stock at an exercise price of $1.31 per share (subject to adjustment for stock
splits, combinations and similar events), which represented the closing bid
price of the Company’s common stock as reported on the Nasdaq Global Market on
October 30, 2007. For these issuances, the Company relied on the
exemption from federal registration under Section 4(2) of the Securities Act
and/or Rule 506 promulgated thereunder, based on the Company’s belief that the
offer and sale of the warrants did not involve a public offering as Deerfield
was an “accredited investor” and no general solicitation was
involved.
On December 22, 2006, the Company sold
11,718 shares of its common stock pursuant to the exercise of an outstanding
warrant at an exercise price of $1.57. The warrant was originally issued to an
investor in the Company’s April 2005 private placement. The sale and issuances
of the shares were made in reliance on the exemption from the registration
requirements of the Securities Act of 1933, as amended, provided by Section 4(2)
of such act and/or Rule 506 promulgated thereunder. The Company had a reasonable
basis to believe that the purchaser was an “accredited investor” and/or had
knowledge and experience in financial and business matters sufficient to
evaluate the merits and risks of the investment.
On November 21 and December 22, 2006
the Company sold 100,000 and 6,000 shares of its common stock pursuant to the
exercise of outstanding warrants at an exercise price of $5.80. The warrants
were originally issued to investors in the Company’s October 2005 private
placement. The sale and issuances of the shares were made in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended, provided by Section 4(2) of such act and/or Rule 506 promulgated
thereunder. The Company had a reasonable basis to believe that the purchaser was
an “accredited investor” and/or had knowledge and experience in financial and
business matters sufficient to evaluate the merits and risks of the
investment.
On September 29, 2006, the Company
issued 67,068 shares of its common stock to five institutional investors
pursuant to a milestone payment pursuant to the terms of the Company’s May 6,
2006 license agreement with Inex Pharmaceuticals Corporation. The Company relied
on Section 4(2) and Rule 506 under the Securities Act in connection with this
issuance, as it had a reasonable basis to believe each purchaser was an
“accredited investor” and non general solicitation or other public offering was
involved in the sale.
II-2
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.
(a) Exhibits.
Exhibit
No.
|
Description
|
|
2.1
|
Agreement
and Plan of Merger dated June 17, 2004 by and among the Registrant, Hudson
Health Sciences, Inc. (n/k/a Hana Biosciences, Inc.) and EMLR Acquisition
Corp. (incorporated by reference to Exhibit 2.0 of the Registrant’s Form
8-K filed June 24, 2004).
|
|
3.1
|
Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 of the
Registrant’s Registration Statement on Form SB-2/A (SEC File No.
333-118426) filed October 12 2004).
|
|
3.2
|
Amended
and Restated Bylaws of Hana Biosciences, Inc. (incorporated by reference
to Exhibit 3.2 of the Registrant’s Registration Statement on Form SB-2/A
(SEC File No. 333-118426) filed on October 12, 2004).
|
|
4.1
|
Specimen
common stock certificate (incorporated by reference to Exhibit 4.1 of the
Registrant’s Registration Statement on Form SB-2/A (SEC File No.
333-118426) filed October 12, 2004).
|
|
4.2
|
Form
of common stock purchase warrant issued to Paramount BioCapital, Inc. in
connection with April 2005 private placement (incorporated by reference to
Exhibit 4.2 of the Registrant’s Annual Report on Form 10-KSB (SEC File No.
000-50782) for the year ended December 31, 2004).
|
|
4.3
|
Form
of option to purchase an aggregate of 138,951 shares of common stock
originally issued to Yale University and certain employees thereof
(incorporated by reference to Exhibit 4.2 of the Registrant’s Annual
Report on Form 10-KSB (SEC File No. 000-50782) for the year ended December
31, 2004).
|
|
4.4
|
Schedule
of options in form of Exhibit 4.3 (incorporated by reference to Exhibit
4.2 of the Registration’s Annual Report on Form 10-KSB (SEC. File No.
000-50782) for the year ended December 31, 2004).
|
|
4.5
|
Form
of warrant issued in connection with April 2005 private placement
(incorporated by reference to Exhibit 4.5 of Registrant’s Form SB-2 (SEC
File. No. 333-125083) filed on May 20, 2005).
|
|
4.6
|
Form
of warrant issued in connection with Registrant’s October 2005 private
placement (incorporated by reference to Exhibit 4.6 of Registrant’s Form
S-3 (SEC File No. 333-129722) filed on November 15,
2005).
|
|
4.7
|
Form
of Promissory Note issued to lenders in connection with October 30, 2007
Facility Agreement. (incorporated by reference to Exhibit 4.9 to the
Registrant’s Form 10-K for the year ended December 31,
2007).
|
|
4.8
|
Form
of Series A warrant to purchase common stock issued in connection with
October 2009 private placement (filed herewith).
|
|
4.9
|
Schedule
of warrants issued on form of warrant attached as Exhibit 4.8 hereof
(filed herewith).
|
|
4.10
|
Form
of Series B warrant to purchase common stock issued in connection with
October 2009 private placement (filed herewith).
|
|
4.11
|
Schedule
of warrants issued on form of warrant attached as Exhibit 4.10 hereof
(filed herewith).
|
|
5.1
|
Opinion
of Fredrikson & Byron, P.A.
|
|
10.1
|
Hana
Biosciences, Inc. 2004 Stock Incentive Plan, as amended through June 22,
2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed June 27, 2007).
|
|
10.2
|
Form
of stock option agreement for use in connection with 2004 Stock Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Form
10-K for the year ended December 31, 2006).
|
|
10.3
|
2003
Stock Option Plan of Hana Biosciences, Inc. (incorporated by reference to
Appendix B of the Company's Definitive Proxy Statement on Schedule 14A
filed April 7, 2006).
|
|
10.4
|
Summary
terms of non-employee director compensation (incorporated by reference to
Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31,
2007).
|
|
10.5
|
2006
Employee Stock Purchase Plan of Hana Biosciences, Inc. (incorporated by
reference to Appendix D of the Company's Definitive Proxy Statement
on Schedule 14A filed April 7, 2006).
|
|
10.6
|
Amended
and Restated License Agreement dated April 30, 2007 between the Company
and Tekmira Pharmaceuticals Corp., as successor in interest to Inex
Pharmaceuticals Corp. (incorporated by reference to Exhibit 10.4 of the
Registrant’s Form 10-Q for the quarter ended June 30,
2007)+
|
|
10.7
|
Sublicense
Agreement dated May 6, 2006 among the Registrant, Inex Pharmaceuticals
Corporation and the University of British Columbia (incorporated by
reference to Exhibit 10.5 of the Registrant’s Form 10-Q for the quarter
ended June 30, 2006).+
|
|
10.8
|
Registration
Rights Agreement dated May 6, 2006 between the Registrant and Inex
Pharmaceuticals Corporation (incorporated by reference to Exhibit 10.6 of
the Registrant’s Form 10-Q for the quarter ended June 30,
2006).
|
|
10.9
|
Amended
and Restated License Agreement among Elan Pharmaceuticals, Inc., Inex
Pharmaceuticals Corporation (for itself and as successor in interest to IE
Oncology Company Limited), as assigned to the Registrant by Inex
Pharmaceuticals Corporation on May 6, 2006 (incorporated by reference to
Exhibit 10.8 of the Registrant’s Form 10-Q for the quarter ended June 30,
2006).
|
II-3
10.10
|
Form
of common stock purchase agreement dated May 17, 2006 between the
Registrant and certain investors (incorporated by reference to Exhibit
10.2 of the Registrant’s Form 8-K filed May 17, 2006).
|
|
10.11
|
Sublease
Agreement dated May 31, 2006 between the Registrant and MJ Research
Company, Inc., including amendment thereto dated May 31, 2006
(incorporated by reference to Exhibit 10.15 of the Registrant’s Form 10-Q
for the quarter ended June 30, 2006).
|
|
10.12
|
Research
and License Agreement dated October 9, 2006 between the Registrant and
Albert Einstein College of Medicine of Yeshiva University, a division of
Yeshiva University.+
|
|
10.13
|
Employment
Agreement dated December 18, 2006 between Hana Biosciences, Inc. and John
P. Iparraguirre (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K filed December 19, 2006).
|
|
10.14
|
Patent
and Technology License Agreement dated February 14, 2000 (including
amendment dated August 15, 2000) between the Board of Regents of the
University of Texas System on behalf of the University of Texas M.D.
Anderson Cancer Center and Hana Biosciences, Inc., as successor in
interest to Inex Pharmaceuticals Corp. (incorporated by reference to
Exhibit 10.3 of the Registrant’s Form 10-Q for the quarter ended June 30,
2007).+
|
|
10.15
|
Product
Development and Commercialization Sublicense Agreement dated July 31, 2007
Among Hana Biosciences, Inc., Par Pharmaceuticals, Inc., and NovaDel
Pharma, Inc. (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q for the quarter ended September 30,
2007).+
|
|
10.16
|
Amended
and Restated License Agreement dated July 31, 2007 between Hana
Biosciences, Inc. and NovaDel Pharma, Inc. (incorporated by reference to
Exhibit 10.2 of the Registrant’s Form 10-Q for the quarter ended September
30, 2007).+
|
|
10.17
|
Facility
Agreement dated October 30, 2007 among Hana Biosciences, Inc., Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund L.P.,
Deerfield Special Situations Fund International Limited, and Deerfield
Private Design International, L.P. (incorporated by reference to Exhibit
10.24 to the Registrant’s Form 10-K for the year ended December 31,
2007).
|
|
10.18
|
Security
Agreement dated October 30, 2007 between Hana Biosciences, Inc. in favor
of Deerfield Private Design Fund, L.P., Deerfield Special Situations Fund
L.P., Deerfield Special Situations Fund International Limited, and
Deerfield Private Design International, L.P. (incorporated by reference to
Exhibit 10.25 to the Registrant’s Form 10-K for the year ended December
31, 2007).
|
|
10.19
|
Separation
and release agreement dated January 22, 2008 between Hana Biosciences,
Inc. and Fred L. Vitale (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q for the quarter ended March 31,
2008).
|
|
10.20
|
Letter
agreement dated March 16, 2008 between Hana Biosciences, Inc. and Anne E.
Hagey, M.D. (incorporated by reference to Exhibit 10.2 of the Registrant’s
Form 10-Q for the quarter ended March 31, 2008).
|
|
10.21
|
Employment
Agreement by and between Hana Biosciences, Inc. and Steven R. Deitcher,
dated June 6, 2008 (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed June 11, 2008).
|
|
10.22
|
Second
Amendment to Sublease Agreement dated May 19, 2008 by and between MJ
Research Company and Hana Biosciences, Inc. (incorporated by reference to
Exhibit 10.2 of the Registrant’s Form 10-Q for the quarter ended June 30,
2008).
|
|
10.23
|
Amendment
No. 1 to Employment Agreement dated October 31, 2008 between Hana
Biosciences, Inc. and John P. Iparraguirre (incorporated by reference to
Exhibit 10.23 to the Registrant’s Form 10-K for the year ended December
31, 2008).
|
|
10.24
|
Amendment
No. 1 dated June 2, 2009 to Amended and Restated License Agreement dated
April 30, 2007 between Hana Biosciences, Inc. and Tekmira Pharmaceuticals
Corp. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form
10-Q for the quarter ended June 30, 2009).+
|
|
10.25
|
Agreement
dated September 3, 2009 by and among Hana Biosciences, Inc., Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund L.P.,
Deerfield Special Situations Fund International Limited, and Deerfield
Private Design International, L.P. (incorporated by reference to Exhibit
10.1 of the Registrant’s Form 8-K filed September 10,
2009).
|
|
10.26
|
Form
of Securities Purchase Agreement entered into among the Company and
certain accredited investors on October 7, 2009 (incorporated by reference
to Exhibit 10.1 of the Registrant’s Form 8-K filed October 8,
2009).
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm (filed
herewith).
|
|
23.2
|
Consent
of Fredrikson & Byron, P.A. (included in Exhibit
5.1).
|
|
24.1
|
Power
of Attorney (included on signature page
hereof).
|
+
|
Portions
of this exhibit have been omitted pursuant to an order granting
confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934. Such omitted portions have been filed
separately with the Securities and Exchange
Commission.
|
II-4
ITEM
17. UNDERTAKINGS.
The
undersigned registrant hereby undertakes:
(1)
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
(i)
|
To
include any prospectus required by section 10(a)(3) of the
Securities Act;
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in
the effective registration statement;
and
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial bona fide
offering thereof.
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered that remain unsold at the termination of this
offering.
|
(4)
|
That,
for the purpose of determining liability under the Securities Act to any
purchaser, if the registrant is subject to Rule 430C, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of
first use.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC this form of indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
II-5
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of South San Francisco,
State of California, on November 3, 2009.
HANA
BIOSCIENCES, INC.
|
|||
By:
|
/s/ Steven R. Deitcher
|
||
Steven
R. Deitcher, M.D.
|
|||
President
and Chief Executive Officer
|
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Steven R. Deitcher and John P. Iparraguirre, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign any or all amendments to this registration statement
and additional registration statements relating to the same offering, and to
file the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/ Steven R. Deitcher
|
President,
Chief Executive Officer and Director
|
November
2, 2009
|
||
Steven
R. Deitcher, M.D.
|
(Principal
Executive Officer)
|
|||
/s/
John P. Iparraguirre
|
Vice
President, Chief Financial Officer and Secretary
|
November
2, 2009
|
||
John
P. Iparraguirre
|
(Principal
Financial Officer)
|
|||
/s/
Tyler M. Nielsen
|
Controller
|
November
2, 2009
|
||
Tyler
M. Nielsen
|
(Principal
Accounting Officer)
|
|||
/s/
Arie S. Belldegrun, M.D.
|
Director
|
November
3, 2009
|
||
Arie
S. Belldegrun, M.D.
|
||||
/s/
Paul V. Maier
|
Director
|
November
2, 2009
|
||
Paul
V. Maier
|
||||
/s/
Leon E. Rosenberg
|
Chairman
of the Board
|
November
2, 2009
|
||
Leon
E. Rosenberg, M.D.
|
||||
/s/
Michael Weiser
|
Director
|
November
2, 2009
|
||
Michael
Weiser, M.D.
|
||||
Director
|
November
2, 2009
|
|||
Linda
E. Wiesinger
|
II-6
INDEX
TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
Exhibit Number
|
Description of Document
|
|
4.8
|
Form
of Series A warrant to purchase common stock issued in connection with
October 2009 private placement
|
|
4.9
|
Schedule
of warrants issued on form of warrant attached as Exhibit 4.8
hereof
|
|
4.10
|
Form
of Series B warrant to purchase common stock issued in connection with
October 2009 private placement
|
|
4.11
|
Schedule
of warrants issued on form of warrant attached as Exhibit 4.10
hereof
|
|
5.1
|
Opinion
of Fredrikson & Byron, P.A.
|
|
23.1
|
Consent
of Independent Registered Public Accounting
Firm
|
II-7