UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
Commission File Number
000-30681
DENDREON
CORPORATION
(Exact name of registrant as
specified in its charter)
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DELAWARE
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22-3203193
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3005 FIRST AVENUE,
SEATTLE, WASHINGTON
(Address of principal
executive offices)
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98121
(Zip
Code)
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(206) 256-4545
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.001 Par Value Per Share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, 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). Yes o No o
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant based on the closing sale price
of the registrants common stock on June 30, 2009, as
reported by the NASDAQ Stock Market, was $2,784,779,250.
As of February 18, 2010, the registrant had outstanding
134,140,801 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Sections of the registrants definitive Proxy Statement,
which will be filed on or before April 30, 2010 with the
Securities and Exchange Commission in connection with the
registrants 2010 annual meeting of stockholders, are
incorporated by reference into Part III of this Report, as
noted therein.
PART I
OVERVIEW
Dendreon Corporation (Dendreon, the
Company, we, us, or
our), is a biotechnology company focused on the
discovery, development and commercialization of novel
therapeutics that may significantly improve cancer treatment
options for patients. Our product portfolio includes active
cellular immunotherapy and small molecule product candidates to
treat a wide range of cancers. Our most advanced product
candidate is
PROVENGE®
(sipuleucel-T), an active cellular immunotherapy that has
completed three Phase 3 trials for the treatment of metastatic,
castrate-resistant (also known as
androgen-independent or
hormone-refractory) prostate cancer. Prostate cancer
is the most common non-skin cancer among men in the United
States, with over one million men currently diagnosed with the
disease, and the second leading cause of cancer deaths in men in
the United States.
Product
Candidates Overview
The following table summarizes the target indications and status
of our product candidates.
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Product Candidate
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Target Indication(s)
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Status
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Active Cellular Immunotherapy:
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Provenge (sipuleucel-T)
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Castrate-resistant prostate cancer:
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Phase 3 D9901
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final data
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Phase 3 D9902A
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final data
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Phase 3 D9902B (IMPACT)
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final data, BLA amended October 2009
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Phase 2 P07-2 (ProACT)
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ongoing
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Phase 2 P09-1(OpenACT)
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ongoing
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Androgen-dependent prostate cancer:
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Phase 3 P-11(PROTECT)
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ongoing; primary analysis 2007
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Phase 2 P-16
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final data
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Phase 2 D9905
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final data
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Phase 2 P07-1 (NeoACT)
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ongoing
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lapuleucel-T
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Breast cancer:
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Phase 1 2000-1
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final data
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Breast, ovarian and colon cancer:
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Phase 1 2000-2
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final data
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Small Molecule Agonist to Trp Ion Channel (TRPM8)
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Multiple cancers:
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Phase 1 T08-1
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ongoing
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Immunotherapy
Targets
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CA-9 (MN)
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Kidney, colon and cervical cancer
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Preclinical
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CEA
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Breast, lung and colon cancer
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Preclinical
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Cancer
Immunotherapies
Cancer is characterized by abnormal cells that grow and
proliferate, forming masses called tumors. Under the right
circumstances, these proliferating cells can metastasize, or
spread, throughout the body and produce deposits of tumor cells
called metastases. As the tumors grow, they may cause tissue and
organ failure and, ultimately, death.
2
To be effective, cancer therapies must eliminate or control the
growth of the cancer. Current therapies, such as surgery,
radiation, hormone treatments and chemotherapy, may not have the
desired therapeutic effect and may result in significant
detrimental side effects. Active immunotherapies stimulate the
immune system, the bodys natural mechanism for fighting
disease, and may overcome some of the limitations of current
standard-of-care
cancer therapies.
The
Immune System
The immune system is composed of a variety of specialized cells.
These cells recognize specific chemical structures called
antigens. Foreign antigens trigger an immune response that
typically results in the removal of disease-causing agents from
the body.
The immune system recognizes and generates a strong response to
hundreds of thousands of different foreign antigens. Tumors,
however, frequently display antigens that are also found on
normal cells. The immune system may not be able to distinguish
between tumors and normal cells and, thus, may be unable to
mount a strong anti-cancer response. Tumors may also prevent the
immune system from fully activating. We believe one key to
directing the immune system to fight cancers is to modify, or
engineer, tumor antigens so that they can be recognized by the
immune system and then to manipulate immune system cells to
stimulate a response to these engineered antigens.
An immune response is started by a specialized class of immune
system cells called antigen-presenting cells. Antigen-presenting
cells take up antigen from their surroundings and process the
antigen into fragments that are then displayed on the surface of
the antigen-presenting cell. Once on display, these antigens can
be recognized by specific classes of immune cells called
lymphocytes. One category of lymphocytes, T lymphocytes (T
cells), combat disease by killing antigen-bearing cells
directly. In this way, T cells may eliminate cancers and virally
infected tissue. T-cell immunity is also known as cell-mediated
immunity and is commonly thought to be a key defense against
tumors and cells chronically infected by viruses. Our active
immunotherapies are designed to stimulate a T-cell response to
cancer cells.
A second category of lymphocytes, B lymphocytes (B
cells), produce specific antibodies when activated. Each
antibody binds to and attacks one particular type of antigen
expressed on a cell, interfering with that cells activity
or causing cell death.
Our
Active Immunotherapy Approach
We combine our experience in processing antigen-presenting cells
and identifying and engineering antigens to produce active
immunotherapy products, which are designed to stimulate a
tumor-directed immune response. We believe that our proprietary
technology is applicable to many antigens of interest and,
therefore, may be developed to target a variety of solid tumor
and blood-borne malignancies.
Our approach to active immunotherapy is to:
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identify or in-license antigens that are expressed on cancer
cells and are suitable targets for cancer therapy;
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create proprietary, genetically engineered antigens that will be
optimally processed by antigen-presenting cells; and
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isolate antigen-presenting cells using proprietary methods and
combine these antigen-presenting cells with the engineered
antigens ex vivo.
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Antigen Identification. Our internal antigen
discovery programs begin by identifying novel antigens expressed
in specific tissues or in malignant cells. We consider the
antigens that we find localized in diseased tissue as candidates
for antigen engineering. Our lead product candidate,
Provenge®
(sipuleucel-T), is designed to target the prostate cancer
antigen prostatic acid phosphatase (PAP), an antigen
that is expressed in more than 90 percent of all prostate
cancers. The antigen target for
Neuvengetm
(lapuleucel-T), our active immunotherapy candidate in
development for the treatment of bladder, breast, ovarian and
other solid tumors, is a HER2/neu. Through licenses, we have
also acquired the opportunity to work with the tumor antigens
designated carcinoembryonic antigen and carbonic anhydrase 9. We
discovered the tumor antigen TRPM8 and we are presently
utilizing this protein as a target for small molecule drug
development.
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Antigen Engineering. We engineer antigens to
produce proprietary active immunotherapies. Our antigen
engineering is designed to trigger and maximize cell-mediated
immunity by augmenting the uptake and processing of the target
antigen by antigen-presenting cells. We can affect the quality
and quantity of the immune response that is generated by adding,
deleting or modifying selected sequences of the antigen gene,
together with inserting the modified antigen into our
proprietary Antigen Delivery
Cassettetm
technology.
Our Antigen Delivery Cassette technology enhances antigen
binding and entry into antigen-presenting cells. The Antigen
Delivery Cassette targets each engineered antigen to a receptor
on antigen-presenting cells and provides a common key to unlock
the potential of these cells to process antigen. The
antigen-presenting cells process antigen along pathways that
stimulate cell-mediated immunity. We believe this process
results in a tumor-directed immune response. Our Antigen
Delivery Cassette technology also provides us with a foundation
on which to build new proprietary antigens.
Active Immunotherapy Production and
Delivery. Our manufacturing process incorporates
two elements: the fusion protein created using the Antigen
Delivery Cassette technology and antigen-presenting cells. To
obtain antigen-presenting cells, we first arrange to have white
blood cells removed from a patient through a standard blood
collection process called leukapheresis. Antigen-presenting
cells are then collected using our proprietary cell separation
technology. These antigen-presenting cells are then incubated
with the required concentration of the engineered protein under
controlled conditions. After approximately 40 hours, the
antigen-presenting cells are ready to be used. We subject each
dose to quality control testing, including identity, purity,
potency, sterility and other safety testing. Our process
requires less than three days from white blood cell collection
to the administration of the active immunotherapy product
candidate.
Provenge®
(sipuleucel-T)
Our most advanced product candidate is Provenge (sipuleucel-T),
an active cellular immunotherapy that has been studied in three
Phase 3 trials for the treatment of metastatic,
castrate-resistant (also known as
androgen-independent or
hormone-refractory) prostate cancer. Prostate cancer
is the most common non-skin cancer among men in the United
States, with more than one million men currently diagnosed with
the disease, and the second leading cause of cancer deaths in
men in the United States. On August 24, 2006, we submitted
the clinical and non-clinical sections of our Biologics License
Application (our BLA) and on November 9, 2006,
we submitted the chemistry, manufacturing and controls
(CMC) section, completing our submission of our BLA
to the U.S. Food and Drug Administration (the FDA)
for Provenge. The FDAs Cellular, Tissue and Gene Therapies
Advisory Committee (the Advisory Committee) review
of our BLA for the use of Provenge in the treatment of patients
with metastatic, castrate-resistant (also previously referred to
as androgen-independent) prostate cancer was held on
March 29, 2007. The Advisory Committee was unanimous (17
yes, 0 no) in its opinion that the submitted data established
that Provenge is reasonably safe for the intended population and
the majority (13 yes, 4 no) believed that the submitted data
provided substantial evidence of the efficacy of Provenge in the
intended population.
On May 8, 2007, we received a Complete Response Letter (the
CRL) from the FDA regarding our BLA. In its letter,
the FDA requested additional clinical data in support of the
efficacy claim contained in the BLA, as well as additional
information with respect to the CMC section of the BLA. In a
meeting with the FDA on May 29, 2007, we received
confirmation that the FDA will accept a positive final analysis
of survival from our Phase 3 D9902B IMPACT (IMmunotherapy for
Prostate AdenoCarcinoma Treatment) study to support licensure of
Provenge.
On April 14, 2009, we announced that the IMPACT study had
met its primary endpoint of overall survival and exhibited a
safety profile consistent with prior studies. On April 28,
2009, at the American Urological Association annual meeting, we
presented detailed results of the IMPACT study. The IMPACT study
had a final enrollment of 512 patients with asymptomatic or
minimally symptomatic, metastic, castrate-resistant prostate
cancer and was a multi-center, randomized, double-blind,
placebo-controlled study. Final results from the IMPACT study
showed that Provenge extended median survival by 4.1 months
compared to placebo (25.8 months versus 21.7 months),
and Provenge improved
3-year
survival by 38% compared to placebo (31.7% versus 23.0%). The
IMPACT study achieved a p-value of 0.032, exceeding the
pre-specified level of statistical significance defined by the
studys design (p-value less than 0.043), and Provenge
reduced the risk of death by 22.5% compared to placebo
(HR=0.775). On October 30, 2009 we completed the amendment
of our BLA with the FDA to incorporate
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IMPACT study results and data regarding CMC requirements not
previously addressed. The FDA has confirmed that our amendment
constituted a complete response to the CRL and the goal date for
FDA action on our BLA under the Prescription Drug Users Fee Act
is May 1, 2010.
The following table summarizes the survival results of the three
Provenge Phase 3 studies in men with asymptomatic, metastatic,
castrate-resistant prostate cancer:
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Clinical Study
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D9901
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D9902A
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D9902B
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N = 127
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N = 98
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N = 512
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Median Survival in months:
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Provenge
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25.9
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19.0
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25.8
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Placebo
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21.4
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15.7
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21.7
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Median Survival Benefit:% (months)
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21% (4.5)
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21% (3.3)
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19% (4.1)
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Hazard Ratio
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0.586
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0.786
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0.775
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p-value
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P=.010
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P=.331
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P=.032
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36-Month
Survival:% (patients)
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Provenge
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34%
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32%
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32%
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Placebo
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11%
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21%
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23%
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In controlled clinical trials, the most common adverse events
(³5%
and at least twice the control arm incidence) associated with
Provenge included chills, fever, headache, muscle aches,
influenza-like illness, and sweating. The majority of adverse
events were mild or moderate in severity (Grade 1 or 2). In
general, they occurred within 1 day of infusion and were
short in duration (resolved in
£2 days).
Severe (Grade 3) acute infusion reactions occurred in 3.5%
of patients; no Grade 4 or 5 acute infusion reactions occurred
in patients receiving Provenge. In Study D9902B, the percentage
of patients who discontinued treatment with Provenge due to an
adverse reaction was 1.5%.
Market
for PROVENGE
The American Cancer Society estimated that in 2009 approximately
192,280 new cases of prostate cancer would be diagnosed in the
United States, and approximately 27,360 men were expected to die
of prostate cancer. Our Provenge clinical studies submitted in
support of our BLA have primarily targeted metastatic,
castrate-resistant, prostate cancer. Castrate-resistant prostate
cancer is an advanced stage of prostate cancer in which the
tumor growth is no longer regulated by androgens, or male
hormones; it is also referred to as androgen-independent
prostate cancer or hormone refractory prostate cancer.
Early-stage, localized prostate cancer may be cured with surgery
or radiation therapy. The disease will recur in approximately
20% to 30% of men, at which point hormone ablation therapy is
the most commonly used treatment approach. While most prostate
cancer initially responds to hormone ablation therapy, the vast
majority of these patients will experience disease progression
after 18 to 24 months, becoming refractory to hormone
treatment, or castrate resistant. For these patients, subsequent
treatment involves a limited number of options, including
chemotherapy and radiation therapy, which may not have the
desired therapeutic effect and may result in significant adverse
side effects.
To be effective, cancer therapies must eliminate or control the
growth of the cancer.
Taxotere®
(docetaxel) is a chemotherapy drug, and it is the only
FDA-approved drug that has been proven to prolong survival in
men with metastatic, hormone-refractory (or castrate-resistant)
prostate cancer. However, chemotherapy drugs are generally
administered over the course of a number of months and may have
significant side effects: fatigue, vomiting, gastrointestinal
effects, and nerve damage.
We believe that Provenge addresses a significant unmet medical
need for patients with metastatic, castrate-resistant prostate
cancer by prolonging survival with an acceptable safety profile.
Provenge is administered as 3 infusions, generally 2 weeks
apart, allowing for a complete course of therapy in
approximately 1 month. Each
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infusion takes approximately 60 minutes to administer and is
preceded by a standard leukapheresis procedure. The survival
benefit in combination with the safety profile distinguishes
Provenge from other treatments for metastatic disease.
Provenge
Clinical Trials in Advanced Stage Prostate Cancer
Clinical Trial D9901. In June
2001, we completed enrollment in our first Phase 3 clinical
trial of Provenge, D9901, which was a randomized double-blind
placebo-controlled study in 127 men with asymptomatic,
metastatic, androgen-independent (hormone refractory) prostate
cancer. The trial was designed to measure a delay in time to
disease progression. Time to the onset of disease related pain
was a secondary endpoint that was to be evaluated in concert
with the results from a second, identical companion trial,
D9902. After disease progression, placebo patients were given
the option to receive salvage therapy of Provenge on a separate
open label study. The protocols for both trials required
patients to be followed for survival for three years after
enrollment.
In 2002, an analysis of the primary endpoint in trial D9901
demonstrated a 31 percent reduction in the risk of disease
progression for patients who received Provenge compared to
patients who received placebo. At 6 months following
randomization, 31.9 percent of patients receiving Provenge
were progression free compared to 13.3 percent of patients
in the placebo arm. This analysis closely approached but did not
achieve statistical significance. We completed the planned three
year
follow-up
for survival on the D9901 patients and disclosed in
February 2005 that a significant survival advantage was seen in
those patients who had been randomized to the Provenge arm
compared to those who had been randomized to receive placebo.
According to the final three year
intent-to-treat
analysis, patients who received Provenge had a median survival
of 25.9 months compared to 21.4 months for patients in
the placebo arm, a 4.5 month or 21 percent improvement
(p-value = 0.01, hazard ratio = .586). This hazard ratio implies
that patients who received Provenge have a 41 percent
reduction in risk of death than that of patients who were
randomized to receive placebo. In addition, 34 percent of
patients who received Provenge were alive at 36 months
compared to 11 percent of patients who received placebo.
These results were published in the July 2006 issue of the
Journal of Clinical Oncology. A Cox multivariate regression
analysis was used to test the validity of the survival benefit
seen in this study. The results showed that treatment with
Provenge remained a strong independent predictor of survival
after adjusting for prognostic factors; patients who received
Provenge had a 53 percent reduction in the risk of death
(p-value = 0.002, adjusted hazard ratio = .463). Recent
additional analyses have demonstrated an improvement in prostate
cancer specific survival for Provenge treated patients
(p-value =
0.002; hazard ratio = .491). In addition, there is no evidence
to suggest an imbalance in the use or delay in the timing of
chemotherapy in the placebo arm relative to the Provenge arm. We
have also demonstrated a correlation between overall survival
and cumulative final product CD54 upregulation, a measure of
antigen presenting cell activation which serves as the potency
assay for Provenge.
Clinical Trial D9902A. D9902, our
companion study to D9901, was stopped in 2002 after 98 of
120 patients were enrolled when the analysis of the
completed D9901 trial showed that no statistically significant
benefit in time to disease progression had been observed in the
overall group, but that a benefit was seen in the subgroup of
patients with Gleason scores of seven and less. We amended the
D9902 protocol to bifurcate the study into our completed
randomized D9902A Phase 3 trial consisting of the original
98 patients and our ongoing D9902B Phase 3 study, which was
initially restricted to patients with Gleason scores of 7 or
less, under a special protocol assessment (SPA).
In October 2005, we disclosed final results from D9902A. Trial
D9902A also did not meet its primary endpoint of showing a
statistically significant delay in time to disease progression.
In the D9902A study, the three-year final survival analysis in
the
intent-to-treat
population of the double-blind, placebo-controlled study of
treatment with Provenge in 98 men with asymptomatic, metastatic,
androgen-independent prostate cancer showed those patients who
received Provenge had a median survival of 19.0 months
compared to 15.7 months for patients in the placebo arm, a
3.3 month or 21 percent reduction in the risk of death
(p-value = 0.331, hazard ratio = .786). A Cox multivariate
regression analysis of overall survival, which adjusts for the
same prognostic factors known to influence survival utilized in
D9901, met the criteria for statistical significance (p-value =
0.023; adjusted hazard ratio = .522). The hazard ratio observed
in this analysis was similar to that seen in our D9901 trial. In
addition, at the
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three-year final follow up, 32 percent of patients who
received Provenge were alive compared to only 21 percent of
the patients who received placebo, a 52 percent improvement
in the survival rate.
Clinical Trial D9902B. In August
2002, we divided our D9902 trial into D9902A discussed above and
D9902B, our ongoing supportive Phase 3 study, now known as the
IMPACT (IMmunotherapy for Prostate AdenoCarcinoma Treatment)
study. The IMPACT study was initiated in June 2003 under an SPA
for the treatment of men with metastatic, castrate-resistant
prostate cancer whose tumors had been classified as Gleason
score 7 or less. The SPA provides a written agreement with the
FDA concerning the trial design and outlines definitive clinical
objectives and data analyses. Based upon results of the previous
Phase 3 studies, D9901 and D9902A, we met with the FDA and
amended the D9902B SPA to open the trial to men regardless of
Gleason score and to elevate survival to the primary endpoint.
The primary endpoint of the study is overall survival (an
event-driven analysis), and time to objective disease
progression is a secondary endpoint. On May 29, 2007, the
FDA confirmed that it would accept a positive final analysis of
survival from the IMPACT study to support licensure for
Provenge. In October 2007, we completed enrollment of over
500 patients in the IMPACT study. On April 14, 2009,
we announced that the IMPACT study had met its primary endpoint
of overall survival and exhibited a safety profile consistent
with prior studies. On April 28, 2009, at the American
Urological Association annual meeting, we presented detailed
results of the IMPACT study. The IMPACT study had a final
enrollment of 512 patients with asymptomatic or minimally
symptomatic, metastatic, castrate-resistant prostate cancer and
was a multi-center, randomized, double-blind, placebo-controlled
study. Final results from the IMPACT study showed that Provenge
extended median survival by 4.1 months compared to placebo
(25.8 months versus 21.7 months), and Provenge
improved
3-year
survival by 38% compared to placebo (31.7% versus 23.0%). The
IMPACT study achieved a p-value of 0.032, exceeding the
pre-specified level of statistical significance defined by the
studys design (p-value less than 0.043), and Provenge
reduced the risk of death by 22.5% compared to placebo (hazard
ratio=0.775). On October 30, 2009 we completed the
amendment of our BLA with the FDA to incorporate IMPACT study
results and data regarding CMC requirements not previously
addressed which constituted a complete response to the CRL. The
FDA has confirmed that our amendment constituted a complete
response to the CRL and the goal date for FDA action on our BLA
under the Prescription Drug Users Fee Act is May 1, 2010.
Clinical Trial P09-1. In 2009, we
initiated a Phase 2 open-label study of sipuleucel-T called
OpenACT. The trial allows us to provide sipuleucel-T to men with
metastatic castrate resistant prostate cancer while marketing
approval is being pursued, obtain safety data, evaluate the
magnitude of immune responses to treatment with sipuleucel-T,
and to further characterize the cellular components of
sipuleucel-T.
Clinical Trial P07-1. In August
2008, we initiated a Phase 2 trial of Provenge in men with
localized prostate cancer who are scheduled to undergo a radical
prostatectomy. The trial called NeoACT (NEOadjuvant Active
Cellular immunoTherapy), or P07-1, is anticipated to enroll
approximately 40 patients. The study will assess safety of
an immune response induced by sipuleucel-T in men with localized
prostate cancer.
Clinical Trial P07-2. In August
2008, we initiated a Phase 2 trial of Provenge called ProACT
(PROstate Active Cellular Therapy) or P07-2. The multicenter
trial is enrolling approximately 120 patients with
metastatic, androgen independent prostate cancer. All patients
will receive active treatment but will be randomized into one of
three cohorts that will receive Provenge manufactured with
different concentrations of the immunizing antigen. Patients
will receive three infusions of Provenge, each approximately two
weeks apart. We are conducting the trial to explore the effect
of antigen concentration on CD54 upregulation, a measure of
product potency, as well as on immune response. Overall survival
data will also be collected.
Other
Provenge Clinical Trials in Early-Stage Prostate
Cancer
Clinical Trial
P-11. In
November 2006, we disclosed preliminary results from our ongoing
PROTECT (PROvenge Treatment and Early Cancer Treatment)
(P-11),
Phase 3 clinical trial in patients with androgen-dependent
(hormone sensitive) prostate cancer. The study was designed to
explore the biologic activity of Provenge in patients with
recurrent prostate cancer prior to the development of metastatic
disease. Among the preliminary findings, an analysis of
prostate-specific antigen doubling time (PSADT)
calculated from 90 days following randomization to
biochemical failure or the initiation of systemic therapy
demonstrated a 35 percent prolongation in PSADT for
patients who received Provenge compared to placebo (p = 0.046).
PSADT is currently considered to be
7
one of the best predictors of clinical outcome in patients with
PSA recurrence following primary therapy. These data were
presented at the American Society of Clinical Oncology meeting
in June of 2007. Per protocol, patients will continue to be
followed for the clinical endpoints of distant failure and
overall survival. The data from the patients in this study
supplemented our overall safety database for Provenge as part of
our BLA submission for men with advanced androgen-independent
prostate cancer.
Clinical Trial
P-16. In
2005, an open label Phase 2 clinical trial,
P-16, was
completed, testing Provenge together with bevacizumab
(Avastin®)
to treat patients with androgen-dependent prostate cancer. The
trial was conducted at the University of California
San Francisco and was sponsored by the National Cancer
Institute. In February 2005 at the Multidisciplinary Prostate
Cancer Symposium, we announced that the combination of Provenge
and bevacizumab increased PSADT, in patients with prostate
cancer that had relapsed after prior surgical and radiation
therapy. The median pre-treatment PSADT for the 21 evaluable
patients was 6.7 months and the median on-treatment PSADT
was 12.7 months, an approximate 90 percent increase in
PSADT (p = 0.004). In July 2006, results from this study
were published in the American Cancer Societys journal,
Cancer. The research showed the combination immunotherapy
significantly increased the PSADT in patients with prostate
cancer that had relapsed after prior surgical and radiation
therapy.
Clinical Trial D9905. In 2005, we
completed a Phase 2 clinical trial, D9905, evaluating men with
biochemical recurrence after prostatectomy. The median
pre-treatment PSADT, for the 19 evaluable patients in D9905 was
5.2 months and the median on-treatment PSADT was
7.9 months, approximately a 52 percent increase in
PSADT.
Product
Candidates in Research and Development
Active
Immunotherapies and Immunotherapy Targets
lapuleucel-T. Lapuleucel-T is our
investigational active immunotherapy for the treatment of
patients with bladder, breast, ovarian and other solid tumors
expressing
HER2/neu.
Results from a Phase 1 study showed that treatment with
lapuleucel-T stimulated significant immune responses in patients
with advanced, metastatic
HER2/neu
positive breast cancer, which were shown to be enhanced
following booster infusions. Twenty-two percent of patients had
evidence of anti-cancer activity. This included one patient who
experienced a partial response lasting approximately
6 months and three patients who had stable disease for over
a year (74.9-94.0 weeks) without the addition of any other
cancer therapy other than the continuation of bisphosphonates.
Two additional patients had stable disease for up to
20 weeks. The study concluded that lapuleucel-T was
feasible, well-tolerated and showed primary evidence of
anti-cancer activity. These results were published in the
August 20, 2007 issue of the Journal of Clinical
Oncology. We plan to continue development of an active
cellular immunotherapy directed against
HER2/neu,
including the anticipated initiation of a trial for the
treatment of bladder cancer.
We are currently using our Antigen Delivery Cassette technology
to develop active immunotherapy product candidates targeted to
antigens other than PAP and HER2/neu.
Carbonic AnhydraseIX (CA-9). We
in-licensed the CA-9 antigen from Bayer Corporation, Business
Group Diagnostics. Over 75% of primary and metastatic renal cell
carcinomas highly express the transmembrane protein CA-9,
whereas expression of CA-9 in normal kidney is low or
undetectable. CA-9 is also expressed in other cancers such as
non-small cell long and breast tumors but not in the
corresponding normal tissue. As such, CA-9 represents an
attractive antigen target for study as a potential
immunotherapy. In May 2006, preclinical data were presented at
the American Association of Immunology Conference demonstrating
that a genetically engineered active immunotherapy product
candidate targeted at CA-9 significantly prolonged survival in
animal tumor models. We are investigating the use of active
immunotherapy product candidates targeted at CA-9.
Carcinoembryonic Antigen (CEA). We
in-licensed CEA from Bayer Corporation, Business Group
Diagnostics. CEA was found to be present on 70 percent of
lung cancers, virtually all cases of colon cancers and
approximately 65 percent of breast cancers. are
investigating the use of active immunotherapy product candidates
targeted at CEA in breast, lung and colon cancer.
8
Small
Molecules
TRPM8. Small molecules are a diverse group of
natural and synthetic substances that generally have a low
molecular weight. They are either isolated from natural sources
such as plants, fungi or microbes, or they are synthesized by
organic chemistry. Most conventional pharmaceuticals, such as
aspirin, penicillin and many chemotherapeutics, are small
molecules. The protein encoded by the gene first designated
trp-p8, is an ion channel. It was identified through our
internal antigen discovery program. As progress has been made in
the discovery of other ion channel members of the trp (Transient
Receptor Potential) family, trp-p8
(sub-family
M) has come to be more commonly referred to as TRPM8. A
patent on the gene encoding this ion channel was issued to us in
2001. In normal human tissues, it is expressed predominantly in
the prostate and is over-expressed in hyperplastic prostate. A
study found it to be present in 100 percent of prostate
cancers and approximately 71 percent of breast cancers,
93 percent of colon cancers and 80 percent of lung
cancers. Ion channels like TRPM8 may be an attractive target for
manipulation by small molecule drug therapy. Small molecule
agonists have been synthesized that activate the TRPM8 ion
channel and induced cell death (apoptosis). The small molecule
agonists are orally bioavailable and in December 2008 an
Investigational New Drug application (IND) was filed
with the FDA for clinical evaluation of the product candidate
D3263 in subjects with advanced cancer. In 2009, we commenced
our Phase 1 clinical trial to evaluate TRPM8 and the trial is
ongoing.
Manufacturing
and Commercial Infrastructure
Manufacture of Provenge for our clinical trials is currently
conducted at a clinical manufacturing facility we operate in
Seattle, Washington, and at our manufacturing facility in Morris
Plains, New Jersey (the New Jersey Facility).
Antigen Delivery Cassettes are manufactured for our preclinical
studies and clinical trials as recombinant proteins using
production methods in compliance with current Good Manufacturing
Practices (cGMP). Preclinical and clinical studies
require relatively small amounts of our Antigen Delivery
Cassette. To produce commercial quantities of the Antigen
Delivery Cassette for Provenge, we have developed manufacturing
processes to permit the production of much larger quantities of
that protein. To
scale-up to
commercial levels of production of the Antigen Delivery Cassette
used in Provenge, we contracted with Diosynth RTP, Inc.
(Diosynth) in March 2001 to supply us with antigen.
Pursuant to the agreement, Diosynth completed conformance runs
for the manufacturing process for the antigen in July 2006. On
December 22, 2005, we entered into a long-term supply
agreement with Diosynth covering the production of the antigen
to be used in connection with Provenge. Our first order to
Diosynth for commercial scale quantities of the antigen
commenced production in January 2007 and we received final
delivery of this order of commercial scale antigen in July 2008.
We placed another order for $39.5 million of antigen with
Diosynth in May 2009. We expect to have a sufficient quality of
antigen available for our commercial launch of Provenge.
To support our commercialization efforts, including the
potential commercialization of Provenge, we have made
significant investments in manufacturing facilities and related
operations. We have pursued a plan to outfit our, New Jersey
Facility in phases to meet the anticipated manufacturing needs
for Provenge. The initial build-out of our 158,242 square
foot New Jersey Facility was completed in July 2006. In February
2007, we started to manufacture Provenge for clinical use in the
New Jersey Facility. The lease term of the New Jersey Facility
is seven years, and we have the option to extend the lease for
two ten-year periods and one five-year period, upon the same
terms and conditions except for rent, which adjusts to market
rate. In June 2009 we entered into a construction agreement for
the build-out of the remaining capacity of the New Jersey
Facility, which we anticipate will be completed in May 2010. We
expect the additional capacity to be available first half of
2011.
In July 2009, we entered into a lease with Majestic Realty Co.
for a building to be constructed in Atlanta, Georgia consisting
of approximately 160,000 rentable square feet. The facility
is intended for use by us as a manufacturing facility following
construction, which commenced during the third quarter 2009. The
initial lease term, anticipated to commence in the first half of
2010 following substantial completion of the facility, will be
for ten and a half years, with two renewal terms of five years
each. The lease includes a one-time purchase option exercisable
prior to March 2011, and a ten-year expansion option for up to
an additional 47,000 square feet. We have commenced the
build-out of this facility.
9
In August 2009, we entered into a lease with Knickerbocker
Properties, Inc. XLVI for existing building space totaling
approximately 184,000 rentable square feet in Orange
County, California for use by us as a manufacturing facility
following build-out. The initial lease term is for ten and a
half years, with two renewal terms of five years each. The lease
includes a one-time purchase option exercisable during the first
three years of the lease term. We took possession of the
building in September 2009 and are in the midst of the
construction build-out consisting of cell processing stations,
quality control laboratories, a data center, training areas,
infrastructure and offices.
We anticipate it will take approximately one year to
substantially complete the build-out of our Orange County and
Atlanta facilities, which will be followed by validation and
inspection by the FDA prior to use for the commercial
manufacture of Provenge. Turner Construction Company is acting
as the general contractor at both facilities pursuant to
guaranteed maximum price agreements.
The manufacture of our active cellular immunotherapy candidates,
such as Provenge, begins with a standard cell collection process
called leukapheresis. The resulting cells are then transported
to a manufacturing facility, processed and returned to a health
care provider for infusion into the patient. We rely upon blood
banks, hospitals and other health care providers to perform
leukapheresis procedures for our clinical trials. We anticipate
our most significant provider for leukapheresis procedures for
the manufacture of Provenge, if approved for commercial sale,
will be the American Red Cross. We also have agreements with
Puget Sound Blood Center and New York Blood Center to act as
providers of commercial leukapheresis services. We are actively
pursuing commercial arrangements with other vendors in order to
have an established network of commercial leukapheresis
suppliers in place prior to commercial launch of Provenge.
We anticipate that for commercial manufacture the patient cells
derived from the leukapheresis process are transported to our
New Jersey Facility at present, and will be transported to our
Orange County, California and Atlanta, Georgia facilities
following completion of the build-out and validation, where
final manufacturing of Provenge occurs before it is then
transported to a health care provider for infusion into the
patient. For our clinical trials, we have used couriers that
utilize commercial carriers to fulfill these transportation
needs and it is anticipated that such couriers will be
sufficient to fulfill our commercial transportation needs.
Our transportation network, manufacturing facilities,
leukapheresis providers, and physician infusion centers will be
linked with an information technology scheduling solution,
referred to as
Intellivengetm
that allows for timely, efficient and cost effective production
and timely delivery of Provenge on a commercial basis, assuming
Provenge is approved for sale. We have completed development and
validation of the Intellivenge system to support the commercial
launch of Provenge.
Supplies
and Raw Materials
We currently depend on single source vendors for some of the
components for our active immunotherapy candidates. We have
entered into a long-term contract with Diosynth for production
of the antigen used in the manufacture of Provenge, which
relationship is not readily replaceable. On December 22,
2005, we entered into a supply agreement with Diosynth covering
the commercial production of the antigen used in connection with
Provenge. Our agreement with Diosynth, as amended, has an
initial term through December 31, 2013, and unless
terminated, will renew automatically thereafter for additional
5-year
terms. The agreement may be terminated upon written notice by us
or Diosynth at least 24 months before the end of the
initial term or a renewal term or by either party in the event
of an uncured material breach or default by the other party.
We have entered into a technology transfer agreement with a
second source supplier for the antigen and anticipate being able
to enter into a second source supply agreement during the first
half of 2010. Should the FDA approve Provenge as a marketable
product, any production shortfall that impairs the supply of the
antigen would have a material adverse effect on our business,
financial condition and results of operations. If we were unable
to obtain sufficient quantity of the antigen, it is uncertain
whether alternative sources could be developed.
The cell separation devices and related media that isolate the
cells for our active immunotherapy product candidates from a
patients blood and other bodily fluids are manufactured by
third party contractors in compliance with cGMP. We plan to use
third party contractors to produce commercial quantities of
these devices and media for Provenge, assuming Provenge is
approved for sale.
10
Research
and Development
We devote significant resources to research and development
programs directed at discovering new products such as Provenge.
On December 31, 2009, we employed 211 individuals in
research and development functions. Our costs associated with
research and development expenses were $61.6 million in
2009, $50.1 million in 2008, and $76.5 million in 2007.
Intellectual
Property
We protect our technology through United States and foreign
patent filings, trademarks and trade secrets that we own or
license. We own or license issued patents or patent applications
that are directed to the media and devices by which cells can be
isolated and manipulated, our Antigen Delivery Cassette
technology, our antigen-presenting cell processing technology,
immunostimulatory compositions, methods of making the
immunostimulatory compositions, methods for treating specific
diseases using the immunostimulatory compositions, our
monoclonal antibody and small molecule product candidates, and
methods for treating certain diseases using the product
candidates. We have filed foreign counterparts to these issued
patents and patent applications in a number of countries.
We also own or license issued patents or patent applications
that are directed to potential small molecule pharmaceutical
compounds that are modulators of ion channel and protease
activity, to methods of making the compounds and to methods for
treating specific diseases using the compounds. For many of
these issued patents or applications, we have filed foreign
counterparts in various countries.
We intend to continue using our scientific experience to pursue
and patent new developments to enhance our position in the
cancer field. Patents, if issued, may be challenged,
invalidated, declared unenforceable, circumvented or may not
cover all applications we desire. Thus, any patent that we own
or license from third parties may not provide adequate
protection against competitors. Our pending patent applications,
those we may file in the future, or those we may license from
third parties may not result in issued patents. Also, patents
may not provide us with adequate proprietary protection or
advantages against competitors with, or who could develop,
similar or competing technologies, or who could design around
our patents. In addition, future legislation may impact our
competitive position in the event brand-name and follow-on
biologics do not receive adequate patent protection. From time
to time, we have received invitations to license third party
patents.
We also rely on trade secrets and know-how that we seek to
protect, in part, by using confidentiality agreements. Our
policy is to require our officers, employees, consultants,
contractors, manufacturers, outside scientific collaborators and
sponsored researchers and other advisors to execute
confidentiality agreements. These agreements provide that all
confidential information developed or made known to the
individual during the course of the individuals
relationship with us be kept confidential and not disclosed to
third parties except in specific limited circumstances. We also
require signed confidentiality agreements from companies that
receive our confidential data. For employees, consultants and
contractors, we require agreements providing that all inventions
conceived while rendering services to us shall be assigned to us
as our exclusive property.
Competition
The biotechnology and biopharmaceutical industries are
characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products.
Pharmaceutical and biotechnology companies, academic
institutions and other research organizations are actively
engaged in the discovery, research and development of products
designed to address prostate cancer and other indications. There
are products currently under development by other companies and
organizations that could compete with Provenge or other products
that we are developing. Products such as chemotherapeutics,
androgen metabolism or androgen receptor antagonists, endothelin
A receptor antagonists, antisense compounds, angiogenesis
inhibitors and gene therapies for cancer are also under
development by a number of companies and could potentially
compete with Provenge and our other product candidates. A
chemotherapeutic,
Taxotere®
(docetaxel) Injection Concentrate, was approved by the FDA in
2004 for the therapeutic treatment of metastatic,
androgen-independent prostate cancer. In addition, many
universities and private and public research institutes may in
the future become active in cancer research, which may be in
direct competition with us.
11
Our competitors include major pharmaceutical companies. These
companies have significantly greater financial resources and
expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing. In addition, smaller
competitors may collaborate with these large established
companies to obtain access to their resources.
Our ability to commercialize Provenge and our other potential
products and compete effectively will depend, in large part, on:
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our ability to meet all necessary regulatory requirements for
Provenge to receive FDA approval and to advance our other
product candidates through clinical trials and through the FDA
approval process;
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the perception by physicians and other members of the health
care community of the safety, efficacy and benefits of Provenge
or our other products compared to those of competing products or
therapies;
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our ability to manufacture Provenge and other products we may
develop on a commercial scale;
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the effectiveness of our sales and marketing efforts;
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the willingness of physicians to adopt a new treatment regimen
represented by our antigen-presenting cell technology;
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our ability to accurately forecast and meet demand for Provenge
and our product candidates if regulatory approvals are achieved;
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reimbursement policies for Provenge and our other product
candidates,
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the price of Provenge and that of other products we may develop
and commercialize relative to competing products;
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our ability to recruit, train, retain, manage and motivate our
employees;
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our ability to develop a commercial scale infrastructure either
on our own or with a collaborator, which would include expansion
of existing facilities, including our manufacturing facilities,
development of a distribution network and other operational and
financial systems necessary to support our increased
scale; and
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our ability to rapidly expand the existing information
technology infrastructure and configure existing operational,
manufacturing and financial systems (on our own or with third
party collaborators) necessary to support our increased scale,
which would include existing or additional facilities and or
partners.
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Competition among products approved for sale will be based upon,
among other things, efficacy, reliability, product safety,
price-value analysis, and patent position. Our competitiveness
will also depend on our ability to advance our product
candidates, license additional technology, maintain a
proprietary position in our technologies and products, obtain
required government and other approvals on a timely basis,
attract and retain key personnel and enter into corporate
relationships that enable us and our collaborators to develop
effective products that can be manufactured cost-effectively and
marketed successfully.
General
Governmental authorities in the United States and other
countries extensively regulate the preclinical and clinical
testing, manufacturing, labeling, storage, record-keeping,
advertising, promotion, export, marketing and distribution,
among other things, of biologic products. In the United States,
the FDA subjects pharmaceutical and biologic products to
rigorous review under the Federal Food, Drug, and Cosmetic Act,
the Public Health Service Act and other federal statutes and
regulations.
FDA
Approval Process
To obtain approval of our product candidates from the FDA, we
must, among other requirements, submit data supporting safety
and efficacy as well as detailed information on the manufacture
and composition of the product candidate. In most cases, this
entails extensive laboratory tests and preclinical and clinical
trials. The collection of
12
these data, as well as the preparation of applications for
review by the FDA are costly in time and effort, and may require
significant capital investment. We may encounter significant
difficulties or costs in our efforts to obtain FDA approvals
that could delay or preclude us from marketing any products we
may develop. The FDA also may require post-marketing testing to
monitor the safety and efficacy of approved products or place
conditions on any approvals that could restrict the commercial
applications of these products. Regulatory authorities may
withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems at any time following
initial marketing.
The first stage of the FDA approval process for a new biologic
or drug involves the completion of preclinical studies and the
submission of the results of these studies to the FDA. This,
together with proposed clinical protocol(s), manufacturing
information, analytical data and other information, is submitted
in an investigational new drug application (IND),
and must become effective before human clinical trials may
commence. Preclinical studies involve laboratory evaluation of
product characteristics and animal studies to assess the
efficacy and safety of the product. The FDA regulates
preclinical studies under a series of regulations called the
Good Laboratory Practices regulations. Violation of
these regulations, in some cases, may cause the FDA to
invalidate the studies and require the company to replicate
those studies.
After the IND becomes effective, a company may commence human
clinical trials. A company typically conducts human clinical
trials in three sequential phases, but the phases may overlap.
Phase 1 trials consist of testing of the product in a small
number of patients or healthy volunteers, primarily for safety
at one or more doses. Phase 1 trials in cancer are often
conducted with patients who are not healthy and who have
end-stage or metastatic cancer. Phase 2 trials, in addition to
safety, evaluate the efficacy of the product in a patient
population somewhat larger than Phase 1 trials. Phase 3 trials
typically involve additional testing for safety and clinical
efficacy in an expanded population at geographically dispersed
test sites. A company must submit to the FDA a clinical plan, or
protocol, which must also be approved by the
Institutional Review Boards at the institutions participating in
the trials, prior to commencement of each clinical trial. The
trials must be conducted in accordance with the FDAs good
clinical practices. The FDA may order the temporary or permanent
discontinuation of a clinical trial at any time.
To obtain marketing authorization, a company must submit to the
FDA the results of the preclinical and clinical testing,
together with, and among other things, detailed information on
the manufacture and composition of the product, in the form of a
new drug application or, in the case of a biologic, like
Provenge, a biologics license application.
Under goals established in connection with the Prescription Drug
User Fee Act IV, the FDA has committed to reviewing standard
marketing applications in 10 months and priority
applications in six months. The FDA reviews an application and,
when and if it decides that adequate data are available to show
that the new compound is both safe and effective for a
particular indication and that other applicable requirements
have been met, approves the drug or biologic for marketing. The
amount of time taken for this approval process is a function of
a number of variables, including whether the product has
received priority review, the quality of the submission and
studies presented, the potential contribution that the compound
will make in improving the treatment of the disease in question,
and the workload at the FDA.
The FDA may, during its review of a marketing application, ask
for additional test data
and/or the
conducting of additional clinical trials. If the FDA determines
that a biologics license application does not contain sufficient
data to support approval, the FDA will issue a complete response
letter outlining the applications deficiencies. A second
review clock of six or two months duration begins when the
applicant responds to the complete response letter with an
amendment that addresses all issues raised in the complete
response letter. If the FDA does ultimately approve the product,
it may require post-marketing testing to monitor the safety and
effectiveness of the product. In addition, the FDA may in some
circumstances impose restrictions on the use of the product,
which may be difficult and expensive to administer and may
require prior approval of promotional materials.
Prior to regulatory approval, the FDA may elect to obtain advice
from outside experts regarding scientific issues
and/or
marketing applications under FDA review. These outside experts
are convened through FDAs Advisory Committee process. An
Advisory Committee will report to the FDA and make
recommendations. Views of the Advisory Committee may differ from
those of the FDA.
13
We will also be subject to a variety of regulations governing
clinical trials and sales of our products outside the United
States, in the event we pursue these activities. Whether or not
FDA approval has been obtained, approval of a product by the
comparable regulatory authorities of foreign countries and
regions must be obtained prior to the commencement of marketing
the product in those countries. The approval process varies from
one regulatory authority to another and the time may be longer
or shorter than that required for FDA approval. In the European
Union, Canada and Australia, regulatory requirements and
approval processes are similar, in principle, to those in the
United States.
Fast
Track Designation/Priority Review
Congress enacted the Food and Drug Administration Modernization
Act of 1997 (the Modernization Act) in part to
ensure the availability of safe and effective drugs, biologics
and medical devices by expediting the development and review for
certain new products. The Modernization Act establishes a
statutory program for the review of Fast Track products,
including biologics. A Fast Track product is defined as a new
drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to
address unmet medical needs for this condition. Under the Fast
Track program, the sponsor of a new drug or biologic may request
that the FDA designate the drug or biologic as a Fast Track
product at any time during the development of the product, prior
to a new drug application submission.
The Modernization Act provides that the FDA can base approval of
a marketing application for a Fast Track product on an effect on
a surrogate endpoint, or on another endpoint that is reasonably
likely to predict clinical benefit. The FDA may condition
approval of an application for a Fast Track product on a
commitment to do post-approval studies to validate the surrogate
endpoint or confirm the effect on the clinical endpoint and
require prior review of all promotional materials. In addition,
the FDA may withdraw approval of a Fast Track product in an
expedited manner on a number of grounds, including the
sponsors failure to conduct any required post-approval
study in a timely manner.
Ongoing
Regulatory Requirements
Before approving a marketing application, the FDA will inspect
the facilities at which the product is manufactured (including
both those of the sponsor and any third-party component
manufacturers) and will not approve the product unless the
manufacturing facilities are in compliance with FDAs
current good manufacturing practices (cGMP), which
are regulations that govern the manufacture, storage and
distribution of a product. Manufacturers of biologics also must
comply with FDAs general biological product standards.
Following approval, the FDA periodically inspects drug and
biologic manufacturing facilities to ensure continued compliance
with cGMP regulations. We must ensure that any third-party
manufacturers continue to expend time, money and effort in the
areas of production, quality control, record keeping and
reporting to ensure full compliance with those requirements.
Failure to comply with these requirements subjects the
manufacturer to possible legal or regulatory action, such as
suspension of manufacturing or recall or seizure of product.
Adverse experiences with the product must be reported to the FDA
and could result in the imposition of marketing restrictions
through labeling changes or market removal. Product approvals
may be withdrawn if compliance with regulatory requirements is
not maintained or if problems concerning safety or efficacy of
the product occur following approval.
The pharmacovigilence, labeling, advertising, promotion,
marketing and distribution of a prescription drug or biologic
product also must be in compliance with FDA requirements, which
include, among others, standards and regulations for off-label
promotion, industry sponsored scientific and educational
activities, promotional activities involving the internet, and
direct-to-consumer
advertising. The FDA has very broad enforcement authority, and
failure to abide by these regulations can result in penalties,
including the issuance of a warning letter directing the company
to correct deviations from regulatory standards and enforcement
actions that can include seizures, injunctions and criminal
prosecution.
Federal
Anti-Kickback, False Claims Laws & The Prescription
Drug Marketing Act
In addition to FDA restrictions on marketing of pharmaceutical
products, several other types of state and federal laws have
been applied to restrict certain marketing practices in the
pharmaceutical industry in recent years.
14
These laws include anti-kickback statutes and false claims
statutes. The federal healthcare program anti-kickback statute
prohibits, among other things, knowingly and willfully offering,
paying, soliciting or receiving remuneration to induce or in
return for purchasing, leasing, ordering or arranging for the
purchase, lease or order of any healthcare item or service
reimbursable under Medicare, Medicaid or other federally
financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on
the one hand and prescribers, purchasers and formulary managers
on the other. Violations of the anti-kickback statute are
punishable by imprisonment, criminal fines, civil monetary
penalties and exclusion from participation in federal healthcare
programs. Although there are a number of statutory exemptions
and regulatory safe harbors protecting certain common activities
from prosecution or other regulatory sanctions, the exemptions
and safe harbors are drawn narrowly, and practices that involve
remuneration intended to induce prescribing, purchases or
recommendations may be subject to scrutiny if they do not
qualify for an exemption or safe harbor.
Federal false claims laws prohibit any person from knowingly
presenting, or causing to be presented, a false claim for
payment to the federal government, or knowingly making, or
causing to be made, a false statement to have a false claim
paid. Recently, several pharmaceutical and other healthcare
companies have been prosecuted under these laws for allegedly
inflating drug prices they report to pricing services, which in
turn were used by the government to set Medicare and Medicaid
reimbursement rates, and for allegedly providing free product to
customers with the expectation that the customers would bill
federal programs for the product. In addition, certain marketing
practices, including off-label promotion, may also violate false
claims laws. The majority of states also have statutes or
regulations similar to the federal anti-kickback law and false
claims laws, which apply to items and services, reimbursed under
Medicaid and other state programs, or, in several states, apply
regardless of the payor.
State
Laws
Marketing Restrictions. A number of states are
considering programs to control pharmaceutical marketing
activities that go beyond commitments made related to adhering
to the recently revised and strengthened PhRMA Code for
Interactions with Healthcare Professionals. If implemented, such
efforts have the potential to limit our field employee and other
communications and activities with healthcare professionals
prescribing our medications.
Healthcare Reform. Certain states, such as
Massachusetts, have begun to pursue their own programs for
health reform. These programs may include cost containment
measures that could affect state healthcare benefits,
particularly for higher priced drugs.
Data Privacy. In addition, many
U.S. states have enacted their own laws and statutes
applicable to the sale of pharmaceutical products within the
state, which we must comply with. We are also subject to state
privacy and data protection laws and regulations. The
legislative and regulatory landscape for privacy and data
protection continues to evolve, and there has been an increasing
amount of focus on privacy and data protection issues with the
potential to affect our business, including recently enacted
laws in a majority of U.S. states requiring security breach
notification.
Price
Controls
In many of the markets where we may do business in the future,
the prices of pharmaceutical products are subject to direct
price controls (by law) and to drug reimbursement programs with
varying price control mechanisms. In the United States, the
Medicare program is administered by the Centers for
Medicare & Medicaid Services (CMS), an
agency within the U.S. Department of Health and Human
Services. Coverage and reimbursement for products and services
under Medicare are determined pursuant to regulations
promulgated by CMS and pursuant to CMSs subregulatory
coverage and reimbursement determinations. It is difficult to
predict how CMS may apply those regulations and subregulatory
determinations to newly approved products, especially novel
products, and those regulations and interpretive determinations
are subject to change. Moreover, the methodology under which CMS
makes coverage and reimbursement determinations is subject to
change, particularly because of budgetary pressures facing the
Medicare program. For example, the Modernization Act provides
for a change in reimbursement methodology that reduces the
Medicare reimbursement rates for many drugs, including oncology
therapeutics. Medicare regulations and interpretive
determinations also may determine who may be reimbursed for
certain services.
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In the European Union, governments influence the price of
pharmaceutical products through their pricing and reimbursement
rules and control of national health care systems that fund a
large part of the cost of such products to consumers. The
approach taken varies from member state to member state. Some
jurisdictions operate positive
and/or
negative list systems under which products may only be marketed
once a reimbursement price has been agreed. Other member states
allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs,
has become very intense. As a result, increasingly high barriers
are being erected to the entry of new products, as exemplified
by the role of the National Institute for Health and Clinical
Excellence in the United Kingdom, which evaluates the data
supporting new medicines and passes reimbursement
recommendations to the government. In addition, in some
countries cross-border imports from low-priced markets (parallel
imports) exert commercial pressure on pricing within a country.
Environmental
and Safety Laws
We are subject to a variety of federal, state and local
regulations relating to the use, handling, storage and disposal
of hazardous materials, including chemicals and radioactive and
biological materials. Our operations produce such hazardous
waste products. Although we believe that our safety procedures
for handling and disposing of these materials complies with the
standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials
cannot be eliminated. We generally contract with third parties
for the disposal of such substances, and store our low level
radioactive waste at our facilities until the materials are no
longer considered radioactive. We are also subject to various
laws and regulations governing laboratory practices and the
experimental use of animals.
We are also subject to regulation by the Occupational Safety and
Health Administration (OSHA), and the Environmental
Protection Agency (the EPA), and to regulation under
the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations.
OSHA and/or
the EPA may promulgate regulations that may affect our research
and development programs.
EMPLOYEES
As of February 15, 2010, we had 484 employees. None of
our employees are subject to a collective bargaining agreement
or represented by a labor or trade union, and we believe that
our relations with our employees are good.
TRADEMARKS
AND TRADENAMES
Dendreon®,
the Dendreon logo, Dendreon Targeting Cancer, Transforming
Livestm,
Provenge®,
Neuvengetm,
the Antigen Delivery
Cassettetm
and
Intellivengetm
are our trademarks. All other trademarks that may appear or be
incorporated by reference into this annual report are the
property of their respective owners.
AVAILABLE
INFORMATION
We make available, free of charge, through our investor
relations website our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports as soon as reasonably
practicable after they are filed with, or furnished to, the
Securities and Exchange Commission (the SEC). You
may also read and copy any materials we file with the SEC at the
SECs Public Reference Room located at
100 F Street NE, Washington DC 20549. Information on
the operation of the Public Reference Room may be obtained by
calling the SEC at
1-800-SEC-0330.
The address for our web site is
http://www.dendreon.com
and the address for the investor relations page of our web
site is
http://investor.dendreon.com..
The information contained on our web site is not a part of
this report.
Risks
Relating to our Product Development and Commercialization
Pursuits
16
Our
near-term prospects are highly dependent on Provenge, our lead
product candidate. If we fail to obtain FDA approval for
Provenge or fail to successfully commercialize Provenge, our
business would be harmed and our stock price would likely
decline.
Our most advanced product candidate is Provenge, an active
cellular immunotherapy for advanced prostate cancer. FDA
approval of Provenge depends on, among other things, the FDA
finding our manufacturing protocol and controls, composition of
the product and the the data from our completed Phase 3 clinical
trials sufficient to support approval. We cannot offer any
assurances or predict with any certainty that the FDA will
approve our amended BLA for licensure of Provenge. It is
possible that the final results of our IMPACT study may not meet
the FDA requirements for licensure, or the FDA may determine
that our manufacturing staff, methods, facilities or raw
materials are insufficient to warrant licensure. Furthermore,
even if we receive FDA approval, we might not be successful in
commercializing Provenge. Should any of these events occur, our
business would be materially harmed and the price of our common
stock would likely decline.
Provenge
and our other product candidates are based on novel
technologies, which may raise new regulatory issues that could
delay or make FDA approval more difficult.
The process of obtaining required FDA and other regulatory
approvals, including foreign approvals, is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. Provenge and
our other investigational active cellular immunotherapies are
novel; therefore, regulatory agencies may lack experience with
them, which may lengthen the regulatory review process, increase
our development costs and delay or prevent commercialization of
Provenge and our other active immunotherapy products under
development.
If
testing of a particular product candidate does not yield
successful results, then we will be unable to commercialize that
product.
Our product candidates in clinical trials must meet rigorous
testing standards. We must demonstrate the safety and efficacy
of our potential products through extensive preclinical and
clinical testing. Clinical trials are subject to continuing
oversight by governmental regulatory authorities and
institutional review boards and must meet the requirements of
these authorities in the United States, including those for
informed consent and good clinical practices. We may not be able
to comply with these requirements, which could disqualify
completed or ongoing clinical trials. We may experience numerous
unforeseen events during, or as a result of, the testing process
that could delay or prevent commercialization of our product
candidates, including the following:
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safety and efficacy results from human clinical trials may show
the product candidate to be less effective or safe than desired
or earlier results may not be replicated in later clinical
trials;
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the results of preclinical studies may be inconclusive or they
may not be indicative of results that will be obtained in human
clinical trials;
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after reviewing relevant information, including preclinical
testing or human clinical trial results, we may abandon or
substantially restructure programs that we might previously have
believed to be promising;
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we or the FDA or similar regulatory authorities in other
countries may suspend or terminate clinical trials if the
participating patients are being exposed to unacceptable health
risks or for other reasons; and
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the effects of our product candidates may not be the desired
effects or may include undesirable side effects or other
characteristics that interrupt, delay or cause us or the FDA to
halt clinical trials or cause the FDA or foreign regulatory
authorities to deny approval of the product candidate for any or
all target indications.
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Each phase of testing is highly regulated, and during each phase
there is risk that we will encounter serious obstacles or will
not achieve our goals, and accordingly we may abandon a product
in which we have invested substantial amounts of time and money.
We cannot state with certainty when or whether any of our
products now under development will be approved or launched;
whether we will be able to develop product candidate or
products; or whether any products, once launched, will be
commercially successful.
17
Data from our completed clinical trials of Provenge that we have
submitted in support of our BLA may not be sufficient to support
licensure by FDA or approval by other regulatory agencies
outside the US. In addition, the ongoing clinical trials may not
be completed as or when planned, and the FDA or other
authorities may not approve any of our product candidates for
commercial sale. If we fail to demonstrate the safety or
efficacy of a product candidate to the satisfaction of the
regulatory authorities, this will delay or prevent regulatory
approval of that product candidate. Therefore, any delay in
obtaining, or inability to obtain, regulatory approval of any of
our product candidates could materially harm our business and
cause our stock price to decline.
The
FDA or an Advisory Committee may determine our clinical trials
data regarding safety or efficacy are insufficient for
regulatory approval.
We discuss with and obtain guidance from regulatory authorities
on certain aspects of our clinical development activities. These
discussions are not binding obligations on the part of
regulatory authorities. Under certain circumstances, regulatory
authorities may revise or retract previous guidance during the
course of our clinical activities or after the completion of our
clinical trials. The FDA may also disqualify a clinical trial in
whole or in part from consideration in support of approval of a
potential product for commercial sale or otherwise deny approval
of that product. Even if we obtain successful clinical safety
and efficacy data, we may be required to conduct additional,
expensive trials to obtain regulatory approval. Prior to
regulatory approval, the FDA may elect to obtain advice from
outside experts regarding scientific issues
and/or
marketing applications under FDA review. These outside experts
are convened through the FDAs Advisory Committee process.
An Advisory Committee will report to the FDA and make
recommendations. Views of the Advisory Committee may differ from
those of the FDA. Provenge was reviewed by the FDAs
Cellular, Tissue and Gene Therapies Advisory Committee on
March 29, 2007. The Advisory Committee was unanimous (17
yes, 0 no) in its opinion that the submitted data established
that Provenge is reasonably safe for the intended population and
the majority (13 yes, 4 no) believed that the submitted data
provided substantial evidence of the efficacy of Provenge in the
intended population. Nevertheless, on May 8, 2007, we
received a Complete Response Letter from the FDA regarding our
BLA seeking additional clinical data.
The FDA may determine to again convene an Advisory Committee to
review our amended application. We may not obtain approval of
our BLA for Provenge from the FDA because an Advisory Committee
advises against it or because the FDAs view of our BLA
differs from that of an Advisory Committee. Therefore, any delay
in obtaining, or inability to obtain, FDA approval of Provenge
could materially harm our business and cause our stock price to
decline.
We
must significantly expand our operations to commercialize
Provenge, and we may encounter unexpected costs or
difficulties.
We will need to expand and effectively manage our operations and
facilities and develop the necessary infrastructure to
commercialize Provenge and pursue development of our other
product candidates. We will need to further invest in our
manufacturing facilities and information technology systems,
develop a distribution network and hire additional personnel
related to these functions. In 2006, we completed the initial
phased build-out of our, New Jersey Facility that provides
manufacturing capabilities and related supporting facilities, as
well as clean rooms. During 2007, we began production of
Provenge at this facility for clinical use. We are currently
adding manufacturing, quality control, quality assurance,
marketing and sales personnel, and personnel in all other areas
of our operations, including executive-level personnel, to
support commercialization, which may strain our existing
managerial, operational, financial and other resources. We are
also investing in and proceeding with the further build out of
our, New Jersey Facility and have entered into long-term leases
for additional manufacturing facilities to be located in
Atlanta, Georgia and Orange County, California. We have entered
into construction agreements and have commenced the build-out at
each site. Each new facility will require review and licensure
by FDA, potentially including additional inspections. If delays
are incurred in the construction, qualification and FDA
licensure of these facilities, our ability to commercialize
Provenge could be adversely affected.
We have no experience in commercial-scale manufacturing, the
management of large-scale information technology systems, or the
management of a large-scale distribution network. We also have
no experience in sales, marketing or distribution of products in
commercial quantities. In building a sales force in anticipation
of the approval and commercial launch of Provenge, we may be
unable to successfully recruit an adequate number of
18
qualified sales representatives and may encounter difficulties
in retaining third parties to provide sales, marketing or
distribution resources.
If we fail to manage our growth effectively, recruit required
personnel or expand our operations within our planned time and
budget, our product development and commercialization efforts
for Provenge or our other product candidates could be curtailed
or delayed. Even if our product candidates proceed successfully
through clinical trials and receive regulatory approval, there
is no guarantee that an approved product can be manufactured in
commercial quantities at reasonable cost or that such a product
will be successfully marketed.
We may
take longer to complete our clinical trials than we project, or
we may not be able to complete them at all.
A number of factors, including unexpected delays in the
initiation of clinical sites, slower than projected enrollment,
competition with ongoing clinical trials and scheduling
conflicts with participating clinicians, regulatory
requirements, limits on manufacturing capacity and failure of a
product candidate to meet required standards for administration
to humans may cause significant delays in the completion of our
clinical trials. In addition, it may take longer than we project
to achieve study endpoints and complete data analysis for a
trial.
We rely on academic institutions, physician practices and
clinical research organizations to conduct, supervise or monitor
some or all aspects of clinical trials involving our product
candidates. We have less control over the timing and other
aspects of these clinical trials than if we conducted the
monitoring and supervision entirely on our own. Third parties
may not perform their responsibilities for our clinical trials
on our anticipated schedule or consistent with a clinical trial
protocol or applicable regulations. We also rely on clinical
research organizations to perform much of our data management
and analysis. They may not provide these services as required or
in a timely manner.
Our development costs will increase if we are required to
complete additional or larger clinical trials for our product
candidates. If the delays or costs are significant, our
financial results and our ability to commercialize our product
candidates will be adversely affected.
If we
encounter difficulties enrolling patients in our clinical
trials, our trials could be delayed or otherwise adversely
affected.
Clinical trials for our product candidates may require that we
identify and enroll a large number of patients with the disease
under investigation. We may not be able to enroll a sufficient
number of patients, or those with required or desired
characteristics to achieve diversity in a study, to complete our
clinical trials in a timely manner. We have in the past
experienced some difficulty in enrollment in our clinical trials
due to the criteria specified for eligibility for these trials,
and we may encounter these difficulties in our ongoing clinical
trials for Provenge or our other product candidates.
Patient enrollment is affected by factors including:
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design of the trial protocol;
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the size of the patient population;
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eligibility criteria for the study in question;
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perceived risks and benefits of the product candidate under
study;
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availability of competing therapies and clinical trials;
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efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians;
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the ability to monitor patients adequately during and after
treatment; and
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proximity and availability of clinical trial sites for
prospective patients.
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If we have difficulty enrolling a sufficient number or diversity
of patients to conduct our clinical trials as planned, we may
need to delay or terminate ongoing or planned clinical trials,
either of which would have a negative effect on our business.
Risks
Relating to our Financial Position and Operations
We
have a history of operating losses. We expect to continue to
incur losses for the near future, and we may never become
profitable.
At December 31, 2009, we had an accumulated deficit of
$783.5 million, of which $118.4 million relates to the
increase in the current fair value of our warrant liability from
when the warrants were originally issued. We do not have any
products that generate revenue from commercial product sales.
Operating losses have resulted principally from costs incurred
in pursuing our research and development programs, clinical
trials, manufacturing, and general and administrative expenses
in support of operations. We do not expect to achieve commercial
product sales until and unless the FDA approves Provenge for
commercial sale. We expect to incur additional operating losses
over the next two years, and these losses may increase
significantly as we continue preclinical research and clinical
trials, apply for regulatory approvals, expand our operations
and develop the manufacturing and marketing infrastructure to
support commercialization of Provenge and our other potential
product candidates. These losses have caused and losses will
continue to cause our stockholders equity and working
capital to decrease. We may not be successful in commercializing
any of our product candidates. Even if we are able to
successfully commercialize Provenge or other products, because
of the numerous risks and uncertainties associated with
commercialization of a biologic, we are unable to predict when
we will become profitable, if at all. Even if we do produce
revenues and achieve profitability, we may not be able to
maintain or increase profitability.
We may
require additional funding, and our future access to capital is
uncertain.
It is expensive to develop and commercialize cancer
immunotherapy and small molecule product candidates. We plan to
continue to simultaneously conduct clinical trials and
preclinical research for a number of product candidates. Our
product development efforts may not lead to commercial products,
either because our product candidates fail to be found safe or
effective in clinical trials or because we lack the necessary
financial or other resources or relationships to pursue our
programs through commercialization. Even if commercialized, a
product may not achieve revenues that exceed the costs of
producing and selling it. Our capital and future cash flow may
not be sufficient to support the expenses of our operations and
we may need to raise additional capital depending on a number of
factors, including the following:
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the development of marketing, manufacturing, information
technology and other infrastructure and activities related to
the commercialization of Provenge;
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the rate of progress and cost of our research and development
and clinical trial activities; and
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the introduction into the marketplace of competing products and
other adverse market developments.
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We may not be able to obtain additional financing on favorable
terms or at all. If we are unable to raise additional funds, we
may have to delay, reduce or eliminate some of our clinical
trials and our development programs. If we raise additional
funds by issuing equity or equity-linked securities, further
dilution to our existing stockholders will result. In addition,
the expectation of future dilution as a result of our offering
of securities convertible into equity securities may cause our
stock price to decline.
Difficulties
we may encounter managing our growth may divert resources and
limit our ability to successfully expand our
operations.
We are engaged in a period of rapid and substantial growth and
the anticipated continued growth in the future will place a
strain on our clinical, administrative and operational
infrastructure. We will need to continue to manage multiple
locations and additional relationships with various
collaborative partners, suppliers and other third parties. Our
ability to manage our operations and growth effectively requires
us to hire additional management and other personnel and to
continue to improve our reporting systems and procedures as well
as our operational, financial and management controls. We may
not be able to effectively manage a rapid pace of growth and
timely implement
20
improvements to our management information and control systems.
Any failure by us to appropriately monitor and manage our
business growth could cause one or more of our initiatives to
fail to meet its goals, thus harming our business and near term
prospects.
Our
indebtedness could adversely affect our financial
condition.
In June and July 2007, we sold an aggregate of
$85.3 million in convertible senior subordinated notes (the
Notes), which bear interest annually at the rate of
4.75 percent. As of December 31, 2009, an aggregate of
$52.5 million in aggregate principal amount of the Notes
remained outstanding. Our indebtedness and annual debt service
requirements may adversely impact our business, operations and
financial condition in the future. For example, it could:
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increase our vulnerability to general adverse economic and
industry conditions;
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limit our ability to raise additional funds by borrowing or
engaging in equity sales in order to fund future working
capital, capital expenditures, research and development and
other general corporate requirements;
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require us to dedicate a substantial portion of our cash to
service payments on our debt; or
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limit our flexibility to react to changes in our business and
the industry in which we operate or to pursue certain strategic
opportunities that may present themselves.
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Our
stockholders may be diluted by the conversion of our outstanding
convertible notes.
The holders of the Notes may choose at any time to convert their
Notes into common stock prior to maturity in June 2014. The
Notes are convertible into our common stock, initially at the
conversion price of $10.28 per share, equal to a conversion rate
of approximately 97.2644 shares per $1,000 principal amount
of the Notes. The number of shares of common stock issuable upon
conversion of the Notes, and therefore the dilution of existing
common stockholders, could increase under certain circumstances
described in the indenture under which the Notes were issued.
Conversion of our Notes would result in issuance of additional
shares of common stock, diluting existing common stockholders.
We may
elect to issue additional shares of our common stock or other
securities that may be convertible into our common stock, which
could result in further dilution to our existing
stockholders.
The Notes may be exchanged for shares of our common stock upon
certain conditions. In addition, we also have outstanding
warrants to purchase an aggregate of 8,000,000 shares of
common stock at an exercise price of $20.00 per share, which are
exercisable at any time prior to April 8, 2015 and include
a net exercise feature.
Future sales of our common stock will depend primarily on the
market price of our common stock, the terms we may receive upon
the sale of debt or convertible securities, the interest in our
company by institutional investors and our cash needs. In
addition, we may register additional equity, debt or other
convertible securities with the SEC for sale in the future. Each
of our issuances of common stock or securities convertible into
common stock to investors under a registration statement or
otherwise will proportionately decrease our existing
stockholders percentage ownership of our total outstanding
equity interests and may reduce our stock price.
Risks
Related to Regulation of our Industry
The
industry within which we operate and our business is subject to
extensive regulation, which is costly, time consuming and may
subject us to unanticipated delays.
Our business, including preclinical studies, clinical trials and
manufacturing, is subject to extensive regulation by the FDA and
comparable authorities outside the United States. Preclinical
studies involve laboratory evaluation of product characteristics
and animal studies to assess the efficacy and safety of a
potential product. The FDA regulates preclinical studies under a
series of regulations called the Good Laboratory Practices. If
we violate these regulations, the FDA, in some cases, may not
accept the studies and require that we replicate those studies.
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An IND must become effective before human clinical trials may
commence. The IND application is automatically effective
30 days after receipt by the FDA unless, before that time,
the FDA raises concerns or questions about the products
safety profile or the design of the trials as described in the
application. In the latter case, any outstanding concerns must
be resolved with the FDA before clinical trials can proceed.
Thus, the submission of an IND may not result in FDA
authorization to commence clinical trials in any given case.
After authorization is received, the FDA retains the authority
to place the IND, and clinical trials under that IND, on
clinical hold. If we are unable to commence clinical trials or
clinical trials are delayed indefinitely, we would be unable to
develop our product candidates and our business could be
materially harmed.
Commercialization
of our product candidates in the United States requires FDA
approval, which may not be granted, and foreign
commercialization requires similar approvals.
As developers of pharmaceutical and therapeutic biologic product
candidates we are subject to and must comply with comprehensive
regulation by the FDA, other regulatory agencies in the United
States and comparable regulatory authorities in other countries.
In the United States, the FDA administers requirements covering
the testing, approval, safety, effectiveness, manufacturing,
labeling and marketing of therapeutic treatments including
biologics. In many cases, the FDA requirements have increased
the amount of time and money necessary to develop new products
and bring them to market in the United States. The FDA has
substantial discretion to require additional testing, to delay
or withhold registration and marketing approval and to mandate
product withdrawals. The FDA can delay, limit or withhold
approval of a product candidate for many reasons, including the
following:
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a product candidate may not demonstrate sufficient safety in
human trials or efficacy in treatment;
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the FDA may determine that certain aspects of the clinical
testing, manufacture, or quality control are not in compliance
with the regulations;
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the FDA may interpret data from preclinical testing and clinical
trials in different ways than we interpret the data or may
require additional
and/or
different categories of data than what we obtained in our
clinical trials;
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the FDA may require additional information about the efficacy,
safety, purity, stability, identity or functionality of a
product candidate;
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the FDA may not approve our manufacturing processes or
facilities or the processes or facilities of our contract
manufacturers; and
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the FDA may change its approval policies or adopt new
regulations that impact our business.
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Our failure to obtain approval, significant delays in the
approval process, or our failure to maintain approval in any
jurisdiction will prevent us from selling a product in that
jurisdiction and receiving product sales revenues. Any product
and its manufacturer will continue to be subject to strict
regulations after approval, including but not limited to,
manufacturing, quality control, labeling, packaging, adverse
event reporting, storage, advertising, promotion and
record-keeping requirements. Any problems with an approved
product, including the later exhibition of adverse effects or
any violation of regulations could result in restrictions on the
product, including its withdrawal from the market, which could
materially harm our business. The process of obtaining approvals
in foreign countries is subject to delay and failure for many of
the same reasons.
Failure
to comply with foreign regulatory requirements governing human
clinical trials and marketing approval for product candidates
could prevent us from selling our products in foreign markets,
which may adversely affect our operating results and financial
condition.
The requirements governing the conduct of clinical trials,
manufacturing, testing, control product registration and
approvals, pricing and reimbursement outside the United States
vary greatly from country to country. In addition, the time
required to obtain approvals outside the United States may
differ significantly from that required to obtain FDA approval.
We may not obtain foreign regulatory approvals on the timeframe
we may desire, if at all. Approval by the FDA does not ensure
approval by regulatory authorities in other countries, and
foreign regulatory authorities could require additional testing.
Failure to comply with these regulatory requirements or obtain
required
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approvals could impair our ability to develop foreign markets
for our products and may have a material adverse effect on our
business and future prospects.
Even
if approved, Provenge and any other product we may commercialize
and market may be subject to promotional
limitations.
We may not be able to obtain the labeling claims necessary or
desirable for the promotion of our products. The FDA has the
authority to impose significant restrictions on an approved
product through the product label and allowed advertising,
promotional and distribution activities. The FDA also may
approve a product for fewer indications than are requested or
may condition approval on the performance of post-approval
clinical studies. We may also be required to undertake
post-marketing clinical trials. There may be monetary penalties
if post-approval requirements are not fulfilled. If the results
of such post-marketing studies are not satisfactory, the FDA may
withdraw marketing authorization or may condition continued
marketing on commitments from us that may be expensive
and/or time
consuming to fulfill. Even if we receive FDA and other
regulatory approvals, if we or others identify adverse side
effects after any of our products are on the market, or if
manufacturing problems occur, regulatory approval may be
withdrawn and reformulation of our products, additional clinical
trials, changes in labeling of our products and additional
marketing applications may be required.
The
availability and amount of reimbursement for our product
candidates and the manner in which government and private payers
may reimburse for our potential products is
uncertain.
In many of the markets where we may do business in the future,
the prices of pharmaceutical products are subject to direct
price controls pursuant to applicable law or regulation and to
drug reimbursement programs with varying price control
mechanisms.
We expect that many of the patients who seek treatment with
Provenge or any other of our products that are approved for
marketing will be eligible for Medicare benefits. Other patients
may be covered by private health plans or uninsured. The
Medicare program is administered by the Centers for
Medicare & Medicaid Services (CMS), an
agency within the U.S. Department of Health and Human
Services. Coverage and reimbursement for products and services
under Medicare are determined pursuant to regulations
promulgated by CMS and pursuant to CMSs subregulatory
coverage and reimbursement determinations. It is difficult to
predict how CMS may apply those regulations and subregulatory
determinations to newly approved products, especially novel
products such as ours, and those regulations and interpretive
determinations are subject to change.
Moreover, the methodology under which CMS makes coverage and
reimbursement determinations is subject to change, particularly
because of budgetary pressures facing the Medicare program. For
example, the Medicare Prescription Drug, Improvement, and
Modernization Act (the Medicare Modernization Act),
enacted in December 2003, provides for a change in reimbursement
methodology that reduces the Medicare reimbursement rates for
many drugs, including oncology therapeutics, which may adversely
affect reimbursement for Provenge, if it is approved for sale,
or our other product candidates. If we are unable to obtain or
retain adequate levels of reimbursement from Medicare or from
private health plans, our ability to sell Provenge and our other
potential products will be adversely affected. Medicare
regulations and interpretive determinations also may determine
who may be reimbursed for certain services. This may adversely
affect our ability to market or sell Provenge or our other
potential products, if approved.
Federal, state and foreign governments continue to propose
legislation designed to contain or reduce health care costs.
Legislation and regulations affecting the pricing of products
like our potential products may change further or be adopted
before Provenge or any of our potential products are approved
for marketing. It is difficult to predict which, if any, of
these proposals will be enacted, and, if so, when. Cost control
initiatives by governments or third party payers could decrease
the price that we receive for any one or all of our potential
products or increase patient coinsurance to a level that makes
Provenge and our other products under development unaffordable.
In addition, government and private health plans persistently
challenge the price and cost-effectiveness of therapeutic
products. Accordingly, these third parties may ultimately not
consider Provenge or any or all of our products under
development to be cost-effective, which could result in products
not being covered under their health plans or covered only at a
lower price. Any of these initiatives or developments could
prevent us from successfully
23
marketing and selling any of our potential products. We are
unable to predict what impact the Medicare Modernization Act or
other future regulation or third party payer initiatives, if
any, relating to reimbursement for Provenge or any of our other
potential products will have on sales of Provenge or those other
product candidates, if any of them are approved for sale.
In the European Union, governments influence the price of
pharmaceutical products through their pricing and reimbursement
rules and control of national health care systems that fund a
large part of the cost of such products to consumers. The
approach taken varies from member state to member state. Some
jurisdictions operate positive
and/or
negative list systems under which products may only be marketed
once a reimbursement price has been agreed. Other member states
allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs,
has become very intense. As a result, increasingly high barriers
are being erected to the entry of new products, as exemplified
by the role of the National Institute for Health and Clinical
Excellence in the United Kingdom which evaluates the data
supporting new medicines and passes reimbursement
recommendations to the government. In addition, in some
countries cross-border imports from low-priced markets (parallel
imports) exert commercial pressure on pricing within a country.
All of these factors could adversely impact our ability to
successfully commercialize product candidates in these
jurisdictions.
The
pharmaceutical industry is subject to significant regulation and
oversight in the United States.
In addition to FDA restrictions on marketing of pharmaceutical
products, several other types of state and federal laws have
been applied to restrict certain marketing practices in the
pharmaceutical and medical device industries in recent years.
These laws include antikickback statutes and false claims
statutes.
The Federal Health Care Program Antikickback statute prohibits,
among other things, knowingly and willfully offering, paying,
soliciting, or receiving remuneration to induce or in return for
purchasing, leasing, ordering, or arranging for the purchase,
lease, or order of any health care item or service reimbursable
under Medicare, Medicaid, or other federally financed healthcare
programs. This statute has been interpreted to apply to
arrangements between pharmaceutical manufacturers on one hand
and prescribers, purchasers, and formulary managers on the
other. Although there are a number of statutory exemptions and
regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn
narrowly, and practices that involve remuneration intended to
induce prescribing, purchases, or recommendations may be subject
to scrutiny if they do not qualify for an exemption or safe
harbor. Our practices may not in all cases meet all of the
criteria for safe harbor protection from antikickback liability.
Federal false claims laws prohibit any person from knowingly
presenting, or causing to be presented, a false claim for
payment to the federal government, or knowingly making, or
causing to be made, a false statement to get a false claim paid.
Recently, several pharmaceutical and other health care companies
have been prosecuted under these laws for allegedly providing
free product to customers with the expectation that the
customers would bill federal programs for the product. Other
companies have been prosecuted for causing false claims to be
submitted because of the companys marketing of the product
for unapproved, and thus non-reimbursable, uses. The majority of
states also have statutes or regulations similar to the federal
antikickback law and false claims laws, which apply to items and
services reimbursed under Medicaid and other state programs, or,
in several states, apply regardless of the payor. Sanctions
under these federal and state laws may include civil monetary
penalties, exclusion of a manufacturers products from
reimbursement under government programs, criminal fines and
imprisonment.
Because of the breadth of these laws and the narrowness of the
safe harbors, it is possible that some of our business
activities could be subject to challenge under one or more of
these laws, which could have a material adverse effect on our
business, financial condition and results of operations.
Multi-jurisdictional
regulations, including those establishing our ability to price
products, may negatively affect our sales and profit
margins.
We expect to face pricing pressure globally from managed care
organizations, institutions and government agencies and programs
that could negatively affect the sales and profit margins for
Provenge or any other of our products that are approved for
marketing. For example, in the United States, the Medicare
Modernization Act
24
contains a prescription drug benefit for individuals who are
eligible for Medicare. The prescription drug benefit became
effective on January 1, 2006 and has resulted in increased
use of generics and increased purchasing power of those
negotiating on behalf of Medicare recipients, which in turn may
result in increased pricing pressure on our products.
In addition to legislation concerning price controls, other
trends could adversely affect our sales and profit margins.
These trends include legislative or regulatory action relating
to health care reform initiatives, drug importation legislation
and involuntary approval of medicines for
over-the-counter
use. These trends also include non-governmental initiatives and
practices such as consolidation among customers, managed care
practices and health care costs containment.
Risks
Relating to Manufacturing Activities and Marketing
Activities
We
have limited commercial or other large-scale manufacturing
experience.
To be successful, our product candidates, including Provenge,
must be capable of being manufactured in sufficient quantities,
in compliance with regulatory requirements and at an acceptable
cost. We have limited commercial or other large-scale
manufacturing experience. We currently rely on third parties for
certain aspects of the commercial and clinical trial manufacture
of Provenge and its components and our other product candidates.
A limited number of contract manufacturers are capable of
manufacturing the components of Provenge or the final
manufacture of Provenge. If we encounter delays or difficulties
with manufacturers and cannot manufacture the contracted
components or product candidate ourselves, we may not be able to
conduct clinical trials as planned or to meet demand for
Provenge, if it is approved, any of which could materially harm
our business. Expansion of our production capabilities or
facilities might also require reexamination of our manufacturing
processes and approval by the FDA and similar agencies outside
of the United States.
In addition to increased production efforts, we may make
manufacturing changes to the components or to the manufacturing
process for Provenge. These changes could result in delays in
the development or regulatory approval of Provenge or in
reduction or interruption of commercial sales, in the event
Provenge is approved, any of which could materially harm our
business. We will be required to demonstrate product
comparability for each manufacturing site. The FDA may require
additional testing beyond what we propose.
We intend to rely on results of preclinical studies and clinical
trials performed using the form of the product candidate
produced using the prior formulation or production method or at
the prior scale. Depending upon the type and degree of
differences between manufacturing processes or component
substitutions for a product candidate, we may be required to
conduct additional studies or clinical trials to demonstrate
that the new method or methods or substitute component or
product candidate is sufficiently similar to the previously
produced material.
We
need to rapidly expand our manufacturing facilities to meet
anticipated demand for Provenge in the event of licensure by the
FDA.
In 2006, we completed the initial phase of the build out for our
New Jersey Facility. During 2007, we began production of
Provenge at the New Jersey Facility for clinical use. We are
currently expanding our manufacturing facilities, and during
July and August 2009 we signed leases for new manufacturing
facilities to be located in Atlanta, Georgia and Orange County,
California, and commenced the Phase II and Phase III
build-out to add capacity to our New Jersey Facility. We have
entered into construction agreements and have commenced the
build-out at both the Atlanta and Orange County facilities. The
costs of expansion of our facilities and investment in related
equipment has been and will continue to be a very significant
expenditure for us during 2010 and 2011. In order to
commercialize Provenge, in the event of licensure by the FDA, we
will need to hire and train a significant number of employees
and comply with applicable regulations for our facilities, which
are extensive. In addition to the monetary costs of expansion of
our manufacturing capabilities, the facilities build-out
requires significant time and attention of our executive
management. In pursuing rapid expansion, we must continue to
monitor quality and effective controls, or we risk possible
delays in approval of the facilities by the FDA for commercial
manufacturing.
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We and
our contract manufacturers are subject to significant regulation
with respect to manufacturing of our products.
All of those involved in the preparation of a therapeutic drug
for clinical trials or commercial sale, including our existing
contract manufacturer for the Antigen Delivery Cassette used in
Provenge, and clinical trial investigators, are subject to
extensive regulation by the FDA. Components of a finished
therapeutic product approved for commercial sale or used in
late-stage clinical trials must be manufactured in accordance
with Current Good Manufacturing Practices, a series of complex
regulations. These regulations govern manufacturing processes
and procedures and the implementation and operation of quality
systems to control and assure the quality of investigational
products and products approved for sale. Our facilities and
quality systems and the facilities and quality systems of some
or all of our third party contractors must pass a pre-approval
inspection for compliance with the applicable regulations as a
condition of FDA approval of Provenge or any of our other
potential products. In addition, the FDA may, at any time, audit
or inspect a manufacturing facility involved with the
preparation of Provenge or our other potential products or the
associated quality systems for compliance with the regulations
applicable to the activities being conducted. The FDA also may,
at any time following approval of a product for sale, audit our
manufacturing facilities or those of our third party
contractors. If any such inspection or audit identifies a
failure to comply with applicable regulations or if a violation
of our product specifications or applicable regulation occurs
independent of such an inspection or audit, we or the FDA may
require remedial measures that may be costly
and/or time
consuming for us or a third party to implement and that may
include the temporary or permanent suspension of a clinical
trial or commercial sales or the temporary or permanent closure
of a facility. Any such remedial measures imposed upon us or
third parties with whom we contract could materially harm our
business.
We may
initially be unable to successfully manufacture Provenge, if
approved for marketing, in quantities sufficient to fulfill
patient demand.
To date, our product candidates have been manufactured in small
quantities for preclinical and clinical trials. If Provenge, our
most advanced product candidate, is approved for licensure by
the FDA, we will need to manufacture the product in
significantly larger quantities. Due to the lengthy lead time in
building out and qualifying a manufacturing facility for the
production of a biologic, we may experience constraints in our
ability to initially manufacture Provenge in sufficient
quantities to satisfy market demand. At present, our New Jersey
Facility is built-out to one quarter of capacity, which we
presently believe will be insufficient to satisfy the
anticipated market demand for Provenge. The build-out of the New
Jersey Facility will not be complete until later this year,
following which we will need to validate the expanded facility
and have it inspected by the FDA. The new manufacturing
facilities in Atlanta, Georgia and Orange County, California
will also require build-out, validation studies and inspection
by the FDA prior to commercial use. We may experience a
significant supply shortage of Provenge until completion of and
validation of our new facilities.
We may
in the future experience difficulties and delays in the
manufacturing of our products, which may harm our business and
future prospects.
In addition to capacity constraints, we may experience
difficulties and delays inherent in manufacturing our products
that could lead to manufacturing shutdowns, product shortages or
delays in product manufacturing, such as:
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construction delays related to the construction of planned and
future facilities or the expansion of these facilities;
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failure of us or any of our vendors or suppliers to comply with
cGMP and other applicable regulations and quality assurance
guidelines; and
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changes in facility sites and limits to manufacturing capacity
due to regulatory requirements, or physical limitations that
could impact continuous supply.
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Our product candidates require precise, high-quality
manufacturing. The failure to achieve and maintain these high
manufacturing standards, including the incidence of
manufacturing errors, could result in product shortages,
26
patient injury, product recalls or withdrawls, delays or
failures in product testing or delivery, cost overruns or other
problems that could seriously hurt our business and reputation.
We use
hazardous materials in our business and must comply with
environmental laws and regulations, which can be
expensive.
Our operations produce hazardous waste products, including
chemicals and radioactive and biological materials. We are
subject to a variety of federal, state and local laws and
regulations relating to the use, handling, storage and disposal
of these materials. Although we believe that our safety
procedures for handling and disposing of these materials
complies with the standards prescribed by state and federal laws
and regulations, the risk of accidental contamination or injury
from these materials cannot be eliminated. We generally contract
with third parties for the disposal of such substances and store
our low level radioactive waste at our facilities until the
materials are no longer considered radioactive. We may be
required to incur further costs to comply with current or future
environmental and safety laws and regulations. In addition, in
the event of accidental contamination or injury from these
materials, we could be held liable for any damages that result
and any such liability could exceed our resources.
Risks
from Competitive Factors
Our
competitors may develop and market products that are less
expensive, more effective, safer or reach the market sooner,
which may diminish or eliminate the commercial success of any
products we may commercialize.
Competition in the cancer therapeutics field is intense and is
accentuated by the rapid pace of advancements in product
development. We anticipate that we will face increased
competition in the future as new companies enter our markets.
Some competitors are pursuing a product development strategy
competitive with ours. In addition, we compete with other
clinical-stage companies and institutions for clinical trial
participants, which could reduce our ability to recruit
participants for our clinical trials. Delay in recruiting
clinical trial participants could adversely affect our ability
to bring a product to market prior to our competitors. Further,
research and discoveries by others may result in breakthroughs
that render Provenge or our other potential products obsolete
even before they begin to generate any revenue.
There are products currently under development by other
companies and organizations that could compete with Provenge or
other products that we are developing. Products such as
chemotherapeutics, androgen metabolism or androgen receptor
antagonists, endothelin A receptor antagonists, antisense
compounds, angiogenesis inhibitors and gene therapies for cancer
are also under development by a number of companies and could
potentially compete with Provenge and our other product
candidates. A chemotherapeutic,
Taxotere®
(docetaxel) Injection Concentrate, was approved by the FDA in
2004 for the therapeutic treatment of metastatic,
androgen-independent prostate cancer. In addition, many
universities and private and public research institutes may
become active in cancer research, which may be in direct
competition with us.
Some of our competitors in the cancer therapeutics field have
substantially greater research and development capabilities and
manufacturing, marketing, financial and managerial resources
than we do. In addition, our competitors may obtain patent
protection or FDA approval and commercialize products more
rapidly than we do, which may impact future sales of our
products. If we are permitted by the FDA to commence commercial
sales of products, we will also be competing with respect to
marketing capabilities and manufacturing efficiency, areas in
which we have limited or no experience. We expect that
competition among products approved for sale will be based,
among other things, on product efficacy, price, safety,
reliability, availability, patent protection, and sales,
marketing and distribution capabilities. Our profitability and
financial position will suffer if our products receive
regulatory approval, but cannot compete effectively in the
marketplace. In addition, future legislation may impact our
competitive position in the event brand-name and follow-on
biologics do not receive adequate patent protection.
27
Our
products may not be accepted in the marketplace; therefore, we
may not be able to generate significant revenue, if
any.
Even if Provenge or any of our other potential products is
approved and sold, physicians and the medical community may not
ultimately use it or may use it only in applications more
restricted than we expect. Our products, if successfully
developed, will compete with a number of traditional products
and immunotherapies manufactured and marketed by major
pharmaceutical and other biotechnology companies. Our products
will also compete with new products currently under development
by such companies and others. Physicians will only prescribe a
product if they determine, based on experience, clinical data,
side effect profiles and other factors, that it is beneficial
and preferable to other products currently in use. Many other
factors influence the adoption of new products, including
marketing and distribution restrictions, course of treatment,
adverse publicity, product pricing, the views of thought leaders
in the medical community, and reimbursement by government and
private third party payers.
Failure
to retain key personnel could impede our ability to develop our
products and to obtain new collaborations or other sources of
funding.
We depend, to a significant extent, on the efforts of our key
employees, including senior management and senior scientific,
clinical, regulatory and other personnel. The development of new
therapeutic products requires expertise from a number of
different disciplines, some of which are not widely available.
We depend upon our scientific staff to discover new product
candidates and to develop and conduct preclinical studies of
those new potential products. Our clinical and regulatory staff
is responsible for the design and execution of clinical trials
in accordance with FDA requirements and for the advancement of
our product candidates toward FDA approval and submission of
data supporting approval. The quality and reputation of our
scientific, clinical and regulatory staff, especially the senior
staff, and their success in performing their responsibilities,
may directly influence the success of our product development
programs. In addition, our Chief Executive Officer and other
executive officers are involved in a broad range of critical
activities, including providing strategic and operational
guidance. The loss of these individuals, or our inability to
retain or recruit other key management and scientific, clinical,
regulatory and other personnel, may delay or prevent us from
achieving our business objectives. We face intense competition
for personnel from other companies, universities, public and
private research institutions, government entities and other
organizations.
Risks
Relating to Collaboration Arrangements and Reliance on Third
Parties
If we
fail to enter into any needed collaboration agreements for our
product candidates, we may be unable to commercialize them
effectively or at all.
To successfully commercialize Provenge, we will need substantial
financial resources and we will need to develop or access
expertise and physical resources and systems, including
expanding our manufacturing facilities, a distribution network,
an information technology platform and sales and marketing and
other resources that we currently do not have or may be in the
process of developing. We may elect to develop some or all of
these physical resources and systems and expertise ourselves or
we may seek to collaborate with another company that can provide
some or all of such physical resources and systems as well as
financial resources and expertise. We have recently completed
the due diligence process with a number of companies in
connection with our efforts to find a commercialization partner
for Provenge outside the United States. We are currently
discussing various structures for a partnership arrangement with
several partners. Such collaborations are complex and any
potential discussions may not result in a definitive agreement
for many reasons. For example, whether we reach a definitive
agreement for a collaboration will depend, among other things,
upon our assessment of the collaborators resources and
expertise, the terms and conditions of the proposed
collaboration, and the proposed collaborators evaluation
of a number of factors. Those factors may include the design or
results of our Provenge clinical trials, the potential market
for Provenge, the costs and complexities of manufacturing and
delivering Provenge to patients, the potential of competing
products, the existence of uncertainty with respect to our
ownership of technology, which can exist if there is a challenge
to such ownership without regard to the merits of the challenge
and industry and market conditions generally. If we were to
determine that a collaboration for Provenge is necessary and
were unable to enter
28
into such a collaboration on acceptable terms, we might elect to
delay or scale back the commercialization of Provenge in order
to preserve our financial resources or to allow us adequate time
to develop the required physical resources and systems and
expertise ourselves.
If we enter into a collaboration agreement we consider
acceptable, the collaboration may not proceed as quickly,
smoothly or successfully as we plan. The risks in a
collaboration agreement for Provenge include the following:
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the collaborator may not apply the expected financial resources
or required expertise in developing the physical resources and
systems necessary to successfully commercialize Provenge;
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the collaborator may not invest in the development of a sales
and marketing force and the related infrastructure at levels
that ensure that sales of Provenge reach their full potential;
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disputes may arise between us and a collaborator that delay the
commercialization of Provenge or adversely affect its sales or
profitability; or
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the collaborator may independently develop, or develop with
third parties, products that could compete with Provenge.
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With respect to a collaboration for Provenge or any of our other
product candidates, we are dependent on the success of our
collaborators in performing their respective responsibilities
and the continued cooperation of our collaborators. Our
collaborators may not cooperate with us to perform their
obligations under our agreements with them. We cannot control
the amount and timing of our collaborators resources that
will be devoted to activities related to our collaborative
agreements with them. Our collaborators may choose to pursue
existing or alternative technologies in preference to those
being developed in collaboration with us. Disputes may arise
between us and our collaborators that delay the development and
commercialization of our product candidates. In addition, a
collaborator for Provenge may have the right to terminate the
collaboration at its discretion. Any termination may require us
to seek a new collaborator, which we may not be able to do on a
timely basis, if at all, or require us to delay or scale back
the commercialization efforts. The occurrence of any of these
events could adversely affect the commercialization of Provenge
and materially harm our business and stock price by delaying the
date on which sales of the product may begin, if it is approved
by the FDA, by slowing the pace of growth of such sales, by
reducing the profitability of the product or by adversely
affecting the reputation of the product in the market.
Reliance
on third party relationships and outsourcing arrangements could
adversely affect our business.
We presently, and may in the future, depend on third parties,
including suppliers, alliances with other companies and third
party service providers, for key aspects of our business
supporting the development, manufacture and commercialization of
our products and support for our information technology systems
and other infrastructure, including our network of leukapheresis
providers and physician and patient call center. Failure of
these third parties to meet their contractual, regulatory and
other obligations or the development of factors that materially
disrupt the relationships between us and these third parties,
could have a material adverse effect on our business.
We
must rely at present on relationships with third-party contract
manufacturers for components used in our products, which will
limit our ability to control the availability of, and
manufacturing costs for, our product candidates in the
near-term.
We will rely upon contract manufacturers for components of
Provenge for commercial sale, if it is approved for sale.
Problems with any of our or our contract manufacturers
facilities or processes could result in failure to produce or a
delay in production of adequate supplies of antigen, components
or finished Provenge. This could delay or reduce commercial
sales and materially harm our business. Any prolonged
interruption in the operations of our or our contract
manufacturers facilities could result in cancellation of
shipments, loss of components in the process of being
manufactured or a shortfall in availability of a product. A
number of factors could cause interruptions, including the
inability of a supplier to provide raw materials, equipment
malfunctions or failures, damage to a facility due to natural
disasters, changes in FDA regulatory requirements or standards
that require modifications to our manufacturing processes,
action by the FDA or by us that results in the halting or
slowdown of
29
production of components or finished product due to regulatory
issues, a contract manufacturer going out of business or failing
to produce product as contractually required or other similar
factors. Because manufacturing processes are highly complex and
are subject to a lengthy FDA approval process, alternative
qualified production capacity may not be available on a timely
basis or at all. Difficulties or delays in our contract
manufacturers manufacturing and supply of components could
delay our clinical trials, increase our costs, damage our
reputation and, for Provenge, if it is approved for sale, cause
us to lose revenue or market share if we are unable to timely
meet market demands.
Further, if our contract manufacturers are not in compliance
with regulatory requirements at any stage, including
post-marketing approval, we may be fined, forced to remove a
product from the market
and/or
experience other adverse consequences, including delays, which
could materially harm our business.
We
rely on single source vendors for some key components for our
active immunotherapy product candidates, which could impair our
ability to manufacture and supply our products.
We currently depend on single source vendors for some of the
components for our active immunotherapy candidates. We have
entered into a long-term contract with Diosynth for production
of the antigen used in the preparation of Provenge, which
relationship is not readily replaceable. If we were unable to
obtain sufficient quantity of the antigen from Diosynth when and
as needed, it is uncertain whether alternative sources could be
developed. Should the FDA approve Provenge for licensure, any
production shortfall on the part of Diosynth that impairs the
supply of the antigen to us would have a material adverse effect
on our business, financial condition and results of operations.
Risks in
Protecting our Intellectual Property
If we
are unable to protect our proprietary rights or to defend
against infringement claims, we may not be able to compete
effectively or operate profitably.
We invent and develop technologies that are the basis for or
incorporated in our potential products. We protect our
technology through United States and foreign patent filings,
trademarks and trade secrets. We have issued patents, and
applications for United States and foreign patents in various
stages of prosecution. We expect that we will continue to file
and prosecute patent applications and that our success depends
in part on our ability to establish and defend our proprietary
rights in the technologies that are the subject of issued
patents and patent applications.
The fact that we have filed a patent application or that a
patent has issued, however, does not ensure that we will have
meaningful protection from competition with regard to the
underlying technology or product. Patents, if issued, may be
challenged, invalidated, declared unenforceable or circumvented
or may not cover all applications we may desire. While we have a
number of patents that cover our composition, use and
manufacture of Provenge, one of our issued patents is currently
under re-examination by the U.S. Patent Office. The outcome
of
re-examination
proceedings in general is unpredictable, and as a result some or
all of the claims of the patent may be confirmed, modified or
cancelled. In addition, our pending patent applications as well
as those we may file in the future may not result in issued
patents. Patents may not provide us with adequate proprietary
protection or advantages against competitors with, or who could
develop, similar or competing technologies or who could design
around our patents.
We also rely on trade secrets and know-how that we seek to
protect, in part, through confidentiality agreements. Our policy
is to require our officers, employees, consultants, contractors,
manufacturers, outside scientific collaborators and sponsored
researchers and other advisors to execute confidentiality
agreements. These agreements provide that all confidential
information developed or made known to the individual during the
course of the individuals relationship with us be kept
confidential and not disclosed to third parties except in
specific limited circumstances. We also require signed
confidentiality agreements from companies that receive our
confidential data. For employees, consultants and contractors,
we require confidentiality agreements providing that all
inventions conceived while rendering services to us shall be
assigned to us as our exclusive property. It is possible,
however, that these parties may breach those agreements, and we
may not have adequate remedies for any breach. It is also
possible that our trade secrets or know-how will otherwise
become known to or be independently developed by competitors.
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We are also subject to the risk of claims, whether meritorious
or not, that our immunotherapy candidates infringe or
misappropriate third party intellectual property rights. If we
are found to infringe or misappropriate third party intellectual
property, we could be required to seek a license or discontinue
our products or cease using certain technologies or delay
commercialization of the affected product or products, and we
could be required to pay substantial damages, which could
materially harm our business.
We may
be subject to litigation with respect to the ownership and use
of intellectual property that will be costly to defend or pursue
and uncertain in its outcome.
Our business may bring us into conflict with our licensees,
licensors or others with whom we have contractual or other
business relationships, or with our competitors or others whose
interests differ from ours. If we are unable to resolve those
conflicts on terms that are satisfactory to all parties, we may
become involved in litigation brought by or against us. That
litigation is likely to be expensive and may require a
significant amount of managements time and attention, at
the expense of other aspects of our business.
Litigation relating to the ownership and use of intellectual
property is expensive, and our position as a relatively small
company in an industry dominated by very large companies may
cause us to be at a disadvantage in defending our intellectual
property rights and in defending against claims that our
immunotherapy candidates infringe or misappropriate third party
intellectual property rights. Even if we are able to defend our
position, the cost of doing so may adversely affect our
profitability. We have not yet experienced patent litigation.
This may reflect, however, the fact that we have not yet
commercialized any products. We may in the future be subject to
such litigation and may not be able to protect our intellectual
property at a reasonable cost if such litigation is initiated.
The outcome of litigation is always uncertain, and in some cases
could include judgments against us that require us to pay
damages, enjoin us from certain activities or otherwise affect
our legal or contractual rights, which could have a significant
adverse effect on our business.
We are
exposed to potential product liability claims, and insurance
against these claims may not be available to us at a reasonable
rate in the future.
Our business exposes us to potential product liability risks
that are inherent in the testing, manufacturing, marketing and
sale of therapeutic products. We have clinical trial insurance
coverage, and we intend to obtain commercial product liability
insurance coverage prior to any commercial product sales.
However, this insurance coverage may not be adequate to cover
claims against us or available to us at an acceptable cost, if
at all. Regardless of their merit or eventual outcome, product
liability claims may result in decreased demand for a product,
injury to our reputation, withdrawal of clinical trial
volunteers and loss of revenues. Thus, whether or not we are
insured, a product liability claim or product recall may result
in losses that could be material.
Risks
Relating to an Investment in Our Common Stock
We are
currently subject to certain pending litigation and a
stockholder demand and may be subject to similar claims in the
future.
Four proposed securities class action suits have been filed in
The United States District Court for the Western District of
Washington, which the Court has consolidated and which name our
company, and our Chief Executive Officer and one of our
executive officers, and purport to state claims for securities
law violations stemming from our disclosures related to Provenge
and the FDAs actions regarding our pending BLA for
Provenge. A similar suit, not a class action but asserting the
same claims, has also been filed in the same court. A derivative
suit has also been filed in the State of Washington against our
Chief Executive Officer and all of the members of our board of
directors, and us as a nominal defendant, alleging breaches of
fiduciary duties and failure to control the alleged wrongful
actions of our Company. In addition, we have received letters
from counsel for two of our stockholders demanding our board of
directors investigate certain allegations of wrongful disclosure
and insider trading stemming from our disclosures regarding our
communications with the FDA during the first half of 2007
pertaining to our Provenge BLA. It is possible that additional
suits will be filed, or allegations received from stockholders,
with respect to these same matters and also naming our company
and/or our
executive officers and directors. We cannot predict the outcome
of any of these suits. Monitoring and defending against legal
actions, whether or not meritorious, and
31
considering stockholder demands is time-consuming for our
management and detracts from our ability to fully focus our
internal resources on our business activities. In addition,
legal fees and costs incurred in connection with such activities
are costly. We are not currently able to estimate the possible
cost to us from these matters, as these suits are currently at
an early stage and we cannot be certain how long it may take to
resolve these matters or the possible amount of any damages that
we may be required to pay. We have not established any reserves
for any potential liability relating to the suits or other
claims related to the same matters. It is possible that we
could, in the future, incur judgments or enter into settlements
of claims for monetary damages. A decision adverse to our
interests on these actions or resulting from these matters could
result in the payment of substantial damages and could have a
material adverse effect on our cash flow, results of operations
and financial position.
Market
volatility may affect our stock price, and the value of an
investment in our common stock may be subject to sudden
decreases.
The trading price for our common stock has been, and we expect
it to continue to be, volatile. The price at which our common
stock trades depends on a number of factors, including the
following, many of which are beyond our control:
|
|
|
|
|
timing and the final outcome of FDA review of our BLA for
Provenge;
|
|
|
|
the progression and tenor of our discussions with the FDA
regarding our BLA for Provenge;
|
|
|
|
preclinical and clinical trial results and other product
development activities;
|
|
|
|
our historical and anticipated operating results, including
fluctuations in our financial and operating results;
|
|
|
|
changes in government regulations affecting product approvals,
reimbursement or other aspects of our or our competitors
businesses;
|
|
|
|
announcements of technological innovations or new commercial
products by us or our competitors;
|
|
|
|
developments concerning our key personnel and intellectual
property rights;
|
|
|
|
announcements regarding significant collaborations or strategic
alliances;
|
|
|
|
publicity regarding actual or potential performance of products
under development by us or our competitors;
|
|
|
|
market perception of the prospects for biotechnology companies
as an industry sector; and
|
|
|
|
general market and economic conditions.
|
In addition, during periods of extreme stock market price
volatility, share prices of many biotechnology companies have
often fluctuated in a manner not necessarily related to their
individual operating performance. Accordingly, our common stock
may be subject to greater price volatility than the stock market
as a whole.
Anti-takeover
provisions in our charter documents and under Delaware law and
our stockholders rights plan could make an acquisition of
us, which may be beneficial to our stockholders, more
difficult.
Provisions of our amended and restated certificate of
incorporation, as amended (certification of
incorporation) and amended and restated bylaws
(bylaws) will make it more difficult for a third
party to acquire us on terms not approved by our board of
directors and may have the effect of deterring hostile takeover
attempts. Our certificate of incorporation authorizes our board
of directors to issue up to 10,000,000 shares of preferred
stock, of which 1,000,000 shares have been designated as
Series A Junior Participating Preferred Stock,
and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of
the holders of our common stock will be subject to, and may be
junior to the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock
could reduce the voting power of the holders of our common stock
and the likelihood that common stockholders will receive
payments upon liquidation.
In addition, our certificate of incorporation divides our board
of directors into three classes having staggered terms. This may
delay any attempt to replace our board of directors. We have
also implemented a stockholders
32
rights plan, also called a poison pill, which would
substantially reduce or eliminate the expected economic benefit
to an acquirer from acquiring us in a manner or on terms not
approved by our board of directors. These and other impediments
to a third party acquisition or change of control could limit
the price investors are willing to pay in the future for shares
of our common stock. Our board of directors has approved
employment agreements with our executive officers that include
change of control provisions that provide severance benefits in
the event that their employment terminates involuntarily without
cause or for good reason within twelve months after a change of
control of us. These agreements could affect the consummation of
and the terms of a third party acquisition.
We are also subject to provisions of Delaware law that could
have the effect of delaying, deferring or preventing a change in
control of our company. One of these provisions prevents us from
engaging in a business combination with any interested
stockholder for a period of three years from the date the person
becomes an interested stockholder, unless specified conditions
are satisfied.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our principal research, development and administrative
facilities are located in Seattle, Washington and consist of
approximately 132,000 square feet under three leases. The
first lease approximates 71,000 square feet and expires in
December 2011 and may be extended at our option for one
consecutive five-year period. The second lease for
24,000 square feet, as amended, also expires in December
2011. The third lease for the remaining 37,000 square feet
expires in April 2011. We are evaluating various options for
research and development and administrative office space in
Seattle, Washington post 2011. We lease approximately
2,400 square feet of office space in Morrisville, North
Carolina under a lease expiring in October 2014. We lease
approximately 158,000 square feet of manufacturing space in
Morris Plains, New Jersey under a lease expiring in October
2012. This lease may be extended at our option for two ten-year
periods and one five-year period. In July, 2009, we entered into
a lease with Majestic Realty Co. for a building to be
constructed in Atlanta, Georgia consisting of approximately
160,000 rentable square feet. The facility is intended for
use by us as a manufacturing facility following construction and
build-out. The initial lease term, anticipated to commence in
the first half of 2010 following substantial completion of the
facility, will be for ten and a half years, with two renewal
terms of five years each. The lease includes a one-time purchase
option exercisable prior to March 2011, and a ten-year expansion
option for up to an additional 47,000 square feet. In
August, 2009, we entered into a lease with Knickerbocker
Properties, Inc. XLVI for existing space totaling approximately
184,000 rentable square feet in Orange County, California
for use by us as a manufacturing facility following build-out.
The initial lease term is for ten and a half years, with two
renewal terms of five years each. The lease includes a one-time
purchase option exercisable during the first three years of the
lease term. We believe that our existing properties are in good
condition and suitable for the conduct of our business.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Beginning on May 24, 2007, four proposed securities class
action suits were filed in the United States District Court for
the Western District of Washington, on behalf of the
Companys common stock, purporting to state claims for
securities law violations stemming from our disclosures related
to Provenge and the FDAs actions regarding our BLA for
Provenge. The complaints seek compensatory damages,
attorneys fees and expenses. On October 4, 2007, the
Court consolidated these actions under the caption
McGuire v. Dendreon Corporation, et al., and
designated a lead plaintiff. The lead plaintiff designated the
complaint filed June 6, 2007 in McGuire, et al. v.
Dendreon Corporation, et al., as the operative complaint. On
December 21, 2007, the Company and individual defendants
jointly filed a motion to dismiss the complaint. By order dated
April 18, 2008, the Court granted the motion to dismiss the
complaint, holding that plaintiffs failed to plead a claim
against the Company or the individual defendants, and allowing
plaintiffs thirty days to file an amended complaint. Plaintiffs
filed an amended complaint on June 2, 2008, naming
Dendreon, our chief executive officer, and a senior vice
president as defendants. Defendants filed a motion to dismiss
the amended complaint on July 2, 2008. By order dated
December 5, 2008, the Court granted the motion to dismiss
the allegations against our chief executive officer based on
allegedly false or misleading statements and his sale of
Dendreon stock, and denied the remainder of the motion. The
Court gave
33
plaintiffs permission to file an amended complaint to reassert
their allegations against our chief executive officer, and
plaintiffs filed a second amended complaint on January 5,
2009. Defendants filed a motion to dismiss the second amended
complaint on January 29, 2009. On May 21, 2009, the
Court issued an order granting in part, and denying in part,
defendants motion to dismiss the second amended complaint,
and allowing leave to amend. Plaintiffs filed a third amended
complaint on June 8, 2009. On June 29, 2009,
defendants filed an answer to the third amended complaint. The
parties have commenced discovery, and exchanged initial
disclosures on July 22, 2009. The Court has ordered that
discovery be completed by May 21, 2010. The Court has also
set a trial date in this action for October 18, 2010.
On March 31, 2009, a complaint captioned
Mountanos v. Dendreon Corporation, et al., was filed
in the United States District Court for the Western
District of Washington, naming Dendreon, our chief executive
officer, and a senior vice president as defendants. The
complaint in Mountanos makes similar factual and legal
allegations as the second amended complaint filed in the
McGuire action described above, but Mountanos is
not a class action and the named plaintiffs allegedly purchased
options rather than the Companys common stock. The
complaint challenges disclosures related to the FDAs
actions regarding our pending BLA for Provenge, and the sale of
Dendreon stock by our chief executive officer. It seeks
compensatory damages, attorneys fees and expenses. On
April 24, 2009, the parties filed a joint stipulation
asking the court to postpone the deadline to respond to the
complaint until 30 days after a final ruling on all motions
to dismiss in McGuire v. Dendreon. On July 2,
2009, plaintiffs filed an amended complaint, which the
defendants answered on August 3, 2009. The parties have
commenced discovery, and exchanged initial disclosures on
October 13, 2009. The Court has ordered that discovery be
completed by May 21, 2010. The Court has also set a trial
date in this action for October 18, 2010.
On July 31, 2007, a stockholder derivative action was filed
in the Superior Court for King County, Washington, allegedly on
behalf of and for the benefit of the Company, against all of the
members of our Board of Directors, alleging, among other claims,
breach of fiduciary duty, gross mismanagement, waste of
corporate assets, and unjust enrichment. The case is captioned
Loh v. Gold, et al. The complaint is derivative in
nature and does not seek monetary damages from the Company.
However, the Company may be required, throughout the pendency of
the action, to advance payment of legal fees and costs incurred
by the defendants. On November 6, 2007, the Company and the
individual defendant directors each filed a motion to dismiss
the complaint. Rather than file an opposition to the motions to
dismiss, the plaintiff opted to file an amended complaint on
December 5, 2007. On January 29, 2008, the Company and
the individual defendant directors filed motions to dismiss the
amended complaint. The plaintiff filed a consolidated opposition
to both motions to dismiss, and the Company and the individual
defendants filed replies to the plaintiffs opposition. By
order dated February 18, 2009, the Court granted a
stipulated motion from all parties requesting that oral argument
be postponed until after the resolution of the motion to dismiss
the second amended complaint in the federal class action,
McGuire v. Dendreon. On July 27, 2009,
plaintiff filed a Verified Second Amended Complaint. On
September 14, 2009, defendents filed a motion to dismiss
the Verified Second Amended Complaint. The parties have
completed briefing on the motion to dismiss, and oral argument
on the motion was held on February 19, 2010. No trial date
has been set, and discovery has not commenced.
On or around July 2, 2007 and July 26, 2007,
Dendreons Board of Directors received letters from counsel
for two Dendreon stockholders claiming damage to the Company
from alleged wrongful disclosure and insider trading and
demanding that the Board investigate and take legal action
against certain Dendreon officers and directors. The wrongful
disclosure allegations relate to the Companys BLA filed
with the FDA for Provenge. These potential claims are not
against the Company. A committee of the Companys Board of
Directors which has responsibility to consider an appropriate
response to the letters has advised counsel for the two
stockholders that it will consider an appropriate response after
it is determined whether the Court in Loh v. Gold
will require that the plaintiff stockholder in that action
must make a demand on the Board before proceeding with the
derivative lawsuit.
Management currently believes that resolving these matters,
individually or in aggregate, will not have a material adverse
effect on our financial position, our results of operations, or
our cash flows. However, these matters are subject to inherent
uncertainties and the actual cost, as well as the distraction
from the conduct of our business, will depend upon many unknown
factors and managements view of these may change in the
future. Thus, these matters could result in a material adverse
effect on our business, financial condition and results of
operations.
34
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted for a vote of security holders during
the quarter ended December 31, 2009.
|
|
ITEM 4A.
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
|
Our executive officers and their ages as of February 15,
2010 were as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Mitchell H. Gold, M.D.
|
|
|
42
|
|
|
President and Chief Executive Officer
|
Hans E. Bishop
|
|
|
45
|
|
|
Executive Vice President and Chief Operating Officer
|
Mark W. Frohlich, M.D.
|
|
|
48
|
|
|
Senior Vice President for Clinical Affairs and Chief Medical
Officer
|
Richard F. Hamm, Jr.
|
|
|
50
|
|
|
Senior Vice President, Corporate Development, General Counsel
and Secretary
|
Gregory T. Schiffman
|
|
|
52
|
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
David L. Urdal, Ph.D.
|
|
|
60
|
|
|
Senior Vice President and Chief Scientific Officer
|
Mitchell H. Gold, M.D. has served as our Chief
Executive Officer since January 1, 2003, and as a director
since May 2002. Dr. Gold also served as our Vice President
of Business Development from June 2001 to May 2002, and as our
Chief Business Officer from May 2002 through December 2002. From
April 2000 to May 2001, Dr. Gold served as Vice President
of Business Development and Vice President of Sales and
Marketing for Data Critical Corporation, a company engaged in
wireless transmission of critical healthcare data, now a
division of GE Medical. From 1995 to April 2000, Dr. Gold
was the President and Chief Executive Officer, and a co-founder
of Elixis Corporation, a medical information systems company.
From 1993 to 1998, Dr. Gold was a resident physician in the
Department of Urology at the University of Washington.
Dr. Gold currently serves on the boards of the University
of Washington/Fred Hutchinson Cancer Research Center Prostate
Cancer Institute, the Washington Biotechnology and BioMedical
Association and the Biotechnology Industry Organizations
Emerging Company Section Governing Board. Dr. Gold
received a B.S. from the University of Wisconsin-Madison and an
M.D. from Rush Medical College.
Hans E. Bishop has served as our Executive Vice President
and Chief Operating Officer since January 4, 2010.
Mr. Bishop had previously served since 2008 as President of
the speciality medicine center at Bayer and previously served as
President of its hematology/cardiovascular division since 2007.
Prior to his position with Bayer, from 2004 to 2007,
Mr. Bishop served as Senior Vice President of global
commercial operations at Chiron Corporation, as well as its Vice
President and General Manager of European biopharmaceuticals.
Mr. Bishop previously held various positions at Glaxo
Wellcome and SmithKlineBeecham. In addition, he served as
Executive Vice President of operations with a global telecom
service company. Mr. Bishop received a B.S. in chemistry
from Brunel University in London.
Mark W. Frohlich, M.D. became our Senior Vice
President for Clinical Affairs and Chief Medical Officer on
January 1, 2008. Dr. Frohlich served as our Vice
President of Clinical Affairs from April 2006 and from August
2005 served as our Senior Medical Director. Prior to joining
Dendreon, Dr. Frohlich was Vice President and Medical
Director at Xcyte Therapies, Inc., a biotechnology company, from
October 2001 to July 2005. From 1998 to 2001, Dr. Frohlich
was a member of the faculty of the University of California at
San Francisco where he served as an assistant professor in
the Division of Hematology/Oncology. Dr. Frohlich received
a B.S. in electrical engineering and economics from Yale
University and an M.D. from Harvard Medical School.
Richard F. Hamm, Jr. has served as our Senior Vice
President, Corporate Development since December 2005, in
addition to his positions as our Senior Vice President, General
Counsel and Secretary, in which capacities he has served us
since November 2004. Mr. Hamm also served as our principal
financial officer from January to December 2006. From April 2002
to November 2004, Mr. Hamm was the Vice President and
Deputy General Counsel of Medtronic, Inc., a leading medical
technology company. Prior to Medtronic, Mr. Hamm was the
Vice President Corporate Development and Planning at
Carlson Companies, Inc., a global travel, hospitality and
marketing
35
services company. For more than five years prior thereto, he was
Senior Vice President Legal and Business
Development and Vice President and General Counsel at Tropicana
Products, Inc., a manufacturer of fruit juices. Mr. Hamm is
a director of EMCOR Group, Inc., an electrical and mechanical
construction and facilities services company. From August 2000
until September 2009, Mr. Hamm was a director of Axsys
Technologies, Inc., a manufacturer of precision optical
components and systems for aerospace, defense and other high
technology markets. Mr. Hamm received a B.S. in Business
Administration from Arizona State University, a J.D. from
Harvard Law School and an M.B.A. from the Wharton School at the
University of Pennsylvania.
Gregory T. Schiffman joined us in December 2006 as Senior
Vice President, Chief Financial Officer and Treasurer. Prior to
that time, Mr. Schiffman was the Executive Vice President
and Chief Financial Officer of Affymetrix, Inc., a manufacturer
of genetic analysis products. He served as Affymetrixs
Vice President of Finance from March 2001 and was appointed Vice
President and Chief Financial Officer in August 2001. At
Affymetrix, Mr. Schiffman was promoted to Senior Vice
President in October 2002 and to Executive Vice President in
February 2005. Prior to joining Affymetrix, Mr. Schiffman
was Vice President, Controller of Applied Biosystems, Inc. from
October 1998. From 1987 through 1998, Mr. Schiffman held
various managerial and financial positions at Hewlett Packard
Company. Mr. Schiffman served as a director of Vnus
Technologies, Inc., a medical device company from April 2006
until July 2009, Xenogen Corporation, a life sciences tools
company from January 2005 until August 2006, and Impac Software
Medical Systems, Inc., an information systems company making
products for managing radiation and medical oncology practices
from February 2003 until April 2005. Mr. Schiffman received
a B.S. from De Paul University and an M.B.A. from the Kellogg
School at Northwestern University.
David L. Urdal, Ph.D. has served as our Senior Vice
President and Chief Scientific Officer since June 2004. In
January 2006, Dr. Urdal assumed oversight of manufacturing
operations for the Company. Prior to June 2004, he served as
Vice Chairman of the Companys Board of Directors and Chief
Scientific Officer since joining the Company in July 1995. He
served as the Companys President from January 2001 to
December 2003, and he served as the Companys Executive
Vice President from January 1999 through December 2000. From
1982 until July 1995, Dr. Urdal held various positions with
Immunex Corporation, a biotechnology company, including
President of Immunex Manufacturing Corporation, Vice President
and Director of Development, and head of the departments of
biochemistry and membrane biochemistry. Dr. Urdal serves as
a director of VLST, a biotechnology company and ORE
Pharmaceuticals, Inc., a pharmaceutical drug repositioning and
development company. Dr. Urdal received a B.S. in zoology,
an M.S. in Public Health and a Ph.D. in Biochemical Oncology
from the University of Washington.
36
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock trades on the Nasdaq Global Market under the
symbol DNDN. The following table sets forth, for the
periods indicated, the high and low reported intraday sale
prices of our common stock as reported on the Nasdaq Global
Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
4.80
|
|
|
$
|
2.55
|
|
Second quarter
|
|
|
27.40
|
|
|
|
4.02
|
|
Third quarter
|
|
|
30.42
|
|
|
|
21.25
|
|
Fourth quarter
|
|
|
30.42
|
|
|
|
24.79
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
7.00
|
|
|
|
4.15
|
|
Second quarter
|
|
|
5.90
|
|
|
|
4.37
|
|
Third quarter
|
|
|
6.70
|
|
|
|
4.27
|
|
Fourth quarter
|
|
|
10.00
|
|
|
|
4.05
|
|
Recordholders. As of February 18, 2010,
there were 330 holders of record of our common stock.
Dividends. We have never declared or paid cash
dividends on our capital stock. We currently intend to retain
any future earnings to fund the development and growth of our
business and do not currently anticipate paying any cash
dividends in the foreseeable future. Future dividends, if any,
will be determined by our board of directors and will depend
upon our financial condition, results of operations, capital
requirements and other factors.
37
Performance
Comparison Graph
The following graph shows the total stockholder return of an
investment of $100 in cash in our common stock or in each of the
following indices on December 31, 2004: (i) the Nasdaq
Composite Index and (ii) the Nasdaq Biotechnology Index.
All values assume reinvestment of the full amount of all
dividends and are calculated as of December 31, 2009.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Dendreon Corporation, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
|
|
|
* |
|
$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31. |
38
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
You should read the selected financial data set forth below in
conjunction with the information in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our audited
financial statements and the related notes thereto appearing
elsewhere in this annual report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
101
|
|
|
$
|
111
|
|
|
$
|
743
|
|
|
$
|
273
|
|
|
$
|
210
|
|
Operating expenses
|
|
|
100,142
|
|
|
|
70,589
|
|
|
|
102,362
|
|
|
|
97,629
|
|
|
|
86,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(100,041
|
)
|
|
|
(70,478
|
)
|
|
|
(101,619
|
)
|
|
|
(97,356
|
)
|
|
|
(86,463
|
)
|
Interest income (expense)
|
|
|
(1,357
|
)
|
|
|
(1,537
|
)
|
|
|
2,355
|
|
|
|
5,714
|
|
|
|
4,916
|
|
(Loss) gain from valuation of warrant liability
|
|
|
(118,763
|
)
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
|
$
|
(99,264
|
)
|
|
$
|
(91,642
|
)
|
|
$
|
(81,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(2.04
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(1.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic and diluted net loss per
share
|
|
|
108,050
|
|
|
|
90,357
|
|
|
|
82,531
|
|
|
|
72,366
|
|
|
|
59,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, short- and long-term investments
|
|
$
|
606,386
|
|
|
$
|
110,577
|
|
|
$
|
120,575
|
|
|
$
|
121,283
|
|
|
$
|
166,409
|
|
Working capital
|
|
|
441,550
|
|
|
|
84,485
|
|
|
|
81,656
|
|
|
|
89,557
|
|
|
|
121,532
|
|
Total assets
|
|
|
735,415
|
|
|
|
147,204
|
|
|
|
161,662
|
|
|
|
163,643
|
|
|
|
207,553
|
|
Warrant Liability
|
|
|
132,953
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, less current portion
|
|
|
68,915
|
|
|
|
93,802
|
|
|
|
95,647
|
|
|
|
17,027
|
|
|
|
15,729
|
|
Total stockholders equity
|
|
|
503,564
|
|
|
|
27,006
|
|
|
|
40,377
|
|
|
|
125,717
|
|
|
|
168,709
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW
We are a biotechnology company focused on the discovery,
development and commercialization of novel therapeutics that
significantly improve cancer treatment options for patients. Our
portfolio includes active immunotherapy, monoclonal antibody and
small molecule product candidates to treat a wide range of
cancers. Our most advanced product candidate is Provenge
(sipuleucel-T), an active cellular immunotherapy for prostate
cancer.
We will not generate revenue from the sale of our potential
commercial therapeutic products in the U.S. until Provenge
or another product candidate we may develop is approved for
marketing by the U.S. Food and Drug Administration (the
FDA). Without revenue generated from commercial
sales, we anticipate that we will continue to fund our ongoing
research, development and general operations from our available
cash resources and future offerings of equity, debt or other
securities.
We have incurred significant losses since our inception. As of
December 31, 2009, our accumulated deficit was
$783.5 million, of which $118.4 million relates to the
value of our warrant liability described below. We have incurred
net losses as a result of research and development expenses,
clinical trial expenses, contract manufacturing expenses and
general and administrative expenses in support of our operations
and research efforts. We anticipate
39
incurring net losses over the next two years regardless of
whether Provenge is approved for marketing as we expand our
operations including our manufacturing capabilities, develop the
infrastructure to support the commercialization of Provenge,
continue our clinical trials, apply for regulatory approvals and
invest in research and product development. We cannot predict
when we may achieve profitability in the future, if ever, or our
ability to sustain such profitability if achieved. The majority
of our resources continue to be used in support of Provenge. We
own worldwide rights for Provenge.
Since receiving positive clinical data from our IMPACT
(IMmunotherapy for Prostate AdenoCarcinoma Treatment) study for
Provenge in April, we have focused on the amendment to our
Biologics License Application (our BLA), submitted
in October 2009, and expanding our manufacturing operations. The
FDA has confirmed that our amendment constituted a complete
response to the Complete Response Letter, received on
May 8, 2007, and the goal date for FDA action on our BLA
under the Prescription Drug Users Fee Act is May 1, 2010.
We have and expect to continue to significantly increase our
investment in commercial infrastructure in preparation for the
possible FDA licensure of Provenge. We began the expansion of
our manufacturing facility in Morris Plains, New Jersey
(the New Jersey Facility) in July 2009 to bring that
facility to full capacity. We expect the additional build-out of
that facility to be substantially completed later this year,
which will be followed by validation and an inspection by the
FDA. We expect the additional capacity to be available in the
first half of 2011. During July and August 2009, we entered into
new facilities leases in Atlanta, Georgia, and Orange County,
California, for an aggregate of approximately
340,000 square feet of space we intend to use for
commercial manufacturing, following construction build-out and
validation of these new facilities. Each of these facilities
leases has an initial ten and a half-year term, with two renewal
terms of five years each. In Atlanta, Georgia, the shell of the
building is under construction and we have commenced the
build-out of the facility. In Orange County, California, we are
in the midst of the construction build-out consisting of cell
processing stations, quality control laboratories, a data
center, training areas, infrastructure and offices. We
anticipate it will take approximately one year from commencement
of construction to substantially complete the build-out of these
facilities, which will be followed by validation and inspection
by the FDA prior to use for the commercial manufacture of
Provenge.
Other potential product candidates we have under development
include lapuleucel-T, our investigational active cellular
immunotherapy for the treatment of patients with bladder,
breast, ovarian and other solid tumors expressing HER2/ neu.
Active cellular immunotherapies directed at CA-9, an antigen
highly expressed in renal cell carcinoma and CEA, an antigen
expressed in colorectal cancer, are in preclinical development.
We are also developing an orally-available small molecule
targeting TRPM8 that could be applicable to multiple types of
cancer as well as benign prostatic hyperplasia. In December 2008
we filed an investigational new drug application
(IND) to investigate this small molecule in advanced
cancer patients. The IND was cleared by the FDA in January 2009.
In 2009, we commenced our Phase I clinical trial to evaluate
TRPM8 and the trial is ongoing.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We make judgmental decisions and estimates with underlying
assumptions when applying accounting principles to prepare our
consolidated financial statements. Certain critical accounting
policies requiring significant judgments, estimates, and
assumptions are detailed below. We consider an accounting
estimate to be critical if (1) it requires assumptions to
be made that are uncertain at the time the estimate is made and
(2) changes to the estimate or different estimates, that
could have reasonably been used, would have materially changed
our consolidated financial statements. The development and
selection of these critical accounting policies have been
reviewed with the Audit Committee of our Board of Directors.
We believe the current assumptions and other considerations used
to estimate amounts reflected in our consolidated financial
statements are appropriate. However, should our actual
experience differ from these assumptions and other
considerations used in estimating these amounts, the impact of
these differences could have a material impact on our
consolidated financial statements.
Cash,
Cash Equivalents, and Investments
We consider investments in highly liquid instruments purchased
with an original maturity at purchase of 90 days or less to
be cash equivalents. The amounts are recorded at cost, which
approximates fair value. Our cash
40
equivalents and short-term and long-term investments consist
principally of commercial paper, money market securities,
corporate bonds/notes and certificates of deposit.
We have classified our entire investment portfolio as
available-for-sale.
Available-for-sale
securities are carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders
equity and included in accumulated other comprehensive income
(loss). The amortized cost of investments is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion are included in interest income.
Interest earned on securities is included in interest income.
Gains are recognized when realized in our consolidated
statements of operations. Losses are recognized when realized
and when we have determined that an
other-than-temporary
decline in fair value has occurred.
We periodically evaluate whether declines in fair values of our
investments below their cost are
other-than-temporary.
This evaluation consists of several qualitative and quantitative
factors regarding the severity and duration of the unrealized
loss as well as our ability and intent to hold the investment
until a forecasted recovery occurs. Additionally, we assess
whether it is more likely than not we will be required to sell
any investment before recovery of its amortized cost basis.
We consider an investment with a maturity greater than twelve
months as long-term and a maturity less than twelve months as
short-term at the balance sheet date. The cost of securities
sold is based on the specific identification method.
Revenue
Recognition
Substantially all of the revenue we have recorded to date is
related to collaborative research revenue and license revenue.
We recognize collaborative research revenues from up-front
payments, milestone payments, and personnel-supported research
funding. We also recognize license revenue from intellectual
property and technology agreements. The payments received under
these research collaboration agreements are generally
contractually not refundable even if the research effort is not
successful. Performance under our collaborative agreements is
measured by scientific progress, as mutually agreed upon by us
and our collaborators.
Our revenue arrangements with multiple elements are divided into
separate units of accounting if certain criteria are met,
including whether the delivered element has stand-alone value to
the customer and whether there is objective and reliable
evidence of the fair value of the undelivered items. The
consideration we receive is allocated among the separate units
based on their respective fair values, and the applicable
revenue recognition criteria are applied to each of the separate
units.
License Fees: License fees from our research
collaborations include payments for technology transfer and
access rights. Non-refundable, up-front payments received in
connection with collaborative research and development
agreements are deferred and recognized on a straight-line basis
over the period during which we have continuing obligations,
generally the research term. When the research term is not
specified in the agreement and instead the agreement specifies
the completion or attainment of a particular development goal,
an estimate is made of the time required to achieve that goal
considering experience with similar projects, level of effort
and the development stage of the project. The basis of the
revenue recognition is reviewed and adjusted based on the status
of the project against the estimated timeline as additional
information becomes available. Non-refundable license fees where
we have completed all future obligations are recognized as
revenue in the period when persuasive evidence of an agreement
exists, delivery has occurred, collectability is reasonably
assured and the price is fixed and determinable.
Royalty Income: Royalties from licensees are
based on reported sales of licensed products, and revenues are
calculated based on contract terms when reported sales are
reliably measurable and collectability is reasonably assured.
Research
and Development Expenses
Prior to January 1, 2008, research and development costs
were expensed as incurred including nonrefundable prepayments
for research and development services. On January 1, 2008,
we adopted Accounting Standards Codification (ASC)
730-20,
Research and Development Research and
Development Arrangements, and changed our accounting
policy. For new contracts entered into as of or subsequent to
January 1, 2008, nonrefundable prepayments for research and
development services are deferred and recognized as the services
are
41
rendered. Research and development expenses include, but are not
limited to, payroll and personnel expenses, lab expenses,
clinical trial and related clinical manufacturing costs,
facilities and related overhead costs.
Warrant
Liability
On April 3, 2008, we issued 8.0 million shares (the
Shares) of our common stock, and warrants to
purchase up to 8.0 million shares of common stock (the
Warrants) to an institutional investor (the
Investor). The Investor purchased the Shares and
Warrants for a negotiated price of $5.92 per share of common
stock purchased. The Warrants are exercisable at any time prior
to April 8, 2015, with an exercise price of $20.00 per
share of common stock and include a net exercise feature.
The Warrants have been recorded at their relative fair values at
issuance and will continue to be recorded at fair value each
subsequent balance sheet date. Any change in value between
reporting periods will be recorded as other income (expense)
each reporting date. The Warrants will continue to be reported
as a liability until such time as they are exercised or are
otherwise modified to remove the provisions that require this
treatment, at which time the Warrants will be adjusted to fair
value and reclassified from liabilities to stockholders
equity. The fair value of the Warrants is estimated using the
Black-Scholes-Merton (BSM) option-pricing model. As
of December 31, 2009 and 2008, the fair value of the
Warrants was determined to be $133.0 million and
$14.2 million, respectively; accordingly, we recorded
approximately ($118.8) million and $371,000 in (loss) gain
from valuation of warrant liability for the years ended
December 31, 2009 and 2008, respectively, related to the
change in the fair value of the Warrants.
Accounting
for Stock-Based Compensation
Stock-based compensation cost is estimated at the grant date
based on the awards fair value and is recognized as
expense over the requisite service period. Compensation cost for
all stock-based awards is measured at fair value. The fair value
of our stock options are calculated by the BSM option pricing
model. The BSM model requires various highly judgmental
assumptions including volatility, forfeiture rates and expected
option life. If any of the assumptions used in the BSM model
change significantly, stock-based compensation expense may
differ materially in the future from that recorded in the
current period.
We grant restricted stock awards that generally vest over a four
year period, however, in 2007, we granted restricted stock
awards with certain performance conditions to all employees. We
are required to estimate the probability of achieving each
acceleration provision. Compensation expense is recorded based
upon our assessment of accomplishing each accelerated provision.
We recognize compensation expense for our stock-based payment
awards on the accelerated method over the requisite service
period of the entire award, unless the awards are subject to
other conditions, in which case we recognize compensation
expense over the requisite service period of each separate
vesting tranche. We also determine the fair value of awards
under our Employee Stock Purchase Plan using the BSM option
pricing model.
For additional information about stock-based compensation, see
Note 9 to the Consolidated Financial Statements.
Recent
Accounting Pronouncements
Effective January 1, 2008, we adopted ASC 820, Fair
Value Measurements and Disclosures except as it applies to
the non-financial assets and non-financial liabilities subject
to ASC
820-10-65,
Fair Value Measurements and Disclosures
Transition and Open Effective Date Information, which we
adopted effective January 1, 2009. The impact of these
items was not material to our consolidated financial statements.
Assets and liabilities typically recorded at fair value on a
non-recurring basis include:
|
|
|
|
|
Long-lived assets measured at fair value due to an impairment
assessment under ASC
360-10,
Property, Plant and Equipment; and
|
|
|
|
Asset retirement obligations initially measured under ASC
410-20,
Asset Retirement and Environmental Obligations.
|
42
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.
During the quarter ended June 30, 2009, we adopted ASC
820-10-65-4,
Fair Value Measurements and Disclosures
Transition and Open Effective Date Information (ASC
820-10-65-4),
which provides additional guidance for estimating fair value
when the volume and level of activity for the asset or liability
has significantly decreased. It also provides guidance on
identifying circumstances that indicate a transaction is not
orderly and emphasizes that even if there has been a significant
decrease in the volume and level of activity for the asset or
liability, and regardless of the valuation techniques used, the
objective of a fair value measurement remains the same. The
adoption of ASC
820-10-65-4
did not have a material impact on our results of operations,
cash flows or financial position.
During the quarter ended June 30, 2009, we adopted ASC
320-10-45/65,
Investments Debt and Equity Securities: Other
Presentation Matters/Transition and Open Effective Date
Information (ASC
320-10-45/65)
that amends the impairment guidance for certain debt securities
and requires an investor to assess the likelihood of selling the
security prior to recovering its cost basis. If an investor is
able to meet the criteria to assert that it will not have to
sell the security before recovery, impairment charges related to
those credit losses would be recognized in earnings, while
impairment charges related to non-credit losses would be
reflected in other comprehensive income. The adoption of ASC
320-10-45/65
did not have a material impact on our results of operations,
cash flows or financial position.
On January 1, 2009, we adopted ASC
808-10,
Collaborative Arrangements (ASC
808-10),
which requires a certain presentation of transactions with third
parties and of payments between parties to a collaborative
arrangement in our statement of operations, along with
disclosure about the nature and purpose of the arrangement. The
adoption of ASC
808-10 did
not have any impact on our results of operations, cash flows or
financial position.
On January 1, 2009, we adopted ASC
815-40-15,
Derivatives and Hedging Contracts in
Entitys Own Equity (Scope and Scope Exceptions)
(ASC
815-40-15),
which requires that we apply a two-step approach in evaluating
whether an equity-linked financial instrument (or embedded
feature) is indexed to our own stock, including evaluating the
instruments contingent exercise and settlement provisions.
The adoption of ASC
815-40-15
did not have any impact on our results of operations, cash flows
or financial position.
During the quarter ended June 30, 2009, we adopted ASC
855-10,
Subsequent Events (ASC
855-10)
that establishes general standards of accounting and disclosure
for events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
The adoption of ASC
855-10 did
not have any impact on our results of operations, cash flows or
financial position.
During the quarter ended September 30, 2009, the Financial
Accounting Standards Board (the FASB) issued ASC
105-10,
Generally Accepted Accounting Principles (ASC
105-10)
that mandated that the FASB Accounting Standards Codification
(the Codification) become the single official source
of authoritative U.S. Generally Accepted Accounting
Principles (GAAP) other than guidance issued by the
Securities and Exchange Commission (the SEC),
superseding existing FASB, American Institute of Certified
Public Accountants, Emerging Issues Task Force
(EITF), and related literature. The adoption of ASC
105-10 did
not have any substantive impact on our condensed financial
statements or related footnotes.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND
2007
Revenue
Revenue was $101,000 in 2009, $111,000 in 2008 and $743,000 in
2007. The decrease in 2009 compared to 2008 is attributable to
lower royalty revenue. The decrease in 2008 compared to 2007 was
primarily due to decreased revenue related to the sale of
certain intellectual property in 2007. Our revenue in 2009 and
2008 also includes recognition of deferred revenue related to
one license agreement. Revenue in 2007 includes recognition of
$500,000 in revenue related to an intellectual property option
purchase agreement entered into in 2006 with Wilex AG.
43
Research
and Development Expenses
Research and development expenses were $61.6 million in
2009, $50.1 million in 2008 and $76.5 million in 2007.
The increase in 2009 compared to 2008 is the result of increased
wages, payroll taxes and employee related expenses including
stock compensation as well as product development costs in
connection with our product candidate Provenge. The 2008
decrease compared with 2007 was primarily due to decreased Phase
3 clinical activities as a result of the completion of patient
enrollment in the IMPACT trial in late 2007, the completion of
the initial build-out and subsequent utilization of our Morris
Plains, New Jersey manufacturing facility (the
New Jersey Facility) and resultant reduction of
outside clinical manufacturing, the purchase of antigen in 2007,
the reduction in the costs for pre-commercialization efforts of
Provenge and the decrease in headcount and related severance
costs associated with the 2007 reduction in force.
Financial data related to our research and development
activities is categorized as either costs associated with
clinical programs or discovery research. Our research and
development expenses for the years ended December 31, 2009,
2008 and 2007 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Clinical programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
$
|
5.0
|
|
|
$
|
9.0
|
|
|
$
|
30.1
|
|
Indirect costs
|
|
|
51.7
|
|
|
|
37.7
|
|
|
|
43.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total clinical programs
|
|
|
56.7
|
|
|
|
46.7
|
|
|
|
73.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery research
|
|
|
4.9
|
|
|
|
3.4
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expense
|
|
$
|
61.6
|
|
|
$
|
50.1
|
|
|
$
|
76.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct research and development costs associated with our
clinical programs include clinical trial site costs, clinical
manufacturing costs, costs incurred for consultants and other
outside services, such as data management and statistical
analysis support, and materials and supplies used in support of
the clinical programs. Indirect costs of our clinical program
include wages, payroll taxes and other employee-related
expenses, rent, restructuring charges, stock-based compensation,
utilities and other facilities-related maintenance. The costs in
each category may change in the future and new categories may be
added. Costs attributable to our discovery research programs
represent our efforts to develop and expand our product pipeline.
While we believe our clinical programs are promising, we do not
know whether any commercially viable products will result from
our research and development efforts. Due to the unpredictable
nature of scientific research and product development, we cannot
reasonably estimate:
|
|
|
|
|
the timeframe over which our product development programs are
likely to be completed;
|
|
|
|
whether they will be completed;
|
|
|
|
if they are completed, whether they will provide therapeutic
benefit or be approved for commercialization by the necessary
regulatory agencies; or
|
|
|
|
whether, if approved, they will be scalable to meet commercial
demand.
|
General
and Administrative Expenses
General and administrative expenses were $38.6 million in
2009, $20.5 million in 2008 and $25.8 million in 2007.
General and administrative expenses were primarily comprised of
salaries and wages, consulting fees, marketing fees and
administrative costs to support our operations. The increase in
2009 compared with 2008 was primarily attributable to increased
payroll and outside costs related to pre-commercialization
efforts for Provenge. The decrease in 2008 compared with 2007
was primarily attributable to decreased outside services and
marketing costs related to pre-commercialization efforts for
Provenge, decreased headcount and severance costs associated
with the 2007 reduction in force and decreased legal fees
associated with our current legal proceedings.
44
Interest
Income
Interest income was $964,000 in 2009, $3.6 million in 2008
and $6.5 million in 2007. The decrease in 2009 compared to
2008 was due to lower average interest rates. The decrease in
2008 compared to 2007 was primarily due to lower average
interest rates and lower average cash and investment balances.
Interest
Expense
Interest expense was $2.3 million in 2009,
$5.2 million in 2008 and $4.1 million in 2007. The
decrease in 2009 compared to 2008 was the result of lower
average debt balances and greater capitalized interest related
to the construction of our manufacturing facilities and our
product tracking and scheduling system. The increase in 2008
compared to 2007 was primarily due to an increase in the average
debt balance in 2008, including the principal amount of the
4.75% Convertible Senior Subordinated Notes due 2014 (the
Notes) as compared to 2007, offset by greater
capitalized interest related to the construction of the New
Jersey Facility and our product scheduling system and by
decreased interest expense related to debt and capital lease
obligations.
Warrant
Liability
Non-operating (loss) gain associated with the change in value of
our warrant liability was ($118.8) million and $371,000 in
2009 and 2008, respectively. The fair value of the warrant
liability was calculated using the BSM option-pricing model and
is remeasured at each reporting period. Potential future
increases in our stock price will likely result in losses being
recognized in our consolidated statement of operations in future
periods. Conversely, potential future declines in our stock
price will result in gains being recognized in our consolidated
statement of operations in future periods. Neither of these
potential gains or losses will have any impact on our cash
balance, liquidity or cash flows from operations.
Income
Taxes
As of December 31, 2009, we had federal and state net
operating loss carryforwards (NOLs) of approximately
$597 million and $70 million, respectively. We also
had federal and state research and development credit
carryforwards (R&D Credits) of approximately
$15.2 million and $2.6 million, respectively. The NOLs
and R&D Credits expire at various dates, beginning in 2010
through 2029, if not utilized. Utilization of the NOLs and
R&D Credits may be subject to annual limitations due to the
ownership change limitations provided by the Internal Revenue
Code of 1986. The annual limitations may result in the
expiration of NOLs and R&D Credits before utilization.
Stock-Based
Compensation Expense
Total stock-based employee compensation expense recognized in
the consolidated statement of operations in 2009, 2008 and 2007
was $17.2 million, $5.9 million and $6.1 million,
respectively, of which $7.9 million, $2.9 million and
$2.8 million, respectively, were included in research and
development expense and $9.3 million, $3.0 million and
$3.3 million, respectively, were included in general and
administrative expense. Total stock-based employee compensation
expense recognized in the consolidated statement of operations
in 2009, 2008 and 2007 increased our net loss per share by
$0.16, $0.06 and $0.07, respectively. As we apply a full
valuation allowance to our deferred taxes, there was no impact
on deferred taxes.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Uses and Proceeds
As of December 31, 2009, we had approximately
$606.4 million in cash, cash equivalents, short-term and
long-term investments. To date, we have financed our operations
primarily through proceeds from the sale of equity, debt and
convertible securities, cash receipts from collaborative
agreements, and interest income earned.
Net cash used in operating activities for the years ended
December 31, 2009, 2008 and 2007 was $85.5 million,
$67.3 million, and $82.7 million, respectively.
Expenditures related to operating activities in all periods were
a result of research and development expenses, clinical trial
costs, contract manufacturing costs and general and
45
administrative expenses in support of our operations. The
increase in net cash used in operating activities for 2009 was
also impacted by an increase in cash expenditures as we prepare
for the prospective commercial launch of Provenge in 2010.
Since our inception, investing activities, other than purchases
and maturities of short-term and long-term investments, consist
primarily of purchases of property and equipment. Purchases of
property and equipment increased to $65.9 million in 2009
compared to $6.8 million and $3.1 million in 2008 and
2007, respectively, as facilities related expenditures,
including equipment purchases, increased in 2009 as we prepare
for the prospective commercial launch of Provenge in 2010.
Net cash provided by financing activities increased in 2009
compared to 2008 and 2007 primarly as the result of common stock
issuances in May 2009 and December 2009. We received net
proceeds of $220.8 million and $409.5 million from the
common stock issuances in May 2009 and December 2009,
respectively, after deducting underwriting commissions and
estimated offering expenses.
We believe that our current cash on hand as of December 31,
2009, is sufficient to meet our anticipated expenditures for at
least the next 12 months as we initiate our
commercialization efforts in anticipation of possible licensure
of Provenge. If we receive licensure of Provenge, we expect
revenue from product sales could be a significant source of
cash. However, we may need to raise additional funds to meet
potential additional long term liquidity needs for uses
including:
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the development of marketing, manufacturing, information
technology and other infrastructure and activities related to
the commercialization of Provenge,
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working capital needs,
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increased personnel needs, and
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continuing and expanding our internal research and development
programs.
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Leases
and Credit Facility
Office
Leases
On March 9, 2009, we entered into the second amendment to
our office lease agreement with Selig Holdings Company, LLC. The
amendment extends the term on our headquarters to
December 31, 2011. We lease our principal research,
development and administrative facilities in Seattle, Washington
that consist of approximately 71,000 square feet, under an
operating lease through December 31, 2011, with an option
to extend the term for an additional five years. The annual base
rent for the extended lease term is approximately
$2.7 million, which is to be increased annually between
three to six percent, approximating the Seattle area consumer
price index.
On July 16, 2009, we entered into a sublease agreement with
Hearst Newspapers, LLC (the sublandlord to Legacy Partners II,
the landlord) for office space in Seattle, Washington,
comprising approximately 37,000 rentable square feet. The
term of the sublease is through April 2011.
Manufacturing
Facilities Leases
We anticipate facilities related expenses, including equipment
expenditures, to increase significantly during 2010 as we
prepare for a prospective commercial launch of Provenge in 2010
in the event of licensure by the FDA. As described below in more
detail, during 2009 we entered into:
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leases for two new manufacturing facilities in Atlanta, Georgia
and Orange County, California that will total approximately
340,000 square feet of manufacturing space;
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a construction agreement for the completion of Phases II
and III of our New Jersey Facility; and
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construction agreements for the build-out of our Atlanta,
Georgia and Orange County, California facilities.
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On August 18, 2005, we entered into an agreement to lease
158,242 square feet of commercial manufacturing space in
Morris Plains, New Jersey. The lease term is seven years, and we
have the option to extend the lease for two
46
ten-year periods and one five- year period, with the same terms
and conditions except for rent, which adjusts upon renewal to
market rate. The initial phase (Phase I) of the build-out
of the New Jersey Facility was completed in July 2006. In
February 2007, we started to manufacture Provenge for clinical
use in the New Jersey Facility. The lease required us to provide
the landlord with a letter of credit in the amount of
$3.1 million as a security deposit. We provided Wells
Fargo, the bank that issued the letter of credit on our behalf,
a security deposit of $3.1 million to guarantee the letter
of credit. During 2008, the letter of credit was reduced to
$1.9 million and the security deposit was reduced
commensurately. The $1.9 million security deposit was
recorded as long-term investment on our consolidated balance
sheet as of December 31, 2009.
On June 16, 2009, we entered into a construction agreement
with The Henderson Corporation of PA, Inc.
(Henderson) to retain Henderson to perform
construction related services and to arrange for, monitor,
supervise, administer and contract for the construction of
Phase II and Phase III of our New Jersey Facility.
Phase II of the construction, which consists of additional
quality control laboratories, data center, training areas,
infrastructure and offices, was completed in January 2010. The
construction agreement specifies that Phase III, which consists
of additional manufacturing clean room work stations, production
support areas, warehouse, infrastructure and offices, is to be
substantially complete by May 2010. There are incentives
included in the agreement for the completion of work prior to
such date and penalties for failing to meet such deadline. The
guaranteed maximum price for the completion of all work under
the agreement is $50.5 million.
As part of an agreement with the Township of Hanover relating to
the permitting of the expansion of our New Jersey Facility, we
have $1.9 million in long-term investments being held as a
security deposit to ensure completion of certain improvements at
the property.
On July 31, 2009, we entered into a lease with Majestic
Realty Co. for a building to be constructed in Atlanta, Georgia,
consisting of approximately 160,000 square feet. The
facility is intended for use by us as a manufacturing facility
following construction, which commenced during the third
quarter, and build-out. The initial lease term, anticipated to
commence in the first quarter of 2010 following substantial
completion of the building shell, will be for ten and a half
years, with two renewal terms of five years each. The lease
includes a one-time purchase option exercisable prior to March
2011, and a ten-year expansion option for up to an additional
47,000 square feet. The aggregate rent payable for the
building shell under the initial lease term is $6.7 million.
On August 7, 2009, we entered into a lease with
Knickerbocker Properties, Inc. XLVI for existing building space
totaling approximately 184,000 square feet in Orange
County, California for use by us as a manufacturing facility
following build-out. The initial lease term is for ten and a
half years, with two renewal terms of five years each. The lease
includes a one-time purchase option exercisable during the first
three years of the lease term. We took possession of the
building in September 2009 and are in the construction phase of
the manufacturing build-out consisting of cell processing
stations, quality control laboratories, a data center, training
areas, infrastructure and offices. The aggregate rent payable
for the existing warehouse property under the initial lease term
is $13.6 million.
The Georgia and California leases required us to provide the
landlords with letters of credit in the total amount of
$2.4 million as security deposits. The letters of credit on
our behalf are secured by a deposit of $2.4 million. This
deposit was recorded as a long-term investment on our
consolidated balance sheet as of December 31, 2009.
During the third quarter of 2009, we engaged LifeTek Solutions,
Inc., to provide consulting design and commissioning services
for the build-out of the Atlanta, Georgia, and Orange County,
California facilities as well as Phase II and
Phase III of the New Jersey Facility, for a maximum total
cost of $5.9 million.
In December 2009 and January 2010, we entered into construction
agreements with Turner Construction Company (Turner)
to retain Turner to perform construction related services and to
arrange for, monitor, supervise, administer and contract for the
construction of the build-outs in the Atlanta, Georgia and
Orange County, California facilities, for a maximum total cost
of $89.9 million.
Equipment
Financing
In December 2005, we entered into the first two of a series of
anticipated Promissory Notes (the GE Notes), with
General Electric Capital Corporation (GE Capital),
for the purchase of equipment and associated build-out costs for
the New Jersey Facility. The GE Notes, which evidence one loan
with an original principal amount of
47
$7.0 million bearing interest at 7.55 percent per year
that was paid in full at December 31, 2008, and the
remaining loans with original principal amounts totaling
$9.6 million and an average interest rate of
10.1 percent, were repaid in full as of December 31,
2009. The GE Notes were secured by a Master Security Agreement
and two Security Deposit Pledge Agreements (the Pledge
Agreements). Pursuant to the Pledge Agreements, we
deposited an aggregate of $7.0 million as a security
deposit for the repayment of the GE Notes, which was to be
released upon the repayment of the GE Notes or upon receipt of
FDA approval for the commercialization of Provenge. The GE Notes
were paid in full as of December 31, 2009, and the balance
of the security deposit was returned to us at December 31,
2009.
Financings
from the Sale of Securities and Issuance of Convertible
Notes
Equity
Offering Proceeds
In December 2009, we received net proceeds of
$409.5 million after deducting underwriting commissions and
estimated offering expenses from our issuance of
17,250,000 shares of common stock at the public offering
price of $24.75 per share.
In May 2009, we received net proceeds of $220.8 million
after deducting underwriting commissions and estimated offering
expenses from our issuance of 11,979,166 shares of common
stock at the public offering price of $19.20 per share.
In April 2008, we received net proceeds of $46.0 million
from our issuance of 8.0 million Shares, and
8.0 million Warrants to the Investor. The Investor
purchased the Shares and Warrants for a negotiated price of
$5.92 per share of common stock purchased. The Warrants are
exercisable at any time prior to April 8, 2015, with an
exercise price of $20.00 per share of common stock and include a
net exercise feature. The Warrants contain a fundamental
change provision, as defined in the Warrants, which may in
certain circumstances allow the Warrants to be redeemed for cash
in an amount equal to the Black Scholes Value, as defined in the
Warrants. The Warrants are recorded as a liability and then
marked to market each period through earnings in other income
(expense). The fair value of the Warrants at December 31,
2009 and 2008 was approximately $133.0 million and
$14.2 million, respectively. As a result of this increase,
we recorded ($118.8) million in non-operating expense for
the year ended December 31, 2009.
On October 11, 2007, we entered into an equity line of
credit arrangement with Azimuth Opportunity Ltd.
(Azimuth) pursuant to a Common Stock Purchase
Agreement with Azimuth (the Common Stock Purchase
Agreement), which we amended in October 2008 and February
2009. The Common Stock Purchase Agreement provides that, upon
the terms and subject to the conditions set forth therein,
Azimuth is committed to purchase up to $130,000,000 of our
common stock over the approximately
36-month
term of the Common Stock Purchase Agreement. From time to time,
and at our sole discretion, we may present Azimuth with draw
down notices to purchase our common stock over 10 consecutive
trading days or such other period mutually agreed upon by us and
Azimuth. Each draw down is subject to limitations based on the
price of our common stock, with a minimum price of $4.00 per
share before Azimuth is committed to purchase any shares, and a
limit of 2.5% of our market capitalization at the time of such
draw down, provided, however, Azimuth will not be required to
purchase more than $55,000,000 of our common stock in any single
draw down. We are able to present Azimuth with up to 24 draw
down notices during the term of the Common Stock Purchase
Agreement, with a minimum of five trading days required between
each draw down period. Pursuant to a single draw down notice, on
October 10, 2008, we issued 3,610,760 shares of our
common stock to Azimuth and received net proceeds of
approximately $19.8 million.
Convertible
Notes
In June and July 2007, $85.3 million of the Notes was sold
in a private placement to qualified institutional buyers.
Proceeds from the offering, after deducting placement fees and
our estimated expenses were approximately $82.3 million.
The Notes were issued at face principal amount and pay interest
semi-annually in arrears on June 15 and December 15 of each
year. Record dates for payment of interest on the Notes are each
June 1st and December 1st. In certain
circumstances, additional amounts may become due on the Notes as
additional interest. We can elect that the sole remedy for an
event of default for our failure to comply with the
reporting obligations provisions of the indenture
under which the Notes were issued (the Indenture),
for the first 180 days after the
48
occurrence of such event of default would be for the holders of
the Notes to receive additional interest on the Notes at an
annual rate equal to 1% of the outstanding principal amount of
the Notes. We recorded interest expense, including the
amortization of debt issuance costs related to the Notes, of
$2.9 million, $4.5 million and $2.5 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
The Notes are convertible into our common stock, initially at
the conversion price of $10.28 per share, equal to a conversion
rate of approximately 97.2644 shares per $1,000 principal
amount of the Notes, subject to adjustment. There may be an
increase in the conversion rate of the Notes under certain
circumstances described in the Indenture; however, the number of
shares of common stock issued will not exceed 114.2857 per
$1,000 principal amount of the Notes. A holder that converts
Notes in connection with a fundamental change, as
defined in the Indenture may in some circumstances be entitled
to an increased conversion rate (i.e., a lower per share
conversion price) as a make whole premium. If a fundamental
change occurs, holders of the Notes may require us to repurchase
all or a portion of their Notes for cash at a repurchase price
equal to 100% of the principal amount of the Notes to be
repurchased, plus any accrued and unpaid interest and other
amounts due thereon. The Indenture contains customary covenants.
In April 2009, $11.5 million in principal amount of the
Notes were converted by holders of the Notes, resulting in the
issuance of approximately 1.1 million shares of common
stock. In May 2009, we exchanged an aggregate of
2,137,411 shares of our authorized and unissued common
stock for $21.2 million in aggregate principal face amount
of the Notes held by existing holders of the Notes.
As of December 31, 2009 $52.5 million in aggregate
principal amount of the Notes was outstanding. The fair value of
the Notes at December 31, 2009 and 2008 was approximately
$141.8 million and $46.8 million, respectively, based
on the last trading prices in December 2009 and 2008,
respectively. Such amounts are determined based on quoted prices
in active markets for similar instruments.
Contractual
Commitments
The following are contractual commitments at December 31,
2009 associated with supply agreements, construction contracts,
debt and lease obligations, including interest and unconditional
purchase obligations (in thousands):
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Total
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1 Year
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2-3 Years
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4-5 Years
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Thereafter
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Contractual Commitments(a):
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Convertible senior subordinated notes (including interest)(b)
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$
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63,661
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$
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2,496
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$
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4,991
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$
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56,174
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$
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Facility lease obligation (including interest)(c)
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20,374
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1,291
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2,693
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2,822
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13,568
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Contractual Commitments
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20,535
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10,131
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10,404
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Operating leases(d)
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32,996
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5,837
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7,705
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3,525
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15,929
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Unconditional purchase obligations
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1,325
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1,325
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$
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138,891
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$
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21,080
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$
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25,793
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$
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62,521
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$
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29,497
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(a) |
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The Contractual Commitments table above does not include
obligations related to construction management contracts for the
Orange County Facility, the Atlanta, Georgia Facility, or the
New Jersey Facility. |
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(b) |
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See Note 7 to our Consolidated Financial Statements for
additional information related to the Notes. |
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(c) |
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See Note 6 to our Consolidated Financial Statements for
additional information. Our facility lease obligation commitment
reflects the initial term of the Lease and a renewal period. |
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(d) |
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See Note 12 to our Consolidated Financial Statements for
additional information related to contractual commitments. |
OFF-BALANCE
SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
49
FORWARD-LOOKING
STATEMENTS
Some of the statements contained in this annual report are
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), and are subject to the
safe harbor created by the Private Securities Litigation Reform
Act of 1995. We have based these forward-looking statements
largely on our expectations and projections about future events
and financial trends affecting the financial condition
and/or
operating results of our business. Forward-looking statements
involve risks and uncertainties, particularly those risks and
uncertainties inherent in the process of discovering, developing
and commercializing drugs that are safe and effective for use as
human therapeutics. There are important factors that could cause
actual results to be substantially different from the results
expressed or implied by these forward-looking statements,
including, among other things:
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whether the FDA review of our BLA will result in approval for
licensure to allow us to begin marketing of Provenge;
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whether we have adequate financial resources and access to
capital to fund commercialization of Provenge and that of other
potential product candidates we may develop;
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our ability to successfully manufacture Provenge and other
product candidates in necessary quantities with required quality;
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our ability to successfully obtain regulatory approvals and
commercialize our products that are under development and
develop the infrastructure necessary to support
commercialization if regulatory approvals are received;
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our ability to complete and achieve positive results in ongoing
and new clinical trials;
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our dependence on single-source vendors for some of the
components used in our product candidates;
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the extent to which the costs of any products that we are able
to commercialize will be reimbursable by third-party payors;
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the extent to which any products that we are able to
commercialize will be accepted by the market;
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our dependence on our intellectual property and ability to
protect our proprietary rights and operate our business without
conflicting with the rights of others;
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the effect that any intellectual property litigation, or product
liability claims may have on our business and operating and
financial performance;
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our expectations and estimates concerning our future operating
and financial performance;
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the impact of competition and regulatory requirements and
technological change on our business;
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our ability to recruit and retain key personnel;
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our ability to enter into future collaboration agreements;
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anticipated trends in our business and the biotechnology
industry generally; and
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other factors described under Item 1A, Risk
Factors.
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In addition, in this annual report the words
believe, may, will,
estimate, continue,
anticipate, intend, plan,
expect, potential, or
opportunity, the negative of these words or similar
expressions, as they relate to us, our business, future
financial or operating performance or our management, are
intended to identify forward-looking statements. We do not
intend to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise. Past financial or operating performance is not
necessarily a reliable indicator of future performance and you
should not use our historical performance to anticipate results
or future period trends.
50
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ITEM 7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Our investment portfolio is maintained in accordance with our
investment policy, which specifies credit quality standards,
limits our credit exposure to any single issuer and defines
allowable investments. Auction rate or asset-backed securities
without a guarantee by the U.S. government are not
permitted to be purchased. The fair value of our cash
equivalents and marketable securities is subject to change as a
result of changes in market interest rates and investment risk
related to the issuers credit worthiness.
As of December 31, 2009 and 2008, we had short-term
investments of $167.1 million and $45.6 million,
respectively and long-term investments of $29.4 million and
$5.4 million, respectively. Our short-term and long-term
investments are subject to interest rate risk and will decline
in value if market interest rates increase. The estimated fair
value of our short-term and long-term investments at
December 31, 2009, assuming a 100 basis point increase
in market interest rates, would decrease by $1.0 million,
which would not materially impact our operations. While changes
in interest rates may affect the fair value of our investment
portfolio, any gains or losses will not be recognized in our
statement of operations until the investment is sold or if the
reduction in fair value was determined to be an other than
temporary impairment.
We proactively monitor and manage our portfolio. If necessary we
believe we are able to liquidate our investments within the next
year without significant loss. We currently believe these
securities are not significantly impaired, primarily due to the
government and major corporate guarantees of the underlying
securities; however, it could take until the final maturity of
the underlying notes to realize our investments recorded
values. Based on our expected operating cash flows, and our
other sources of cash, we do not anticipate the potential lack
of liquidity on these investments will affect our ability to
execute our current business plan.
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ITEM 8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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Our financial statements, together with related notes, are
listed in Item 15(a) and included herein beginning on
page F-1.
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ITEM 9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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None.
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ITEM 9A.
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CONTROLS
AND PROCEDURES
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Evaluation
of Disclosure Controls and Procedures
We carried out an evaluation required by the Exchange Act, under
the supervision and with the participation of our principal
executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in
Rule 13a-15(e)
of the Exchange Act, as of December 31, 2009. Based on this
evaluation, our principal executive officer and principal
financial officer concluded that, as of December 31, 2009,
our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed
by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the
time periods specified in the rules and forms of the Securities
and Exchange Commission and to provide reasonable assurance that
such information is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosures.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
of the Exchange Act. Management has assessed the effectiveness
of our internal control over financial reporting as of
December 31, 2009 based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. As a
result of this assessment, management concluded that, as of
December 31, 2009, our internal control over financial
reporting was effective in providing reasonable assurance
regarding the reliability of financial reporting and the
preparation of
51
financial statements for external purposes in accordance with
generally accepted accounting principles. Ernst &
Young LLP has independently assessed the effectiveness of our
internal control over financial reporting and its report is
included below.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2009 that
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Limitations
on Controls
Management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will
prevent or detect all error and fraud. Any control system, no
matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute,
assurance that its objectives will be met. Further, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected.
The effectiveness of our internal control over financial
reporting as of December 31, 2009, was audited by our
independent registered public accounting firm, Ernst &
Young LLP, as stated in its report, which is included below.
52
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dendreon Corporation
We have audited Dendreon Corporations internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Dendreon
Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company, (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company, and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Dendreon Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Dendreon Corporation as of
December 31, 2009 and 2008 and the related consolidated
statement of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2009, and our report dated February 22,
2010 expressed an unqualified opinion thereon.
Seattle, Washington
February 22, 2010
53
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item concerning our directors
and nominees is incorporated by reference to our definitive
Proxy Statement for our 2010 Annual Meeting of Stockholders (the
2010 Proxy Statement) under the caption
Election of Directors. Information on our nominating
committee process, and on our audit committee members including
our audit committee financial expert(s) is incorporated by
reference to the headings Governance Committee and
Audit Committee in our 2010 Proxy Statement.
Information regarding Section 16(a) beneficial ownership
reporting compliance is incorporated by reference to the
material under the heading Security Ownership of Certain
Beneficial Owners and Management in our 2010 Proxy
Statement. Information relating to our executive officers is
contained in Part I, Item 4A of this annual report.
Our Board of Directors has adopted a Code of Business Conduct
applicable to our directors and all of our officers and
employees. The Code of Business Conduct is available, free of
charge, through the investor relations section of our website at
http://investor.dendreon.com/governance.cfm.
We intend to disclose any amendment to, or waiver from, the Code
of Business Conduct by posting such amendment or waiver, as
applicable, on our website.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated by
reference to the 2010 Proxy Statement under the captions
Executive Compensation and Director
Compensation.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information regarding security ownership is incorporated by
reference to the 2010 Proxy Statement under the caption
Security Ownership of Certain Beneficial Owners and
Management.
Securities Authorized for Issuance Under Equity Compensation
Plans. We maintain the 2000 Equity Incentive Plan
(the 2000 Plan), the 2002 Broad Based Equity
Incentive Plan (the 2002 Plan), the 2009 Equity
Incentive Plan (the 2009 Plan) and the Employee
Stock Purchase Plan (the ESPP), pursuant to which we
may grant equity awards to eligible persons. The following table
provides information as of December 31, 2009, regarding the
2000 Plan, the 2002 Plan, the 2009 Plan and the ESPP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
for Future Issuance
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
Reflected in Column (a))
|
|
|
Equity compensation plans approved by stockholders(1)
|
|
|
2,815,899
|
(3)
|
|
$
|
12.61
|
(3)
|
|
|
14,579,662
|
(4)
|
Equity compensation plans not approved by stockholders(2)
|
|
|
458,716
|
|
|
$
|
6.32
|
|
|
|
234,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,274,615
|
|
|
$
|
11.73
|
|
|
|
14,814,144
|
|
|
|
|
(1) |
|
These plans are the 2000 Plan, the 2009 Plan and the ESPP. |
|
(2) |
|
This plan is the 2002 Plan. See Note 9 to our Consolidated
Financial Statements for a description of the material terms of
the 2002 Plan. |
54
|
|
|
(3) |
|
Includes information relating solely to options to purchase
common stock under the 2000 Plan and the 2009 Plan. |
|
(4) |
|
Of these shares, 2,184,098 remained available for purchase under
the ESPP as of December 31, 2009. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to the 2010 Proxy Statement under the captions
Management and Certain Security Holders of
Dendreon Certain Transactions and
Director Independence.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the 2010 Proxy Statement under the caption
Information Regarding Our Independent Registered Public
Accounting Firm.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of this
report:
(1) Financial Statements and Report of Independent
Auditors.
The financial statements required by this item are submitted in
a separate section beginning on
page F-1
of this annual report.
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
(2) Financial Statement Schedules.
None required.
(3) Exhibits.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation.(1)
|
|
3
|
.2
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.(2)
|
|
3
|
.3
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Dendreon Corporation(3)
|
|
3
|
.4
|
|
Amended and Restated Bylaws.(4)
|
|
4
|
.1
|
|
Specimen Common Stock certificate.(5)
|
|
4
|
.2
|
|
Certificate of Designation of Series A Junior Participating
Preferred Stock.(6)
|
|
4
|
.3
|
|
Rights Agreement between the registrant and Mellon Investor
Services LLC, as Rights Agent, dated September 18, 2002.(7)
|
|
4
|
.4
|
|
Form of Right Certificate.(8)
|
55
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.5
|
|
Indenture, dated as of June 11, 2007, between Dendreon
Corporation and The Bank of New York Trust Company, N.A.(9)
|
|
10
|
.1
|
|
Form of Amended Executive Employment Agreement with certain
named executive officers.(10)*
|
|
10
|
.2
|
|
Indemnity Agreement between the registrant and each of its
directors and certain of its officers.(11)
|
|
10
|
.3
|
|
Amended and Restated 2000 Broad Based Equity Incentive Plan.(12)*
|
|
10
|
.4
|
|
Amended and Restated 2002 Broad Based Equity Incentive Plan.(13)*
|
|
10
|
.5
|
|
2000 Employee Stock Purchase Plan.(14)*
|
|
10
|
.6
|
|
2009 Offering under the 2000 Employee Stock Purchase Plan.(15)*
|
|
10
|
.7
|
|
Form of Stock Option Agreement under 2000 Equity Incentive
Plan.(16)*
|
|
10
|
.8
|
|
Form of Stock Option Agreement under 2002 Broad Based Equity
Incentive Plan.(17)*
|
|
10
|
.9
|
|
Form of Restricted Stock Award Agreement.(18)*
|
|
10
|
.10
|
|
Dendreon Corporation Incentive Plan.(19)*
|
|
10
|
.11
|
|
Supply Agreement, dated as of December 22, 2005, by and
between Dendreon Corporation and Diosynth RTP.(20)
|
|
10
|
.12
|
|
Settlement Agreement and Amendment to the Supply Agreement,
dated as of October 24, 2008, by and between Dendreon
Corporation and Diosynth RTP, Inc.(21)
|
|
10
|
.13
|
|
Lease Agreement between First Industrial, L.P. and Dendreon
Corporation, dated August 17, 2005.(22)
|
|
10
|
.14
|
|
Office Lease between Selig Real Estate Holdings Fourteen and
Dendreon Corporation, dated September 2, 2005.(23)
|
|
10
|
.15
|
|
Second Amendment to Office Lease Agreement between Selig Real
Estate Holdings Fourteen and Dendreon Corporation, dated
March 9, 2009(24)
|
|
10
|
.16
|
|
Lease Agreement, dated July 31, 1998, between the
Registrant and ARE-3005 First Avenue, LLC.(25)
|
|
10
|
.17
|
|
Third Amendment to Lease Agreement, dated August 22, 2007
between Dendreon Corporation and ARE-3005 First Avenue, LLC.(26)
|
|
10
|
.18
|
|
Common Stock Purchase Agreement, dated October 11, 2007,
between Dendreon Corporation and Azimuth Opportunity, Inc.(27)
|
|
10
|
.19
|
|
Amendment No. 1 to Common Stock Purchase Agreement, dated
October 8, 2008.(28)
|
|
10
|
.20
|
|
Amendment No. 2 to Common Stock Purchase Agreement, dated
February 9, 2009.(29)*
|
|
10
|
.21
|
|
Dendreon Corporation 2009 Equity Incentive Plan.(30)
|
|
10
|
.22
|
|
Construction Agreement between The Henderson Corporation of PA,
Inc. and Dendreon Corporation dated June 16, 2009.(31)
|
|
10
|
.23
|
|
Industrial Real Estate Lease between Majestic Realty Co. as
Landlord and Dendreon Corporation as Tenant.(32)
|
|
10
|
.24
|
|
Industrial Real Estate Lease between Knickerbocker Properties,
Inc. XLVI, as Landlord and Dendreon Corporation as Tenant.(33)
|
|
10
|
.25
|
|
Leukapheresis Services Agreement with the American Red Cross,
dated September 24, 2009.(34)
|
|
10
|
.26
|
|
Executive Employment Agreement dated January 4, 2010,
between Hans Bishop and the Company.(35)*
|
|
10
|
.27
|
|
Construction Management Agreement between Turner Construction
Company and Dendreon Corporation dated December 9, 2009.
|
|
10
|
.28
|
|
Construction Management Agreement between Turner Construction
Company and Dendreon Corporation dated January 6, 2010.
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney (contained on signature page).
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
56
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
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.
|
|
|
|
(1) |
|
Incorporated by reference to Exhibit 3.1 filed with the
registrants
Form 10-Q
for the quarter ended March 31, 2002. |
|
(2) |
|
Incorporated by reference to Exhibit 3.1 filed with the
registrants
Form 8-K,
filed with the SEC on June 13, 2005. |
|
(3) |
|
Incorporated by reference to Exhibit 3.1 filed with the
registrants
Form 8-K
filed with the SEC on June 16, 2009. |
|
(4) |
|
Incorporated by reference to Exhibit 3.2 filed with the
registrants
Form 10-Q
for the quarter ended June 30, 2004. |
|
(5) |
|
Incorporated by reference to Exhibit 4.1 filed with the
registrants Registration Statement on
Form S-1/A,
File No. 333-31920. |
|
(6) |
|
Incorporated by reference to Exhibit 4.1 filed with the
registrants Registration
Form 8-K,
filed with the SEC on September 25, 2002. |
|
(7) |
|
Incorporated by reference to Exhibit 99.2 filed with the
registrants Registration
Form 8-K,
filed with the SEC on September 25, 2002. |
|
(8) |
|
Incorporated by reference to Exhibit 99.3 filed with the
registrants
Form 8-K,
filed with the SEC on September 25, 2002. |
|
(9) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants Registration
Form 8-K,
filed with the SEC on June 12, 2007. |
|
(10) |
|
Incorporated by reference to Exhibit 99.1 filed with the
registrants
Form 8-K,
filed with the SEC on January 4, 2007. |
|
(11) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants Registration Statement on
Form S-1,
File No. 333-47706. |
|
(12) |
|
Incorporated by reference to Exhibit 10.3 filed with the
registrants
Form 10-K,
for the fiscal year ended December 31, 2006. |
|
(13) |
|
Incorporated by reference to Exhibit 10.4 filed with the
registrants
Form 10-K,
for the fiscal year ended December 31, 2006. |
|
(14) |
|
Incorporated by reference to Exhibit 10.3 filed with the
registrants Registration Statement on
Form S-1,
File No. 333-47706. |
|
(15) |
|
Incorporated by reference to Exhibit 10.6 filed with the
registrants
Form 10-K,
for the fiscal year ended December 31, 2008. |
|
(16) |
|
Incorporated by reference to Exhibit 10.33 filed with the
registrants
Form 8-K,
filed with the SEC on June 13, 2005. |
|
(17) |
|
Incorporated by reference to Exhibit 10.34 filed with the
registrants
Form 8-K,
filed with the SEC on June 13, 2005. |
|
(18) |
|
Incorporated by reference to Exhibit 10.46 filed with the
registrants
Form 8-K,
filed with the SEC on January 24, 2006. |
|
(19) |
|
Incorporated by reference to Exhibit 10.31 filed with the
registrants
Form 8-K,
filed with the SEC on June 13, 2005. |
|
(20) |
|
Incorporated by reference to Exhibit 10.41 filed with the
registrants
Form 8-K,
filed with the SEC December 28, 2005. |
|
(21) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants
Form 10-Q
for the quarter ended September 30, 2008. |
57
|
|
|
(22) |
|
Incorporated by reference to Exhibit 10.36 filed with the
registrants
Form 8-K,
filed with the SEC on August 18, 2005, File
No. 000-30681. |
|
(23) |
|
Incorporated by reference to Exhibit 10.37 filed with the
registrants
Form 10-Q
for the quarter ended September 30, 2005. |
|
(24) |
|
Incorporated by reference to Exhibit 10.15 filed with the
registrants
Form 10-K,
for the fiscal year ended December 31, 2008. |
|
(25) |
|
Incorporated by reference to Exhibit 10.11 filed with the
registrants Registration Statement on
Form S-1,
File No. 333-31920. |
|
(26) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants
Form 8-K,
filed with the SEC on August 23, 2007. |
|
(27) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants
Form 8-K,
filed with the SEC on October 12, 2007. |
|
(28) |
|
Incorporated by reference to Exhibit 10.2 filed with the
registrants
Form 8-K,
filed with the SEC on October 10, 2008. |
|
(29) |
|
Incorporated by reference to Exhibit 10.3 filed with the
registrants
Form 8-K
filed with the SEC on February 11, 2009. |
|
(30) |
|
Incorporated by reference to Appendix A filed with the
registrants Schedule 14A filed with the SEC on
April 30, 2009. |
|
(31) |
|
Incorporated by reference to Exhibit 99.1 filed with the
registrants
Form 8-K
filed with the SEC on June 22, 2009. |
|
(32) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants
Form 10-Q
for the quarter ended June 30, 2009. |
|
(33) |
|
Incorporated by reference to Exhibit 10.2 filed with the
registrants
Form 10-Q
for the quarter ended June 30, 2009. |
|
(34) |
|
Incorporated by reference to Exhibit 99.2 filed with the
registrants
Form 8-K
filed with the SEC on September 29, 2009. |
|
(35) |
|
Incorporated by reference to Exhibit 10.1 filed with the
registrants
Form 8-K
filed with the SEC on January 8, 2010. |
|
|
|
Confidential treatment granted as to certain portions of his
Exhibit. |
|
* |
|
Management compensatory plans and arrangements required to be
filed as exhibits to this Report. |
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 22nd day of February,
2010.
DENDREON CORPORATION
|
|
|
|
By:
|
/s/ Mitchell
H. Gold, M.D.
|
Mitchell H. Gold, M.D.
President and Chief Executive Officer
|
|
|
|
By:
|
/s/ Gregory
T. Schiffman
|
Gregory T. Schiffman
Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
Gregory R. Cox
(Principal Accounting Officer)
59
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Mitchell H.
Gold, M.D. and Richard F. Hamm, Jr., his or her true
and lawful attorneys-in-fact each acting alone, with full power
of substitution and re-substitution, for him or her and in his
or her name, place and stead in any and all capacities to sign
any or all amendments to this report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mitchell
H. Gold
Mitchell
H. Gold, M.D.
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Gregory
T. Schiffman
Gregory
T. Schiffman
|
|
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Gregory
R. Cox
Gregory
R. Cox
|
|
(Principal Accounting Officer)
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Richard
B. Brewer
Richard
B. Brewer
|
|
Chairman of the Board of Directors
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Susan
B. Bayh
Susan
B. Bayh
|
|
Director
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Gerardo
Canet
Gerardo
Canet
|
|
Director
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Ian
T. Clark
Ian
T. Clark
|
|
Director
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Bogdan
Dziurzynski, D.P.A.
Bogdan
Dziurzynski, D.P.A.
|
|
Director
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Pedro
P. Granadillo
Pedro
P. Granadillo
|
|
Director
|
|
February 22, 2010
|
|
|
|
|
|
/s/ David
L. Urdal, Ph.D.
David
L. Urdal, Ph.D.
|
|
Director
|
|
February 22, 2010
|
|
|
|
|
|
/s/ Douglas
G. Watson
Douglas
G. Watson
|
|
Director
|
|
February 22, 2010
|
60
DENDREON
CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets
|
|
|
F-3
|
|
Consolidated Statements of Operations
|
|
|
F-4
|
|
Consolidated Statements of Stockholders Equity
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dendreon Corporation
We have audited the accompanying consolidated balance sheets of
Dendreon Corporation as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Dendreon Corporation at December 31,
2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Dendreon Corporations internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 22, 2010
expressed an unqualified opinion thereon.
Seattle, Washington
February 22, 2010
F-2
DENDREON
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
409,829
|
|
|
$
|
59,523
|
|
Short-term investments
|
|
|
167,116
|
|
|
|
45,638
|
|
Restricted cash
|
|
|
|
|
|
|
3,853
|
|
Prepaid antigen costs
|
|
|
18,975
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
8,566
|
|
|
|
1,867
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
604,486
|
|
|
|
110,881
|
|
Property and equipment, net
|
|
|
98,964
|
|
|
|
28,150
|
|
Long-term investments
|
|
|
29,441
|
|
|
|
5,416
|
|
Debt issuance costs and other assets
|
|
|
2,524
|
|
|
|
2,757
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
735,415
|
|
|
$
|
147,204
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,257
|
|
|
$
|
237
|
|
Accrued liabilities
|
|
|
19,557
|
|
|
|
5,870
|
|
Accrued compensation
|
|
|
6,855
|
|
|
|
3,686
|
|
Warrant liability
|
|
|
132,953
|
|
|
|
14,190
|
|
Current portion of capital lease obligations
|
|
|
722
|
|
|
|
|
|
Current portion of facility lease obligation
|
|
|
592
|
|
|
|
219
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
162,936
|
|
|
|
26,396
|
|
Long-term accrued liabilities
|
|
|
1,554
|
|
|
|
530
|
|
Capital lease obligations, less current portion
|
|
|
706
|
|
|
|
|
|
Facility lease obligation, less current portion
|
|
|
14,120
|
|
|
|
8,022
|
|
Convertible senior subordinated notes
|
|
|
52,535
|
|
|
|
85,250
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 250,000,000 shares
authorized and 131,125,690 issued and outstanding; and
150,000,000 shares authorized and 95,577,664 shares
issued and outstanding at December 31, 2009 and 2008,
respectively
|
|
|
131
|
|
|
|
95
|
|
Additional paid-in capital
|
|
|
1,286,891
|
|
|
|
590,159
|
|
Accumulated other comprehensive (loss) income
|
|
|
(4
|
)
|
|
|
45
|
|
Accumulated deficit
|
|
|
(783,454
|
)
|
|
|
(563,293
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
503,564
|
|
|
$
|
27,006
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
735,415
|
|
|
$
|
147,204
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
DENDREON
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue
|
|
$
|
101
|
|
|
$
|
111
|
|
|
$
|
743
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
61,586
|
|
|
|
50,086
|
|
|
|
76,523
|
|
General and administrative
|
|
|
38,556
|
|
|
|
20,503
|
|
|
|
25,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
100,142
|
|
|
|
70,589
|
|
|
|
102,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(100,041
|
)
|
|
|
(70,478
|
)
|
|
|
(101,619
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
964
|
|
|
|
3,619
|
|
|
|
6,461
|
|
Interest expense
|
|
|
(2,321
|
)
|
|
|
(5,156
|
)
|
|
|
(4,106
|
)
|
(Loss) gain from valuation of warrant liability
|
|
|
(118,763
|
)
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
|
$
|
(99,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(2.04
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic and diluted net loss per
share
|
|
|
108,050
|
|
|
|
90,357
|
|
|
|
82,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
DENDREON
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance, January 1, 2007
|
|
|
81,323,638
|
|
|
$
|
81
|
|
|
$
|
518,127
|
|
|
$
|
(106
|
)
|
|
$
|
(392,385
|
)
|
|
$
|
125,717
|
|
Exercise of stock options for cash
|
|
|
1,033,441
|
|
|
|
1
|
|
|
|
6,566
|
|
|
|
|
|
|
|
|
|
|
|
6,567
|
|
Net exercise of stock warrants
|
|
|
68,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
307,268
|
|
|
|
1
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
1,083
|
|
Non-cash stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,116
|
|
|
|
|
|
|
|
|
|
|
|
6,116
|
|
Issuance of restricted stock grants
|
|
|
525,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,264
|
)
|
|
|
(99,264
|
)
|
Net unrealized gain on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
83,258,210
|
|
|
$
|
83
|
|
|
$
|
531,891
|
|
|
$
|
52
|
|
|
$
|
(491,649
|
)
|
|
$
|
40,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options for cash
|
|
|
131,133
|
|
|
|
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
204,731
|
|
|
|
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
721
|
|
Issuance of common stock (net of issuance cost of $2,550)
|
|
|
11,610,760
|
|
|
|
12
|
|
|
|
51,179
|
|
|
|
|
|
|
|
|
|
|
|
51,191
|
|
Non-cash stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
5,872
|
|
|
|
|
|
|
|
|
|
|
|
5,872
|
|
Issuance of restricted stock grants
|
|
|
372,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,644
|
)
|
|
|
(71,644
|
)
|
Net unrealized loss on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
95,577,664
|
|
|
$
|
95
|
|
|
$
|
590,159
|
|
|
$
|
45
|
|
|
$
|
(563,293
|
)
|
|
$
|
27,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options for cash
|
|
|
2,229,953
|
|
|
|
2
|
|
|
|
14,934
|
|
|
|
|
|
|
|
|
|
|
|
14,936
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
386,125
|
|
|
|
1
|
|
|
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
Issuance of common stock (net of issuance cost of $26,663)
|
|
|
29,229,166
|
|
|
|
30
|
|
|
|
630,275
|
|
|
|
|
|
|
|
|
|
|
|
630,305
|
|
Conversion of convertible debt
|
|
|
3,255,947
|
|
|
|
3
|
|
|
|
32,712
|
|
|
|
|
|
|
|
|
|
|
|
32,715
|
|
Non-cash stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
17,212
|
|
|
|
|
|
|
|
|
|
|
|
17,212
|
|
Issuance of restricted stock grants
|
|
|
446,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,161
|
)
|
|
|
(220,161
|
)
|
Net unrealized loss on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
131,125,690
|
|
|
$
|
131
|
|
|
$
|
1,286,891
|
|
|
$
|
(4
|
)
|
|
$
|
(783,454
|
)
|
|
$
|
503,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-5
DENDREON
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
|
$
|
(99,264
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
4,662
|
|
|
|
5,716
|
|
|
|
6,241
|
|
Non-cash stock-based compensation expense
|
|
|
17,212
|
|
|
|
5,872
|
|
|
|
6,116
|
|
Loss (gain) on valuation of warrant liability
|
|
|
118,763
|
|
|
|
(371
|
)
|
|
|
|
|
Amortization of securities discount and premium
|
|
|
648
|
|
|
|
56
|
|
|
|
(241
|
)
|
(Gain) loss on sale of fixed assets
|
|
|
|
|
|
|
(5
|
)
|
|
|
42
|
|
Impairment of fixed assets
|
|
|
|
|
|
|
418
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid antigen costs
|
|
|
(18,975
|
)
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(6,466
|
)
|
|
|
1,168
|
|
|
|
(132
|
)
|
Accounts payable
|
|
|
2,020
|
|
|
|
(1,984
|
)
|
|
|
718
|
|
Accrued liabilities and compensation
|
|
|
16,856
|
|
|
|
(6,473
|
)
|
|
|
3,934
|
|
Other long term liabilities
|
|
|
(82
|
)
|
|
|
(83
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(85,523
|
)
|
|
|
(67,330
|
)
|
|
|
(82,680
|
)
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities and sales of investments
|
|
|
69,894
|
|
|
|
52,545
|
|
|
|
53,447
|
|
Purchases of investments
|
|
|
(216,094
|
)
|
|
|
(55,520
|
)
|
|
|
(37,583
|
)
|
Purchases of property and equipment
|
|
|
(65,912
|
)
|
|
|
(6,805
|
)
|
|
|
(3,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(212,112
|
)
|
|
|
(9,780
|
)
|
|
|
12,766
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equity securities, net of issuance costs
|
|
|
630,305
|
|
|
|
51,191
|
|
|
|
|
|
Proceeds from issuance of warrants
|
|
|
|
|
|
|
14,561
|
|
|
|
|
|
Proceeds from release of security deposits associated with debt
|
|
|
3,853
|
|
|
|
700
|
|
|
|
1,322
|
|
Proceeds from issuance of convertible senior subordinated notes,
net of debt financing costs
|
|
|
|
|
|
|
|
|
|
|
82,257
|
|
Payments on long-term debt
|
|
|
(2,194
|
)
|
|
|
(5,732
|
)
|
|
|
(5,295
|
)
|
Payments on facility lease obligations
|
|
|
(194
|
)
|
|
|
(172
|
)
|
|
|
(128
|
)
|
Payments on capital lease obligations
|
|
|
(365
|
)
|
|
|
(853
|
)
|
|
|
(1,135
|
)
|
Proceeds from exercise of stock options and other
|
|
|
14,936
|
|
|
|
496
|
|
|
|
6,567
|
|
Proceeds from issuance of common stock under the Employee Stock
Purchase Plan
|
|
|
1,600
|
|
|
|
721
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
647,941
|
|
|
|
60,912
|
|
|
|
84,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
350,306
|
|
|
|
(16,198
|
)
|
|
|
14,757
|
|
Cash and cash equivalents at beginning of year
|
|
|
59,523
|
|
|
|
75,721
|
|
|
|
60,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
409,829
|
|
|
$
|
59,523
|
|
|
$
|
75,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
3,299
|
|
|
$
|
5,187
|
|
|
$
|
3,799
|
|
Conversion of debt
|
|
$
|
32,715
|
|
|
$
|
|
|
|
$
|
|
|
Assets acquired under facility and capital leases
|
|
$
|
8,458
|
|
|
$
|
|
|
|
$
|
|
|
Increase in asset retirement obligation
|
|
$
|
1,106
|
|
|
$
|
20
|
|
|
$
|
109
|
|
See accompanying notes.
F-6
DENDREON
CORPORATION
|
|
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Dendreon Corporation (Dendreon, the
Company, we, us, or
our), a Delaware corporation, is a biotechnology
company focused on the discovery, development and
commercialization of novel therapeutics that may significantly
improve cancer treatment options for patients. Our product
portfolio includes active cellular immunotherapy and small
molecule product candidates to treat a wide range of cancers.
Our most advanced product candidate is
Provenge®
(sipuleucel-T), an active cellular immunotherapy that has
completed three Phase 3 trials for the treatment of metastatic,
castrate-resistant, (also known as
androgen-independent or
hormone-refractory) prostate cancer. Prostate cancer
is the most common non-skin cancer among men in the United
States, with over one million men currently diagnosed with the
disease, and the second leading cause of cancer deaths in men in
the United States. On November 9, 2006, we completed our
submission of our Biologics License Application (our
BLA) to the U.S. Food and Drug Administration
(the FDA) for Provenge based upon the survival
benefit seen in our completed D9901 and D9902A studies for
Provenge. On May 8, 2007, we received a Complete Response
Letter (the CRL) from the FDA regarding our BLA. In
its letter, the FDA requested additional clinical data in
support of the efficacy claim contained in our BLA, as well as
additional information with respect to the chemistry,
manufacturing and controls (CMC) section of the BLA.
In a meeting with the FDA on May 29, 2007, we received
confirmation that the FDA would accept a positive final analysis
of survival from our Phase 3 D9902B IMPACT (IMmunotherapy for
Prostate AdenoCarcinoma Treatment) study to support licensure of
Provenge. On April 14, 2009, we announced that the IMPACT
study had met its primary endpoint of overall survival and
exhibited a safety profile consistent with prior studies. On
October 30, 2009 we completed the amendment of our BLA with
the FDA to incorporate IMPACT study results and data regarding
CMC requirements not previously addressed. The FDA has confirmed
that our amendment constituted a complete response to the CRL
and the goal date for FDA action on our BLA under the
Prescription Drug Users Fee Act is May 1, 2010. We own
worldwide rights for Provenge.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Dendreon and its wholly-owned subsidiary, Dendreon
San Diego, LLC (Dendreon San Diego)
through February 2, 2009, the effective date of dissolution
of the entity. All material intercompany transactions and
balances have been eliminated in consolidation.
Reclassifications
Certain prior period balances have been reclassified in order to
conform to the current period presentation.
Subsequent
Events
We have evaluated subsequent events and transactions for
potential recognition or disclosure in the financial statements
through February 22, 2010, the day the financial statements
were issued.
Cash,
Cash Equivalents, and Investments
We consider investments in highly liquid instruments purchased
with an original maturity at purchase of 90 days or less to
be cash equivalents. The amounts are recorded at cost, which
approximates fair value. Our cash equivalents and short-term and
long-term investments consist principally of commercial paper,
money market securities, corporate bonds/notes and certificates
of deposit.
We have classified our entire investment portfolio as
available-for-sale.
Available-for-sale
securities are carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders
equity and included in accumulated other comprehensive income
(loss). The amortized cost of investments is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion are included in
F-7
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest income. Interest earned on securities is included in
interest income. Gains are recognized when realized in our
consolidated statements of operations. Losses are recognized
when realized and when we have determined that an
other-than-temporary
decline in fair value has occurred.
We periodically evaluate whether declines in fair values of our
investments below their cost are
other-than-temporary.
This evaluation consists of several qualitative and quantitative
factors regarding the severity and duration of the unrealized
loss as well as our ability and intent to hold the investment
until a forecasted recovery occurs. Additionally, we assess
whether it is more likely than not we will be required to sell
any investment before recovery of its amortized cost basis.
We consider an investment with a maturity greater than twelve
months from the balance sheet date as long-term and a maturity
less than twelve months as short-term at the balance sheet date.
The cost of securities sold is based on the specific
identification method.
Prepaid
Antigen Costs
The Company utilizes third party suppliers to manufacture and
package antigen and other raw materials used in its products.
The Company takes title to these materials once manufactured and
accepted, and stores for use in final manufacturing and eventual
sale. These materials consist of antigen used in the manufacture
of Provenge, and other raw material costs associated with,
Provenge, which has not yet received regulatory approval. The
prepaid costs of these materials are capitalized, as in the view
of the Companys management there is probable future
commercial use and future economic benefit. If future commercial
use and future economic benefit are not considered probable,
then costs associated with prepaid manufacturing and raw
materials will be expensed as research and development expense
in the period the costs are incurred. As of December 31,
2009, there was $19.0 million of capitalized costs
associated with the purchase of the antigen used in the
manufacture of Provenge, which Diosynth RTP, Inc.
(Diosynth) is obligated to manufacture and is
expected to begin to deliver in 2010.
Property
and Equipment
Property and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives
of the assets, which range from three to sixteen years. Included
in fixed assets is the cost of internally developed software. We
expense all costs related to internally developed software,
other than those incurred during the application development
stage. Costs incurred during the application development stage
are capitalized and amortized over the estimated useful life of
the software. Estimated useful lives of furniture and fixtures
and laboratory and manufacturing equipment are seven years,
office equipment is five years, buildings are sixteen years and
computers and software is three years. Computers and equipment
financed under capital leases are amortized over the shorter of
the useful lives of the related assets or the lease term.
Leasehold improvements are stated at cost and amortized using
the straight-line method over the remaining life of the lease or
ten years, whichever is shorter. Construction in progress is
reclassified to the appropriate fixed asset classifications and
depreciated accordingly when related assets are deemed ready for
their intended use and placed in service. We capitalize interest
on borrowings during the construction period of major capital
projects. Capitalized interest is added to the cost of the
underlying assets and is amortized over the useful lives of the
related assets.
Debt
Issuance Costs
Debt issuance costs of approximately $3.0 million related
to our 4.75% Convertible Senior Subordinated Notes due 2014
(the Notes) issued in June and July of 2007 are
amortized over the life of the Notes. Amortization expense was
approximately $428,000, $428,000 and $231,000 for the years
ended December 31, 2009, 2008 and 2007, respectively, and
is reported as interest expense.
F-8
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Concentrations
of Risk
We are subject to concentration of risk from our investments and
single-source vendors for some components necessary for our
active cellular immunotherapy product candidates.
Our investment portfolio is maintained in accordance with our
investment policy which specifies credit quality standards,
limits our credit exposure to any single issuer and defines
allowable investments. Auction rate or asset-backed securities
without a guarantee by the U.S. government are not
permitted to be purchased. The fair value of our cash
equivalents and marketable securities is subject to change as a
result of changes in market interest rates and investment risk
related to the issuers credit worthiness.
We proactively monitor and oversee our portfolio. If necessary,
we believe we are able to liquidate our investments without
significant loss within the next year. We currently believe
these securities are not significantly impaired, primarily due
to the government and major corporate guarantees of the
underlying securities; however, it could take until the final
maturity of the underlying notes to realize our investments
recorded values. Based on our expected operating cash flows, and
our other sources of cash, we do not anticipate the potential
lack of liquidity on these investments will affect our ability
to execute our current business plan.
Our risk for single-source vendors is managed by maintaining a
certain level of existing stock of components and a continued
effort to establish additional suppliers.
Revenue
Recognition
Substantially all of the revenue we have recorded to date is
related to collaborative research revenue and license revenue.
We recognize collaborative research revenues from up-front
payments, milestone payments, and personnel-supported research
funding. We also recognize license revenue from intellectual
property and technology agreements. The payments received under
these research collaboration agreements are generally
contractually not refundable even if the research effort is not
successful. Performance under our collaborative agreements is
measured by scientific progress, as mutually agreed upon by us
and our collaborators.
Our revenue arrangements with multiple elements are divided into
separate units of accounting if certain criteria are met,
including whether the delivered element has stand-alone value to
the customer and whether there is objective and reliable
evidence of the fair value of the undelivered items. The
consideration we receive is allocated among the separate units
based on their respective fair values, and the applicable
revenue recognition criteria are applied to each of the separate
units.
License Fees: License fees from our research
collaborations include payments for technology transfer and
access rights. Non-refundable, up-front payments received in
connection with collaborative research and development
agreements are deferred and recognized on a straight-line basis
over the period during which we have continuing obligations,
generally the research term. When the research term is not
specified in the agreement and instead the agreement specifies
the completion or attainment of a particular development goal,
an estimate is made of the time required to achieve that goal
considering experience with similar projects, level of effort
and the development stage of the project. The basis of the
revenue recognition is reviewed and adjusted based on the status
of the project against the estimated timeline as additional
information becomes available. Non-refundable license fees where
we have completed all future obligations are recognized as
revenue in the period when persuasive evidence of an agreement
exists, delivery has occurred, collectability is reasonably
assured and the price is fixed and determinable.
Royalty Income: Royalties from licensees are
based on reported sales of licensed products and revenues are
calculated based on contract terms when reported sales are
reliably measurable and collectability is reasonably assured.
F-9
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Research
and Development Expenses
Prior to January 1, 2008, research and development costs
were expensed as incurred including nonrefundable prepayments
for research and development services. On January 1, 2008,
we adopted Accounting Standards Codification (ASC)
730-20,
Research and Development Research and
Development Arrangements, and changed our accounting
policy. For new contracts entered into as of or subsequent to
January 1, 2008, nonrefundable prepayments for research and
development goods and services are deferred and recognized as
the services are rendered. Research and development expenses
include, but are not limited to, payroll and personnel expenses,
lab expenses, clinical trial and related clinical manufacturing
costs, facilities and related overhead costs.
Impairment
of Long-Lived Assets
Losses from impairment of long-lived assets used in operations
are recognized when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amount. We
periodically evaluate the carrying value of long-lived assets to
be held and used when events and circumstances indicate that the
carrying amount of an asset may not be recovered.
Accounting
for Stock-Based Compensation
Stock-based compensation cost is estimated at the grant date
based on the awards fair value and is recognized as
expense over the requisite service period. Compensation cost for
all stock-based awards is measured at fair value. The fair value
of our stock options are calculated using the Black Scholes
Merton (BSM) option pricing model. The BSM model
requires various highly judgmental assumptions including
volatility, forfeiture rates and expected option life. If any of
the assumptions used in the BSM model change significantly,
stock-based compensation expense may differ materially in the
future from that recorded in the current period.
We grant restricted stock awards that generally vest over a four
year period; however in 2007, we granted restricted stock awards
with certain performance conditions to all employees. We are
required to estimate the probability of achieving each
acceleration provision. Compensation expense is recorded based
upon our assessment of accomplishing each acceleration provision.
We recognize compensation expense for our stock-based payment
awards on the accelerated method over the requisite service
period of the entire award, unless the awards are subject to
other conditions, in which case we recognize compensation
expense over the requisite service period of each separate
vesting tranche. We also determine the fair value of awards
under our Employee Stock Purchase Plan using the BSM option
pricing model.
In each of the years ended December 31, 2009, 2008 and
2007, the tax deductions related to stock compensation expense
were not recognized because of the availability of net operating
losses, and therefore no such financing cash flows were reported.
Use of
Estimates
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments 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, 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, investments,
fair values of acquired assets, income taxes, financing
activities, long-term service contracts, clinical trial
accruals, warrant liability and other contingencies. Management
bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from these estimates.
F-10
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, diluted net loss per share is the
same as basic net loss per share. We have excluded all
outstanding stock options, warrants and unvested restricted
stock, as well as shares issuable in connection with the
conversion of the Notes and our Common Stock Purchase Agreement
with Azimuth Opportunity Ltd. (the Common Stock Purchase
Agreement), from the calculation of diluted net loss per
common share because all such securities are antidilutive to the
computation of net loss per share. Shares excluded from the
computation of net loss per share were 31,738,144, 35,625,600,
and 31,569,782 for the years ended December 31, 2009, 2008
and 2007, respectively.
Fair
Value
Effective January 1, 2008, we adopted ASC 820, Fair
Value Measurements and Disclosures, except as it applies
to the nonfinancial assets and nonfinancial liabilities subject
to ASC
820-10-65,
Fair Value Measurements and Disclosures
Transition and Open Effective Date Information, which we
adopted effective January 1, 2009. The impact of these
items was not material to our consolidated financial statements.
Assets and liabilities typically recorded at fair value on a
non-recurring basis include:
|
|
|
|
|
Long-lived assets measured at fair value due to an impairment
assessment under ASC
360-10,
Property, Plant and Equipment; and
|
|
|
|
Asset retirement obligations initially measured under ASC
410-20,
Asset Retirement and Environmental Obligations.
|
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.
During the quarter ended June 30, 2009, we adopted ASC
820-10-65-4,
Fair Value Measurements and Disclosures
Transition and Open Effective Date Information (ASC
820-10-65-4),
which provides additional guidance for estimating fair value
when the volume and level of activity for the asset or liability
has significantly decreased. It also provides guidance on
identifying circumstances that indicate a transaction is not
orderly and emphasizes that even if there has been a significant
decrease in the volume and level of activity for the asset or
liability and regardless of the valuation techniques used, the
objective of a fair value measurement remains the same. The
adoption of ASC
820-10-65-4
did not have a material impact on our results of operations,
cash flows or financial position.
During the quarter ended June 30, 2009, we adopted ASC
320-10-45/65,
Investments Debt and Equity Securities: Other
Presentation Matters/Transition and Open Effective Date
Information (ASC
320-10-45/65)
that amends the impairment guidance for certain debt securities
and requires an investor to assess the likelihood of selling the
security prior to recovering its cost basis. If an investor is
able to meet the criteria to assert that it will not have to
sell the security before recovery, impairment charges related to
those credit losses would be recognized in earnings, while
impairment charges related to non-credit losses would be
reflected in other comprehensive income. The adoption of ASC
320-10-45/65
did not have a material impact on our results of operations,
cash flows or financial position.
Warrant
Liability
On April 3, 2008, we issued 8.0 million shares (the
Shares) of our common stock, and warrants to
purchase up to 8.0 million shares of common stock (the
Warrants) to an institutional investor (the
Investor). The Investor purchased the Shares and
Warrants for a negotiated price of $5.92 per share of common
stock purchased. The
F-11
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Warrants are exercisable at any time prior to April 8,
2015, with an exercise price of $20.00 per share of common stock
and include a net exercise feature.
The Warrants have been recorded at their relative fair values at
issuance and will continue to be recorded at fair value each
subsequent balance sheet date. Any change in value between
reporting periods will be recorded as other income (expense)
each reporting date. The Warrants will continue to be reported
as a liability until such time as they are exercised or are
otherwise modified to remove the provisions that require this
treatment, at which time the Warrants will be adjusted to fair
value and reclassified from liabilities to stockholders
equity. The fair value of the Warrants is estimated using the
BSM option-pricing model. As of December 31, 2009 and 2008,
the fair value of the Warrants was determined to be
$133.0 million and $14.2 million, respectively;
accordingly, we recorded approximately ($118.8) million and
$371,000 in (loss) gain from valuation of warrant liability for
the years ended December 31, 2009 and 2008, respectively,
related to the change in the fair value of the Warrants.
Income
Taxes
Deferred taxes are measured using enacted tax rates expected to
be in effect in a year in which the basis difference is expected
to reverse. We continue to record a valuation allowance for the
full amount of deferred assets, which would otherwise be
recorded for tax benefits relating to operating loss and tax
credit carryforwards, as realization of such deferred tax assets
cannot be determined to be more likely than not.
Recent
Accounting Pronouncements
On January 1, 2009, we adopted ASC
808-10,
Collaborative Arrangements (ASC
808-10),
which requires a certain presentation of transactions with third
parties and of payments between parties to a collaborative
arrangement in our statement of operations, along with
disclosure about the nature and purpose of the arrangement. The
adoption of ASC
808-10 did
not have any impact on our results of operations, cash flows or
financial position.
On January 1, 2009, we adopted ASC
815-40-15,
Derivatives and Hedging Contracts in
Entitys Own Equity (Scope and Scope Exceptions)
(ASC
815-40-15),
which requires that we apply a two-step approach in evaluating
whether an equity-linked financial instrument (or embedded
feature) is indexed to our own stock, including evaluating the
instruments contingent exercise and settlement provisions.
The adoption of
ASC 815-40-15
did not have any impact on our results of operations, cash flows
or financial position.
During the quarter ended June 30, 2009, we adopted ASC
855-10,
Subsequent Events (ASC
855-10)
that establishes general standards of accounting and disclosure
for events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
The adoption of ASC
855-10 did
not have any impact on our results of operations, cash flows or
financial position.
Effective during the quarter ended September 30, 2009, the
Financial Accounting Standards Board (the FASB)
issued Accounting Standards Codification (ASC)
105-10,
Generally Accepted Accounting Principles that
mandated that the FASB Accounting Standards Codification become
the single official source of authoritative US Generally
Accepted Accounting Principles (GAAP) other than
guidance issued by the Securities and Exchange Commission (the
SEC), superseding existing FASB, American Institute
of Certified Public Accountants, Emerging Issues Task Force
(EITF), and related literature. The adoption of ASC
105-10 did
not have any substantive impact on our consolidated financial
statements or related footnotes.
F-12
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Securities
available-for-sale
at cost or amortized cost and fair market value by contractual
maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
167,131
|
|
|
$
|
167,116
|
|
Due after one year through two years
|
|
|
29,430
|
|
|
|
29,441
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,561
|
|
|
$
|
196,557
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
45,576
|
|
|
$
|
45,638
|
|
Due after one year through two years
|
|
|
5,433
|
|
|
|
5,416
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,009
|
|
|
$
|
51,054
|
|
|
|
|
|
|
|
|
|
|
Our gross realized gains or losses on sales of
available-for-sale
securities were not material for 2009, 2008 or 2007.
Securities
available-for-sale,
short-term and long-term, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit
|
|
$
|
6,344
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,344
|
|
Corporate debt securities
|
|
|
92,263
|
|
|
|
19
|
|
|
|
(9
|
)
|
|
|
92,273
|
|
Government-sponsored enterprises
|
|
|
33,015
|
|
|
|
15
|
|
|
|
(8
|
)
|
|
|
33,022
|
|
U.S. Treasury Note
|
|
|
64,939
|
|
|
|
7
|
|
|
|
(28
|
)
|
|
|
64,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,561
|
|
|
$
|
41
|
|
|
$
|
(45
|
)
|
|
$
|
196,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit
|
|
$
|
2,030
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,030
|
|
Corporate debt securities
|
|
|
22,360
|
|
|
$
|
54
|
|
|
$
|
(154
|
)
|
|
$
|
22,260
|
|
Government-sponsored enterprises
|
|
|
16,285
|
|
|
|
110
|
|
|
|
(25
|
)
|
|
|
16,370
|
|
U.S. Treasury Note
|
|
|
10,334
|
|
|
|
60
|
|
|
|
|
|
|
|
10,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,009
|
|
|
$
|
224
|
|
|
$
|
(179
|
)
|
|
$
|
51,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None of our securities have been in a continuous unrealized loss
position for more than 12 months, at December 31, 2009.
Market values were determined for each individual security in
the investment portfolio. The declines in value of these
investments are primarily related to changes in interest rates
and are considered to be temporary in nature. It is not more
likely than not that we will be required to sell these
securities before the recovery of their amortized cost basis
therefore we do not consider these investments to be
other-than-temporarily
impaired as of December 31, 2009. See Footnote
3 Fair Value Measurements for further discussion.
F-13
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
FAIR
VALUE MEASUREMENTS
|
We currently measure and report at fair value our warrant
liability, cash equivalents and investment securities. 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 maximize the use of observable inputs and minimize
the use of unobservable inputs. The hierarchy of fair value
measurements is described below:
|
|
|
|
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, and
|
|
|
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 table summarizes our financial assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
Balance as of
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
Dec. 31
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market
|
|
$
|
378,663
|
|
|
$
|
378,663
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
32,543
|
|
|
|
|
|
|
|
32,543
|
|
|
|
|
|
Corporate debt securities
|
|
|
92,273
|
|
|
|
|
|
|
|
92,273
|
|
|
|
|
|
Government-sponsored enterprises
|
|
|
33,022
|
|
|
|
|
|
|
|
33,022
|
|
|
|
|
|
U.S. Treasury Note
|
|
|
64,918
|
|
|
|
|
|
|
|
64,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
601,419
|
|
|
$
|
378,663
|
|
|
$
|
222,756
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$
|
132,953
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
132,953
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
$
|
7,830
|
|
|
$
|
7,830
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
51,936
|
|
|
|
|
|
|
|
51,936
|
|
|
|
|
|
Corporate debt securities
|
|
|
22,260
|
|
|
|
|
|
|
|
22,260
|
|
|
|
|
|
Government-sponsored enterprises
|
|
|
16,370
|
|
|
|
|
|
|
|
16,370
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
10,394
|
|
|
|
|
|
|
|
10,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
108,790
|
|
|
$
|
7,830
|
|
|
$
|
100,960
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$
|
14,190
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
14,190
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, our cash equivalents, and
short-term and long-term investments are recorded at fair value
as determined through market, observable and corroborated
sources.
F-14
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table is a roll forward of the fair value of the
Warrants, as to which fair value is determined by Level 3
inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Description
|
|
2009
|
|
|
2008
|
|
|
Beginning balance, January 1
|
|
$
|
14,190
|
|
|
$
|
|
|
Purchases, issuances, and settlements
|
|
|
|
|
|
|
14,561
|
|
Total loss (gain) included in net loss(1)
|
|
|
118,763
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
132,953
|
|
|
$
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The loss (gain) is reflected in our consolidated statements of
operations as a component of other expense. |
As further discussed in Note 7, the fair value of the Notes
at December 31, 2009 was approximately $141.8 million,
based on the last trading price in December. The fair value is
determined based on quoted prices in active markets for similar
instruments (a Level 2 input).
The carrying amounts reflected in the consolidated balance
sheets for cash, prepaids, other current assets, accounts
payable, accrued expenses and other liabilities approximate fair
value due to their short term nature.
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Furniture and office equipment
|
|
$
|
1,473
|
|
|
$
|
1,188
|
|
Laboratory and manufacturing equipment
|
|
|
12,313
|
|
|
|
11,427
|
|
Computer equipment and software
|
|
|
22,485
|
|
|
|
10,134
|
|
Leasehold improvements
|
|
|
16,157
|
|
|
|
15,478
|
|
Buildings
|
|
|
1,730
|
|
|
|
1,730
|
|
Construction in progress
|
|
|
76,235
|
|
|
|
15,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,393
|
|
|
|
55,089
|
|
Less accumulated depreciation and amortization
|
|
|
(31,429
|
)
|
|
|
(26,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98,964
|
|
|
$
|
28,150
|
|
|
|
|
|
|
|
|
|
|
We lease our commercial manufacturing facility in Morris Plains,
New Jersey (the New Jersey Facility). The New Jersey
lease required us to provide the landlord with a
$1.9 million letter of credit as a security deposit. The
letter of credit, on our behalf, is secured by a deposit of
$1.9 million. This deposit is recorded as a long-term
investment as of December 31, 2009 and 2008 on our
consolidated balance sheet. As we are responsible for the
construction costs, we are deemed to be the owner of the New
Jersey Facility for accounting purposes during the construction
period. Consequently, we capitalized the $8.6 million
building and related facility lease liability at the
commencement of the construction.
On August 7, 2009, we entered into a lease with
Knickerbocker Properties, Inc. XLVI for existing building space
totaling approximately 184,000 rentable square feet in
Orange County, California for use by us as a manufacturing
facility following build-out (the Orange County
Facility). The initial lease term is ten and a half years,
with two renewal terms of five years each. The lease includes a
one-time purchase option exercisable during the first three
years of the lease term. We took possession of the building in
September 2009 and are in the
F-15
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
construction phase of the manufacturing build-out consisting of
cell processing stations, quality control laboratories, a data
center, training areas, infrastructure and offices. The
aggregate rent payable for the existing warehouse property under
the initial lease term is $13.6 million. As we are
responsible for the construction costs, we are deemed to be the
owner of the Orange County Facility for accounting purposes
during the construction period. Upon taking possession of the
Orange County Facility in September 2009 and subsequently
beginning construction, we capitalized approximately
$6.7 million in our construction in progress account to
record the estimated fair value of the building with a related
lease obligation of approximately $6.7 million, which was
reflected in the accompanying balance sheet as facility lease
obligation.
In July 2009, we entered into a lease with Majestic Realty Co.
for a building (the Atlanta Facility) to be
constructed in Atlanta, Georgia consisting of approximately
160,000 square feet. The facility is intended for use by us as a
manufacturing facility, following construction. The lease will
commence in 2010. The Atlanta facility lease will be accounted
for in a similar manner as a facility lease obligation upon our
taking possession of the facility following completion of the
building shell.
The Orange County Facility and Atlanta Facility leases required
us to provide the landlords with letters of credit in the total
amount of $2.4 million as security deposits. The letters of
credit, on our behalf, are secured by a deposit of
$2.4 million. This deposit is recorded as a long-term
investment on our consolidated balance sheet as of
December 31, 2009.
The New Jersey Facility and Orange County Facility leases have
provisions requiring that we restore the building to its
original condition upon lease termination. Accordingly, we have
accrued the estimated costs of dismantlement and restoration as
these obligations accumulate.
As part of an agreement with the Township of Hanover relating to
the permitting of the expansion of our New Jersey Facility,
we have $1.9 million in long-term investments being held as
a security deposit to ensure completion of certain improvements
at the property.
For further description of the facilities leases, see
Notes 6 and 12, which include the applicable future minimum
payments under the Lease.
At December 31, 2009, the $76.2 million in
construction in progress includes $47.1 million related to
the New Jersey Facility expansion (including $422,000 in
capitalized interest), $15.4 million capitalized facility
lease (including $1.5 million in capitalized interest),
$6.9 million related to the Orange County Facility
construction, $4.8 million related to the Atlanta Facility
construction and $1.5 million in software. At
December 31, 2008, the $15.1 million in construction
in progress included $9.5 million related to the remaining
portion of the capitalized amount of the New Jersey Facility
(including $931,000 in capitalized interest) and
$5.6 million in software, mainly related to Intellivenge
(including $253,000 in capitalized interest). In December 2009,
we completed the development and implemented our Intellivenge
system, an internally developed logistical and patient treatment
management and planning system. As a result, $9.2 million
was reclassified from construction in progress to computer
equipment and software.
F-16
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Clinical trial costs
|
|
$
|
1,243
|
|
|
$
|
1,700
|
|
Deferred rent
|
|
|
1,334
|
|
|
|
1,089
|
|
Accrued property and equipment
|
|
|
9,443
|
|
|
|
895
|
|
Accrued legal
|
|
|
318
|
|
|
|
286
|
|
Other accrued liabilities
|
|
|
7,219
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,557
|
|
|
$
|
5,870
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
FINANCING
OBLIGATIONS AND DEBT
|
In August 2005, we leased the New Jersey Facility and, in
accordance with ASC
840-40-15-5
(formerly
EITF 97-10),
we are deemed the owner of the New Jersey Facility during the
construction period; therefore, we capitalized approximately
$8.6 million, which represented the estimated fair value of
the building, and recorded a lease obligation of approximately
$8.6 million as the New Jersey Facility lease obligation.
Accordingly, the lease payments are allocated to the building
and land based on their estimated relative fair values. The New
Jersey Facility lease obligation has an extended term of
17 years with an effective interest rate of
7.64 percent. The estimated lease term is based on the
initial 7 year term of the New Jersey lease and a
10 year renewal. The future minimum payments of the New
Jersey Facility lease obligation, as presented below, reflect
such 17 year period. The New Jersey lease may be renewed
for up to an additional 15 years beyond the estimated
17 year term.
In August 2009, we leased the Orange County Facility and, in
accordance with ASC
840-40-15-5,
we are deemed the owner of the facility during the construction
period; therefore, we capitalized approximately
$6.7 million, which represented the estimated fair value of
the building, and recorded a lease obligation of approximately
$6.7 million as the Orange County Facility lease
obligation. The lease payments are allocated to the building and
land based on their estimated relative fair values. The Orange
County Facility lease obligation has an extended term of
15.5 years with an effective interest rate of
1.46 percent. The estimated lease term is based on the
initial 10.5 year term of the Orange County lease and a
5 year renewal. The future minimum payments of the Orange
County Facility lease obligation, as presented below, reflect
such 15.5 year period. The Orange County lease maybe be
renewed for up to an additional five years beyond the estimated
15.5 year term.
See Notes 4 and 12 for a further description of the New
Jersey Facility and Orange County Facility leases.
In December 2005, we entered into the first two of a series of
anticipated Promissory Notes (the GE Notes), with
General Electric Capital Corporation (GE Capital),
for the purchase of equipment and associated build-out costs for
the New Jersey Facility. The GE Notes, which evidence one loan
with an original principal amount of $7.0 million bearing
interest at 7.55 percent per year that was paid in full at
December 31, 2008, and the remaining loans with original
principal amounts totaling $9.6 million and an average
interest rate of 10.1 percent, were paid in full at
December 31, 2009. The GE Notes were secured by a Master
Security Agreement, and two Security Deposit Pledge Agreements
(the Pledge Agreements). Pursuant to the Pledge
Agreements, we deposited an aggregate of $7.0 million as a
security deposit for the repayment of the GE Notes, which would
be released upon the repayment of the GE Notes or upon receipt
of FDA approval for the commercialization of Provenge. The GE
Notes were paid in full as of December 31, 2009 and the
balance of the security deposit was returned to us at
December 31, 2009.
In May 2009, we entered into a lease agreement for the purchase
of Oracle software licenses. As the lease contains a bargain
purchase option, the lease was treated as a capital lease. The
capital lease, with an original
F-17
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
principal amount of $1.8 million and bearing interest at
11.9% per year is being repaid in 8 consecutive quarterly
installments of principal and interest. The lease term includes
a bargain purchase option.
The future minimum payments due under financing obligations were
as follows as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Facility
|
|
|
|
Lease
|
|
|
Lease
|
|
|
|
Obligations
|
|
|
Obligations
|
|
|
|
(In thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
861
|
|
|
$
|
1,291
|
|
2011
|
|
|
745
|
|
|
|
1,324
|
|
2012
|
|
|
|
|
|
|
1,369
|
|
2013
|
|
|
|
|
|
|
1,402
|
|
2014
|
|
|
|
|
|
|
1,420
|
|
Thereafter
|
|
|
|
|
|
|
13,568
|
|
|
|
|
|
|
|
|
|
|
Total payments
|
|
|
1,606
|
|
|
|
20,374
|
|
Less amount representing interest
|
|
|
(178
|
)
|
|
|
(5,662
|
)
|
|
|
|
|
|
|
|
|
|
Present value of payments
|
|
|
1,428
|
|
|
|
14,712
|
|
Less current portion of obligations
|
|
|
(722
|
)
|
|
|
(592
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion of obligations
|
|
$
|
706
|
|
|
$
|
14,120
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
CONVERTIBLE
SENIOR SUBORDINATED NOTES
|
In June and July 2007, $85.3 million of the 4.75% Notes due
2014 were sold in a private placement to qualified institutional
buyers. Proceeds from the offering, after deducting placement
fees and our estimated expenses, were approximately
$82.3 million. The Notes were issued at face principal
amount and pay interest semi-annually in arrears on June 15 and
December 15 of each year. Record dates for payment of interest
on the Notes are each June 1st and December 1st.
In certain circumstances, additional amounts may become due on
the Notes as additional interest. We can elect that the sole
remedy for an event of default for our failure to comply with
the reporting obligations provisions of the
indenture under which the Notes were issued (the
Indenture), for the first 180 days after the
occurrence of such event of default would be for the holders of
the Notes to receive additional interest on the Notes at an
annual rate equal to 1% of the outstanding principal amount of
the Notes. We recorded interest expense, including the
amortization of debt issuance costs related to the Notes, of
$2.9 million, $4.5 million and $2.5 million
during 2009, 2008 and 2007, respectively.
The Notes are convertible into our common stock, initially at
the conversion price of $10.28 per share, equal to a conversion
rate of approximately 97.2644 shares per $1,000 principal
amount of the Notes, subject to adjustment. There may be an
increase in the conversion rate of the Notes under certain
circumstances described in the Indenture; however, the number of
shares of common stock issued will not exceed 114.2857 per
$1,000 principal amount of the Notes. A holder that converts
Notes in connection with a fundamental change, as
defined in the Indenture, may in some circumstances be entitled
to an increased conversion rate (i.e., a lower per share
conversion price) as a make whole premium. If a fundamental
change occurs, holders of the Notes may require us to repurchase
all or a portion of their Notes for cash at a repurchase price
equal to 100% of the principal amount of the Notes to be
repurchased, plus any accrued and unpaid interest and other
amounts due thereon. The Indenture contains customary covenants.
In April 2009, $11.5 million in principal amount of the
Notes were converted by holders of the Notes, resulting in the
issuance of approximately 1.1 million shares of common
stock. In May 2009, we exchanged an aggregate of
2,137,411 shares of our authorized and issued common stock
for $21.2 million in aggregate principal face amount of the
Notes held by existing holders of the Notes
F-18
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have identified embedded derivatives associated with the
Notes and are accounting for these embedded derivatives
accordingly. These embedded derivatives meet certain criteria
and are therefore not required to be accounted for separately
from the Notes.
As of December 31, 2009, $52.5 million in aggregate
principal amount of the Notes was outstanding. The fair value of
the Notes at December 31, 2009 and December 31, 2008
was approximately $141.8 million and $46.8 million,
respectively, based on the last trading prices in December 2009
and December 2008, respectively. The fair value is determined
based on quoted prices in active markets for similar instruments.
Preferred
Stock
We currently have 10,000,000 shares, $0.001 par value,
of authorized preferred stock, of which 1,000,000 shares
have been designated as Series A Junior Participating
Preferred Stock. No preferred stock was issued or outstanding as
of December 31, 2009.
Common
Stock
At the 2009 Annual Meeting, our stockholders approved an
amendment to the Companys Amended and Restated Certificate
of Incorporation to increase the Companys authorized
number of shares of Common Stock from 150,000,000 shares to
250,000,000 shares.
Equity
Sales
In December 2009, we received net proceeds of
$409.5 million after deducting underwriting commissions and
estimated offering expenses from our issuance of
17,250,000 shares of common stock at the public offering
price of $24.75 per share.
In May 2009, we received net proceeds of $220.8 million
after deducting underwriting commissions and estimated offering
expenses from our issuance of 11,979,166 shares of common
stock at the public offering price of $19.20 per share.
In April 2008, we issued 8.0 million Shares of our common
stock, and Warrants to purchase up to 8.0 milion shares of
common stock to an institutional Investor. We received net
proceeds of $46.0 million from our issuance of the Shares
and the Warrants to the Investor. The Investor purchased the
Shares and Warrants for a negotiated price of $5.92 per share of
common stock purchased. The Warrants are exercisable at any time
prior to April 8, 2015, with an exercise price of $20.00
per share of common stock and include a net exercise feature.
The Warrants contain a fundamental change provision,
as defined in the Warrants, which may in certain circumstances
allow the Warrants to be redeemed for cash in an amount equal to
the Black Scholes Value, as defined in the Warrants. The
Warrants are recorded as a liability and then marked to market
each period through earnings in other income (expense). The fair
value of the Warrants at December 31, 2009 and 2008 was
approximately $133.0 million and $14.2 million,
respectively. We recorded approximately $118.8 million in
non-operating loss and $371,000 in non-operating income for the
year ended December 31, 2009 and 2008, respectively to
reflect the change in the value of the Warrants.
On October 11, 2007, we entered into an equity line of
credit arrangement with Azimuth Opportunity Ltd.
(Azimuth). We entered into the Common Stock Purchase
Agreement with Azimuth, which we amended in October 2008 and
February 2009. As amended, the Common Stock Purchase Agreement
provides that, upon the terms and subject to the conditions set
forth therein, Azimuth is committed to purchase up to
$130,000,000 of our common stock over the approximate
36-month
term of the Common Stock Purchase Agreement. From time to time,
and at our sole discretion, we may present Azimuth with draw
down notices to purchase our common stock over 10 consecutive
trading days or such other period mutually agreed upon by us and
Azimuth. Each draw down is subject
F-19
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to limitations based on the price of our common stock and a
limit of 2.5% of our market capitalization at the time of such
draw down, provided, however, Azimuth will not be required to
purchase more than $55,000,000 of our common stock in any single
draw down. In addition, the number of shares of our common stock
purchased by Azimuth under the Common Stock Purchase Agreement
cannot equal or exceed 20% of our issued and outstanding shares
of common stock as of the date of the Common Stock Purchase
Agreement. We are able to present Azimuth with up to 24 draw
down notices during the term of the Common Stock Purchase
Agreement, with a minimum of five trading days required between
each draw down period. On October 10, 2008, we sold
3,610,760 shares of our common stock at a price of $5.80
per share to Azimuth for gross proceeds of approximately
$21.0 million under the Common Stock Purchase Agreement. We
received net proceeds of approximately $19.8 million from
the sale of these shares.
9. STOCK-BASED
COMPENSATION PLANS
We maintain three stock-based incentive plans under which we may
grant non-qualified stock options, incentive stock options,
restricted stock, restricted stock units or stock appreciation
rights to employees, non-employee directors and consultants. We
also have an Employee Stock Purchase Plan (the
ESPP). Under these plans we issue new shares of
common stock upon exercise of stock options and purchases under
the ESPP.
We recorded stock-based employee compensation expense in the
consolidated statement of operations in 2009, 2008 and 2007 of
$17.2 million, $5.9 million and $6.1 million,
respectively. We recognize compensation expense for our
stock-based payment awards on the accelerated method over the
requisite service period of the entire award, unless the awards
are subject to other conditions, in which case we recognize
compensation expense over the requisite service period of each
separate vesting tranche. We determine the grant-date fair value
of our stock-based payment awards using the BSM option valuation
model. Total stock-based employee compensation expense
recognized in the consolidated statement of operations in 2009,
2008 and 2007 increased our net loss per share by $0.16, $0.06
and $0.07, respectively. As we use a full valuation allowance
with respect to deferred taxes, there is no impact on deferred
taxes.
Employee
Stock Purchase Plan
We have an ESPP available to our employees. Each year, the
number of shares reserved for issuance under the ESPP is
automatically increased by the lesser of (i) 1 percent
of the total number of fully diluted shares of our common stock
then outstanding, including convertible securities,
(ii) 400,000 shares, or (iii) a number determined
by our Board of Directors. On January 1, 2010, the number
of shares reserved for future issuance under the ESPP was
automatically increased by an additional 400,000 shares, to
an aggregate of 2,584,098 shares.
In 2009, 2008 and 2007, 386,125, 204,731, and
307,268 shares, respectively, were issued under the ESPP at
an average price of $4.14, $3.52, and $3.52, respectively.
Equity
Compensation Plans
In 2000, the Board of Directors and our stockholders approved
the 2000 Equity Incentive Plan (the 2000 Plan), A
total of 4,400,000 shares of common stock were originally
authorized and reserved for issuance under the 2000 Plan. In
2003, the Board of Directors and our stockholders approved
amendments to the 2000 Plan: (i) to increase the number of
shares of common stock authorized for issuance under the 2000
Plan by an additional 2,000,000 shares; (ii) to
increase the number of shares of common stock annually reserved
for issuance under the 2000 Plan, effective as of
January 1, 2004, from 550,000 to 750,000 shares; and
(iii) to permit us to assume existing options, stock
bonuses and restricted stock awards that were granted or issued
by another corporation and assumed by us in connection with a
merger, consolidation or other corporate reorganization in which
we are a party. Each year, the number of shares reserved for
issuance under the 2000 Plan is automatically increased by the
lesser of (i) 5 percent of the total number of shares
of our common stock then outstanding,
(ii) 750,000 shares, or (iii) a
F-20
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
number to be determined by our Board of Directors.The 2000 Plan
will expire in 2010. In 2009, the Board of Directors elected to
add zero shares to the 2000 Plan on January 1, 2010.
The options granted under the 2000 Plan may be either incentive
stock options or nonqualified stock options. Options granted
under the 2000 Plan expire no later than 10 years from the
date of grant. The option price must be at least
100 percent of the fair value on the date of grant for
incentive stock options, and no less than 85 percent of the
fair value for nonqualified stock options. The options generally
become exercisable in increments over a period of four years
from the date of grant, with the first increment vesting after
one year. Options may be granted with different vesting terms
from time to time.
The 2002 Broad Based Equity Incentive Plan (the 2002
Plan) provides for the award of options, stock bonuses,
and rights to acquire restricted stock. The stock options
granted under the Plan are nonqualified options and expire no
later than 10 years from the date of the grant. The
exercise price for each option must not be less than
85 percent of the fair market value of the common stock on
the date of the grant. Employees, officers, members of our Board
of Directors and consultants are eligible to receive awards
under the 2002 Plan. No more than 49 percent of the number
of shares underlying options granted under the Plan may be
awarded to directors and senior officers of Dendreon. A total of
1,500,000 shares of common stock were authorized and
reserved for issuance under the 2002 Plan. The Compensation
Committee of the Board of Directors will determine the terms of
each option, including the number of shares, the option price,
the term of the option, the vesting period, and the purchase
price.
In 2009, the Board and our stockholders approved the 2009 Equity
Incentive Plan (the 2009 Plan). The 2009 Plan will
expire in 2019. A total of 13,200,000 shares of common
stock were reserved for issuance under the 2009 Plan. The 2009
Plan authorizes our Board of Directors to provide equity-based
compensation in the form of stock options, which may be
incentive stock options or nonqualified stock options, stock
appreciation rights, restricted stock, restricted stock units,
and other stock-based awards. Any common stock shares that are
subject to option rights or stock appreciation rights are
counted against this limit as one common share for every one
common share subject to such option awards or stock appreciation
rights and any common stock shares that are subject to awards
other than option awards or stock appreciation rights are
counted against this limit as 1.37 common shares for every one
common share subject to such other awards. Shares issued under
the 2009 Plan may be shares of original issuance or treasury
shares or a combination. Options granted under the 2009 Plan
expire no later than 10 years from the date of grant. The
option price must be at least 100 percent of the fair value
on the date of grant. The options generally become exercisable
in increments over a period of four years from the date of
grant, with the first increment vesting after one year. Options
may be granted with different vesting terms from time to time.
Stock
Options and Employee Stock Purchases
The fair value for stock awards was estimated at the date of
grant using the BSM option valuation model with the following
weighted average assumptions for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Options
|
|
Employee Stock Purchase Plan
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted average estimated fair value
|
|
$17.90
|
|
$4.34
|
|
$3.40
|
|
$12.47
|
|
$1.36
|
|
$2.03
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield(A)
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected volatility(B)
|
|
94%
|
|
91%
|
|
87%
|
|
157%
|
|
58%
|
|
124%
|
Risk-free interest rate(C)
|
|
2.0%
|
|
2.5%
|
|
3.8%
|
|
0.62%
|
|
1.5%
|
|
4.3%
|
Expected term(D)
|
|
4.4 years
|
|
4.5 years
|
|
4.8 years
|
|
1.2 years
|
|
0.5 years
|
|
0.5 years
|
|
|
|
(A) |
|
We have not paid dividends in the past and do not plan to pay
dividends in the near future. |
|
(B) |
|
The expected stock price volatility is based on the weighted
average of the historical volatility of our stock and the
volatilities of certain peer companies. |
F-21
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(C) |
|
The risk-free interest rate is based on the implied yield
available on U.S. Treasury zero-coupon issues with a term equal
to the expected life of the award on the date of grant. |
|
(D) |
|
The expected term of the options represents the estimated period
of time until exercise and is based on historical experience of
similar awards, giving consideration to the contractual terms,
vesting schedules and expectations of future employee behavior.
The expected term of awards under the employee stock purchase
plan represents the weighted average purchase periods of each
offering. |
The following table summarizes our stock option activity during
the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Outstanding at January 1
|
|
|
4,877,268
|
|
|
$
|
6.99
|
|
|
|
5,223,439
|
|
|
$
|
7.10
|
|
|
|
5,664,958
|
|
|
$
|
7.48
|
|
Granted
|
|
|
831,500
|
|
|
|
26.27
|
|
|
|
376,564
|
|
|
|
6.39
|
|
|
|
1,176,562
|
|
|
|
4.94
|
|
Exercised
|
|
|
(2,229,953
|
)
|
|
|
7.18
|
|
|
|
(131,133
|
)
|
|
|
4.37
|
|
|
|
(1,033,441
|
)
|
|
|
6.51
|
|
Forfeited or expired
|
|
|
(204,200
|
)
|
|
|
7.55
|
|
|
|
(591,602
|
)
|
|
|
8.14
|
|
|
|
(584,640
|
)
|
|
|
7.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
3,274,615
|
|
|
|
11.73
|
|
|
|
4,877,268
|
|
|
|
6.99
|
|
|
|
5,223,439
|
|
|
|
7.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31
|
|
|
1,929,911
|
|
|
|
7.75
|
|
|
|
3,617,543
|
|
|
|
7.58
|
|
|
|
3,608,654
|
|
|
|
8.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for future grant
|
|
|
12,630,046
|
|
|
|
|
|
|
|
703,297
|
|
|
|
|
|
|
|
138,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years
ended December 31, 2009, 2008, and 2007 was
$36.2 million, $229,000, and $8.5 million,
respectively. The total fair value of the options vested during
2009 was $2.8 million.
The following table summarizes our options outstanding and our
options exercisable as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
Outstanding As of
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Exercisable as of
|
|
|
Exercise
|
|
Exercise Prices
|
|
December 31, 2009
|
|
|
(In Years)
|
|
|
Price
|
|
|
December 31, 2009
|
|
|
Price
|
|
|
$ 1.82 - $ 4.90
|
|
|
1,017,628
|
|
|
|
7.25
|
|
|
$
|
4.61
|
|
|
|
623,026
|
|
|
$
|
4.51
|
|
$ 4.95 - $ 6.39
|
|
|
752,276
|
|
|
|
6.15
|
|
|
|
5.85
|
|
|
|
589,779
|
|
|
|
5.72
|
|
$ 6.47 - $21.31
|
|
|
657,471
|
|
|
|
3.96
|
|
|
|
10.77
|
|
|
|
649,133
|
|
|
|
10.76
|
|
$22.99 - $26.64
|
|
|
694,350
|
|
|
|
9.33
|
|
|
|
25.90
|
|
|
|
66,083
|
|
|
|
26.12
|
|
$27.34 - $36.74
|
|
|
152,890
|
|
|
|
9.70
|
|
|
|
27.82
|
|
|
|
1,890
|
|
|
|
31.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 1.82 - $36.74
|
|
|
3,274,615
|
|
|
|
6.89
|
|
|
$
|
11.73
|
|
|
|
1,929,911
|
|
|
$
|
7.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options outstanding and
exercisable as of December 31, 2009 was $48.1 million
and $35.8 million, respectively. The weighted-average
remaining contractual term for options exercisable was
5.5 years as of December 31, 2009.
As of December 31, 2009, we had approximately
$11.6 million of unrecognized compensation expense related
to our unvested share options. We expect to recognize this
compensation expense over a weighted average period of
approximately two years.
F-22
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Awards
Restricted stock awards granted generally vest over a four-year
period; however, in 2006 we granted restricted stock awards with
performance conditions to executive employees and restricted
stock awards with time-vesting and performance conditions to
non-executive employees. On January 12, 2007, vesting for
40 percent of these shares accelerated upon acceptance of
our BLA by the FDA. The balance will vest for non-executive
employees upon the earlier of the dates that the requisite
service periods are rendered or the approval of Provenge for
commercialization by the FDA. The balance of the award for
executive employees will vest upon the approval of Provenge for
commercialization by the FDA. On June 20, 2007, we granted
restricted stock awards with performance conditions to executive
employees and restricted stock awards with time-vesting and
performance conditions to non-executive employees. Awards
granted to executive employees will vest 100% upon the approval
of Provenge for commercialization by the FDA. Awards granted to
non-executive employees vested 50% in June 2008 and the balance
will vest upon the approval of Provenge for commercialization by
the FDA. Each of these awards requires the relevant executive or
non-executive employee to be employed by us on the date of
achievement of the performance condition in order for the shares
to vest. We have considered the probability of achieving each
acceleration provision, recorded compensation expense based upon
our assessment of these performance contingencies and have
unrecognized compensation costs of approximately $558,000 as of
December 31, 2009 relating to these performance conditions.
The following table summarizes our restricted stock award
activity during the years ended December 31, 2009, 2008,
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Grant Date
|
|
|
Stock
|
|
|
Grant Date
|
|
|
Stock
|
|
|
Grant Date
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Outstanding at beginning of year
|
|
|
1,462,936
|
|
|
$
|
6.13
|
|
|
|
1,449,687
|
|
|
$
|
5.96
|
|
|
|
1,106,160
|
|
|
$
|
4.45
|
|
Granted
|
|
|
1,521,147
|
|
|
|
8.50
|
|
|
|
554,138
|
|
|
|
6.33
|
|
|
|
1,017,004
|
|
|
|
6.68
|
|
Vested
|
|
|
(498,749
|
)
|
|
|
5.97
|
|
|
|
(386,759
|
)
|
|
|
5.68
|
|
|
|
(560,650
|
)
|
|
|
4.45
|
|
Forfeited or expired
|
|
|
(125,196
|
)
|
|
|
5.84
|
|
|
|
(154,130
|
)
|
|
|
7.06
|
|
|
|
(112,827
|
)
|
|
|
4.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2,360,138
|
|
|
$
|
7.71
|
|
|
|
1,462,936
|
|
|
$
|
6.13
|
|
|
|
1,449,687
|
|
|
$
|
5.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 we had approximately
$8.2 million in total unrecognized compensation expense
related to our restricted stock awards, which will be recognized
over a weighted average period of approximately one year.
F-23
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, equity based awards (including
stock option and stock awards) available for future issuances
are as follows:
|
|
|
|
|
|
|
Awards
|
|
|
|
Available
|
|
|
|
for Grant
|
|
|
Balance, January 1, 2007
|
|
|
884,366
|
|
Granted
|
|
|
(2,193,566
|
)
|
Forfeited or expired
|
|
|
697,467
|
|
Additional shares reserved
|
|
|
750,000
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
138,267
|
|
Granted
|
|
|
(930,702
|
)
|
Forfeited or expired
|
|
|
745,732
|
|
Additional shares reserved
|
|
|
750,000
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
703,297
|
|
Granted
|
|
|
(2,352,647
|
)
|
Forfeited or expired
|
|
|
329,396
|
|
Additional shares reserved (includes 13,200,000 for the 2009
plan and 750,000 for the 2000 Plan)
|
|
|
13,950,000
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
12,630,046
|
|
|
|
|
|
|
Common
Stock Reserved
As of December 31, 2009, shares of our common stock were
reserved for issuance as follows:
|
|
|
|
|
Convertible senior subordinated notes
|
|
|
5,109,785
|
|
Warrants
|
|
|
8,000,000
|
|
Outstanding common stock options
|
|
|
3,274,615
|
|
Employee stock purchase plan
|
|
|
2,184,098
|
|
Common stock awards
|
|
|
2,360,138
|
|
Available for future grant under equity plans
|
|
|
12,630,046
|
|
|
|
|
|
|
|
|
|
33,558,682
|
|
|
|
|
|
|
As of December 31, 2009, we had federal and state net
operating loss carryforwards (NOLs) of approximately
$597 million and $70 million, respectively. We also
had federal and state research and development credit
carryforwards (R&D Credits) of approximately
$15.2 million and $2.6 million, respectively. The NOLs
and R&D Credits will expire at various dates, beginning in
2010 through 2029, if not utilized.
We are subject to U.S. federal and state income tax
examinations for years after 2004 and 2003, respectively.
However, carryforward attributes that were generated prior to
2003 may still be adjusted by a taxing authority upon
examination if the attributes have been or will be used in a
future period.
We recognize interest and penalties accrued on any unrecognized
tax benefits as a component of income tax expense. During the
year ended December 31, 2009, we did not have any accrued
interest or penalties associated with any unrecognized tax
benefits.
F-24
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of our
deferred tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
213,157
|
|
|
$
|
186,754
|
|
Research credits
|
|
|
18,379
|
|
|
|
16,716
|
|
Stock-based compensation
|
|
|
4,610
|
|
|
|
2,322
|
|
Capitalized research and development
|
|
|
|
|
|
|
|
|
Other
|
|
|
4,497
|
|
|
|
5,648
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
240,643
|
|
|
|
211,440
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(240,643
|
)
|
|
|
(211,440
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax asset has been fully offset by a valuation
allowance. The valuation allowance increased by
$29.2 million, increased by $26.0 million, and
decreased by $24.1 million during the years ended
December 31, 2009, 2008 and 2007, respectively.
Realization of deferred tax assets is dependent on future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the deferred tax assets have been offset by a
valuation allowance. The valuation allowance relates primarily
to net deferred tax assets from operating losses. Excess tax
benefits associated with stock option exercises are recorded
directly to stockholders equity only when realized. As a
result, the excess tax benefits included in net operating loss
carryforwards but not reflected in deferred tax assets for
fiscal year 2009 and 2008 are $46.2 million and
$8.0 million, respectively.
The computation of basic and diluted net loss per share is based
on the weighted average number of shares of common stock
outstanding during the year, and excludes all outstanding stock
options, warrants and unvested restricted stock, as well as
shares issuable in connection with the conversion of the Notes
and the Common Stock Purchase Agreement, from the calculation of
diluted net loss per share, as such securities are anti-dilutive
for all periods presented. Shares excluded from the computations
of diluted net loss per common share were 31,738,144,
35,625,600, and 31,569,782 for December 31, 2009, 2008 and
2007, respectively.
The following table presents the calculation of basic and
diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share
|
|
|
|
amounts)
|
|
|
Net loss
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
|
$
|
(99,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computation of basic and diluted
net loss per share
|
|
|
108,050
|
|
|
|
90,357
|
|
|
|
82,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(2.04
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
COMMITMENTS
AND CONTINGENCIES
|
We have a supply agreement with Diosynth covering the commercial
production of the antigen used in connection with Provenge. We
currently have a commitment with Diosynth to purchase inventory
for a total of $39.5 million. As of December 31, 2009,
we have made a deposit of $19.0 million and expect to
receive shipment of the order commencing during 2010. We have a
remaining obligation of $20.5 million as of
December 31, 2009. Our agreement with Diosynth, as amended,
has an initial term through December 31, 2013, and unless
terminated, will renew automatically thereafter for additional
5-year
terms. The agreement may be terminated upon written notice by us
or Diosynth at least 24 months before the end of the
initial term or a renewal term or by either party in the event
of an uncured material breach or default by the other party.
The majority of our operating lease payments relate to our three
leases in Seattle, Washington, which collectively cover our
principal corporate offices in Seattle, and the manufacturing
facility leases in Morris Plains, New Jersey, Orange County,
California and Atlanta, Georgia. The three leases in Seattle
began in 1998, 2004 and 2009 and expire in 2011; the lease on
the New Jersey Facility began in 2005 and the initial term
expires in 2012; the lease on the Orange County Facility began
in 2009 and the initial term expires in 2019; the lease for the
Atlanta Facility commences in 2010.
In August 2005, we leased the New Jersey Facility and in August
2009 we leased the Orange County Facility. As we are deemed the
owners of the New Jersey Facility and Orange County Facility
during the construction period we capitalized approximately
$8.6 million and $6.7 million, respectively, which
represented the estimated fair value of the buildings, and
recorded lease obligations of approximately $8.6 million
and $6.7 million, respectively, as the facility lease
obligations. Accordingly, the lease payments are allocated to
the building and land based on their estimated relative fair
values. The portion of the lease related to land is treated as
an operating lease. Included in the payment schedule below, for
the New Jersey Facility, are payments reflecting the initial
7 year term of the lease and a 10 year renewal period.
Included in the payment schedule below, for the Orange County
Facility, are payments reflecting the initial 10.5 year
term of the lease and a 5 year renewal period. In August
2009 we entered into a lease for the Atanta Facility which will
commence in 2010. Included in the payment schedule below, for
the Atlanta Facility, are payments that reflect the initial
10.5 year term of the Atlanta lease. See Notes 4 and 6
for a further description of the leases.
Future minimum lease payments under noncancelable operating
leases at December 31, 2009, were as follows:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
|
(In thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2010
|
|
$
|
5,837
|
|
2011
|
|
|
5,851
|
|
2012
|
|
|
1,854
|
|
2013
|
|
|
1,764
|
|
2014
|
|
|
1,761
|
|
Thereafter
|
|
|
15,929
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
32,996
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2009, 2008
and 2007 was $4.4 million, $4.4 million, and
$4.7 million, respectively.
Beginning on May 24, 2007, four proposed securities class
action suits were filed in the United States District Court for
the Western District of Washington, on behalf of the
Companys common stock, purporting to state claims for
securities law violations stemming from our disclosures related
to Provenge and the FDAs actions regarding our BLA for
Provenge. The complaints seek compensatory damages,
attorneys fees and expenses. On October 4, 2007,
F-26
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Court consolidated these actions under the caption
McGuire v. Dendreon Corporation, et al., and
designated a lead plaintiff. The lead plaintiff designated the
complaint filed June 6, 2007 in McGuire, et al. v.
Dendreon Corporation, et al., as the operative complaint. On
December 21, 2007, the Company and individual defendants
jointly filed a motion to dismiss the complaint. By order dated
April 18, 2008, the Court granted the motion to dismiss the
complaint, holding that plaintiffs failed to plead a claim
against the Company or the individual defendants, and allowing
plaintiffs thirty days to file an amended complaint. Plaintiffs
filed an amended complaint on June 2, 2008, naming
Dendreon, our chief executive officer, and a senior vice
president as defendants. Defendants filed a motion to dismiss
the amended complaint on July 2, 2008. By order dated
December 5, 2008, the Court granted the motion to dismiss
the allegations against our chief executive officer based on
allegedly false or misleading statements and his sale of
Dendreon stock, and denied the remainder of the motion. The
Court gave plaintiffs permission to file an amended complaint to
reassert their allegations against our chief executive officer,
and plaintiffs filed a second amended complaint on
January 5, 2009. Defendants filed a motion to dismiss the
second amended complaint on January 29, 2009. On
May 21, 2009, the Court issued an order granting in part,
and denying in part, defendants motion to dismiss the
second amended complaint, and allowing leave to amend.
Plaintiffs filed a third amended complaint on June 8, 2009.
On June 29, 2009, defendants filed an answer to the third
amended complaint. The parties have commenced discovery, and
exchanged initial disclosures on July 22, 2009. The Court
has ordered that discovery be completed by May 21, 2010.
The Court has also set a trial date in this action for
October 18, 2010.
On March 31, 2009, a complaint captioned
Mountanos v. Dendreon Corporation, et al., was filed
in the United States District Court for the Western District of
Washington, naming Dendreon, our chief executive officer, and a
senior vice president as defendants. The complaint in
Mountanos makes similar factual and legal allegations as
the second amended complaint filed in the McGuire action
described above, but Mountanos is not a class action and
the named plaintiffs allegedly purchased options rather than the
Companys common stock. The complaint challenges
disclosures related to the FDAs actions regarding our
pending BLA for Provenge, and the sale of Dendreon stock by our
chief executive officer. It seeks compensatory damages,
attorneys fees and expenses. On April 24, 2009, the
parties filed a joint stipulation asking the court to postpone
the deadline to respond to the complaint until 30 days
after a final ruling on all motions to dismiss in
McGuire v. Dendreon. On July 2, 2009,
plaintiffs filed an amended complaint, which the defendants
answered on August 3, 2009. The parties have commenced
discovery, and exchanged initial disclosures on October 13,
2009. The Court has ordered that discovery be completed by
May 21, 2010. The Court has also set a trial date in this
action for October 18, 2010.
On July 31, 2007, a stockholder derivative action was filed
in the Superior Court for King County, Washington, allegedly on
behalf of and for the benefit of the Company, against all of the
members of our Board of Directors, alleging, among other claims,
breach of fiduciary duty, gross mismanagement, waste of
corporate assets, and unjust enrichment. The case is captioned
Loh v. Gold, et al. The complaint is derivative in
nature and does not seek monetary damages from the Company.
However, the Company may be required, throughout the pendency of
the action, to advance payment of legal fees and costs incurred
by the defendants. On November 6, 2007, the Company and the
individual defendant directors each filed a motion to dismiss
the complaint. Rather than file an opposition to the motions to
dismiss, the plaintiff opted to file an amended complaint on
December 5, 2007. On January 29, 2008, the Company and
the individual defendant directors filed motions to dismiss the
amended complaint. The plaintiff filed a consolidated opposition
to both motions to dismiss, and the Company and the individual
defendants filed replies to the plaintiffs opposition. By
order dated February 18, 2009, the Court granted a
stipulated motion from all parties requesting that oral argument
be postponed until after the resolution of the motion to dismiss
the second amended complaint in the federal class action,
McGuire v. Dendreon. On July 27, 2009,
plaintiff filed a Verified Second Amended Complaint. On
September 14, 2009, defendents filed a motion to dismiss
the Verified Second Amended Complaint. The parties have
completed briefing on the motion to dismiss, and oral argument
on the motion was held on February 19, 2010. No trial date
has been set, and discovery has not commenced.
On or around July 2, 2007 and July 26, 2007,
Dendreons Board of Directors received letters from counsel
for two Dendreon stockholders claiming damage to the Company
from alleged wrongful disclosure and insider trading
F-27
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and demanding that the Board investigate and take legal action
against certain Dendreon officers and directors. The wrongful
disclosure allegations relate to the Companys BLA filed
with the FDA for Provenge. These potential claims are not
against the Company. A committee of the Companys Board of
Directors which has responsibility to consider an appropriate
response to the letters has advised counsel for the two
stockholders that it will consider an appropriate response after
it is determined whether the Court in Loh v. Gold
will require that the plaintiff stockholder in that action
must make a demand on the Board before proceeding with the
derivative lawsuit.
Management currently believes that resolving these matters,
individually or in aggregate, will not have a material adverse
effect on our financial position, our results of operations, or
our cash flows. However, these matters are subject to inherent
uncertainties and the actual cost, as well as the distraction
from the conduct of our business, will depend upon many unknown
factors and managements view of these may change in the
future. Thus, these matters could result in a material adverse
effect on our business, financial condition and results of
operations.
|
|
13.
|
EMPLOYEE
BENEFIT PLAN
|
We have a 401(k) plan for our employees who meet eligibility
requirements. Eligible employees may contribute up to
60 percent of their eligible compensation, subject to
Internal Revenue Service limitations.
Our contributions to the plans are discretionary as determined
by the Board of Directors. We match employee contributions fifty
cents for each dollar, up to a maximum of $4,000 per employee
per year in 2009 and $2,000 per employee per year in 2008 and
2007. Employer contributions in 2009, 2008 and 2007 were
$681,210, $311,000, and $361,000, respectively.
On May 8, 2007, we received a Complete Response Letter from
the FDA regarding our BLA. In its letter, the FDA requested
additional clinical data in support of the efficacy claim
contained in the BLA, as well as additional information with
respect to the CMC section of the BLA. As a result, our Board of
Directors, on May 16, 2007, approved the reduction of
personnel who were focused on the near term commercialization
activities of Provenge. As a result of the realignment, we
reduced our workforce by approximately 18%, or 40 positions. We
incurred a total of $1.9 million in restructuring charges
for employee severance, outplacement costs, contract termination
costs and non-cash compensation due to the accelerated vesting
of options and restricted stock awards of certain employees. Of
the total $1.9 million in restructuring charges,
approximately $1.5 million was included in research and
development expenses and approximately $409,000 was included in
general and administrative expenses. In September 2007, we
incurred additional restructuring costs of approximately
$442,000. Substantially all costs related to the September 2007
restructuring were recognized as research and development
expenses. There were no restructuring expenses incurred or paid
during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Accrued in
|
|
|
Paid in
|
|
|
|
|
|
As of
|
|
|
Paid in
|
|
|
|
|
|
As of
|
|
Restructuring Charges
|
|
2007
|
|
|
2007
|
|
|
Adjustments
|
|
|
12/31//07
|
|
|
2008
|
|
|
Adjustments
|
|
|
12/31//08
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Severance and outplacement costs
|
|
$
|
1,871
|
|
|
$
|
(1,508
|
)
|
|
$
|
(29
|
)
|
|
$
|
334
|
|
|
$
|
(295
|
)
|
|
$
|
(39
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
|
300
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
199
|
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,370
|
|
|
$
|
(2,007
|
)
|
|
$
|
(29
|
)
|
|
$
|
334
|
|
|
$
|
(295
|
)
|
|
$
|
(39
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
QUARTERLY
INFORMATION (UNAUDITED)
|
The following table summarizes the unaudited statement of
operations for each quarter of 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands, except per share amounts)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
21
|
|
Total operating expenses
|
|
|
17,014
|
|
|
|
20,929
|
|
|
|
25,795
|
|
|
|
36,404
|
|
Loss from operations
|
|
|
(16,984
|
)
|
|
|
(20,904
|
)
|
|
|
(25,770
|
)
|
|
|
(36,383
|
)
|
Net loss(a)
|
|
|
(15,384
|
)
|
|
|
(126,717
|
)
|
|
|
(45,551
|
)
|
|
|
(32,509
|
)
|
Basic and diluted net loss per share
|
|
|
(0.16
|
)
|
|
|
(1.20
|
)
|
|
|
(0.40
|
)
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands, except per share amounts)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
31
|
|
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
28
|
|
Total operating expenses
|
|
|
19,153
|
|
|
|
18,613
|
|
|
|
17,285
|
|
|
|
15,538
|
|
Loss from operations
|
|
|
(19,122
|
)
|
|
|
(18,587
|
)
|
|
|
(17,259
|
)
|
|
|
(15,510
|
)
|
Net loss(b)
|
|
|
(19,516
|
)
|
|
|
(16,514
|
)
|
|
|
(26,777
|
)
|
|
|
(8,837
|
)
|
Basic and diluted net loss per share
|
|
|
(0.23
|
)
|
|
|
(0.18
|
)
|
|
|
(0.29
|
)
|
|
|
(0.09
|
)
|
|
|
|
(a) |
|
Net loss during the quarters ended June 30, 2009 and
September 30, 2009 includes loss from warrant valuation of
$105.8 million and $19.4 million, respectively. Net
loss during the quarters ended March 31, 2009 and
December 31, 2009 includes gain from warrant valuation of
$2.4 million and $4.0 million, respectively. |
|
(b) |
|
Net loss during the quarter ended September 30, 2008
includes loss from warrant valuation of $9.1 million. Net
loss during the quarter ended June 30, 2008 and
December 31, 2008 includes gains from warrant valuation of
$2.4 million and $7.1 million, respectively. |
F-29