Attached files
file | filename |
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EX-10.4 - EXHIBIT 10.4 - Trubion Pharmaceuticals, Inc | v53941exv10w4.htm |
EX-31.2 - EX-31.2 - Trubion Pharmaceuticals, Inc | v53941exv31w2.htm |
EX-10.6 - EXHIBIT 10.6 - Trubion Pharmaceuticals, Inc | v53941exv10w6.htm |
EX-31.1 - EX-31.1 - Trubion Pharmaceuticals, Inc | v53941exv31w1.htm |
EX-10.1 - EXHIBIT 10.1 - Trubion Pharmaceuticals, Inc | v53941exv10w1.htm |
EX-32.1 - EX-32.1 - Trubion Pharmaceuticals, Inc | v53941exv32w1.htm |
EX-10.5 - EXHIBIT 10.5 - Trubion Pharmaceuticals, Inc | v53941exv10w5.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-33054
TRUBION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 52-2385898 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
2401 FOURTH AVENUE, SUITE 1050 | ||
SEATTLE, WASHINGTON | 98121 | |
(Address of registrants principal executive offices) | (Zip Code) |
(206) 838-0500
(Telephone number, including area code)
(Telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). o Yes o No
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 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 þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes No þ
The number of shares of the registrants common stock, $0.001 par value, outstanding as of
October 30, 2009 was 20,364,093.
TRUBION PHARMACEUTICALS, INC.
INDEX
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRUBION PHARMACEUTICALS, INC.
BALANCE SHEETS
(In thousands, except share and par value)
(In thousands, except share and par value)
September 30, | ||||||||
2009 | December 31, 2008 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 31,811 | $ | 29,969 | ||||
Investments |
29,920 | 22,928 | ||||||
Receivable from collaborations |
3,045 | 3,084 | ||||||
Prepaid expenses |
1,037 | 2,112 | ||||||
Total current assets |
65,813 | 58,093 | ||||||
Property and equipment, net |
6,860 | 9,190 | ||||||
Other assets |
3 | 7 | ||||||
Total assets |
$ | 72,676 | $ | 67,290 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,070 | $ | 301 | ||||
Accrued liabilities |
4,964 | 4,981 | ||||||
Accrued compensation |
1,820 | 1,169 | ||||||
Current portion of notes payable |
1,267 | 1,302 | ||||||
Current portion of deferred rent |
180 | 180 | ||||||
Current portion of deferred revenue |
7,167 | 4,873 | ||||||
Total current liabilities |
16,468 | 12,806 | ||||||
Non-current portion of notes payable |
7,304 | 8,261 | ||||||
Non-current portion of deferred rent |
| 135 | ||||||
Non-current portion of deferred revenue |
29,887 | 14,620 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity : |
||||||||
Preferred stock, $0.001 par value per
share; shares authorized 5,000,000;
issued and outstanding none |
| | ||||||
Common stock, $0.001 par value per share;
shares authorized 150,000,000; issued
and outstanding 20,360,631 at
September 30, 2009 and 17,882,307 at
December 31, 2008 |
20 | 18 | ||||||
Additional paid-in capital |
135,389 | 123,846 | ||||||
Deferred stock-based compensation |
| (30 | ) | |||||
Accumulated other comprehensive income |
5 | 103 | ||||||
Accumulated deficit |
(116,397 | ) | (92,469 | ) | ||||
Total stockholders equity |
19,017 | 31,468 | ||||||
Total liabilities and stockholders equity |
$ | 72,676 | $ | 67,290 | ||||
See accompanying notes
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Table of Contents
TRUBION PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
(In thousands, except per share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenue: |
||||||||||||||||
Collaboration revenue |
$ | 4,452 | $ | 3,766 | $ | 12,783 | $ | 12,197 | ||||||||
Operating expenses: |
||||||||||||||||
Research and development |
7,410 | 7,397 | 27,587 | 23,302 | ||||||||||||
General and administrative |
3,146 | 2,987 | 8,877 | 8,985 | ||||||||||||
Total operating expenses |
10,556 | 10,384 | 36,464 | 32,287 | ||||||||||||
Loss from operations |
(6,104 | ) | (6,618 | ) | (23,681 | ) | (20,090 | ) | ||||||||
Interest income |
8 | 370 | 162 | 1,585 | ||||||||||||
Interest expense |
(131 | ) | (334 | ) | (409 | ) | (677 | ) | ||||||||
Net loss |
$ | (6,227 | ) | $ | (6,582 | ) | $ | (23,928 | ) | $ | (19,182 | ) | ||||
Basic and diluted net loss per share |
$ | (0.33 | ) | $ | (0.37 | ) | $ | (1.31 | ) | $ | (1.07 | ) | ||||
Shares used in computation of
basic and diluted net loss per
share |
18,868 | 17,859 | 18,267 | 17,847 | ||||||||||||
See accompanying notes
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Table of Contents
TRUBION PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (23,928 | ) | $ | (19,182 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock-based compensation expense |
2,900 | 2,705 | ||||||
Net amortization of premium/(discount) on investments |
74 | 62 | ||||||
Depreciation and amortization expense |
2,390 | 2,469 | ||||||
Changes in operating assets and liabilities: |
||||||||
Receivable from collaborations |
39 | 1,639 | ||||||
Prepaid expenses and other assets |
1,079 | 264 | ||||||
Accounts payable |
769 | (423 | ) | |||||
Accrued liabilities and compensation |
634 | 1,097 | ||||||
Deferred revenue |
17,561 | (4,142 | ) | |||||
Deferred rent |
(135 | ) | (135 | ) | ||||
Net cash provided by (used in) operating activities |
1,383 | (15,646 | ) | |||||
Investing activities: |
||||||||
Purchases of property and equipment |
(52 | ) | (1,106 | ) | ||||
Purchases of investments |
(41,914 | ) | (57,036 | ) | ||||
Sale of investments |
| 20,263 | ||||||
Maturities of investments |
34,750 | 46,461 | ||||||
Net cash provided by (used in) investing activities |
(7,216 | ) | 8,582 | |||||
Financing activities: |
||||||||
Proceeds from issuance of notes payable |
| 10,000 | ||||||
Payments on notes payable |
(1,000 | ) | (10,098 | ) | ||||
Proceeds from the private placement of common stock |
8,593 | | ||||||
Proceeds from exercise of stock options |
82 | 84 | ||||||
Net cash provided by (used in) financing activities |
7,675 | (14 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
1,842 | (7,078 | ) | |||||
Cash and cash equivalents at beginning of period |
29,969 | 41,827 | ||||||
Cash and cash equivalents at end of period |
$ | 31,811 | $ | 34,749 | ||||
Supplemental disclosure information: |
||||||||
Cash paid for interest |
$ | 401 | $ | 663 |
See accompanying notes
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Table of Contents
TRUBION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The balance sheet at December 31, 2008 has been derived from the audited financial statements
at that date, but does not include all of the information and footnotes required by U.S. generally
accepted accounting principles, or GAAP, for complete financial statements. The accompanying
unaudited financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required for complete financial statements. In the opinion of management,
the accompanying unaudited financial statements reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our interim financial information.
The accompanying unaudited financial statements and notes to financial statements should be
read in conjunction with the audited financial statements and related notes thereto, which are
included in our annual report on Form 10-K for the year ended December 31, 2008, or the 2008 Form
10-K.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these
financial statements requires us to make estimates and judgments in certain circumstances that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. In preparing these financial statements, our management has
made its best estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. On an ongoing basis, we evaluate our estimates, including
those related to revenue recognition, stock-based compensation, fair values of assets, income
taxes, clinical trial, manufacturing and legal accruals, and other contingencies. Management bases
its estimates on historical experience and on various other assumptions that it believes to be
reasonable under the circumstances. Actual results could differ from these estimates.
Recently Adopted Accounting Pronouncements
Effective January 1, 2009, we adopted a newly issued accounting standard for fair value
measurements of all nonfinancial assets and nonfinancial liabilities not recognized or disclosed at
fair value in the financial statements on a recurring basis. The adoption of the fair value
guidance did not have a material impact on our financial position, results of operations or cash
flows.
Effective January 1, 2009, we adopted a newly issued accounting standard for the accounting
and disclosure of an entitys collaborative arrangements. This newly issued standard requires us to
disclose the nature and purpose of our collaborative arrangements in our annual financial
statements, our rights and obligations under the collaborative arrangements, the stage of the
underlying endeavors life cycle, our accounting policies for the arrangements and the income
statement classification and amount of significant financial statement amounts related to the
collaborative arrangements. The adoption of this guidance did not have any impact on our results
of operations or financial position.
During the quarter ended June 30, 2009, we implemented newly issued accounting standards which
provide guidance for determining fair value when the volume and level of activity for the asset or
liability have significantly decreased and identifying circumstances that indicate that a
transaction is not orderly. Specifically, the new standards provide additional guidelines for
making fair value measurements more consistent with the principles presented and provide
authoritative guidance in determining whether a market is active or inactive, and whether a
transaction is distressed. This guidance is applicable to all assets and liabilities (i.e.
financial and nonfinancial) and requires enhanced disclosures, including interim and annual
disclosure of the input and valuation techniques (or changes in techniques) used to measure fair
value and the defining of the major security types comprising debt and equity securities held based
upon the nature and risk of the security. The adoption of the new standards did not impact our
financial condition, results of operations or disclosures.
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Table of Contents
During the quarter ended June 30, 2009, we also implemented a newly issued accounting
standard requiring disclosure about the fair value of financial instruments in interim as well as
in annual financial statements. The adoption of the new standards did not impact our financial
condition, results of operations or disclosures.
During the quarter ended June 30, 2009, we implemented a newly issued accounting standard
which provided guidance for the recognition, measurement and presentation of other-than-temporary
impairments. This newly issued standard amended the other-than-temporary impairment model for debt
securities and requires additional disclosures regarding the calculation of credit losses and the
factors considered in reaching a conclusion that an investment is not other-than-temporarily
impaired. The adoption of the new standards did not impact our financial condition, results of
operations or disclosures.
During the quarter ended June 30, 2009, we implemented a newly issued accounting standard
which establishes general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are available to be issued.
The subsequent event guidance also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected. The adoption of this
guidance did not have an impact on our financial condition, results of operations or disclosures.
2. Fair Value Measurements
We currently measure and record cash equivalents and investment securities considered
available-for-sale at fair value in the accompanying financial statements. Fair value is defined 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 must maximize the use of observable inputs and minimize the use of
unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value include:
Level 1 Observable inputs for identical assets or liabilities such as quoted prices in active markets. | |||
Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable. | |||
Level 3 Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
The following tables represent our fair value hierarchy for our financial assets and
liabilities measured at fair value on a recurring basis as of September 30, 2009 and December 31,
2008 (in thousands):
September 30, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money market funds |
$ | 31,795 | $ | | $ | | $ | 31,795 | ||||||||
Government and agency debt securities |
| 29,920 | | 29,920 | ||||||||||||
Total |
$ | 31,795 | $ | 29,920 | $ | | $ | 61,715 | ||||||||
December 31, 2008 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money market funds |
$ | 27,444 | $ | | $ | | $ | 27,444 | ||||||||
Government and agency debt securities |
| 12,424 | | 12,424 | ||||||||||||
Corporate debt securities |
| 13,003 | | 13,003 | ||||||||||||
Total |
$ | 27,444 | $ | 25,427 | $ | | $ | 52,871 | ||||||||
Cash of $16,000 and $26,000 is not included in our fair value hierarchy disclosure as of
September 30, 2009 and December 31, 2008, respectively.
Separate disclosure is required of assets and liabilities measured at fair value on a
recurring basis, as documented above, from those measured at fair value on a nonrecurring basis. As
of September 30, 2009 and December 31, 2008, no assets or liabilities were measured at fair value
on a nonrecurring basis.
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We invest in a variety of highly liquid investment-grade securities. The following is a
summary of our available-for-sale securities at September 30, 2009 and December 31, 2008 (in
thousands):
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair Market | |||||||||||||
September 30, 2009 | Cost | Gains | Losses | Value | ||||||||||||
Government and agency debt securities |
$ | 29,915 | $ | 5 | $ | | $ | 29,920 | ||||||||
Money market funds |
31,795 | | | 31,795 | ||||||||||||
Total |
61,710 | 5 | | 61,715 | ||||||||||||
Less: cash equivalents |
(31,795 | ) | | | (31,795 | ) | ||||||||||
Amounts classified as investments |
$ | 29,915 | $ | 5 | $ | | $ | 29,920 | ||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair Market | |||||||||||||
December 31, 2008 | Cost | Gains | Losses | Value | ||||||||||||
Corporate debt securities |
$ | 12,940 | $ | 63 | $ | | $ | 13,003 | ||||||||
Government and agency debt securities |
12,384 | 40 | | 12,424 | ||||||||||||
Money market funds |
27,444 | | | 27,444 | ||||||||||||
Total |
52,768 | 103 | | 52,871 | ||||||||||||
Less: cash equivalents |
(29,935 | ) | (8 | ) | | (29,943 | ) | |||||||||
Amounts classified as investments |
$ | 22,833 | $ | 95 | $ | | $ | 22,928 | ||||||||
The estimated fair market value amounts have been determined using available market
information. At September 30, 2009 and December 31, 2008, all marketable securities had remaining
maturities of one year or less. Unrealized gains and losses on cash equivalents and available for
sale securities are included in accumulated other comprehensive income (loss) in the accompanying
balance sheets. As of September 30, 2009 and December 31, 2008, there were no unrealized losses on
investments. Realized gains on cash equivalents and investments totaled $7,000 during the nine
months ended September 30, 2008. There were no realized gains or losses on cash equivalents or
available for sale securities during the nine months ended September 30, 2009.
3. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of
common shares outstanding. Because we report a net loss for the six months ended September 30, 2009
and 2008, diluted net loss per share is the same as basic net loss per share. We have excluded all
outstanding stock options from the calculation of diluted net loss per common share because all
such securities are antidilutive to the computation of net loss per share. As of September 30, 2009
and 2008, potentially dilutive securities include stock options of 2,608,819 and 2,129,415,
respectively.
4. Collaboration Agreements
Facet Biotech Corporation
In August 2009, we entered into a collaboration agreement with Facet Biotech Corporation, or
Facet, for the joint worldwide development and commercialization of TRU-016, a product candidate in
Phase 1 clinical development for chronic lymphocytic leukemia, or CLL. TRU-016 is a CD37-directed
Small Modular Immunopharmaceutical, or SMIP protein therapeutic. The collaboration agreement
includes TRU-016 in all indications and all other CD37-directed protein therapeutics. Under the
terms of the collaboration agreement, the parties will not develop or commercialize protein
therapeutics directed to CD37 outside of the collaboration agreement.
We received an up-front payment of $20 million in cash in September 2009 and may receive up to
$176.5 million in additional contingent payments upon the achievement of specified development,
regulatory and sales milestones. We and Facet will share equally the costs of all development,
commercialization and promotional activities and all global operating profits. In connection with
the collaboration agreement, we and Facet also entered into a stock purchase agreement, pursuant to
which Facet purchased 2,243,649 shares of our common stock for an aggregate purchase price of $10
million, or $4.46 per share. The per share price of $4.46 represents a 35% equity premium over the
sixty-day trading average of our common stock on NASDAQ for the trading period ending immediately
prior to the execution of the stock purchase agreement. The $20 million up-front payment and $1.4
million of equity premium representing the difference between the purchase price and the closing
price of our common stock on the date the stock was
8
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purchased by Facet have been deferred and are being recognized ratably over the estimated term
of our substantive contractual obligations under the collaboration. Our current obligations under
the collaboration include the performance of non-clinical, clinical, manufacturing and regulatory
activities. We currently estimate these obligations to extend through 2018. The estimated term of
the research and development service period will be reviewed on a regular basis and adjusted as
necessary.
With respect to control over decisions and responsibilities, the collaboration agreement
provides for a joint steering committee, or JSC, consisting of representatives of Trubion and
Facet, which makes decisions by consensus. If the JSC is unable to reach a consensus, then the
matter will be referred to Trubions and Facets Chief Executive Officers for resolution. If the
Chief Executive Officers are unable to resolve the matter, then it will be resolved by arbitration.
Both Trubion and Facet, at their sole discretion, may discontinue participation on the JSC with 90
days written notice to the other party.
At predefined times, the parties have the right to opt-out of the collaboration entirely or on
a product-by-product basis. Upon a change of control of a party, the other party will have the
right to opt-out of the collaboration entirely and if the successor party is conducting a program
that competes with the programs under the collaboration agreement, then the successor party must
either (i) opt-out of the collaboration entirely or (ii) divest the competing program to a third
party. If a party exercises its opt-out right with respect to a product, then the parties will no
longer share development and commercialization costs for such product and such opting-out party
will receive certain royalty payments upon the sale of such product, rather than half of the
profits derived from such product. Even if Facet exercises its opt-out right, its obligation to
make milestone payments to us continues. In addition, if the party that opts-out is the lead
manufacturing party for the opt-out product, then that party must continue to supply the product to
the continuing party for up to eighteen months following the opt-out.
Facet can terminate the collaboration agreement at any time, in which event all rights to
TRU-016 and other CD37-directed protein therapeutics under the collaboration agreement would revert
to us. If Facet terminates the collaboration agreement in the first 18 months, then Facet must pay
us a $10 million termination fee.
If there is a material breach of the collaboration agreement, then the non-breaching party may
either terminate the collaboration agreement or continue the collaboration agreement and force the
breaching party to opt-out and accept royalties at a reduced rate.
Either party may assign its interest in the collaboration agreement to a third party, provided
that the non-assigning party maintains a right of first negotiation over any proposed assignment.
In addition, either we or Facet can freely assign the collaboration agreement without the consent
of the other party in connection with certain specified change of control transactions, such as an
acquisition.
We deferred the recognition of the up-front payment of $20 million and $1.4 million equity
premium. These payments are being recognized as revenue over the period of our substantive
contractual obligations, which we estimate to be approximately nine years, or through 2018.
During the nine months ended September 30, 2009 we recognized as revenue $643,000 for research and
development services pursuant to our Facet collaboration. The $643,000 recognized in the nine
months ended September 30, 2009 is comprised of $191,000 for recognition of the $20 million
up-front fee received from Facet and the $1.4 million equity premium, and $452,000 for
collaborative research funding from the Facet collaboration
Pfizer Inc.
In December 2005, we entered into a collaboration agreement with Wyeth, now a wholly-owned
subsidiary of Pfizer Inc., or Pfizer, for the development and worldwide commercialization of our
lead product candidate, TRU-015, and other CD20-directed therapeutics. Pursuant to the agreement,
we are also collaborating with Pfizer on the development and worldwide commercialization of certain
other product candidates directed to a small number of targets other than CD20. During the period
in which we will be providing research and development services for Pfizer, Pfizer has the right,
subject to our reasonable consent, to replace a limited number of these targets. In addition, we
have the option to co-promote with Pfizer, on customary terms to be agreed, CD20-directed therapies
in the United States for niche indications. We retain the right to develop and commercialize, on
our own or with others, product candidates directed to all targets not included within the
agreement. Unless it is terminated earlier, the agreement will remain in effect on a
product-by-product basis and on a country-by-country basis until the later of the date that any
such product shall no longer be covered by a valid claim of a U.S. or foreign patent or application
and, generally, ten years after the first commercial sale of any product licensed under the
agreement. Pfizer may terminate the agreement without cause at any time upon 90 days prior written
notice.
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In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable,
up-front fee in January 2006 and purchased directly from us in a private placement, concurrent with
our initial public offering, 800,000 shares of our common stock at the initial public offering
price of $13.00 per share, resulting in net proceeds to us of $10.4 million. Under the agreement,
we provided research services for an initial three-year period ended December 22, 2008 with the
option for Wyeth to extend the service period for two additional one-year periods. Wyeths
financial obligations during the initial research service term included collaborative research
funding commitments of $9.0 million in exchange for such committed research services. This $9.0
million was subject to an increase if the service period was extended beyond three years, as well
as annual increases pursuant to percentage changes in the CPI. In June 2008, Wyeth exercised the
first option under the terms of the agreement to extend the research period for an additional
one-year period through December 22, 2009. In June 2009, Wyeth exercised the second option under
the terms of the agreement to extend the research period for an additional one-year period through
December 22, 2010. Due to the research period extensions, the collaboration research funding
commitments to us initially from Wyeth and now from Pfizer, increased by approximately $3.3 million
and $3.4 million in exchange for committed research services from us through December 22, 2009 and
December 22, 2010, respectively.
Pfizers financial obligations include additional amounts for reimbursement of agreed-upon
external research and development costs and patent costs. Pursuant to the agreement, Pfizers
financial obligations also include payments to us of up to $250 million based on the achievement of
specified regulatory and sales milestones for CD20-directed therapies and payments to us of up to
$535 million based on the achievement of specified regulatory and sales milestones for therapies
directed to the small number of targets other than CD20. In addition, we will receive royalty
payments in the event of future licensed product sales. The $40 million up-front fee is being
recognized ratably over the estimated term of our substantive contractual obligations under the
agreement and the related research and development service period. Currently, our clinical
development obligations under the agreement are limited to conducting ongoing re-treatment studies
for TRU-015. The ongoing second Phase 2b study and future studies will be conducted by Pfizer. The
estimated term of the research and development service period is reviewed and adjusted as
additional information becomes available. During the third quarter of 2008, the estimated term of
the research and development service period was adjusted from six years and three months to seven
years, or through December 2012. The change in the estimated research and development service
period was primarily due to an extension of our obligations to conduct clinical activities under
our agreement with Pfizer. The change in estimate reduced the recognition of the up-front fee
during 2008 by $487,000.
During the nine months ended September 30, 2009 and 2008, we recognized as revenue $12.1
million and $12.2 million, respectively, for research and development services pursuant to our
Pfizer collaboration. The $12.1 million recognized in the nine months ended September 30, 2009 is
comprised of $3.6 million for amortization of the $40 million up-front fee received from Wyeth and
$8.5 million for collaborative research funding from the Pfizer collaboration. The $12.2 million
recognized in the nine months ended September 30, 2008 is comprised of $4.1 million for
amortization of the $40 million up-front fee received from Wyeth and $8.1 million for collaborative
research funding from the Pfizer collaboration.
5. Restructuring
In an effort to reduce costs, we announced in February 2009 a workforce reduction of
approximately 25%, which included the elimination of certain existing positions across our research
and administrative functions. We incurred a $0.8 million restructuring charge in the first quarter
of 2009 related to employee severance, benefits and outplacement services. Of the total
restructuring charges, approximately $0.6 million and $0.2 million were recorded as research and
development expense and general and administrative expense, respectively, in the first quarter of
2009. We paid cash of $0.8 million related to the restructuring charge during the nine months
ended September 30, 2009. No restructuring obligations remain as of September 30, 2009.
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6. Comprehensive Income (Loss)
Comprehensive loss is comprised of net loss and unrealized gains (losses) on marketable
securities and derivatives. The components of comprehensive loss at September 30, 2009 and 2008
were as follows (in thousands):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net loss |
$ | (6,227 | ) | $ | (6,582 | ) | $ | (23,928 | ) | $ | (19,182 | ) | ||||
Net unrealized gains (losses) on
securities available-for-sale |
3 | 8 | (98 | ) | (133 | ) | ||||||||||
Net unrealized gains on cash flow hedges |
| 156 | | 129 | ||||||||||||
Comprehensive loss |
$ | (6,224 | ) | $ | (6,418 | ) | $ | (24,026 | ) | $ | (19,186 | ) | ||||
7. Commitments
We have entered into agreements with Lonza Biologics, or Lonza, and related entities for
certain license rights related to Lonzas manufacturing technology, and for research and
development services. We have reserved future manufacturing capacity from Lonza under pre-specified
terms and conditions. As of September 30, 2009, we had committed to purchase $2.1 million of
manufacturing services from Lonza in 2010. If we terminate reserved future manufacturing capacity
with Lonza without providing adequate notice to Lonza under the agreement, we may incur
cancellation fees.
8. Subsequent Events
We have evaluated all subsequent events through November 5, 2009, which represents the filing
date of this Form 10-Q with the Securities and Exchange Commission, to ensure that this Form 10-Q
includes appropriate disclosure of events both recognized in the financial statements as of
September 30, 2009, and events which occurred subsequent to September 30, 2009 but were not
recognized in the financial statements. As of November 5, 2009, there were no subsequent events
that required recognition or disclosure.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which are subject to the safe harbor created by those sections.
Forward-looking statements are based on our managements beliefs and assumptions and on information
currently available to them. In some cases you can identify forward-looking statements by terms
such as may, will, should, could, would, expect, plans, anticipates, believes,
estimates, projects, predicts, and potential, and similar expressions intended to identify
forward-looking statements. Examples of these statements include, but are not limited to,
statements regarding: the implications of interim or final results of our clinical trials, the
progress of our research programs, including clinical testing and our collaborations with Pfizer
and Facet, the extent to which our issued and pending patents may protect our products and
technology, our ability to identify new product candidates, the potential of such product
candidates to lead to the development of commercial products, our anticipated timing for initiation
or completion of our clinical trials for any of our product candidates, our future operating
expenses, our future losses, our future expenditures for research and development, and the
sufficiency of our cash resources. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the risks faced by us
and described in Part II, Item 1A of this quarterly report on Form 10-Q and our other filings with
the Securities and Exchange Commission, or SEC. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q.
You should read this quarterly report on Form 10-Q completely and with the understanding that our
actual future results may be materially different from what we expect. Except as required by law,
we assume no obligation to update these forward-looking statements, whether as a result of new
information, future events, or otherwise.
The following discussion and analysis should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form
10-Q.
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Overview
We are a biopharmaceutical company creating a pipeline of novel protein therapeutic product
candidates to treat autoimmune and inflammatory diseases and cancer. Our mission is to develop a
variety of first-in-class and best-in-class product candidates customized in an effort to optimize
safety, efficacy, and convenience that we believe may offer improved patient experiences. Our
current product candidates are novel Small Modular Immunopharmaceutical, or SMIP, and
multi-specific SCORPION therapeutics, members of a new generation of antibody alternatives. Our
current clinical-stage therapeutics target specific antigens on B cells, CD20 and CD37, and are
designed using our custom drug assembly technology. In order to fund ongoing development
activities and commercialize our products, we will, in some cases, enter into collaboration
agreements that would likely include licenses to our technology and arrangements to provide
research and development services for others.
We were founded as a limited liability company in the state of Washington in March 1999. We
converted into a corporation and redomiciled in the state of Delaware in October 2002. To date, we
have funded our operations primarily through the sale of equity securities, strategic alliances,
equipment financings and government grants.
Research and Development Programs and Recent Developments
Our lead product candidate, TRU-015, which we are developing with our partner Pfizer Inc., or
Pfizer, has completed a Phase 2b clinical trial for the treatment of rheumatoid arthritis, or RA.
A second Phase 2b clinical trial for RA is under way and enrollment was completed in September
2009. The randomized, parallel, double-blind, placebo-controlled, dose-regimen finding study is
evaluating the safety and efficacy of two dosing regimens of TRU-015 administered to patients with
active seropositive rheumatoid factor on a background of methotrexate. This study was designed in a
way that we believe could be supportive of a registration package with the Food and Drug
Administration, or FDA.
In October 2009, we announced positive data from the second course of re-treatment in the
first Phase 2b clinical trial for RA demonstrating that administration of TRU-015 every 24 weeks
produces well-tolerated results that are comparable with the more than four and a half years of
re-treatment data compiled to date.
In collaboration with us, Pfizer is also developing SBI-087, our next generation CD20-directed
product candidate. SBI-087 for RA builds on our and Pfizers clinical experience with TRU-015 and
is based on our SMIPtm technology. Pfizer has commenced a Phase 1 study of
SBI-087 for RA, in which patient enrollment is complete and the study is ongoing. In addition,
patient recruitment is underway in an additional Phase 1 study of SBI-087 for RA in Japan. Finally,
Pfizer is conducting a Phase 1 clinical trial of SBI-087 in systemic lupus erythematosus, or SLE,
in which patient dosing has commenced and recruitment is ongoing.
TRU-016, which we are developing with our partner Facet Biotech Corporation, or Facet, is a
novel CD37-directed SMIP protein therapeutic. A TRU-016 Phase 1 clinical trial for patients with
chronic lymphocytic leukemia, or CLL, is currently under way. TRU-016 uses a different mechanism of
action than CD20-directed therapies. As a result, we believe its novel design may provide patients
with improved therapeutic options and enhance efficacy when used alone or in combination with
chemotherapy and/or CD20-directed therapeutics.
In June 2009, we announced positive results following preliminary analysis from the Phase 1
clinical trial of TRU-016 for the treatment of CLL. The objectives of the Phase 1 TRU-016 CLL
study were to define safety and tolerability, identify a maximum tolerated dose, evaluate
pharmacology and pharmacodynamics, and assess preliminary clinical activity.
Collaborations
Facet Biotech Corporation
In August, 2009, we entered into a collaboration agreement with Facet for the joint worldwide
development and commercialization of TRU-016, a product candidate in Phase 1 clinical development
for chronic lymphocytic leukemia, or CLL. TRU-016 is a CD37-directed SMIP protein therapeutic. The
collaboration agreement includes TRU-016 in all indications and all other CD37-directed protein
therapeutics. Under the terms of the collaboration agreement, the parties will not develop or
commercialize protein therapeutics directed to CD37 outside of the collaboration agreement.
We received an up-front payment of $20 million in cash in September 2009 and may receive up to
$176.5 million in additional contingent payments upon the achievement of specified development,
regulatory and sales milestones. We and Facet will share
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equally the costs of all development, commercialization and promotional activities and all
global operating profits. In connection with the collaboration agreement, we and Facet also
entered into a stock purchase agreement, pursuant to which Facet purchased 2,243,649 shares of our
common stock for an aggregate purchase price of $10 million, or $4.46 per share. The per share
price of $4.46 represents a 35% equity premium over the sixty-day trading average of our common
stock on NASDAQ for the trading period ending immediately prior to the execution of the stock
purchase agreement.
With respect to control over decisions and responsibilities, the collaboration agreement
provides for a joint steering committee, or JSC, consisting of representatives of Trubion and
Facet, which makes decisions by consensus. If the JSC is unable to reach a consensus, then the
matter will be referred to Trubions and Facets Chief Executive Officers for resolution. If the
Chief Executive Officers are unable to resolve the matter, then it will be resolved by arbitration.
Both Trubion and Facet, at their sole discretion, may discontinue participation on the JSC with
90 days written notice to the other party.
At predefined times, the parties have the right to opt-out of the collaboration entirely or on
a product-by-product basis. Upon a change of control of a party, the other party will have the
right to opt-out of the collaboration entirely and if the successor party is conducting a program
that competes with the programs under the collaboration agreement, then the successor party must
either (i) opt-out of the collaboration entirely or (ii) divest the competing program to a third
party. If a party exercises its opt-out right with respect to a product, then the parties will no
longer share development and commercialization costs for such product and such opting-out party
will receive certain royalty payments upon the sale of such product, rather than half of the
profits derived from such product. Even if Facet exercises its opt-out right, its obligation to
make milestone payments to us continues. In addition, if the party that opts-out is the lead
manufacturing party for the opt-out product, then such party must continue to supply the product to
the continuing party for up to eighteen months following the opt-out.
Facet can terminate the collaboration agreement at any time, in which event all rights to
TRU-016 and other CD37-directed protein therapeutics under the collaboration agreement would revert
to us. If Facet terminates the collaboration agreement in the first 18 months, then Facet must pay
us a $10 million termination fee.
If there is a material breach of the collaboration agreement, then the non-breaching party may
either terminate the collaboration agreement or continue the collaboration agreement and force the
breaching party to opt-out and accept royalties at a reduced rate.
Either party may assign its interest in the collaboration agreement to a third party, provided
that the non-assigning party maintains a right of first negotiation over any proposed assignment.
In addition, either we or Facet can freely assign the collaboration agreement without the consent
of the other party in connection with certain specified change of control transactions, such as an
acquisition.
Pfizer Inc.
In December 2005 we entered into a collaboration agreement with Wyeth, now a wholly-owned
subsidiary of Pfizer, for the development and worldwide commercialization of TRU-015 and other
CD20-directed therapeutics. Pursuant to the agreement, we are also collaborating with Pfizer on the
development and worldwide commercialization of certain other product candidates directed to a small
number of targets other than CD20. During the period in which we will be providing research
services for Pfizer, Pfizer has the right, subject to our reasonable consent, to replace a limited
number of these targets. In addition, we have the option to co-promote with Pfizer, on customary
terms to be agreed, CD20-directed therapies in the United States for niche indications. We retain
the right to develop and commercialize, on our own or with others, product candidates directed to
all targets not included within the agreement. Unless it is terminated earlier, our agreement with
Pfizer will remain in effect on a product-by-product basis and on a country-by-country basis until
the later of the date that any such product shall no longer be covered by a valid claim of a U.S.
or foreign patent or application and, generally, ten years after the first commercial sale of any
product licensed under the agreement. Pfizer may terminate the agreement without cause at any time
upon 90 days prior written notice.
In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable,
up-front fee in January 2006 and purchased directly from us in a private placement, concurrent with
our initial public offering, 800,000 shares of our common stock at the initial public offering
price of $13.00 per share, resulting in net proceeds to us of $10.4 million. Under the agreement,
we provided research services for an initial three-year period ended December 22, 2008 with the
option for Wyeth to extend the service period for two additional one-year periods. Wyeths
financial obligations during the initial research service term included collaborative research
funding commitments of $9.0 million in exchange for such committed research services. This $9.0
million was subject to an increase if the service period was extended beyond three years as well as
annual increases pursuant to percentage changes in the CPI. In June 2008, Wyeth exercised the
first option under the terms of the agreement to extend the research period for an additional
one-year
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period through December 22, 2009. In June 2009, Wyeth exercised the second option under the terms of
the agreement to extend the research period for an additional one-year period through December 22,
2010. Due to the research period extensions, the collaboration research funding commitments to us
initially from Wyeth and now from Pfizer, increased by approximately $3.3 million and $3.4 million
in exchange for committed research services from us through December 22, 2009 and December 22,
2010, respectively.
Pfizers financial obligations include additional amounts for reimbursement of agreed-upon
external research and development costs and patent costs. Pursuant to the agreement, Pfizer is also
obligated to make payments to us of up to $250 million based on the achievement of specified
regulatory and sales milestones for CD20-directed therapies and payments to us of up to $535
million based on the specified achievement of regulatory and sales milestones for therapies
directed to the small number of targets other than CD20. In addition, we will receive royalty
payments in the event of future licensed product sales. Pfizer may terminate the agreement without
cause at any time upon 90 days prior written notice.
In October 2009, Pfizer completed its acquisition of Wyeth. Our collaboration agreement
remains in effect with Pfizer and, as allowed under the collaboration agreement, we have requested
further written assurances from Pfizer reaffirming Pfizers commitment to comply with the terms and
conditions of the agreement. Pfizer has up to 90 days from the date of our request to reaffirm its
commitment to comply with the terms and conditions of the collaboration agreement.
If Pfizer has ongoing development and/or commercialization activities that would violate the
mutual exclusivity provisions of the collaboration agreement, we have the right to require Pfizer
to engage in good faith discussions regarding the terms and conditions on which Pfizer would pay
reasonable financial consideration to us with respect to those development and commercialization
activities. If we and Pfizer do not agree to terms, we have the right to require Pfizer to enter
into an agreement to divest such development and commercialization activities, or to divest the
relevant collaboration agreement products to a third party. If Pfizer does not divest such
development and commercialization activities or such collaboration agreement products, we have the
right to terminate all licenses related to CD20 and/or the additional specified target, as
applicable.
If during the 12 month period following Pfizers acquisition of Wyeth, Pfizer is required or
voluntarily decides to divest itself of one or more of the products under the collaboration
agreement, then subject to any governmental limitations, Pfizer must offer us an exclusive
opportunity to negotiate the acquisition or license of all of Pfizers rights to that product on
commercially reasonable terms. If we do not conclude an agreement with Pfizer covering the
product, Pfizer can divest itself of the product but the terms of that divestiture cannot be more
favorable than those that were last offered to us unless we are given the opportunity to accept
those more favorable terms.
Upon a change of control of Trubion, the agreement would remain in effect, subject to the
right of Pfizer to terminate specified provisions of the agreement.
Assuming TRU-015 and other product candidates under the collaboration with Pfizer continue to
progress in development, expenses for future clinical trials may be higher than those incurred in
prior clinical trials. These expenses will, however, likely be incurred by Pfizer and expenses
incurred by us, if any, will be substantially offset by reimbursement revenue from Pfizer. In
addition, Pfizer is responsible for a substantial portion of costs related to patent prosecution
and patent litigation for products directed to targets selected by Pfizer pursuant to the
collaboration agreement.
Outlook
The continued research and development of our product candidates will require significant
additional expenditures, including preclinical studies, clinical trials, manufacturing costs, and
the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our
preclinical studies, all of our clinical trials and all of the manufacturing of current Good
Manufacturing Process, or cGMP material. We expect expenditures associated with these activities to
increase in future years as we continue developing our product candidates. Expenses associated with
our product candidates included in the Pfizer collaboration are substantially offset by
reimbursement revenue from Pfizer. Expenses associated with our product candidates included in the
Facet collaboration are shared equally.
We have incurred significant losses since our inception. As of September 30, 2009, our
accumulated deficit was $116.4 million and total stockholders equity was $19 million. During the
nine months ended September 30, 2009 and 2008, we recognized net losses
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of $23.9 million and $19.2 million, respectively. We expect our net losses to increase in the
future as we continue our existing and anticipated preclinical studies, manufacturing, and clinical
trials. Our revenues and research and development expenses under the Facet collaboration may
fluctuate depending on which party in the collaboration is incurring the majority of the
development costs in any particular quarterly period. However, we expect revenue to increase in
the future as a result of the additional collaboration revenue from our Facet collaboration. This
increase in revenue from the Facet collaboration will be partially offset by decreases in revenue
from Pfizer due to the transfer to Pfizer of the responsibility for the majority of the clinical
development efforts and related costs for product candidates covered by our collaboration agreement
with Pfizer.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations
are based on our unaudited financial statements, which have been prepared in accordance with GAAP.
The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as reported revenues and expenses
during the reporting periods. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances. An accounting policy is considered
to be critical if it is important to a companys financial condition and results of operations, and
if it requires the exercise of significant judgment and the use of estimates on the part of
management in its application. We have discussed the selection and development of the critical
accounting policies with the audit committee of our board of directors, and the audit committee has
reviewed our related disclosures in this quarterly report on Form 10-Q. Although we believe our
judgments and estimates are appropriate, actual results may differ from those estimates.
Our significant accounting policies are described in Note 1 to our audited financial
statements for the year ended December 31, 2008 in the 2008 Form 10-K. Of our significant
accounting policies, we believe that the following accounting policies relating to revenue
recognition, preclinical study, clinical trial and manufacturing accruals, stock-based compensation
and valuation of investments are the most critical to understanding and evaluating our reported
financial results.
Revenue Recognition
We recognize revenue from our collaboration agreements with Pfizer and Facet, which consists
of non-refundable, non-creditable up-front fees and license fees, collaborative research funding,
regulatory and sales milestones future product royalties and future product sales. Revenue related
to our collaboration agreements is recognized as follows:
Up-Front Fees and License Fee. Non-refundable, non-creditable up-front fees and license fees
received in connection with collaborative research and development agreements are deferred and
recognized on a straight-line basis over the estimated term of the research and development
service period. The estimated term of the research and development service period is reviewed and
adjusted based on the status of the project against the estimated timeline as additional
information becomes available. We also consider the time frame of our substantive contractual
obligations related to research and development agreements when estimating the term of the
research and development period. For each collaboration agreement, we review our ongoing
performance obligations on a regular basis and make adjustments to the estimated term as
additional information becomes available. During the third quarter of 2008, the estimated term
of the research and development service period related to the Pfizer agreement was adjusted from
six years and three months to seven years, or through December 2012, due to an extension of the
estimated service period of our obligations to conduct clinical activities under our agreement
with Pfizer. The adjustment during the third quarter of 2008 was the second adjustment to the
estimated research and development service period since the inception of the collaboration
agreement with Pfizer. Adjustments to the research and development service period are made
prospectively. We have made adjustments to the research and development service periods in the
past we expect to revise our estimate of the development term in future periods due to the
inherently uncertain nature of development terms. As a result, revenue may fluctuate materially
in the future due to adjustments to the estimated term of the research and development service
periods and our substantive contractual obligations under our collaborations.
Collaborative Research Funding. Certain internal and external research and development costs and
patent costs are reimbursed in connection with our collaboration agreements. Reimbursed costs
under the Pfizer collaboration are recognized as revenue in the same period the costs are
incurred. With respect to the reimbursement of development costs under the Facet collaboration,
each quarter, we and Facet reconcile what each party has incurred for development costs, and we
record either a net receivable or a net payable in our financial statements. For each quarterly
period, if we have a net receivable from Facet, we recognize revenues by such amount, and if we
have a net payable to Facet, we recognize additional research and development expenses by such
amount.
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As a result, our revenues and research and development expenses may fluctuate depending on which
party in the collaboration is incurring the majority of the development costs in any particular
quarterly period. Reimbursed costs are subject to the estimation processes described in the
preclinical study, clinical trial and manufacturing accruals processes described below and are
subject to change in future periods when actual activity is known. To date we have not made any
material adjustments to these estimates.
Milestones. Payments for milestones that are based on the achievement of substantive and at-risk
performance criteria will be recognized in full at such time as the specified milestone has been
achieved according to the terms of the agreement. When payments are not for substantive and
at-risk milestones, revenue will be recognized immediately for the proportionate amount of the
payment that correlates to services that have already been rendered, with the balance recognized
on a straight-line basis over the remaining estimated term of the research and development
service period. The basis of the research and development service period is reviewed and adjusted
based on the status of the project against the estimated timeline as additional information
becomes available.
Preclinical Study, Clinical Trial and Manufacturing Accruals
We estimate our preclinical study, clinical trial and manufacturing accrued expenses based on
our estimates of the services received pursuant to contracts with multiple research organizations
and contract manufacturers that conduct, manage, and provide materials for preclinical studies and
clinical trials on our behalf. The financial terms of these agreements vary from contract to
contract and may result in uneven payment flows. Research and development costs are expensed as
the related goods are delivered or the related services are performed. Our preclinical study,
clinical trial and manufacturing expenses include fees paid to the following:
| contract research organizations in connection with preclinical studies; | ||
| clinical research organizations and other clinical sites in connection with clinical trials; and | ||
| contract manufacturers in connection with the production of components and drug materials for preclinical studies and clinical trials. |
We record accruals for these preclinical studies, clinical trial and manufacturing expenses
based on the estimated amount of work completed. All such costs are included in research and
development expenses based on these estimates. Costs of setting up a preclinical study or clinical
trial are expensed as the related services are performed. Costs related to patient enrollment in
clinical trials are accrued as patients are enrolled in the trial. We monitor patient enrollment
levels and related activities to the extent possible through internal reviews, correspondence and
discussions with research organizations. If we have incomplete or inaccurate information, we may,
however, underestimate or overestimate activity levels associated with various preclinical studies
and clinical trials at a given point in time. In the event we underestimate, we could record
significant research and development expenses in future periods when the actual activity level
becomes known. To the extent any of these expenses are reimbursable under our collaboration
agreements with Pfizer or Facet, we could also record significant adjustments to revenue when the
actual activity becomes known. To date, we have not made any material adjustments to our estimates
of preclinical study, clinical trial and manufacturing expenses. We make good-faith estimates that
we believe to be accurate, but the actual costs and timing of preclinical studies, clinical trials
and manufacturing runs are highly uncertain, subject to risks, and may change depending on a number
of factors, including our clinical development plan. If any of our product candidates enter Phase 3
clinical trials, the process of estimating clinical trial costs will become more difficult because
the trials will involve larger numbers of patients and clinical sites.
Stock-Based Compensation
We account for stock-based compensation for employees and directors be based on estimated fair
values. Employee stock-based compensation expense recognized in the years ended December 31, 2008,
2007 and 2006 was calculated based on awards ultimately expected to vest, and has been reduced for
estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. The forfeiture estimate is
based on historical employee turnover rates and could differ from actual forfeitures. Compensation
costs for employee stock options granted prior to January 1, 2006 were accounted for using the
options intrinsic value or the difference, if any, between the fair market value of our common
stock and the exercise price of the option.
The fair value of each employee option grant in the nine months ended September 30, 2009 and
2008, respectively, was estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
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Nine months ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Risk-free interest rate |
2.13%-2.72 | % | 2.80%-3.40 | % | ||||
Weighted-average expected life (in years) |
5.93 | 6.04 | ||||||
Expected dividend yield |
0 | % | 0 | % | ||||
Expected volatility rate |
88%-105 | % | 70%-74 | % | ||||
Weighted-average estimated fair value of
employee options |
$ | 1.72 | $ | 5.29 |
For stock options granted to non-employees, the fair value of the stock options is estimated
using the Black-Scholes valuation model. The Black-Scholes model utilizes the estimated fair value
of common stock and requires that, at the date of grant, we make assumptions with respect to the
expected life of the option, the volatility of the fair value of the underlying common stock, risk
free interest rates and expected dividend yields of our common stock. We have assumed that
non-employee stock options have an expected life of one to ten years and assumed common stock
volatility between 65% and 100%.
Stock-based compensation expense is recognized over the period of expected service by the
non-employee. As the service is performed, we are required to update our valuation assumptions,
remeasure unvested options and record the stock-based compensation using the valuation as of the
vesting date. These adjustments may result in higher or lower stock-based compensation expense in
the statement of operations than originally estimated. Changes in the market price of our stock
could materially change the value of an option and the resulting stock-based compensation expense.
We expect stock-based compensation expense associated with non-employee options to fluctuate in the
future based on the volatility of our future stock price.
Valuation of Investments
We classify our investment portfolio as available-for-sale. The cost of securities sold is
based on the specific identification method. We carry our investments in debt securities at fair
value, estimated as the amount at which an asset or liability could be bought or sold in a current
transaction between willing parties. In accordance with our investment policy, we diversify our
credit risk and invest in debt securities with high credit quality. The majority of our
investments held as of September 30, 2009 are in active markets and our estimate of fair value is
based upon quoted market prices. The remainder of our investments held as of September 30, 2009 are
valued using observable inputs. To date, the carrying values of our investments have not been
written down due to declines in value because such declines are judged to be temporary. Declines in
the fair value of our investments judged to be other than temporary could adversely affect our
future operating results. We continue to monitor our credit risks and evaluate the potential need
for impairment charges related to credit risks in future periods.
Results of Operations for the Three Months and Nine Months Ended September 30, 2009 and 2008
Revenue
Revenue increased to $4.5 million in the three months ended September 30, 2009 from $3.8
million in the three month ended September 30, 2008. Revenue increased to $12.8 million in the
nine months ended September 30, 2009 from $12.2 million in the nine months ended September 30,
2008. The three- and nine-month increases were primarily due to revenue recognized from our Facet
collaboration of $643,000. The $643,000 is comprised of $191,000 for recognition of the $20
million up-front fee and $1.4 million equity premium, and $452,000 for collaborative research
funding. Revenue in the nine months ended September 30, 2009 and 2008 also included $3.6 million
and $4.1 million, respectively, for recognition of the $40 million upfront fee received from Wyeth
and $8.5 million and $8.1 million of collaborative research funding from the Pfizer collaboration.
The Wyeth and Facet upfront fees are being deferred and recognized on a straight-line basis over
the estimated term of the research and development service periods. The Pfizer estimated service
period is seven years, or through December 2012 and the Facet estimated service period is
approximately nine years or through 2018. Reimbursement revenue is expected to fluctuate in the
future due to the timing of reimbursed development and legal costs, and the recognition of the
associated collaborative research revenue under our collaboration agreements. Also, revenues from
the Facet collaboration may fluctuate depending on which party in the collaboration is incurring
the majority of the development costs in any particular quarterly period.
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Research and Development Expenses
Research and development expenses remained stable at $7.4 million in each of the three months
ended September 30, 2009 and 2008. Research and development expenses increased to $27.6 million in
the nine months ended September 30, 2009 from $23.3 million in the nine months ended September 30,
2008. The increase was primarily due to higher outside manufacturing and clinical development costs
related to our TRU-016 product candidate, partially offset by decreased lab expense and personnel
costs. In connection with the restructuring in February 2009, we incurred a $0.8 million charge in
the first quarter of 2009 related to employee severance, benefits and outplacement services, $0.6
million of which was classified as research and development expense. We expect research and
development expenses to increase in the future due to additional clinical trials, preclinical
research and manufacturing expenses associated with TRU-016 development. These costs may fluctuate
depending on which party in the Facet collaboration is incurring the majority of the development
costs in any particular period. Our actual research and development expenses could differ
materially from those anticipated.
At any time, we have many ongoing research projects. Our internal resources, employees, and
infrastructure are not directly tied to any individual research project and are typically deployed
across multiple projects. Through our clinical development programs, we are developing each of our
product candidates in parallel for multiple disease indications, and through our basic research
activities, we are seeking to design potential drug candidates for multiple new disease
indications. Due to the number of ongoing projects and our ability to utilize resources across
several projects, we do not record or maintain information regarding the costs incurred for our
research and development programs on a program-specific basis. In addition, we believe that
allocating costs on the basis of time incurred by our employees does not accurately reflect the
actual costs of a project.
Our research and development activities can be divided into research and preclinical programs
and clinical development programs. The costs associated with research and preclinical programs and
clinical development programs approximate the following (in thousands):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Research and preclinical programs |
$ | 4,037 | $ | 4,916 | $ | 13,960 | $ | 15,408 | ||||||||
Clinical development programs |
3,373 | 2,481 | 13,627 | 7,894 | ||||||||||||
Total research and development |
$ | 7,410 | $ | 7,397 | $ | 27,587 | $ | 23,302 | ||||||||
Research and preclinical program costs consist of costs associated with our product
development efforts, conducting preclinical studies, personnel costs, animal studies, lab
supplies, and indirect costs such as rent, utilities and depreciation. Research and preclinical
program costs decreased in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008 primarily due to lower personnel-related and lab costs as a result of the
restructuring in February 2009. Clinical development costs consist of clinical manufacturing
costs, clinical trial site and investigator fees, personnel costs and indirect costs such as rent,
utilities, and depreciation. Clinical development program costs increased in the nine months ended
September 30, 2009 compared to the nine months ended September 30, 2008 primarily due to higher
outside manufacturing and clinical development costs for TRU-016.
The majority of our research and development programs are at an early stage and may not result
in any approved products. Product candidates that may appear promising at early stages of
development may not reach the market for a variety of reasons. Product candidates may be found to
be ineffective or to cause harmful side effects during clinical trials, may take longer to pass
through clinical trials than had been anticipated, may fail to receive necessary regulatory
approvals, and may prove impracticable to manufacture in commercial quantities at reasonable cost
and with acceptable quality. As part of our business strategy, we may enter into collaborative
arrangements with third parties to complete the development and commercialization of our product
candidates and it is uncertain which of our product candidates may be subject to future
collaborative arrangements. The participation of a collaborative partner may accelerate the time to
completion and reduce the cost to us of a product candidate or it may delay the time to completion
and increase the cost to us due to the alteration of our existing strategy.
As a result of the uncertainties discussed above, the uncertainty associated with clinical
trial enrollments, and the risks inherent in the development process, we are unable to determine
the duration and completion costs of the current or future clinical stages of our product
candidates or when, or to what extent, we will generate revenue from the commercialization and sale
of any of our product candidates. Development timelines, probability of success, and development
costs vary widely. Under our collaboration with Pfizer,
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we are responsible for completing the remaining retreatment portion of the Phase 2a and
initial 2b clinical trials of TRU-015 for RA. In addition, we are responsible for conducting
clinical studies for TRU-015 niche indications. Under our collaboration with Facet, we are
obligated to perform non-clinical, clinical, manufacturing and regulatory activities. While we are
currently focused on developing TRU-015, SBI-087 and other product candidates with Pfizer, our
TRU-016 product candidate with Facet and other product candidates that are outside our
collaborations, we will make determinations as to which programs to pursue and how much funding to
direct to each program on an ongoing basis in response to the scientific and clinical success of
each product candidate, as well as an ongoing assessment as to the product candidates commercial
potential. We anticipate developing additional product candidates, which will also increase our
research and development expenses in future periods. We do not expect any of our current product
candidates to be commercially available in major markets before 2012, if at all.
General and Administrative Expenses
General and administrative expenses increased slightly to $3.1 million in the three months
ended September 30, 2009 from $3 million in the three months ended September 30, 2008. General and
administrative expenses decreased to $8.9 million in the nine months ended September 30, 2009 from
$9.0 million in the nine months ended September 30, 2008. The decrease in the nine-month period
was primarily due to lower personnel-related costs as a result of the restructuring in February
2009. In connection with the restructuring in February 2009, we incurred a $0.8 million charge in
the first quarter of 2009 related to employee severance, benefits and outplacement services, $0.2
million of which was classified as general and administrative expense. We expect our general and
administrative expenses to remain relatively stable in the future. Our actual general and
administrative expenses could differ materially from those anticipated.
Net Interest Income (Expense)
Net interest income (expense) decreased to ($123,000) in the three months ended September 30,
2009 from $36,000 in the three months ended September 30, 2008. Net interest income (expense)
decreased to ($247,000) in the nine months ended September 30, 2009 from $908,000 in the nine
months ended September 30, 2008. The decrease was primarily the result of a decline in interest
rates and a decrease in our average cash and investment balance in the first nine months of 2009
compared to the same period in 2008. We expect net interest income (expense) to increase slightly
in the future as a result of cash received from the Facet collaboration.
Liquidity and Capital Resources
As of September 30, 2009, we had $61.7 million in cash, cash equivalents and short-term
investments. We have received the majority of our funding from the issuance of common stock,
proceeds from our collaboration agreements, asset-based lease financings and interest earned on
investments. Our cash and investment balances are held in a variety of interest bearing
instruments, including obligations of United States government agencies, high credit rating
corporate borrowers, and money market accounts. We do not hold auction rate securities within our
investment portfolio, nor do we hold any corporate securities. Cash in excess of immediate
requirements is invested with regard to liquidity and capital preservation.
Operating Activities. Net cash provided by operating activities was $1.4 million in the nine
months ended September 30, 2009 compared to net cash used in operating activities of $15.6 million
in the nine months ended September 30, 2008. Net cash provided by operating activities in the nine
months ended September 30, 2009 was due to the $20 million up-front fee received from Facet in
September 2009, partially offset by operating costs. We expect net cash used in operations to
increase in the future due to the expansion of our clinical activities.
Investing Activities. Net cash used in investing activities was $7.2 million in the nine
months ended September 30, 2009 compared to net cash provided by investing activities in the nine
months ended September 30, 2008 of $8.6 million. Investing activities consist primarily of
purchases and maturities of marketable securities and capital purchases. Purchases of property and
equipment were $52,000 and $1.1 million in the nine months ended September 30, 2009 and 2008,
respectively. We expect to continue to make investments in property and equipment in the future;
however, we expect to do so to a lesser extent than in 2008.
Financing Activities. Net cash provided by financing activities was $7.7 million in the nine
months ended September 30, 2009 compared to net cash used in financing activities of $14,000 in the
nine months ended September 30, 2008. In the nine months ended September 30, 2009 financing
activities consisted primarily of a private placement of common stock to Facet of $8.6 million and
payments on an equipment financing arrangement of $1.0 million. In the nine months ended September
31, 2008, financing activities
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consisted primarily of $10 million in proceeds under a new debt facility, offset by $10.1
million in payments against pre-existing equipment financing arrangements.
We entered into a loan and security agreement with Silicon Valley Bank, or SVB, effective July
25, 2008, which provided for a $10.0 million debt facility secured by a security interest in our
assets, other than intellectual property. The full $10.0 million available under the SVB facility
was drawn at closing and is payable in fixed equal payments of principal plus accrued interest at a
fixed rate of 5.75% based on an 84-month amortization schedule with all principal and interest due
July 25, 2013. As of September 30, 2009, $8.6 million is outstanding under SVB loan and security
agreement.
The loan and security agreement with SVB contains representations and warranties and
affirmative and negative covenants that are customary for credit facilities of this type. We were
in compliance with all covenants under the loan and security agreement as of September 30, 2009.
The loan and security agreement could restrict our ability to, among other things, sell certain
assets, engage in a merger or change in control transaction, incur debt, pay cash dividends, and
make investments. The loan and security agreement also contains events of default that are
customary for credit facilities of this type, including payment defaults, covenant defaults,
insolvency type defaults, and events of default relating to liens, judgments, material
misrepresentations, and the occurrence of certain material adverse events. In addition, the loan
and security agreement with SVB contains a material adverse change clause which may accelerate the
maturity of the loan upon the occurrence of certain events. We have no indication that we are in
default of the material adverse change clause and no scheduled loan payments have accelerated as a
result of this provision.
Based on our current operating plans, we believe that our existing capital resources plus
proceeds from the collaboration and stock purchase agreements with Facet, together with interest
thereon, will be sufficient to meet our financial obligations for at least the next 24 months. The
key assumption underlying this estimate is that expenditures related to continued preclinical,
manufacturing, and clinical development of our product candidates during this period will be within
budgeted levels.
Our forecast of the period of time that our financial resources will be adequate to support
operations is a forward-looking statement and involves risks and uncertainties, and actual results
could vary as a result of a number of factors, including the factors discussed in Part II, Item 1A
entitled Risk Factors. In light of the numerous risks and uncertainties associated with the
development and commercialization of our product candidates and the extent to which we enter into
collaborations with third parties to participate in their development and commercialization, we are
unable to estimate the amounts of increased capital outlays and operating expenditures associated
with product development. Our future funding requirements will depend on many factors, including:
| the determination by any of our current collaboration partners, or any of their successors-in-interest to cease developing any product candidate that is the subject of that collaboration; | ||
| the terms and timing of any additional collaborative or licensing agreements that we may establish; | ||
| the ability to raise capital through strategic partnerships or in the debt/equity markets; | ||
| milestone payments projected to be received under the Pfizer and Facet collaboration agreements; | ||
| the scope, rate of progress, results and costs of our preclinical testing, clinical trials, and other research and development activities; | ||
| the number of programs we pursue; | ||
| the cost of establishing clinical and commercial supplies of our product candidates; | ||
| the cost of preparing, filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; | ||
| the cost, timing, and outcomes of regulatory approvals; and | ||
| the extent to which we acquire or invest in businesses, products, or technologies. |
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We will need to raise additional funds to support our operations, and such funding may not be
available to us on acceptable terms, if at all. The capital markets have been experiencing extreme
volatility and disruption for more than 12 months. The scope and extent of this disruption in the
capital markets could make it difficult or impossible to raise additional capital in public or
private capital markets until conditions stabilize. If we are unable to raise additional funds when
needed, we may not be able to continue development of our product candidates or we could be
required to delay, scale back, or eliminate some or all of our development programs and other
operations. We may seek to raise additional funds through public or private financing, strategic
partnerships, or other arrangements. Any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds
through collaborative or licensing arrangements we may be required to relinquish, on terms that are
not favorable to us, rights to some of our technologies or product candidates that we would
otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may
harm our business and operating results.
As of September 30, 2009, the incremental costs of contractual commitments related to
reservation fees for future manufacturing capacity at Lonza were $2.1 million, all of which are due
within the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is primarily confined to our investment securities. The primary
objective of our investment activities is to preserve our capital to fund operations. We also seek
to maximize income from our investments without assuming significant risk. To achieve our
objectives, we maintain a portfolio of investments in a variety of securities of high credit
quality. The securities in our investment portfolio are not leveraged, are classified as available
for sale and, due to their very short-term nature, are subject to minimal interest rate risk. We
currently do not hedge interest rate exposure on our investment securities. We actively monitor
changes in interest rates.
We are exposed to potential loss due to changes in interest rates. Our principal interest rate
exposure is to changes in U.S. interest rates related to our investment securities. To estimate the
potential loss due to changes in interest rates, we performed a sensitivity analysis using the
instantaneous adverse change in interest rates of 100 basis points across the yield curve. On this
basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100
basis points) increase in interest rates to be $139,000 as of September 30, 2009.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief
Financial Officer have reviewed our disclosure controls and procedures prior to the filing of this
quarterly report on Form 10-Q. Based on that review, they have concluded that, as of the end of the
period covered by this quarterly report, these disclosure controls and procedures were, in design
and operation, effective to assure that the required information has been properly recorded,
processed, summarized, and reported to those responsible in order that it may be included in this
quarterly report.
(b) Changes in internal control over financial reporting. There have not been any changes
in our internal control over financial reporting during the quarter ended September 30, 2009 which
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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PART II. OTHER INFORMATION
Item 1A. Risk Factors
You should carefully consider the risks described below together with all of the other
information included in this quarterly report on Form 10-Q and in our 2008 Form 10-K. The risks and
uncertainties described below are not the only ones we face. If any of the following risks actually
occurs, our business, financial condition, or operating results could be harmed. In such case, the
trading price of our common stock could decline, and investors in our common stock could lose all
or part of their investment.
Risks Related to Our Business
Our success depends on the success of our clinical product candidates, TRU-015, TRU-016, and
SBI-087, and we cannot be certain that they will be safe or effective, complete clinical trials,
receive regulatory approval or be successfully commercialized.
Although our lead product candidate, TRU-015, has completed a Phase 2b clinical trial for the
treatment of RA, additional clinical trials would be required before we are able to submit a
Biologic License Application, or BLA, to the FDA for approval. In addition, our Facet collaboration
clinical candidate, TRU-016, and our Pfizer collaboration clinical candidate, SBI-087, commenced
initial clinical testing in 2008 and even if, based on the results of the initial clinical trials
for TRU-016 and SBI-087, we and Facet, in the case of TRU-016, or Pfizer, in the case of SBI-087,
determine to proceed with further clinical testing, a number of additional clinical trials will be
required before a BLA can be submitted to the FDA for product approval.
The regulatory approval process can take many years and require the expenditure of substantial
resources. We are a party to a collaboration agreement with Pfizer pursuant to which Pfizer is
responsible for regulatory approval, and any subsequent commercialization of TRU-015 and SBI-087.
Ultimate decision-making authority as to most matters within the collaboration, including
development plans and timeline, is vested with Pfizer. In addition to the risks and uncertainties
inherent in the regulatory approval process for TRU-015 and SBI-087, Pfizer may not advance the
development and commercialization of TRU-015 and SBI-087, or either of these product candidates as
quickly as we would like, if at all. For example, prior to its acquisition by Pfizer, Wyeth had
determined not to pursue TRU-015 for any oncology indications and discontinued the TRU-015 Phase
1/2 clinical trial for the treatment of non-Hodgkins lymphoma, or NHL, that it had initiated in
December 2007. In addition, we are a party to a collaboration agreement with Facet pursuant to
which we and Facet must jointly agree to all development and commercialization plans and timelines.
In addition, to the risks and uncertainties inherent in the regulatory approval process for
TRU-016, Facet and we, acting jointly, may not advance the development and commercialization of
TRU-016 as quickly as we would, acting alone.
Clinical trials involving the number of sites and patients required for FDA approval of
TRU-015 for RA, SBI-087 for RA or SLE or TRU-016 for CLL may not be successfully completed. If
these clinical trials are not completed or their results do not meet safety and efficacy thresholds
required by the FDA, these product candidates will likely not receive regulatory approval. Even if
any of these product candidates receive regulatory approval, the approved product candidate may
never be successfully commercialized. If our product candidates do not receive regulatory approval
or are not successfully commercialized, we may not be able to generate revenue, or become
profitable, which would negatively affect our ability to continue operations.
If we fail to obtain the capital necessary to fund our operations, we may be unable to develop
our product candidates and we could be forced to share our rights to these product candidates
with third parties on terms that may not be favorable to us.
We need large amounts of capital to support our research and development efforts. We may seek
to raise funds through additional strategic partnerships, by selling additional equity or debt
securities, or both, or incur other indebtedness. If we are unable to raise additional capital in
sufficient amounts or on terms acceptable to us, if at all, we will be prevented from pursuing
research and development efforts and may elect to enter into collaborations that could require us
to share rights to our product candidates to a greater extent than we currently intend, which could
harm our business prospects and financial condition. The sale of additional equity or debt
securities, if convertible, could result in the issuance of additional shares of our capital stock
and could result in dilution to our stockholders. The incurrence of indebtedness would result in
increased fixed payment obligations and could also result in certain restrictive covenants, such as
limitations on our ability to incur additional debt, limitations on our ability to acquire or
license intellectual property rights, and other operating restrictions that could adversely impact
our ability to conduct our business. The capital markets have been experiencing extreme losses and
disruption for more than 12 months. The scope and extent of this disruption in the capital markets
could make it difficult or impossible to raise additional capital in public or private capital
markets until conditions
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stabilize. Market volatility notwithstanding, we cannot guarantee that future financing will
be available in sufficient amounts or on terms acceptable to us, if at all.
We have incurred operating losses in each year since our inception and expect to continue to
incur substantial and increasing losses for the foreseeable future.
We have been engaged in designing and developing compounds and product candidates since 1999
and have not generated any product revenue to date. Our net losses were $23.9 million and $19.2
million in the nine months ended September 30, 2009 and 2008, respectively. As of September 30,
2009, we had an accumulated deficit of $116.4 million. We expect our research and development
expenses to increase in the future due to increased manufacturing and clinical development costs
primarily related to our Facet collaboration clinical candidate, TRU-016, as well as the
advancement of our preclinical programs, and product candidate manufacturing costs. As a result, we
expect to continue to incur substantial and increasing losses for the foreseeable future. We are
uncertain when or if we will be able to achieve or sustain profitability. Failure to become and
remain profitable would adversely affect the price of our common stock and our ability to raise
capital and continue operations. Continued operating losses and depletion of our cash balance may
also result in non-compliance with our existing debt covenants and may require us to dedicate a
substantial portion of our cash to repay our debt. As of September 30, 2009, our outstanding
indebtedness under agreements with financial debt covenants that could be affected by continued
operating losses or our cash position totaled $8.6 million. In addition, our net operating loss
carryforwards and credits were substantially exhausted as a result of the payments we received from
Wyeth in January 2006 pursuant to our Pfizer collaboration agreement, and any remaining net
operating loss carryforwards and credits may be subject to an annual limitation due to the change
in ownership provisions of the Internal Revenue Code of 1986, as amended, and similar state law
provisions, which would have an adverse effect on our ability to reduce future tax expenses.
We depend on our collaborative relationship with Pfizer to develop, manufacture, and
commercialize TRU-015, SBI-087, and other selected product candidates.
In October 2009, Pfizer completed its acquisition of Wyeth and Pfizer is now our collaboration
partner for TRU-015 and SBI-087. We have no prior relationship with Pfizer and, as a result, we
cannot predict how or whether Pfizer will proceed with the collaboration or the development of any
of the collaboration product candidates. In addition to our collaboration agreement with Pfizer
for the development and worldwide commercialization of TRU-015, SBI-087 and other therapeutics
directed to CD20, we are also collaborating with Pfizer on the development and worldwide
commercialization of certain other product candidates directed to a small number of targets other
than CD20 that have been established pursuant to the agreement. Our ability to receive any
significant revenue from our product candidates covered by the collaboration agreement depends on
the efforts of Pfizer and on our ability to collaborate effectively. Any future payments, including
royalties to us, will depend on the extent to which we and Pfizer advance product candidates
through development and commercialization. Pfizer may terminate the collaboration relationship, in
whole or in part, without cause, by giving 90 days written notice to us. Pfizer also has the right
to terminate the agreement, on a target-by-target basis, upon 60 days written notice, if any
safety or regulatory issue arises that would have a material adverse effect on Pfizers ability to
develop, manufacture, or commercialize one or more product candidates.
Although Pfizer is responsible for developing, manufacturing, and commercializing product
candidates directed to collaboration targets, including CD20, and for the costs associated with
such activities, we were obligated to complete the Phase 2b clinical trial, and are obligated to
conduct re-treatment studies in RA, and may be obligated to conduct niche indication registration
studies for CD20-directed therapies.
With respect to control over decisions and responsibilities, the collaboration agreement
provides for a research committee and a CD20-directed therapy development committee consisting of
representatives of Pfizer and us. Ultimate decision-making authority as to most matters within the
collaboration, including development plans and timelines, however, is vested in Pfizer. Pfizer has
the right to develop multiple product candidates against the targets licensed to it under our
collaboration. Pfizer has begun clinical development of SBI-087, another CD20-directed therapy, for
RA and is currently enrolling patients in a phase 1 trial for the evaluation of SBI-087 for SLE.
If Pfizer later determines not to continue developing two CD20-directed therapies, Pfizer could
decide to discontinue efforts to further develop TRU-015. SBI-087 is at an earlier stage in
clinical development than TRU-015 and a decision by Pfizer to develop SBI-087 instead of TRU-015
would likely delay the potential commercialization of any product under our collaboration with
Pfizer, which could adversely affect our business and cause the price of our common stock to
decline.
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We cannot assure you that Pfizer will fulfill its obligations under the agreement, or will
develop and commercialize our product candidates as quickly as we would like, if at all. If Pfizer
terminates the agreement or fails to fulfill its obligations under the agreement, we would need to
obtain the capital necessary to fund the development and commercialization of our product
candidates or enter into alternative arrangements with a third party. We could also become involved
in disputes with Pfizer, which could lead to delays in or termination of our development and
commercialization programs and time-consuming and expensive litigation or arbitration. If Pfizer
terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a
timely manner, our collaboration product development programs would be substantially delayed and
the chances of successfully developing or commercializing our collaboration product candidates
would be materially and adversely affected.
We depend on our collaborative relationship with Facet to develop, manufacture, and commercialize
TRU-016 and other CD37-directed protein therapeutics.
In August 2009, we entered into a collaboration agreement with Facet for the joint worldwide
development and commercialization of TRU-016, our product candidate in Phase 1 clinical development
for chronic lymphocytic leukemia, or CLL, and other CD37-directed protein therapeutics. Under the
terms of the collaboration agreement, neither we nor Facet have the right to develop or
commercialize protein therapeutics directed to CD37 outside of the collaboration.
Our ability to receive funding for TRU-016 depends on our ability to collaborate effectively
with Facet. Any future payments, including milestones payable to us, will depend on the extent to
which we and Facet advance TRU-016 through development and commercialization. Facet may terminate
the collaboration agreement without cause, and would not be obligated to pay us a termination fee
if such a termination was more than 18 months after the beginning of the collaboration. Facet also
has the right upon 90 days written notice to terminate the agreement for our uncured material
breach.
With respect to control over decisions and responsibilities, the collaboration agreement
provides for a joint steering committee, or JSC, that must make decisions by consensus. The
failure of the JSC to reach consensus on material aspects of the development or commercialization
of TRU-016 will lead to dispute resolution by our and Facets chief executive officers, and
potentially arbitration, any of which may delay the development of TRU-016, which may harm our
business.
Under certain circumstances, the parties have the right to opt-out of the collaboration or may
be deemed to have opted-out of the collaboration. If Facet opts-out of the collaboration with
respect to a product, then we would become responsible for all development and commercialization
costs for that product and be obligated to pay Facet certain royalty payments upon the sale of that
product. If we opt-out of the collaboration and are the lead TRU-016 manufacturing party at that
time, we would be obligated to continue to supply TRU-016 to Facet for up to 18 months.
If Facet opts-out of or terminates the agreement or fails to fulfill its obligations under the
agreement, we would need to obtain the capital necessary to fully fund the development and
commercialization of TRU-016 or enter into alternative arrangements with a third party. We could
also become involved in disputes with Facet, which could lead to delays in or termination of our
development and commercialization programs and time-consuming and expensive litigation or
arbitration. If Facet terminates or breaches its agreement with us, or otherwise fails to complete
its obligations in a timely manner, our collaboration product development programs would be
substantially delayed and the chances of successfully developing or commercializing our
collaboration product candidates would be materially and adversely affected.
Facet is the subject of a hostile takeover bid by Biogen Idec Inc., which may have negative
impacts on our collaboration.
On September 21, 2009, Biogen Idec Inc., or Biogen Idec, launched a hostile tender offer
for the purchase of all of Facets outstanding shares of common stock that is currently set to
expire on December 16, 2009, unless further extended by Biogen Idec. Facets board of directors has
recommended that its stockholders reject the offer to purchase and not tender their shares to
Biogen Idec, although the ultimate outcome of the tender offer is highly speculative and impossible
to predict.
The tender offer is likely to distract Facets management from the operation of its core
business, including focus on our collaboration, until and for some time after its resolution.
Furthermore, Facets and our research and development personnel are actively engaged in
establishing the parameters and timeline upon which the TRU-016 development and commercialization
program will be based and it is critical that they are able to communicate efficiently. Continued
uncertainty regarding the tender offer might distract these personnel or otherwise impede their
ability to collaborate effectively. The failure of Facets management or research
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personnel to focus adequately on our collaboration could negatively impact our ability to
develop in a timely manner, if at all, the product candidates that are the subject of this
collaboration.
If Biogen Idec completes its proposed acquisition of Facet, whether through the tender offer
or otherwise, we cannot be certain whether and to what extent it would proceed with the
collaboration or the related development and commercialization programs. Biogen Idec has stated
publicly that it does not consider our collaboration with Facet to be a positive development for
Facet or its stockholders. If Facet, or any successor-in-interest, was to opt-out of or terminate
or fail to fulfill its obligations under the agreement or if we were forced to opt-out of the
agreement as a result of a change in control of Facet, we could become involved in costly and
protracted disputes or litigation and our ability to successfully develop and commercialize any
TRU-016 product candidates would be materially and adversely affected.
We currently rely on third-party manufacturers to supply our product candidates and will rely on
third-party manufacturers to manufacture our product candidates in commercial quantities, which
could delay or prevent the clinical development and future commercialization of our product
candidates.
We currently depend on Pfizer for the supply of TRU-015 and SBI-087. We also currently depend
on contract manufacturers for certain biopharmaceutical development and manufacturing services for
TRU-016, our Facet collaboration clinical candidate. Any disruption in production, inability of
these third-party manufacturers to produce adequate quantities to meet our needs, or other
impediments with respect to development or manufacturing could adversely affect our ability to
successfully complete clinical trials, delay submissions of our regulatory applications, or
adversely affect our ability to commercialize our product candidates in a timely manner, if at all.
Our product candidates have not yet been manufactured for commercial use. If any of our
product candidates becomes a product approved for commercial sale, in order to supply our or our
collaborators commercial requirements for such an approved product, the third-party manufacturer
may need to increase its manufacturing capacity, which may require the manufacturer to fund capital
improvements to support the scale-up of manufacturing and related activities. The third-party
manufacturer may not be able to successfully increase its manufacturing capacity for such an
approved product in a timely or economic manner, if at all. If any manufacturer is unable to
provide commercial quantities of such an approved product, we will have to successfully transfer
manufacturing technology to a new manufacturer. Engaging a new manufacturer for such an approved
product could require us to conduct comparative studies or utilize other means to determine
bioequivalence of the new and prior manufacturers products, which could delay or prevent our
ability to commercialize such an approved product. If any of these manufacturers is unable or
unwilling to increase its manufacturing capacity or if we are unable to establish alternative
arrangements on a timely basis or on acceptable terms, the development and commercialization of
such an approved product may be delayed or there may be a shortage in supply. Any inability to
manufacture our products in sufficient quantities when needed would seriously harm our business.
Any manufacturer of our product candidates and approved products, if any, must comply with
cGMP requirements enforced by the FDA through its facilities inspection program. These requirements
include quality control, quality assurance, and the maintenance of records and documentation.
Manufacturers of our product candidates and approved products, if any, may be unable to comply with
these cGMP requirements and with other FDA, state, and foreign regulatory requirements. We have
little control over our manufacturers compliance with these regulations and standards. A failure
to comply with these requirements may result in fines and civil penalties, suspension of
production, suspension or delay in product approval, product seizure or recall, or withdrawal of
product approval. If the safety of any quantities supplied is compromised due to our manufacturers
failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory
approval for or successfully commercialize our products, which would seriously harm our business.
Our success depends on the proper management of our current and future business operations, and
the expenses associated with them.
Our business strategy requires us to manage our operations to provide for the continued
development and potential commercialization of our product candidates and to manage our expenses
generated by these activities. In an effort to reduce costs, we announced in February 2009 a
workforce reduction of approximately 25%, which included the elimination of certain existing
positions across our research and administrative functions. As a result of this reduction in
force, we recorded a restructuring charge of $0.8 million in the first quarter of 2009. We continue
to believe that strict cost containment in the near term is essential if our current funds are to
be sufficient to allow us to continue our currently planned operations.
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If we are unable to effectively manage our current operations, we may not be able to implement
our business strategy and our financial condition and results of operations may be adversely
affected. If we are unable to effectively manage our expenses, we may find it necessary to reduce
our expenses through another reduction in our workforce, which could adversely affect our
operations.
We rely on highly skilled personnel, and if we are unable to retain or motivate key personnel or
hire qualified personnel, we may not be able to maintain our operations.
Our performance largely depends on the talents and efforts of highly skilled individuals. In
February 2009, as part of our efforts to reduce our operating expenses through prioritization of
our development portfolio and streamlining our infrastructure, we announced a reduction of
approximately 25% of our workforce, across our research and administrative functions. This
reduction in workforce may impair our ability to recruit and retain qualified employees and to
effectively complete administrative and developmental functions. As a result, our ability to
respond to unexpected challenges may be impaired and we may be unable to take advantage of new
opportunities. If we need to rehire terminated individuals or hire individuals with similar skills,
we may be unable to do so. Our future success depends on our continuing ability to develop,
motivate, and retain qualified management, clinical, and scientific personnel for all areas of our
organization. If we do not succeed in retaining and motivating our remaining personnel, our
existing operations may suffer and we may be unable to effectively engage in planned operations.
We cannot assure you any of our product candidates will be safe or effective, or receive
regulatory approval.
The clinical trials and the manufacturing of our product candidates are, and marketing of our
products will be, subject to extensive and rigorous review and regulation by numerous government
authorities in the United States and in other countries where we intend to test and market our
product candidates. Before obtaining regulatory approvals for the commercial sale of any product
candidate, we must demonstrate through preclinical testing and clinical trials that the product
candidate is safe and effective for use in each target indication. This process can take many years
and require the expenditure of substantial resources, and may include post-marketing studies and
surveillance. To date, we have not successfully demonstrated in clinical trials safety or efficacy
sufficient for regulatory approval. Although our lead product candidate, TRU-015, has completed a
Phase 2b clinical trial for the treatment of RA, additional clinical trials would be required
before we are able to submit a BLA to the FDA for approval. In addition, our Facet collaboration
clinical candidate TRU-016 and our Pfizer collaboration clinical candidate SBI-087 commenced
initial clinical testing in 2008 and as a result we only have limited clinical trial results
regarding the safety or efficacy of either of these product candidates. Even if, based on the
results of the initial clinical trials for TRU-016 and SBI-087, we and Facet, in the case of
TRU-016, or Pfizer, in the case of SBI-087, determine to proceed with further clinical testing, a
number of additional clinical trials will be required before a BLA can be submitted to the FDA for
product approval. The results from preclinical testing and clinical trials that we have completed
may not be predictive of results in future preclinical tests and clinical trials, and we cannot
assure you we will demonstrate sufficient safety and efficacy to seek or obtain the requisite
regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries have
suffered significant setbacks in advanced clinical trials, even after promising results in earlier
trials. All of our other product candidates remain in the discovery and pre-clinical testing
stages. We may also encounter delays or rejections due to additional government regulation from
future legislation, administrative action, or changes in FDA policy. We cannot assure you that
regulatory approval will be obtained for any of our product candidates, and even if the FDA
approves a product, the approval will be limited to those indications covered in the approval. If
our current product candidates are not shown to be safe and effective in clinical trials, the
resulting delays in developing other product candidates and conducting related preclinical testing
and clinical trials, as well as the potential need for additional financing, would have a material
adverse effect on our business, financial condition, and operating results. If we are unable to
discover or successfully develop drugs that are effective and safe in humans and receive regulatory
approval, we will not have a viable business. We do not expect any of our current product
candidates to be commercially available in major markets before 2012, if at all.
Any failure or delay in commencing or completing clinical trials for product candidates could
severely harm our business.
Each of our product candidates must undergo extensive preclinical studies and clinical trials
as a condition to regulatory approval. Preclinical studies and clinical trials are expensive and
take many years to complete. To date we have not initiated any Phase 3 clinical trials of any
product candidate. The commencement and completion of clinical trials for our product candidates
may be delayed by many factors, including:
| having the capital resources available to fund additional clinical trials; |
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| our or our collaborators ability to obtain regulatory approval to commence a clinical trial; | ||
| our or our collaborators ability to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials; | ||
| delays in patient enrollment and variability in the number and types of patients available for clinical trials; | ||
| poor effectiveness of product candidates during clinical trials; | ||
| unforeseen safety issues or side effects; | ||
| governmental or regulatory delays related to clinical trials, including trial design, results, and materials supply; | ||
| changes in regulatory requirements, policy, and guidelines; and | ||
| varying interpretation of data by us, any or all of our collaborators, the FDA, and similar foreign regulatory agencies. |
It is possible that none of our product candidates will complete the required clinical trials
in any of the markets in which we or our collaborators intend to commercialize those product
candidates. Accordingly, we or our collaborators may not seek or receive the regulatory approvals
necessary to market our product candidates. Any failure or delay in commencing or completing
clinical trials or obtaining regulatory approvals for product candidates would prevent or delay
their commercialization and severely harm our business and financial condition.
We rely on third parties to conduct our clinical trials. If these third parties do not perform as
contractually required or otherwise expected, we may not be able to obtain regulatory approval
for or commercialize our product candidates.
We do not currently have the ability to conduct clinical trials and we must rely on third
parties, such as contract research organizations, medical institutions, clinical investigators, and
contract laboratories, to conduct our clinical trials. We have, in the ordinary course of business,
entered into agreements with these third parties. Nonetheless, we are responsible for confirming
that each of our clinical trials is conducted in accordance with its general investigational plan
and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly
referred to as good clinical practices, for conducting, recording, and reporting the results of
clinical trials to ensure that data and reported results are credible and accurate and that the
trial participants are adequately protected. Our reliance on third parties does not relieve us of
these responsibilities and requirements. If these third parties do not successfully carry out their
contractual duties or regulatory obligations or meet expected deadlines, if the third parties need
to be replaced or if the quality or accuracy of the data they obtain is compromised due to the
failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our
clinical trials may be extended, delayed, suspended, or terminated, and we may not be able to
obtain regulatory approval for our product candidates.
If we enter into additional strategic partnerships, such as our relationships with Pfizer and
Facet, we may be required to relinquish important rights to and control over the development of
our product candidates or otherwise be subject to terms unfavorable to us.
If we enter into any strategic partnerships, we will be subject to a number of risks,
including:
| we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of product candidates; | ||
| strategic partners may delay clinical trials, design clinical trials in a manner with which we do not agree, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new version of a product candidate for clinical testing; | ||
| strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs; |
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| strategic partners may not commit adequate resources to the marketing and distribution of any future products, limiting our potential revenues from these products; | ||
| disputes may arise between us and our strategic partners that result in the delay or termination of the research, development, or commercialization of our product candidates or that result in costly litigation or arbitration that diverts managements attention and consumes resources; | ||
| strategic partners may experience financial difficulties; | ||
| strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation; | ||
| business combinations or significant changes in a strategic partners business strategy may also adversely affect a strategic partners willingness or ability to complete its obligations under any arrangement; | ||
| strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and | ||
| strategic partners could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our product candidates. |
The occurrence of any of these risks could negatively impact the development of our product
candidates which would have an adverse effect on our business prospects.
If our technology or our product candidates conflict with the rights of others we may not be able
to manufacture or market our product candidates, which could have a material adverse effect on us
and on our collaboration agreement with Pfizer.
Our commercial success will depend in part on not infringing the patents or violating the
proprietary rights of third parties. Issued patents held by others may limit our ability to
develop commercial products. All issued U.S. patents are entitled to a presumption of validity
under U.S. law. If we need licenses to such patents to permit us to manufacture, develop, or market
our product candidates we may be required to pay significant fees or royalties, and we cannot be
certain that we would be able to obtain such licenses. Competitors or third parties may obtain
patents that may cover subject matter we use in developing the technology required to bring our
products to market, producing our products, or treating patients with our products. We know that
others have filed patent applications in various jurisdictions that relate to several areas in
which we are developing products. Some of these patent applications have already resulted in
patents and some are still pending. We may be required to alter our processes or product
candidates, pay licensing fees, or cease activities. For example, certain parts of our SMIP
product technology, including the current expression system responsible for the production of the
recombinant proteins used in our product candidates and certain nucleic acids, originated from
third-party sources. These third-party sources include academic, government, and other research
laboratories, as well as the public domain. If use of technology incorporated into or used to
produce our product candidates is challenged, or if our processes or product candidates conflict
with patent rights of others, third parties could bring legal actions against us in Europe, the
United States, and elsewhere claiming damages and seeking to enjoin manufacturing and marketing of
the affected products. Additionally, it is not possible to predict with certainty what patent
claims may issue from pending applications. In the United States, for example, patent prosecution
can proceed in secret prior to issuance of a patent. As a result, third parties may be able to
obtain patents with claims relating to our product candidates which they could attempt to assert
against us. Further, as we develop our products, third parties may assert that we infringe the
patents currently held or licensed by them and we cannot predict the outcome of any such action.
We are aware of previously filed U.S. provisional patent applications owned by Genentech and
Biogen Idec, which patent applications are related to a revoked European patent that was generally
directed to the use of an anti-CD20 antibody for the treatment of RA. A U.S. patent or patent
application claiming the benefit of priority to the provisional patent applications, if it exists,
has not yet published. In the event any such U.S. patent issues, and if our activities are
determined to be covered by such a patent, we cannot assure you Genentech would be willing to grant
us or Pfizer a license on terms we or they would consider commercially reasonable, if at all, which
could prevent us from manufacturing and marketing TRU-015 or SBI-087 for the treatment of RA in the
United States, and have a material adverse effect on our business, financial condition, operating
results, and our collaboration with Pfizer. With regard to the related European patent, we
announced on September 11, 2008 that the Opposition Division, or OD, of the European Patent Office,
or EPO, had revoked the European patent in its entirety. On February 19, 2009, Genentech and
Biogen Idec appealed
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the decision to the Board of Appeals of the EPO. If Genentech and Biogen Idec succeed in
their appeal of the ODs decision the opposition proceeding will be reopened before the OD. If
upon these further proceedings the European patent is held to be valid, either as amended prior to
the OD hearing or with a more limited scope, and if our activities are determined to be covered by
that patent, we cannot assure you that Genentech would be willing to grant us or Pfizer a license
on terms we or they would consider commercially reasonable, if at all. As a consequence, we and
Pfizer could be prevented from manufacturing and marketing TRU-015 or SBI-087 for the treatment of
RA in the designated and extended states of the European Patent Convention where the patent is
validated, which could have a material adverse effect on our business, financial condition, and
operating results. The revoked Genentech European patent claimed the benefit of priority to two
U.S. provisional patent applications and a U.S. patent or patent application claiming priority to
the provisional patent applications that have not been published. In the event any such U.S. patent
issues, and if our activities are determined to be covered by such a patent, we cannot assure you
Genentech would be willing to grant us or Pfizer a license on terms we or they would consider
commercially reasonable, if at all, which could prevent us from manufacturing and marketing TRU-015
or SBI-087 for the treatment of RA in the United States, and have a material adverse effect on our
business, financial condition and operating results, and our collaboration with Pfizer.
If we are unable to obtain, maintain, and enforce our proprietary rights, we may not be able to
compete effectively or operate profitably.
Our success depends in part on obtaining, maintaining, and enforcing our patents and other
proprietary rights, and will depend in large part on our ability to:
| obtain and maintain patent and other proprietary protection for our technology, processes, and product candidates; | ||
| enforce patents once issued and defend those patents if their enforceability is challenged; | ||
| preserve trade secrets; and | ||
| operate without infringing the patents and proprietary rights of third parties. |
The degree of future protection for our proprietary rights is uncertain. For example:
| we might not have been the first to make the inventions claimed in our patents, if issued, or disclosed in our pending patent applications; | ||
| we might not have been the first to file patent applications for these inventions; | ||
| others may independently develop similar or alternative technologies or duplicate any of our technologies; | ||
| it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially viable products, and may not provide us with any competitive advantages; | ||
| if our pending applications issue as patents, they may be challenged by third parties as not infringed, invalid, or unenforceable under U.S. or foreign laws; | ||
| if issued, the patents under which we hold rights may not be valid or enforceable; or | ||
| we may develop additional proprietary technologies that are not patentable and that may not be adequately protected through trade secrets, if, for example, a competitor were to independently develop duplicative, similar, or alternative technologies. |
The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves
many complex legal and technical issues. There is no clear policy involving the breadth of claims
allowed in patents or the degree of protection afforded under patents. Although we believe our
potential rights under patent applications provide a competitive advantage, we cannot assure you
that patent applications owned by or licensed to us will result in patents being issued or that, if
issued, the patents will give us an advantage over competitors with similar technology, nor can we
assure you that we can obtain, maintain, and enforce all ownership and other proprietary rights
necessary to develop and commercialize our product candidates.
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Even if any or all of our patent applications issue as patents, others may challenge the
validity, inventorship, ownership, enforceability, or scope of our patents or other technology used
in or otherwise necessary for the development and commercialization of our product candidates.
Further, we cannot assure you that any such challenge would not be successful. Moreover, the cost
of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our
proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties
may be able to use the challenged technologies without payment to us. We cannot assure you that our
patents, if issued, will not be infringed or successfully avoided through design innovation.
Intellectual property lawsuits are expensive and would consume time and other resources, even if
the outcome were successful. In addition, there is a risk that a court would decide that our
patents, if issued, are not valid and that we do not have the right to stop the other party from
using the inventions. There is also the risk that, even if the validity of a patent were upheld, a
court would refuse to stop the other party from using the inventions, including on the ground that
its activities do not infringe that patent. If any of these events were to occur, our business,
financial condition, and operating results would be materially adversely affected.
We also will rely on current and future trademarks to establish and maintain recognized
brands. If we fail to acquire and protect such trademarks, our ability to market and sell our
products, and therefore our business, financial condition and operating results, would be
materially adversely affected. For example, in November 2005, Merck KGaA filed a proceeding with
the Office for Harmonisation in the Internal Market opposing our European registration of the
trademark TRUBION and seeking to place certain restrictions on the identification of goods,
services, and channels of trade description in our European trademark registration. Merck claims
rights resulting from its prior trademark registration of TRIBION HARMONIS. Our appeal to the
opposition was dismissed by the Board of Appeals. We have filed an action with the Court of First
Instance of the European Communities to annul the Board decision. We intend to continue challenging
the opposition vigorously; however, if we are unable to effectively defend against the opposition,
we may be prohibited from using the TRUBION trademark in certain European Union jurisdictions,
which could have an adverse effect on our ability to promote the Trubion brand in those
jurisdictions.
In addition to the intellectual property and other rights described above, we also rely on
unpatented technology, trade secrets, and confidential information, particularly when we do not
believe that patent or trademark protection is appropriate or available. Trade secrets are
difficult to protect and we cannot assure you that others will not independently develop
substantially equivalent information and techniques or otherwise gain access to or disclose our
unpatented technology, trade secrets, and confidential information. In addition, we cannot assure
you that the steps we take with employees, consultants, and advisors will provide effective
protection of our confidential information or, in the event of unauthorized use of our intellectual
property or the intellectual property of third parties, provide adequate or effective remedies or
protection.
We may incur substantial costs as a result of litigation or other proceedings relating to patent
and other intellectual property rights.
There has been significant litigation in the biotechnology industry over patents and other
proprietary rights, and if we become involved in any litigation it could consume a substantial
portion of our resources, regardless of the outcome of the litigation. Some of our competitors may
be better able to sustain the costs of complex patent litigation because they have substantially
greater resources. If these legal actions are successful, in addition to any potential liability
for damages, we could be required to obtain a license, grant cross-licenses, and pay substantial
royalties in order to continue to manufacture or market the affected products. We cannot assure you
we would prevail in any legal action or that any license required under a third-party patent would
be made available on acceptable terms, if at all. In addition, uncertainties resulting from the
initiation and continuation of any litigation could have a material adverse effect on our ability
to continue our operations. Ultimately we could be prevented from commercializing a product or be
forced to cease some aspect of our business operations as a result of claims of patent infringement
or violation of other intellectual property rights, which could have a material adverse effect on
our business, financial condition, and operating results. Should third parties file patent
applications, or be issued patents claiming technology also claimed by us in pending applications,
we may be required to participate in interference proceedings in the United States Patent and
Trademark Office to determine priority of invention, which could result in substantial costs to us
and an adverse decision as to the priority of our inventions. An unfavorable outcome in an
interference proceeding could require us to cease using the technology or to license rights from
prevailing third parties. We cannot assure you that any prevailing party would offer us a license
or that we could acquire any license made available to us on commercially acceptable terms.
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We face substantial competition, which may result in others discovering, developing, or
commercializing products before, or more successfully than, we do.
Our future success depends on our ability to demonstrate and maintain a competitive advantage
with respect to the design, development, and commercialization of our product candidates. We expect
any product candidate that we commercialize with our collaborative partners, or on our own, will
compete with other products.
Product Candidates for Autoimmune and Inflammatory Diseases. If approved for the treatment of
RA, we anticipate that our product candidates would compete with other marketed protein
therapeutics for the treatment of RA, including: Rituxan® (Genentech, Roche and Biogen
Idec), Enbrel® (Amgen and Pfizer), Remicade® (JNJ and Schering-Plough),
Humira® (Abbott), Orencia® (BMS), Cimzia® (UCB) and Simponi® (JNJ
and Schering-Plough). If approved for the treatment of SLE, our product candidates may compete with
other therapies.
Product Candidates for B-cell Malignancies. If approved for the treatment of CLL, NHL, or
other B-cell malignancies, we anticipate that our product candidates would compete with other
B-cell depleting therapies. While we are not aware of any CD37-directed therapeutics in development
or on the market, other biologic therapies are marketed for the treatment of NHL or CLL or both,
such as Rituxan/Mabthera® (Genentech, Roche and Biogen Idec), Zevalin®
(Spectrum Pharmaceuticals, Inc. and Bayer Schering AG), Bexxar® (GSK), Treanda®
(Cephalon), Campath® (Genzyme and Bayer Schering AG) and Arzerra® (GSK and
Genmab).
Many of our potential competitors have substantially greater financial, technical,
manufacturing, marketing and personnel resources than we have. In addition, many of these
competitors have significantly greater commercial infrastructures than we have. Our ability to
compete successfully will depend largely on our ability to:
| design and develop products that are superior to other products in the market; | ||
| attract and retain qualified scientific, medical, product development, commercial, and sales and marketing personnel; | ||
| obtain patent and/or other proprietary protection for our processes, product candidates, and technologies; | ||
| operate without infringing the patents and proprietary rights of third parties; | ||
| obtain required regulatory approvals; and | ||
| successfully collaborate with others in the design, development, and commercialization of new products. |
Established competitors may invest heavily to quickly discover and develop novel compounds
that could make our product candidates obsolete. In addition, any new product that competes with a
generic market-leading product must demonstrate compelling advantages in efficacy, convenience,
tolerability, and safety in order to overcome severe price competition and to be commercially
successful. If we are not able to compete effectively against our current and future competitors,
our business will not grow, and our financial condition and operating results will suffer.
We may fail to select or capitalize on the most scientifically, clinically, or commercially
promising or profitable product candidates.
We have limited technical, managerial, and financial resources to determine which of our
product candidates should proceed to initial clinical trials, later-stage clinical development, and
potential commercialization and, further, we may make incorrect determinations. Our decisions to
allocate our research and development, management, and financial resources toward particular
product candidates or therapeutic areas may not lead to the development of viable commercial
products and may divert resources from better opportunities. Similarly, our decisions to delay or
terminate drug development programs may also be incorrect and could cause us to miss valuable
opportunities.
Even if our product candidates receive regulatory approval, they could be subject to restrictions
or withdrawal from the market and we may be subject to penalties if we fail to comply with
regulatory requirements or if we experience unanticipated problems with our products.
Any product candidate for which we receive regulatory approval, together with the
manufacturing processes, post-approval clinical data, and advertising and promotional activities
for such product, will be subject to continued review and regulation by the FDA and other
regulatory agencies. Even if regulatory approval of a product candidate is granted, the approval
may be subject to limitations on
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the indicated uses for which the product candidate may be marketed or on the conditions of
approval, or contain requirements for costly post-marketing testing and surveillance to monitor the
safety or efficacy of the product candidate. Later discovery of previously unknown problems with
our products or their manufacture, or failure to comply with regulatory requirements, may result
in, among other things:
| restrictions on the products or manufacturing processes; | ||
| withdrawal of the products from the market; | ||
| voluntary or mandatory recalls; | ||
| fines; | ||
| suspension of regulatory approvals; | ||
| product seizures; or | ||
| injunctions or the imposition of civil or criminal penalties. |
If we are slow or otherwise unable to adapt to changes in existing regulatory requirements, we
may lose marketing approval for any products that may be approved in the future.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing
our products internationally.
We intend to have our product candidates marketed outside the United States. In order to
market our products in the European Union and many other non-U.S. jurisdictions, we must obtain
separate regulatory approvals and comply with numerous and varying regulatory requirements. To
date, we have not filed for marketing approval of any of our product candidates and may not receive
the approvals necessary to commercialize our product candidates in any market. The approval
procedure varies among countries and can involve additional testing and data review. The time
required to obtain foreign regulatory approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include all of the risks associated with
obtaining FDA approval, or may include different or additional risks. We may not obtain foreign
regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by
regulatory agencies in other countries, and approval by one foreign regulatory authority does not
ensure approval by regulatory agencies in other foreign countries or by the FDA. A failure or delay
in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by the FDA. The failure to obtain
regulatory approval in foreign jurisdictions could seriously harm our business.
Our product candidates may never achieve market acceptance even if we obtain regulatory
approvals.
Even if we obtain regulatory approvals for the commercial sale of our product candidates, the
commercial success of these product candidates will depend on, among other things, their acceptance
by physicians, patients, third-party payors, and other members of the medical community as a
therapeutic and cost-effective alternative to competing products and treatments. If our product
candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue
our business. Market acceptance of, and demand for, any product that we may develop and
commercialize will depend on many factors, including:
| our ability to provide acceptable evidence of safety and efficacy; | ||
| the prevalence and severity of adverse side effects; | ||
| availability, relative cost, and relative efficacy of alternative and competing treatments; | ||
| the effectiveness of our marketing and distribution strategy; | ||
| publicity concerning our products or competing products and treatments; and | ||
| our ability to obtain sufficient third-party insurance coverage or reimbursement. |
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If our product candidates do not become widely accepted by physicians, patients, third-party
payors, and other members of the medical community, our business, financial condition, and
operating results would be materially adversely affected.
If we are unable to establish a sales and marketing infrastructure or enter into collaborations
with partners to perform these functions, we will not be able to commercialize our product
candidates.
We currently do not have any internal sales, marketing, or distribution capabilities. In order
to commercialize any of our product candidates that are approved for commercial sale, we must
either acquire or internally develop a sales, marketing, and distribution infrastructure or enter
into collaborations with partners able to perform these services for us. In December 2005, we
entered into a collaboration agreement with Wyeth, now Pfizer to develop and commercialize
therapeutics directed to the CD20 protein and other targets. If we do not enter into collaborations
with respect to product candidates not covered by the Pfizer collaboration, or if any of our
product candidates are the subject of collaborations with partners that are not able to
commercialize such product candidates, we will need to acquire or internally develop a sales,
marketing, and distribution infrastructure. Factors that may inhibit our efforts to commercialize
our product candidates without partners that are able to commercialize the product candidates
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 a sales and marketing organization. |
If we are not able to partner with a third party able to commercialize our product candidates,
or are not successful in recruiting sales and marketing personnel or in building a sales,
marketing, and distribution infrastructure, we will have difficulty commercializing our product
candidates, which would adversely affect our business and financial condition.
If any products we develop become subject to unfavorable pricing regulations, third-party
reimbursement practices, or healthcare reform initiatives, our business could be harmed.
Our ability to commercialize any product candidate profitably will depend in part on the
extent to which reimbursement for such product candidate and related treatments will be available
from government health administration authorities, private health insurers, or private payors, and
other organizations in the United States and internationally. Even if we succeed in bringing one or
more product candidates to market, these products may not be considered cost-effective, and the
amount reimbursed for any product may be insufficient to allow us to sell it profitably. Because
our product candidates are in the early stages of development, we are unable at this time to
determine their cost-effectiveness and the level or method of reimbursement. There may be
significant delays in obtaining coverage for newly approved products, and coverage may be more
limited than the purposes for which the product candidate is approved by the FDA or foreign
regulatory agencies. Moreover, eligibility for coverage does not mean that any product will be
reimbursed in all cases or at a rate that covers our costs, including research, development,
manufacture, sale, and distribution. Increasingly, the third-party payors who reimburse patients,
such as government and private payors, are requiring that companies provide them with predetermined
discounts from list prices and are challenging the prices charged for medical products. If the
reimbursement we are able to obtain for any product we develop is inadequate in light of our
development and other costs, our business could be harmed.
We face potential product liability exposure, and if successful claims are brought against us, we
may incur substantial liability for a product candidate and may have to limit its
commercialization.
The use of our product candidates in clinical trials and the sale of any products for which we
obtain marketing approval expose us to the risk of product liability claims. Product liability
claims might be brought against us by consumers, health-care providers, pharmaceutical companies,
or others selling our products. If we cannot successfully defend ourselves against these claims, we
will incur substantial liabilities. Regardless of merit or eventual outcome, product liability
claims may result in:
| decreased demand for our product candidates; |
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| impairment of our business reputation; | ||
| withdrawal of clinical trial participants; | ||
| costs of related litigation; | ||
| substantial monetary awards to patients or other claimants; | ||
| loss of revenues; and | ||
| the inability to commercialize our product candidates. |
Although we currently have product liability insurance coverage for our clinical trials for
expenses or losses, our insurance coverage may not reimburse us or may not be sufficient to
reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is
becoming increasingly expensive and, in the future, we may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against losses due to
liability. We intend to expand our insurance coverage to include the sale of commercial products if
we obtain marketing approval for our product candidates in development, but we may be unable to
obtain commercially reasonable product liability insurance for any products approved for marketing.
On occasion, large judgments have been awarded in class action lawsuits based on products that had
unanticipated side effects. A successful product liability claim or series of claims brought
against us could cause our stock price to fall and, if judgments exceed our insurance coverage,
could decrease our cash and adversely affect our business.
We could be required to pay significant cancellation fees for reserved manufacturing capacity
under our manufacturing agreement with Lonza.
We are party to a manufacturing services agreement effective as of November 21, 2005, with
Lonza under which Lonza provides development and manufacturing services, with respect to TRU-016,
including manufacture of product candidates for use in clinical trials and, upon regulatory
approval, for commercial use. Under this agreement, we reserve future manufacturing runs under
pre-specified terms and conditions. We may desire to cancel a reserved manufacturing run for a
number of business reasons, such as a regulatory action or a preclinical, clinical, or commercial
development that might change our clinical trial schedule. If for any reason we terminate any of
these reserved runs without providing at least 360 days advance notice to Lonza and if Lonza is
unable to mitigate its losses after using reasonable efforts to do so, we will incur cancellation
fees of 85% of the cost to us of the run. In addition, if we terminate any of the reserved runs
without providing at least 180 days advance notice to Lonza, and if Lonza is unable to mitigate
its losses after using reasonable efforts to do so, we will incur cancellation fees of 100% of the
cost to us of the run. For example, we currently have a manufacturing run scheduled to occur in
less than 360 days and if we cancel that run and if Lonza is unable to find a replacement customer
despite its reasonable efforts to mitigate its losses, we will owe Lonza a cancellation fee of $1.8
million, which could harm our financial condition.
If we use biological and hazardous materials in a manner that causes contamination or injury or
violates laws, we may be liable for damages.
Our research and development activities involve the use of potentially harmful biological
materials, as well as hazardous materials, chemicals, and various radioactive compounds. We cannot
completely eliminate the risk of accidental contamination or injury from the use, storage,
handling, or disposal of these materials. In the event of contamination or injury, we could be held
liable for damages that result, and any liability could exceed our resources. We do not maintain
liability insurance coverage for our handling of biological or hazardous materials. We, the third
parties that conduct clinical trials on our behalf, and the third parties that manufacture our
product candidates are subject to federal, state, and local laws and regulations governing the use,
storage, handling, and disposal of these materials and waste products. The cost of compliance with
these laws and regulations could be significant. The failure to comply with any of these laws and
regulations could result in significant fines and work stoppages and may harm our business.
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Risks Related to Our Common Stock
The trading price of our common stock may be subject to significant fluctuations and volatility,
and our stockholders may be unable to resell their shares at a profit.
The trading prices of many smaller publicly traded companies are highly volatile, particularly
companies such as ours that have limited operating histories. Accordingly, the trading price of our
common stock has been subject to significant fluctuations and may continue to fluctuate or decline.
Since our initial public offering, which was completed in October 2006, the price of our common
stock has ranged from an intra-day low of $1.00 to an intra-day high of $22.50. Factors that could
cause fluctuations in the trading price of our common stock include the following:
| low trading volumes; | ||
| our ability to develop and market new and enhanced product candidates on a timely basis; | ||
| announcements by us or our collaborators or competitors of new commercial products, clinical progress or the lack thereof, changes in or terminations of relationships, significant contracts, commercial relationships, or capital commitments; | ||
| commencement of, or our involvement in, litigation; | ||
| changes in earnings estimates or recommendations by securities analysts; | ||
| changes in governmental regulations or in the status of our regulatory approvals; | ||
| any major change in our board or management; | ||
| quarterly variations in our operating results or those of our collaborators or competitors; | ||
| general economic conditions and slow or negative growth of our markets; and | ||
| political instability, natural disasters, war, and/or events of terrorism. |
In addition, the U.S. stock market has experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of trading companies.
Broad market and industry factors may seriously affect the market price of companies stock,
including ours, regardless of actual operating performance. In addition, in the past, following
periods of volatility in the overall market and the market price of a particular companys
securities, securities class action litigation has often been instituted against these companies.
This litigation, if instituted against us, could result in substantial costs and a diversion of our
managements attention and resources.
If securities analysts do not publish research or reports about our business, or if they
downgrade our stock, the price of our stock could decline.
The trading market for our common stock will rely in part on the availability of research and
reports that third-party industry or financial analysts publish about us. There are many large,
publicly traded companies active in the biopharmaceutical industry, which may mean it will be less
likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who
do cover us downgrade our stock, our stock price would likely decline. If one or more of these
analysts cease coverage of us, we could lose visibility in the market, which in turn could cause
our stock price to decline.
The concentration of our capital stock ownership with insiders will likely limit your ability to
influence corporate matters.
As of September 30, 2009, our executive officers, directors, current five percent or greater
stockholders, and affiliated entities together beneficially owned approximately 82% of our
outstanding common stock. As a result, these stockholders, acting together, have control over most
matters that require approval by our stockholders, including the election of directors and approval
of significant corporate transactions. Corporate action might be taken even if other stockholders
oppose them. This concentration of ownership might also have the effect of delaying or preventing a
change of control of us that other stockholders may view as beneficial.
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Anti-takeover provisions in our charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition
of us or a change in our management. These provisions include a classified board of directors, a
prohibition on actions by written consent of our stockholders and the ability of our board of
directors to issue preferred stock without stockholder approval. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits stockholders owning in excess of 15% of our outstanding voting
stock from merging or combining with us. Although we believe these provisions collectively provide
for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our
board of directors, they would apply even if the offer may be considered beneficial by some
stockholders. In addition, these provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which is responsible for appointing the
members of our management.
We are exposed to potential risks from legislation requiring companies to evaluate controls under
Section 404 of the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act requires that we maintain effective internal controls over financial
reporting and disclosure controls and procedures. Among other things, we must perform system and
process evaluation and testing of our internal controls over financial reporting to allow
management to report on, and our independent registered public accounting firm to attest to, our
internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
Compliance with Section 404 requires substantial accounting expense and significant management
efforts. Our testing, or the subsequent review by our independent registered public accounting
firm, may reveal deficiencies in our internal controls that would require us to remediate in a
timely manner so as to be able to comply with the requirements of Section 404 each year. If we are
not able to comply with the requirements of Section 404 in a timely manner each year, we could be
subject to sanctions or investigations by the SEC, NASDAQ or other regulatory authorities that
would require additional financial and management resources and could adversely affect the market
price of our common stock.
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ITEM 6. EXHIBITS
Exhibit | ||
Number | Description | |
3.1
|
Amended and Restated Certificate of Incorporation (Exhibit 3.1)(A) | |
3.2
|
Amended and Restated Bylaws (Exhibit 3.1)(B) | |
4.1
|
Form of common stock certificate (Exhibit 4.1)(C) | |
4.2
|
Amended and Restated Investor Rights Agreement, dated July 13, 2004 (Exhibit 4.2)(A) | |
4.3
|
Amendment No. 1 to Amended and Restated Investor Rights Agreement, dated December 19, 2005 (Exhibit 4.3)(A) | |
10.1*
|
Collaboration and License Agreement, dated August 27, 2009, by and between Facet Biotech Corporation and Trubion Pharmaceuticals, Inc. | |
10.2
|
Manufacturing Services Agreement, dated November 21, 2005, by and between Lonza Biologics and Trubion Pharmaceuticals, Inc. (Exhibit 10.37) (D) | |
10.3
|
Novation Agreement, effective as of January 1, 2007, among Trubion Pharmaceuticals, Inc., Lonza Biologics, Inc. and Lonza Sales AG (Exhibit 10.3) (E) | |
10.4*
|
Amendment, dated December 5, 2008, to the Manufacturing Services Agreement, dated November 21, 2005, by and between Trubion Pharmaceuticals, Inc. and Lonza Sales AG | |
10.5*
|
Quality Agreement for TRU-016, dated December 5, 2008, by and between Trubion Pharmaceuticals, Inc. and Lonza Sales AG | |
10.6*
|
Second Amendment, dated April 3, 2009, to the Manufacturing Services Agreement, dated November 21, 2005, by and between Trubion Pharmaceuticals, Inc.and Lonza Sales AG | |
31.1*
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2*
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1*
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(A) | Incorporated by reference to the designated exhibit to the registrants Registration Statement on Form S-1 filed with the SEC on June 2, 2006 (File No. 333-134709). | |
(B) | Incorporated by reference to the designated exhibit to the registrants Current Report on Form 8-K filed with the SEC on November 26, 2008 (File No. 001-33054). | |
(C) | Incorporated by reference to the designated exhibit to the registrants Registration Statement on Form S-1 filed with the SEC on October 2, 2006 (File No. 333-134709). | |
(D) | Incorporated by reference to the designated exhibit to the Registrants Registration Statement on Form S-1 filed with the SEC on August 18, 2006. | |
(E) | Incorporated by reference to the designated exhibit to the Registrants quarterly report of Form 10-Q filed with the SEC on August 7, 2008. | |
* | Filed herewith. | |
| Portions of the agreement are subject to confidential treatment. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 5, 2009
TRUBION PHARMACEUTICALS, INC. |
||||
By: | /s/ Michelle G. Burris | |||
Michelle G. Burris | ||||
Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) |
||||
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