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EX-3.1 - Talon Therapeutics, Inc. | v177968_ex3-1.htm |
EX-23.1 - Talon Therapeutics, Inc. | v177968_ex23-1.htm |
EX-31.1 - Talon Therapeutics, Inc. | v177968_ex31-1.htm |
EX-32.1 - Talon Therapeutics, Inc. | v177968_ex32-1.htm |
EX-31.2 - Talon Therapeutics, Inc. | v177968_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended: December 31, 2009
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For the
transition period from: _____________ to _____________
Hana
Biosciences, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
1-32626
|
32-0064979
|
(State
or Other Jurisdiction
|
(Commission
|
(I.R.S.
Employer
|
of
Incorporation or Organization)
|
File
Number)
|
Identification
No.)
|
7000
Shoreline Ct., Suite 370, South San Francisco 94080
(Address
of Principal Executive Office) (Zip Code)
(650)
588-6404
(Registrant’s
telephone number, including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common stock, $0.001 par
value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨
No x
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 x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨
No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer ¨ Accelerated
filer ¨
Non-accelerated filer ¨ Smaller reporting
company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No x
The
approximate aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant was $15,282,141 as of June 30,
2009, based on the last sale price of the registrant’s common stock as reported
on the OTC Bulletin Board on such date..
As of
March 24, 2010, there were 79,649,976 shares of the registrant’s common
stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of our definitive Proxy Statement for our 2010 Annual Meeting of Shareholders
(the “2010 Proxy Statement”) are incorporated by reference into Part III of this
Form 10-K, to the extent described in Part III. The 2010 Proxy Statement will be
filed within 120 days after the end of the fiscal year ended December 31,
2009.
TABLE
OF CONTENTS
|
Page
|
|
PART
I
|
||
Item
1
|
Business
|
4
|
Item
1A
|
Risk
Factors
|
19
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Item
1B
|
Unresolved
Staff Comments
|
32
|
Item
2
|
Properties
|
32
|
Item
3
|
Legal
Proceedings
|
32
|
Item
4
|
Reserved
and removed
|
32
|
PART
II
|
||
Item
5
|
Market
for Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
|
33
|
Item
6
|
Selected
Financial Data
|
33
|
Item
7
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
34
|
Item
7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
41
|
Item
8
|
Financial
Statements and Supplementary Data
|
41
|
Item
9
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
41
|
Item
9A
|
Controls
and Procedures
|
41
|
Item
9B
|
Other
Information
|
42
|
PART
III
|
||
Item
10
|
Directors,
Executive Officers, and Corporate Governance
|
43
|
Item
11
|
Executive
Compensation
|
43
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
43
|
Item
13
|
Certain
Relationships, Related Transactions and Director
Independence
|
44
|
Item
14
|
Principal
Accountant Fees and Services
|
44
|
PART
IV
|
||
Item
15
|
Exhibits
and Financial Statements Schedules
|
45
|
Signatures
|
47
|
|
Index
to Financial Statements
|
F-1
|
2
FORWARD-LOOKING
STATEMENTS
This
Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Any statements about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and may be forward-looking. These forward-looking statements include, but are
not limited to, statements about:
·
|
the development of our drug
candidates, including when we expect to undertake, initiate and complete
clinical trials of our product
candidates;
|
·
|
the regulatory approval of our
drug candidates;
|
·
|
our use of clinical research
centers and other
contractors;
|
·
|
our ability to find collaborative
partners for research, development and commercialization of potential
products;
|
·
|
acceptance of our products by
doctors, patients or payors and the availability of reimbursement for our
product candidates;
|
·
|
our ability to market any of our
products;
|
·
|
our history of operating
losses;
|
·
|
our ability to secure adequate
protection for our intellectual
property;
|
·
|
our ability to compete against
other companies and research
institutions
|
·
|
the effect of potential strategic
transactions on our
business;
|
·
|
our ability to attract and retain
key personnel;
|
·
|
the volatility of our stock
price; and
|
·
|
other risks and uncertainties
detailed in “ Risk
Factors ” in Item 1A
if this report.
|
These
statements are often, but not always, made through the use of words or phrases
such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,”
“expect,” “believe” “intend” and similar words or phrases. For such statements,
we claim the protection of the Private Securities Litigation Reform Act of 1995.
Readers of this Annual Report on Form 10-K are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the time
this Annual Report on Form 10-K was filed with the Securities and Exchange
Commission, or SEC. These forward-looking statements are based largely on our
expectations and projections about future events and future trends affecting our
business, and are subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated in the forward-looking
statements. Discussions containing these forward-looking statements may be found
throughout this Form 10-K, including Part I, the sections entitled “Item 1:
Description of Business” as well as “Item 1A: Risk Factors” and Part II, the
sections entitled “Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations or Plan of Operations.” These
forward-looking statements involve risks and uncertainties, including the risks
discussed in Part 1 of this form in the section entitled “Item 1A: Risk
Factors,” that could cause our actual results to differ materially from those in
the forward-looking statements. Except as required by law, we undertake no
obligation to publicly revise our forward-looking statements to reflect events
or circumstances that arise after the filing of this Annual Report on Form 10-K
or documents incorporated by reference herein that include forward-looking
statements. The risks discussed in this report should be considered in
evaluating our prospects and future financial performance.
In
addition, past financial or operating performance is not necessarily a reliable
indicator of future performance and you should not use our historical
performance to anticipate results or future period trends. We can give no
assurances that any of the events anticipated by the forward-looking statements
will occur or, if any of them do, what impact they will have on our results of
operations and financial condition.
References
to the “Company,” “Hana,” the “Registrant,” “we,” “us,” or “our” in this Annual
Report on Form 10-K refer to Hana Biosciences, Inc., a Delaware corporation,
unless the context indicates otherwise. Marqibo® is our U.S. registered
trademark for our vincristine sulfate liposomes injections product candidate.
Alocrest™ and Brakiva™ are our trademarks for our vinorelbine liposomes
injection and topotecan liposomes injection product candidates, respectively.
Optisome™ is our trademark for our liposome encapsulation technology, which we
currently utilize with respect to our Marqibo, Alocrest and Brakiva product
candidates. We have applied for registration for our Alocrest, Brakiva and
Optisome trademarks, and for our Hana Biosciences logo, in the United States.
All other trademarks and trade names mentioned in this Annual Report on Form
10-K are the properties of their respective owners.
3
PART
I
ITEM
1. BUSINESS
Overview
We are a
South San Francisco, California-based biopharmaceutical company dedicated to
developing and commercializing new and differentiated cancer therapies
designed to improve and enable current standards of care. Our two
lead product candidates target large markets. We are developing
Marqibo for the treatment of acute lymphoblastic leukemia and other blood
cancers including lymphoma. Menadione topical lotion is a
first-in-class compound that we are developing for the potential prevention
and/or treatment of skin toxicity associated with epidermal growth factor
receptor inhibitors. We have additional pipeline opportunities that,
like Marqibo, we believe may improve delivery and enhance the therapeutic
benefits of well-characterized, proven chemotherapies and enable high potency
dosing without increased toxicity.
Our
executive offices are located at 7000 Shoreline Court, Suite 370, South San
Francisco, California 94080. Our telephone number is (650) 588-6404 and our
Internet address is www.hanabiosciences.com
. We were originally incorporated under Delaware law in 2002 under the name
Hudson Health Sciences, Inc. In July 2004, we acquired Email Real Estate.com,
Inc., a Colorado corporation and public shell company in a reverse
acquisition. In September 2004, we reincorporated under Delaware law
under the name Hana Biosciences, Inc.
Our
Research and Development Programs
We
currently have rights to the following product candidates in various stages of
development.
·
|
Marqibo®
(vincristine sulfate liposomes injection), our lead product candidate, is
a novel, targeted Optisome™ encapsulated formulation product candidate of
the FDA-approved anticancer drug vincristine, currently in development
primarily for the treatment of adult acute lymphoblastic leukemia, or
ALL.
|
·
|
Menadione Topical Lotion, a novel
supportive care product candidate being developed for the prevention
and/or treatment of the skin toxicities associated with the use of
epidermal growth factor receptor inhibitors, or EGFRIs, a type of
anti-cancer agent used in the treatment of lung, colon, head and neck,
pancreatic and breast
cancer.
|
·
|
Brakiva™ (topotecan liposomes
injection), a novel targeted Optisome™ encapsulated formulation product
candidate of the FDA-approved anticancer drug topotecan, being developed
for the treatment of solid tumors including small cell lung cancer and
ovarian cancer.
|
·
|
Alocrest™ (vinorelbine liposomes
injection), a novel, targeted Optisome™ encapsulated formulation product
candidate of the FDA-approved anticancer drug
vinorelbine.
|
Pursuant
to a license agreement originally entered into with NovaDel Pharma, Inc. in
October 2004, we also maintain certain rights to Zensana (ondansetron HCI) Oral
Spray, which is being developed to alleviate chemotherapy and radiation-induced
and post-operative nausea and vomiting. In July 2007, we sublicensed
our rights to develop and commercialize Zensana to Par Pharmaceutical, Inc. in
exchange for upfront payment and other future consideration, including
royalties.
Industry
Background and Market Opportunity
Cancer is
a group of diseases characterized by either the uncontrolled growth of cells or
the failure of cells to function normally. Cancer is caused by a series of
mutations, or alterations, in genes that control cells’ ability to grow and
divide. These mutations cause cells to rapidly and continuously divide or lose
their normal ability to die. There are more than 100 different varieties of
cancer, which can be divided into six major categories. Carcinomas, the most
common category, include breast, lung, colorectal and prostate cancer. Sarcomas
begin in tissue that connects, supports or surrounds other tissues and organs.
Lymphomas are cancers of the lymphatic system, a part of the body’s immune
system. Leukemias are cancers of blood cells, which originate in the bone
marrow. Brain tumors are cancers that begin in the brain, and skin cancers,
including melanomas, originate in the skin. Cancers are considered metastatic if
they spread via the blood or lymphatic system to other parts of the body to form
secondary tumors.
According
to the American Cancer Society, nearly 1.5 million new cases of cancer were
expected to be diagnosed in 2009 in the United States alone. Cancer is the
second leading cause of death, after heart disease, in the United States, and
was expected to account for more than 562,000 deaths in 2009.
Major cancer treatments include surgery, radiotherapy and chemotherapy.
Supportive care, such as blood cell growth factors, represents another major
segment of the cancer treatment market. There are many different drugs that are
used to offer supportive care and to treat cancer, including cytotoxics or
antineoplastics, hormones and biologics. Major categories
include:
4
·
|
Chemotherapy. Cytotoxic chemotherapy refers
to anticancer drugs that destroy cancer cells by stopping them from
multiplying. Healthy cells can also be harmed with the use of cytotoxic
chemotherapy, especially those that divide quickly. Cytotoxic agents act
primarily on macromolecular synthesis, repair or activity, which affects
the production or function of DNA, RNA or proteins. Our product candidates
Marqibo, Alocrest and Brakiva are liposome encapsulated cytotoxic agents
that we are currently evaluating for the treatment of solid tumor and
hematological malignancies.
|
·
|
Supportive
care. Cancer
treatment can include the use of chemotherapy, radiation therapy, biologic
response modifiers, surgery or some combination of these or other
therapeutic options. All of these treatment options are directed at
killing or eradicating the cancer that exists in the patient’s body.
Unfortunately, the delivery of many cancer therapies adversely affects the
body’s normal organs. These complications of treatment or side effects not
only cause discomfort, but may also prevent the optimal delivery of
therapy to a patient at its maximal dose and time. Our product
candidate Menadione Topical Lotion is a supportive care product candidate
designed to treat and prevent skin toxicities associated with the use of
EGFRIs, a class of anti-cancer
agents.
|
Our
Strategy
We are a
committed to developing and commercializing new, differentiated cancer therapies
designed to improve and enable current standards of care. Key aspects of our
strategy include:
·
|
Focus on developing innovative
cancer therapies. We focus on oncology product candidates in order
to capture efficiencies and economies of scale. We believe that drug
development for cancer markets is particularly attractive because
relatively small clinical trials can provide meaningful information
regarding patient response and safety. Our main focus is the development
of Marqibo, our lead product
candidate.
|
·
|
Build a
sustainable pipeline by employing multiple therapeutic approaches and
disciplined decision criteria based on clearly defined proof of principle
goals. We seek to
build a sustainable product pipeline by employing multiple therapeutic
approaches and by acquiring product candidates belonging to known drug
classes. In addition, we employ disciplined decision criteria to assess
product candidates. By pursuing this strategy, we seek to minimize our
clinical development risk and accelerate the potential commercialization
of current and future product candidates. For a majority of our
product candidates, we intend to pursue regulatory approval in
multiple indications.
|
Product
Pipeline
Background
of Optisomal Targeted Drug Delivery
Optisomal
encapsulation is a novel method of liposomal drug delivery, which is designed to
significantly increase tumor targeting and duration of exposure for cell-cycle
specific anticancer agents. Optisomal drug delivery consists of using a generic
FDA-approved cancer agent, such as vincristine, encapsulated in a lipid envelope
composed of a unique, sphingomyelin/cholesterol composition. The encapsulated
agent is carried through the bloodstream and delivered to disease sites where it
is released to carry out its therapeutic action. When used in unencapsulated
form, chemotherapeutic drugs diffuse indiscriminately throughout the body,
diluting drug effectiveness and potentially causing toxic side effects in the
patient’s healthy tissues. Our proprietary Optisomal formulation technology is
designed to permit loading high concentrations of therapeutic agent inside the
lipid envelope, which promotes accumulation of the drug in tumors and prolongs
the drug’s release at disease sites. Non-clinical studies have demonstrated the
Optisomal formulation technology’s ability to deliver dose intensification to
the tumor, which we believe has the potential to increase the therapeutic
benefit of the drug.
·
|
Targeted
delivery with improved pharmacokinetics. In normal tissues, a continuous
endothelial (blood vessel) lining constrains liposomes within capillaries,
limiting accumulation of the drug in the healthy tissues. In contrast, the
immature blood vessel system within tumors is created during tumor growth
and has numerous gaps up to 800 nanometers in size. With an average
diameter of approximately 100 nanometers, Optisomes can pass through these
gaps. Once lodged within the tumor interstitial space, these
Optisomes gradually release the encapsulated drug. We believe that gradual
release of the drug from Optisomes increases drug levels within the tumor,
extends drug exposure through multiple cell cycles, and significantly
increases tumor cell killing. A limited fraction of a patient’s tumor
cells are in a particular drug-sensitive phase at any point in time, which
we believe indicates that duration of drug exposure is critical to
increased drug efficacy.
|
·
|
Increased
drug concentration.
The link between drug exposure and anti-tumor efficacy is especially
pronounced for cell cycle-specific agents such as vincristine, vinorelbine
and topotecan, which destroy tumor cells by interfering in one specific
phase in cell division (e.g., the mitosis, synthesis and/or rapid growth
phases).
|
5
·
|
Prolonged
exposure. The
advanced liposomal technology of the capsule which protects the active
drug increases the circulating half-life and is designed to extend the
duration of drug release within cancerous
tissues.
|
6
Unmet
Medical Needs in ALL
ALL is a
type of cancer of the blood and bone marrow, the spongy tissue inside bones
where blood cells are made. Acute leukemias progress rapidly and are
characterized by the accumulation of immature blood cells. ALL affects a group
of white blood cells, called lymphocytes, which fight infection and constitute
our immune systems. Normally, bone marrow produces immature cells or stem cells,
in a controlled way, and they mature and specialize into the various types of
blood cells, as needed. In people with ALL, this production process breaks down.
Abnorally large numbers of immature, abnormal lymphocytes called lymphoblasts
are produced and released into the bloodstream. These abnormal cells are not
able to mature and perform their usual functions. Furthermore, they multiply
rapidly and can crowd out healthy blood cells like neutrophils and platelets,
leaving an adult or child with ALL vulnerable to infection or bleeding. Leukemic
cells can also collect in certain areas of the body, including the central
nervous system and spinal cord, which can cause serious problems. According to
the American Cancer Society, almost 6,000 people in the United States over the
age of 15 were expected to be diagnosed with ALL in 2009, and over 1,400 people
were expected to die. Multiple clinical trials have suggested the overall
survival rate for adults diagnosed with ALL is approximately 20% to 50%,
underscoring the need for new therapeutic options.
Marqibo
® (vincristine sulfate liposomes injection)
Marqibo
is a novel, targeted Optisome™ encapsulated formulation product candidate of the
FDA-approved anticancer drug vincristine that we are primarily developing for
the treatment of adult ALL.
This encapsulation is designed to provide prolonged circulation of the drug in
the blood and accumulation at the tumor site. These characteristics are intended
to increase the effectiveness and potentially reduce the side effects of the
encapsulated drug. Vincristine, a microtubule inhibitor, is FDA-approved for ALL
and is widely used as a single agent and in combination regimens for treatment
for hematologic malignancies such as lymphomas and leukemias.
Marqibo
has been evaluated in 15 clinical trials with over 600 patients, including Phase
2 clinical trials in patients with non-Hodgkin’s lymphoma, or NHL and ALL. Based
on the results from these studies, we conducted a global, Phase 2 clinical trial
of Marqibo in adult Philadelphia chromosome negative ALL patients in second
relapse, or those who have progressed following two prior lines of anti-leukemia
therapy. We refer to this clinical trial as the rALLy
study. The primary outcome measure was complete remission or CR, or
complete remission without full hematologic recovery, or CRi. The
sample size is 56 evaluable subjects from up to 50 sites. In August 2009, we
announced achievement of our enrollment goal of 56 evaluable
subjects. We chose to exceed the enrollment target to collect a more
robust pharmacokinetic data set and in December 2009, we completed enrollment of
the study total of 65 evaluable patients. In December 2009, we
announced top-line data on the first 56 patients enrolled in the
trial. The analysis demonstrated that of the first 56 patients dosed,
the overall response rate was 36% with 12 patients or 21% achieving a CR or
CRi. The estimated median overall survival in responders was 7.3
months. Subject to the final results of the rALLy study, we plan to
initiate a rolling submission NDA filing seeking accelerated approval of Marqibo
for the treatment of ALL in the second half of 2010. We also plan to conduct a
confirmatory Phase 3 study of Marqibo.
In
addition, we are conducting a Phase 2 study to assess the efficacy of Marqibo in
patients with metastatic malignant uveal melanoma as determined by Disease
Control Rate (CR, partial response or durable stable disease). Secondary
objectives are to assess the safety and antitumor activity of Marqibo as
determined by response rate, progression free survival and overall survival. In
addition, patients undergo continuous electrocardiographic evaluation during the
first dose of Marqibo exposure. The patient population is
defined as adults with uveal melanoma and confirmed metastatic disease that is
untreated. We have enrolled 3 subjects to date and plan to enroll up to a
total of approximately 20 subjects in this clinical trial.
Marqibo
received a U.S. orphan drug designation in January 2007 as well as a European
Commission orphan drug designation in June 2008 for the ALL indication. Marqibo
also received a U.S. orphan drug designation in July 2008 for metastatic uveal
melanoma. Marqibo received a fast track designation from the FDA in August 2007
for the treatment of adult ALL.
7
Menadione
Topical Lotion (Supportive Care Product)
Menadione
Topical Lotion, which we licensed from the Albert Einstein College of Medicine,
or AECOM, in October 2006, is a novel, product candidate under development for
the treatment and/or prevention of skin rash associated with the use of EGFR
inhibitors in the treatment of certain cancers. EGFR inhibitors, which include
Tarceva, Erbitux, Iressa, Tykerb and Vectibix, are currently approved to treat
non-small cell lung cancer, pancreatic, colorectal, breast and head and neck
cancer. EGFR inhibitors are associated with significant skin toxicities
presenting as acne-like rash on the face, neck and upper-torso of the body in
approximately 75% of patients. Fifty percent of patients who
manifest skin toxicity experience significant discomfort. This results in
discontinuation or dose reduction in at least 10% and up to 30% of patients that
receive the EGFR inhibitor. Menadione, a small organic molecule, has
been shown to activate the EGFR signaling pathway by inhibiting phosphatase
activity which is an important enzyme in the EGFR pathway. In vivo studies have
suggested that topically-applied Menadione may restore EGFR signaling
specifically in the skin of patients treated systemically with EGFR inhibitors.
Currently, there are no FDA-approved products or therapies available to treat
these skin toxicities. We completed a Phase 1 clinical trial in cancer patients
in December 2009 and another Phase 1 study in healthy volunteers in September
2008. We are currently analyzing data from this study and plan to
release the results in mid-2010.
Brakiva™
(topotecan liposomes injection)
Brakiva
is our proprietary product candidate comprised of the anti-cancer drug topotecan
encapsulated in Optisomes. Topotecan is FDA-approved for the treatment of
metastatic carcinoma of the ovary after failure of initial or subsequent
chemotherapy, and small cell lung cancer sensitive disease after failure of
first-line chemotherapy. In November 2008, we initiated a Phase
1 dose-escalation clinical trial of Brakiva, which is primarily
designed to assess the safety, tolerability and maximum tolerated
dose.
Alocrest™
(vinorelbine liposomes injection)
Alocrest
is a novel Optisomal encapsulated formulation product candidate of the
FDA-approved drug vinorelbine, a microtubule inhibitor for use as a single agent
or in combination with cisplatin for the first-line treatment of unresectable,
advanced non-small cell lung cancer. In February 2008, we completed enrollment
in a Phase 1 study of Alocrest. The trial enrolled 30 adult subjects with
confirmed solid tumors refractory to standard therapy or for which no standard
therapy was known to exist. The objectives of the Phase 1 clinical trial were:
(1) to assess the safety and tolerability of Alocrest; (2) to determine the
maximum tolerated dose of Alocrest; (3) to characterize the pharmacokinetic
profile of Alocrest; and (4) to explore preliminary efficacy of Alocrest. The
study was conducted at the Cancer Therapy and Research Center and South Texas
Accelerated Research Therapeutics (START), both located in San Antonio, Texas
and at McGill University in Montreal. Reversible neutropenia, a low white
blood cell count, was the dose-limiting toxicity. The results of this study
revealed expected toxicity, and a 50% disease control rate was achieved across a
range of doses in patients with previously treated, advanced
cancers.
License
Agreements
Marqibo,
Alocrest and Brakiva
In May
2006, we completed a transaction with Tekmira Pharmaceuticals Corporation,
formerly Inex Pharmaceuticals Corporation, pursuant to which we acquired
exclusive, worldwide rights to develop and commercialize Marqibo, Alocrest and
Brakiva, which we collectively refer to as the Optisome products. The following
is a summary of the various agreements entered into to consummate the
transaction.
Tekmira
License Agreement
Pursuant
to the terms of a license agreement dated May 6, 2006, which was amended and
restated on April 30, 2007, between us and Tekmira, Tekmira granted
us:
·
|
an exclusive license under
certain patents held by Tekmira to commercialize the Optisome products for
all uses throughout the
world;
|
·
|
an exclusive license under
certain patents held by Tekmira to commercialize the Optisome products for
all uses throughout the world under the terms of certain research
agreements between Tekmira and the British Columbia Cancer Agency, or
BCCA; and
|
·
|
an exclusive license to all
technical information and know-how relating to the technology claimed in
the patents held exclusively by Tekmira and to all confidential
information possessed by Tekmira relating to the Optisome products,
including all data, know-how, manufacturing information, specifications
and trade secrets, collectively called the Tekmira Technology, to
commercialize the Optisome products for all uses throughout the
world.
|
We have
the right to grant sublicenses to third parties and in such event we and Tekmira
will share sublicensing revenue received by us at varying rates for each
Optisome product depending on such Optisome product’s stage of clinical
development. Under the license agreement, we also granted back to Tekmira
a limited, royalty-free, non-exclusive license in certain patents and
technology owned or licensed to us solely for use in developing and
commercializing liposomes having an active agent encapsulated, intercalated or
entrapped therein.
We and
Tekmira entered into an amendment to the license agreement in June 2009. The
amendment is summarized as follows:
·
|
As amended, the amount of the
milestone payment required to be made by the Company to Tekmira upon the
FDA’s approval of a Marqibo NDA was
increased.
|
8
·
|
The
original license agreement previously required us to make milestone
payments upon the dosing of the first patient in any clinical trial of
each of Alocrest and Brakiva. Following the amendment, such
milestones are payable following the FDA’s acceptance for review of an NDA
for such product candidates. In addition, the milestone
payments payable under the license agreement upon the FDA’s approval of an
NDA for Alocrest and Brakiva were both increased in
amount.
|
·
|
Tekmira’s
share of any payments received by us from third parties in consideration
of sublicenses granted to such third parties or for royalties received by
us from such third parties was
reduced.
|
·
|
The maximum aggregate amount of
milestone payments for all product candidates was increased from $30.5
million to $37.0 million.
|
As a
result of this amendment, the Company reversed recognition of a previously
accrued milestone payment to Tekmira which was achieved upon the enrollment of
the first patient in the Company’s Phase 1 clinical trial in
Brakiva
At our
option, the milestones may be paid in cash or, subject to certain restrictions,
shares of our common stock. In addition to the milestone payments, we agreed to
pay royalties to Tekmira in the range of 5% to 10% based on net sales of the
Optisome products, against which we may offset a portion of the research and
development expenses we incur. In addition to our obligations to make milestone
payments and pay royalties to Tekmira, we also assumed all of Tekmira’s
obligations to its licensors and collaborators relating to the Optisome
products, which include aggregate milestone payments of up to $2.5 million,
annual license fees and additional royalties.
The
license agreement provides that we will use our commercially reasonable efforts
to develop each Optisome product, including causing the necessary and
appropriate clinical trials to be conducted in order to obtain and maintain
regulatory approval for each Optisome product and preparing and filing the
necessary regulatory submissions for each Optisome product. We also agreed to
provide Tekmira with periodic reports concerning the status of each Optisome
product.
We are
required to use commercially reasonable efforts to commercialize each Optisome
product in each jurisdiction where an Optisome product has received regulatory
approval. We will be deemed to have breached our commercialization obligations
in the United States, or in Germany, the United Kingdom, France, Italy or Spain,
if for a continuous period of 180 days at any time following commercial sales of
an Optisome product in any such country, no sales of an Optisome product are
made in the ordinary course of business in such country by us (or a
sublicensee), unless the parties agree to such delay or unless we are prohibited
from making sales by a reason beyond our control. If we breach this obligation,
then Tekmira is entitled to terminate the license with respect to such Optisome
product and for such country.
Under the
license agreement, Tekmira will be the owner of patents and patent applications
claiming priority to certain patents licensed to us, and we have an obligation
to assign to Tekmira our rights to inventions covered by such patents or patent
applications, and, when negotiating any joint venture, collaborative research,
development, commercialization or other agreement with a third party, to require
such third party to do the same.
The
prosecution and maintenance of the licensed patents will be overseen by an IP
committee having equal representation from us and Tekmira. We will have the
right and obligation to file, prosecute and maintain most of the licensed
patents, although Tekmira maintained primary responsibility to prosecute certain
of the licensed patents. The parties agreed to share the expenses of
prosecution at varying rates. We also have the first right, but not
the obligation, to enforce such licensed patents against third party infringers,
or to defend against any infringement action brought by any third
party.
We agreed
to indemnify Tekmira for all losses resulting from our breach of our
representations and warranties, or other default under the license agreement,
our breach of any regulatory requirements, regulations and guidelines in
connection with the Optisome products, complaints alleging infringement against
Tekmira with respect to our manufacture, use or sale of an Optisome product, and
any injury or death to any person or damage to property caused by any Optisome
product provided by us or our sublicensee, except to the extent such losses are
due to Tekmira’s breach of a representation or warranty, Tekmira’s default under
the agreement, and the breach by Tekmira of any regulatory requirements,
regulations and guidelines in connection with licensed patent and related
know-how. Tekmira has agreed to indemnify us for losses arising from Tekmira’s
breach of representation or warranty, Tekmira’s default under the agreement, and
the breach by Tekmira of any regulatory requirements, regulations and guidelines
in connection with licensed patent and related know-how, except to the extent
such losses are due to our breach of our representations and warranties, our
default under the agreement, our breach of any regulatory requirements,
regulations and guidelines in connection with the Optisome products, complaints
alleging infringement against Tekmira with respect to our manufacture, use or
sale of an Optisome product, and any injury or death to any person or damage to
property caused by any Optisome product provided by us or our
sublicensee.
Unless
terminated earlier, the license grants made under the license agreement expire
on a country-by-country basis upon the later of (i) the expiration of the last
to expire patents covering each Optisome product in a particular country, (ii)
the expiration of the last to expire period of product exclusivity covered by an
Optisome product under the laws of such country, or (iii) with respect to the
Tekmira Technology, on the date that all of the Tekmira Technology ceases to be
confidential information. The covered issued patents are scheduled to expire
between 2014 and 2021.
9
Either we
or Tekmira may terminate the license agreement in the event that the other has
materially breached its obligations thereunder and fails to remedy such breach
within 90 days following notice by the non-breaching party. If such breach is
not cured, then the non-breaching party may, upon 6 months’ notice to the
breaching party, terminate the license in respect of the Optisome products or
countries to which the breach relates. Tekmira may also terminate the license if
we assert or intend to assert any invalidity challenge on any of the patents
licensed to us. The license agreement also provides that either party may, upon
written notice, terminate the agreement in the event of the other’s bankruptcy,
insolvency, dissolution or similar proceeding. In the event Tekmira validly
terminates the license agreement, all data, materials, regulatory filings and
all other documentation reverts to Tekmira.
In April
2007, Tekmira assigned to us its right and interest in and to a Patent and
Technology License Agreement dated February 14, 2000 between Tekmira and M.D.
Anderson Cancer Center. As assigned to us, this agreement grants to
us a royalty-bearing license to certain patents relating to Marqibo that are
owned by M.D. Anderson. As consideration for the license, we are
required to pay to M.D. Anderson royalties on net sales of Marqibo, as well as
an annual maintenance fee. The M.D. Anderson license provides that we
have the first right to prosecute and maintain the licensed patents at our
expense. In addition, we also have the first right to control any
infringement claims against third parties. The M.D. Anderson license will be
automatically terminated in the event we become bankrupt or insolvent, and may
be terminated by M.D. Anderson in the event we default on our obligations under
the agreement.
UBC
Sublicense Agreement
In May
2006, we also entered into a sublicense agreement with Tekmira relating to
Tekmira’s rights to certain patents it licensed from the University of British
Columbia, or UBC. Under the UBC sublicense agreement, Tekmira granted to us an
exclusive, worldwide sublicense under several patents relating to Alocrest and
Brakiva, together with all knowledge, know-how, and techniques relating to such
patents, called the UBC Technology. The UBC Technology is owned by UBC and
licensed to Tekmira pursuant to a license agreement dated July 1, 1998. The UBC
sublicense agreement provides that we will undertake all of Tekmira’s
obligations contained in Tekmira’s license agreement with UBC, which includes
the payment of royalties (in addition to the royalties owing to Tekmira under
the license agreement between Tekmira and us) and an annual license fee. The
provisions of the UBC sublicense agreement relating to our obligation to develop
and commercialize the UBC Technology, termination and other material obligations
are substantially similar to the terms of license agreement between Tekmira and
us, as discussed above.
Assignment
of Agreement with Elan Pharmaceuticals, Inc.
Pursuant
to an Amended and Restated License Agreement dated April 3, 2003, between
Tekmira (including two of its wholly-owned subsidiaries) and Elan
Pharmaceuticals, Inc., Tekmira held a paid up, exclusive, worldwide license to
certain patents, know-how and other intellectual property relating to
vincristine sulfate liposomes. In connection with our transaction with Tekmira,
Tekmira assigned to us all of its rights under the Elan license agreement
pursuant to an Assignment and Novation Agreement dated May 6, 2006 among us,
Tekmira and Elan.
As
assigned to us, the Elan license agreement provides that Elan will own all
improvements to the licensed patents or licensed know-how made by us or our
sublicensees, which will in turn be licensed to us as part of the technology we
license from Elan. Elan has the first right to file, prosecute and maintain all
licensed patents and we have the right to do so if Elan decides that it does not
wish to do so only pertaining to certain portions of the technology. Elan also
has the first right to enforce such licensed patents and we may do so only if
Elan elects not to enforce such patents. In addition, Elan has the right but not
the obligation to control any infringement claim brought against
Elan.
We have
indemnification obligations to Elan for all losses arising from the research,
testing, manufacture, transport, packaging, storage, handling, distribution,
marketing, advertising, promotion or sale of the products by us, our affiliates
or sublicensees, any personal injury suits brought against Elan, any
infringement claim, certain third party agreements entered into by Elan, and any
acts or omissions of any of our sublicensees.
The Elan
license agreement, unless earlier terminated, will expire on a country by
country basis, upon the expiration of the life of the last to expire licensed
patent in that country. Elan may terminate the Elan license agreement earlier
for our material breach upon 60 days’ written notice if we do not cure such
breach within such 60 day period (we may extend such cure period for up to 90
days if we propose a course of action to cure the breach within the initial
60 day period and act in good faith to cure such breach), for our bankruptcy or
going into liquidation upon 10 days’ written notice, or immediately if we, or
our sublicense, directly or indirectly disputes the ownership, scope or validity
of any of the licensed technology or support any such attack by a third
party.
10
Menadione
In
October 2006, we entered into a license agreement with the Albert Einstein
College of Medicine of Yeshiva University, a division of Yeshiva University, or
the College. Pursuant to the agreement, we acquired an exclusive, worldwide,
royalty-bearing license to certain patent applications, and other intellectual
property relating to topical menadione. We are required to make milestone
payments in the aggregate amount of $2.8 million upon the achievement of various
clinical and regulatory milestones, as described in the agreement. We also
agreed to pay annual maintenance fees, and to make royalty payments to the
College on net sales of any products covered by a claim in any licensed patent.
We may also grant sublicenses to the licensed patents and the proceeds resulting
from such sublicenses will be shared with the College.
Zensana ™ (ondansetron HCI) Oral
Spray
Our
rights to Zensana were originally subject to the terms of an October 2004
license agreement with NovaDel Pharma, Inc. under which we obtained a
royalty-bearing, exclusive right and license to develop and commercialize
Zensana within the United States and Canada. Zensana is an oral spray
formulation of the FDA approved drug odansetron. The technology licensed to us
under the license agreement currently covers one United States issued patent,
which expires in March 2022. In consideration for the license, we issued 73,121
shares of our common stock to NovaDel and agreed to make royalty payments to
NovaDel based on a double-digit percentage of “net sales” (as defined in the
agreement). In addition, we purchased from NovaDel (and continue to hold)
400,000 shares of its common stock at a price of $2.50 per share for an
aggregate payment of $1 million.
On July
31, 2007, we entered into a sublicense agreement with Par Pharmaceutical,
Inc. and NovaDel, pursuant to which we granted to Par and its affiliates,
and NovaDel consented to such grant, a royalty-bearing exclusive right and
license to develop and commercialize Zensana within the United States and
Canada. As agreed by us and NovaDel, Par assumed primary responsibility for the
development, regulatory approval by the FDA, and sales and marketing of
Zensana.
As
additional consideration for the sublicense, following regulatory approval of
Zensana, Par is required to pay us an additional one-time payment of $6.0
million, of which $5.0 million is payable by us to NovaDel pursuant to our
obligations under our agreement with NovaDel. In addition, the sublicense
agreement provides for an additional aggregate of $44.0 million in
commercialization milestone payments based upon actual net sales of Zensana in
the United States and Canada, which amounts are not subject to
any corresponding obligations to NovaDel. We will also be entitled to
royalty payments based on net sales of Zensana by Par or any of its affiliates
in such territory, however, the amount of such royalty payments is generally
equal to the same amount of royalties that we will owe NovaDel under the License
Agreement, except to the extent that aggregate net sales of Zensana exceed a
specified amount in the first 5 years following FDA approval of an NDA, in which
case the royalty rate payable to us increases beyond its royalty obligation
to NovaDel.
In order
to give effect to and accommodate the terms of the sublicense agreement with
Par, on July 31, 2007, we and NovaDel amended and restated our original October
2004 license agreement. The primary modifications to the amended and restated
license agreement are as follows:
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|
We relinquished our right under
the original license agreement to reduced royalty rates to NovaDel until
such time as we have recovered one-half of our costs and expenses incurred
in developing Zensana from sales of Zensana or payments or other fees from
a sublicensee;
|
·
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NovaDel surrendered for
cancellation all 73,121 shares of our common stock that it acquired upon
the execution of the original license
agreement;
|
·
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We will have the right, but not
the obligation, to exploit the licensed product in
Canada;
|
·
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We or our sublicensee must
consummate the first commercial sale of the licensed product within 9
months of regulatory approval by the FDA of such product;
and
|
·
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If the sublicense agreement is
terminated, we may elect to undertake further development of
Zensana.
|
Intellectual
Property
General
Patents
and other proprietary rights are very important to the development of our
business. We will be able to protect our proprietary technologies from
unauthorized use by third parties only to the extent that our proprietary rights
are covered by valid and enforceable patents or are effectively maintained as
trade secrets. It is our intention to seek and maintain patent and trade secret
protection for our product candidates and our proprietary technologies. As part
of our business strategy, our policy is to actively file patent applications in
the United States and internationally to cover methods of use, new chemical
compounds, pharmaceutical compositions and dosing of the compounds and
compositions and improvements in each of these. We also rely on trade secret
information, technical know-how, innovation and agreements with third parties to
continuously expand and protect our competitive position. We own, or license the
rights to, a number of patents and patent applications related to our product
candidates, but we cannot be certain that issued patents will be enforceable or
provide adequate protection or that the pending patent applications will issue
as patents.
11
The
patent positions of biotechnology and pharmaceutical companies are highly
uncertain and involve complex legal and factual questions. Therefore, we cannot
predict with certainty the breadth of claims allowed in biotechnology and
pharmaceutical patents, or their enforceability. To date, there has been no
consistent policy regarding the breadth of claims allowed in biotechnology
patents. Third parties or competitors may challenge or circumvent our patents or
patent applications, if issued. If our competitors prepare and file patent
applications in the United States that claim technology also claimed by us, we
may have to participate in interference proceedings declared by the United
States Patent and Trademark Office to determine priority of invention, which
could result in substantial cost, even if the eventual outcome is favorable to
us. Because of the extensive time required for development, testing and
regulatory review of a potential product, it is possible that before we
commercialize any of our product candidates, any related patent may expire or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent.
If
patents are issued to others containing preclusive or conflicting claims and
these claims are ultimately determined to be valid, we may be required to obtain
licenses to these patents or to develop or obtain alternative technology. Our
breach of an existing license or failure to obtain a license to technology
required to commercialize our products may seriously harm our business. We also
may need to commence litigation to enforce any patents issued to us or to
determine the scope and validity of third-party proprietary rights. Litigation
would create substantial costs. An adverse outcome in litigation could subject
us to significant liabilities to third parties and require us to seek licenses
of the disputed rights from third parties or to cease using the technology if
such licenses are unavailable.
Optisomal
product candidates
Pursuant
to our license agreement with Tekmira and related sublicense with UBC, we have
exclusive rights to 13 issued U.S. patents, 77 issued foreign patents, 5 pending
U.S. patent applications and 20 pending foreign applications, covering
composition of matter, method of use and treatment, formulation and process.
These patents and patent applications cover sphingosome based pharmaceutical
compositions including Marqibo, Alocrest and Brakiva, formulation, dosage,
process of making the liposome compositions, and methods of use of the
compositions in the treatment cancer, relapsed cancer, and solid tumors. The
earliest of these issued patents expires in 2014 and the last of the issued
patents expires in 2021.
Menadione
We have
exclusive, worldwide rights to a patent family consisting of 6 pending foreign
patent applications and 1 pending U.S. patent application pursuant to our
October 2006 license agreement with AECOM. These patent applications cover,
pharmaceutical compositions and methods of use (e.g., methods of treating and
preventing a skin rash secondary to an anti-epidermal growth factor receptor
therapy). If any U.S. or foreign patent issues from these applications, such a
patent would be scheduled to expire in 2026, excluding any patent term
extensions.
In
addition, we solely own 2 pending provisional U.S. patent
applications. These applications cover topical formulations of
menadione and methods of use of the formulations. If any U.S. or foreign patent
issues from these applications, such a patent would be scheduled to expire in
2029, excluding any patent term extensions.
Zensana
On July
31, 2007, we entered into a definitive agreement providing for the sublicense of
all our rights to any patents related to Zensana to Par Pharmaceutical, Inc.
See “License Agreements – Zensana.” Under this agreement, Par
Pharmaceutical agreed to take on full responsibility to discharge patent
prosecution and enforcement for all patents related to the Zensana product
candidate.
Other
Intellectual Property Rights
We also
depend upon trademarks, trade secrets, know-how and continuing technological
advances to develop and maintain our competitive position. To maintain the
confidentiality of trade secrets and proprietary information, we require our
employees, scientific advisors, consultants and collaborators, upon commencement
of a relationship with us, to execute confidentiality agreements and, in the
case of parties other than our research and development collaborators, to agree
to assign their inventions to us. These agreements are designed to protect our
proprietary information and to grant us ownership of technologies that are
developed in connection with their relationship with us. These agreements may
not, however, provide protection for our trade secrets in the event of
unauthorized disclosure of such information.
In
addition to patent protection, we may utilize orphan drug regulations to provide
market exclusivity for certain of our product candidates. The orphan drug
regulations of the FDA provide incentives to pharmaceutical and biotechnology
companies to develop and manufacture drugs for the treatment of rare diseases,
currently defined as diseases that exist in fewer than 200,000 individuals in
the United States, or, diseases that affect more than 200,000 individuals in the
United States but that the sponsor does not realistically anticipate will
generate a net profit. Under these provisions, a manufacturer of a designated
orphan drug can seek tax benefits, and the holder of the first FDA approval of a
designated orphan product will be granted a seven-year period of marketing
exclusivity for such FDA-approved orphan product. We believe that certain of the
indications for our product candidates will be eligible for orphan drug
designation; however, we cannot assure you that our drugs will obtain such
orphan drug designation or will be the first to reach the market and provide us
with such market exclusivity protection.
12
Government
Regulation and Product Approval
The FDA
and comparable regulatory agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon the testing (preclinical
and clinical), manufacturing, labeling, storage, recordkeeping, advertising,
promotion, import, export, marketing and distribution, among other things, of
drugs and drug product candidates. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve our
marketing applications or allow us to manufacture or market our products, and we
may be criminally prosecuted. We and our manufacturers may also be subject
to regulations under other United States federal, state, and local
laws.
United
States Government Regulation
In the
United States, the FDA regulates drugs under the FDCA and implementing
regulations. The process required by the FDA before our product candidates may
be marketed in the United States generally involves the following (although the
FDA is given wide discretion to impose different or more stringent requirements
on a case-by-case basis):
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completion of extensive
preclinical laboratory tests, preclinical animal studies and formulation
studies, all performed in accordance with the FDA’s good laboratory
practice regulations and other
regulations;
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·
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submission to the FDA of an IND
application which must become effective before clinical trials may
begin;
|
·
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performance of multiple adequate
and well-controlled clinical trials meeting FDA requirements to establish
the safety and efficacy of the product candidate for each proposed
indication;
|
·
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submission of an NDA to the
FDA;
|
·
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satisfactory completion of an FDA
pre-approval inspection of the manufacturing facilities at which the
product candidate is produced, and potentially other involved facilities
as well, to assess compliance with current good manufacturing practice, or
cGMP, regulations and other applicable regulations;
and
|
·
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the FDA review and approval of
the NDA prior to any commercial marketing, sale or shipment of the
drug.
|
The
testing and approval process requires substantial time, effort and financial
resources, and we cannot be certain that any approvals for our product
candidates will be granted on a timely basis, if at all. Risks to us related to
these regulations are described under Item 1A of this Annual Report under the
subheading “Risks Related to the Clinical Testing, Regulatory Approval and
Manufacturing of our Product Candidates.”
Preclinical
tests may include laboratory evaluation of product chemistry, formulation and
stability, as well as studies to evaluate toxicity and other effects in animals.
The results of preclinical tests, together with manufacturing information and
analytical data, among other information, are submitted to the FDA as part of an
IND application. Subject to certain exceptions, an IND becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, issues a clinical hold to delay a proposed clinical investigation due to
concerns or questions about the conduct of the clinical trial, including
concerns that human research subjects will be exposed to unreasonable health
risks. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Our submission of an IND, or those
of our collaboration partners, may not result in the FDA authorization to
commence a clinical trial. A separate submission to an existing IND must also be
made for each successive clinical trial conducted during product development.
The FDA must also approve changes to an existing IND. Further, an independent
institutional review board, or IRB, for each medical center proposing to conduct
the clinical trial must review and approve the plan for any clinical trial
before it commences at that center and it must monitor the study until
completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk. Clinical testing also must satisfy
extensive Good Clinical Practice requirements and regulations for informed
consent.
Clinical
Trials
For
purposes of NDA submission and approval, clinical trials are typically conducted
in the following three sequential phases, which may overlap (although additional
or different trials may be required by the FDA as well):
·
|
Phase 1
clinical trials are
initially conducted in a limited population to test the drug candidate for
safety, dose tolerance, absorption, metabolism, distribution and excretion
in healthy humans or, on occasion, in patients, such as cancer patients.
In some cases, particularly in cancer trials, a sponsor may decide to
conduct what is referred to as a “Phase 1b” evaluation, which is a
second safety-focused Phase 1 clinical trial typically designed to
evaluate the impact of the drug candidate in combination with currently
FDA-approved drugs.
|
13
·
|
Phase 2
clinical trials are
generally conducted in a limited patient population to identify possible
adverse effects and safety risks, to determine the efficacy of the drug
candidate for specific targeted indications and to determine dose
tolerance and optimal dosage. Multiple Phase 2 clinical trials may be
conducted by the sponsor to obtain information prior to beginning larger
and more expensive Phase 3 clinical trials. In some cases, a sponsor
may decide to conduct what is referred to as a “Phase 2b” evaluation,
which is a second, confirmatory Phase 2 clinical trial that could, if
positive and accepted by the FDA, serve as a pivotal clinical trial in the
approval of a drug
candidate.
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·
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Phase 3
clinical trials are
commonly referred to as pivotal trials. When Phase 2 clinical trials
demonstrate that a dose range of the drug candidate is effective and has
an acceptable safety profile, Phase 3 clinical trials are undertaken
in large patient populations to further evaluate dosage, to provide
substantial evidence of clinical efficacy and to further test for safety
in an expanded and diverse patient population at multiple, geographically
dispersed clinical trial
sites.
|
New
Drug Application
The
results of drug candidate development, preclinical testing and clinical trials,
together with, among other things, detailed information on the manufacture and
composition of the product and proposed labeling, and the payment of a user fee,
are submitted to the FDA as part of an NDA. The FDA reviews all NDAs submitted
before it accepts them for filing and may request additional information rather
than accepting an NDA for filing. Once an NDA is accepted for filing, the FDA
begins an in-depth review of the application.
During
its review of an NDA, the FDA may refer the application to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved. The FDA may refuse to approve an NDA and issue a not approvable
letter if the applicable regulatory criteria are not satisfied, or it may
require additional clinical or other data, including one or more additional
pivotal Phase III clinical trials. Even if such data are submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria for approval.
Data from clinical trials are not always conclusive and the FDA may interpret
data differently than we or our collaboration partners interpret data. If the
FDA’s evaluations of the NDA and the clinical and manufacturing procedures and
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which contains the conditions that must be met in order to
secure final approval of the NDA. If and when those conditions have been met to
the FDA’s satisfaction, the FDA will issue an approval letter, authorizing
commercial marketing of the drug for certain indications. The FDA may withdraw
drug approval if ongoing regulatory requirements are not met or if safety
problems occur after the drug reaches the market. In addition, the FDA may
require testing, including Phase IV clinical trials, and surveillance
programs to monitor the effect of approved products that have been
commercialized, and the FDA has the power to prevent or limit further marketing
of a drug based on the results of these post-marketing programs. Drugs may be
marketed only for the FDA-approved indications and in accordance with the
FDA-approved label. Further, if there are any modifications to the drug,
including changes in indications, other labeling changes, or manufacturing
processes or facilities, we may be required to submit and obtain FDA approval of
a new NDA or NDA supplement, which may require us to develop additional data or
conduct additional preclinical studies and clinical trials.
The
Hatch-Waxman Act
Under the
Hatch-Waxman Act, newly-approved drugs and new conditions of use may benefit
from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman
Act provides five-year marketing exclusivity to the first applicant to gain
approval of an NDA for a new chemical entity, meaning that the FDA has not
previously approved any other new drug containing the same active entity. The
Hatch-Waxman Act prohibits the submission of an abbreviated NDA, or ANDA, or a
Section 505(b)(2) NDA for another version of such drug during the five-year
exclusive period; however, submission of a Section 505(b)(2) NDA or an ANDA
for a generic version of a previously-approved drug containing a
paragraph IV certification is permitted after four years, which may trigger
a 30-month stay of approval of the ANDA or Section 505(b)(2) NDA.
Protection under the Hatch-Waxman Act does not prevent the submission or
approval of another “full” 505(b)(1) NDA; however, the applicant would be
required to conduct its own preclinical and adequate and well-controlled
clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act
also provides three years of marketing exclusivity for the approval of new and
supplemental NDAs, including Section 505(b)(2) NDAs, for, among other
things, new indications, dosages, or strengths of an existing drug, if new
clinical investigations that were conducted or sponsored by the applicant are
essential to the approval of the application. Some of our product candidates may
qualify for Hatch-Waxman non-patent marketing exclusivity.
In
addition to non-patent marketing exclusivity, the Hatch-Waxman Act amended the
FDCA to require each NDA sponsor to submit with its application information on
any patent that claims the drug for which the applicant submitted the NDA or
that claims a method of using such drug and with respect to which a claim of
patent infringement could reasonably be asserted if a person not licensed by the
owner engaged in the manufacture, use, or sale of the drug. Generic applicants
that wish to rely on the approval of a drug listed in the Orange Book must
certify to each listed patent, as discussed above. We intend to submit for
Orange Book listing all relevant patents for our product
candidates.
Finally,
the Hatch-Waxman Act amended the patent laws so that certain patents related to
products regulated by the FDA are eligible for a patent term extension if patent
life was lost during a period when the product was undergoing regulatory review,
and if certain criteria are met. We intend to seek patent term extensions,
provided our patents and products, if they are approved, meet applicable
eligibility requirements.
14
Orphan
Drug Designation and Exclusivity
The FDA
may grant orphan drug designation to drugs intended to treat a rare disease or
condition, which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process. If
a product which has an orphan drug designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product
is entitled to seven years of orphan drug exclusivity, meaning that the FDA may
not approve any other applications to market the same drug for the same
indication for a period of seven years, except in limited circumstances, such as
a showing of clinical superiority to the product with orphan exclusivity
(superior efficacy, safety, or a major contribution to patient care or
situations of manufacturing “short supply”). Orphan drug designation does not
prevent competitors from developing or marketing different drugs for that
indication. We received orphan drug status for Marqibo in January 2007, for the
treatment of ALL.
Under
European Union medicines laws, the criteria for designating a product as an
“orphan medicine” are similar but somewhat different from those in the United
States. A drug is designated as an orphan drug if the sponsor can establish that
the drug is intended for a life-threatening or chronically debilitating
condition affecting no more than five in 10,000 persons in the European Union or
that is unlikely to be profitable, and if there is no approved satisfactory
treatment or if the drug would be a significant benefit to those persons with
the condition. Orphan medicines are entitled to ten years of marketing
exclusivity, except under certain limited circumstances comparable to United
States law. During this period of marketing exclusivity, no “similar”
product, whether or not supported by full safety and efficacy data, will be
approved unless a second applicant can establish that its product is safer, more
effective or otherwise clinically superior. This period may be reduced to six
years if the conditions that originally justified orphan designation change or
the sponsor makes excessive profits.
Fast
Track Designation
The FDA’s
fast track program is intended to facilitate the development and to expedite the
review of drugs that are intended for the treatment of a serious or
life-threatening condition and that demonstrate the potential to address unmet
medical needs. Under the fast track program, applicants may seek traditional
approval for a product based on data demonstrating an effect on a clinically
meaningful endpoint, or approval based on a well-established surrogate
endpoint. The sponsor of a new drug candidate may request the FDA to
designate the drug candidate for a specific indication as a fast track drug at
the time of original submission of its IND, or at any time thereafter prior to
receiving marketing approval of a marketing application. The FDA will determine
if the drug candidate qualifies for fast track designation within 60 days
of receipt of the sponsor’s request. In August 2007, w received fast track
designation for Marqibo for the treatment of adult ALL
If the
FDA grants fast track designation, it may initiate review of sections of an NDA
before the application is complete. This so-called “rolling review” is available
if the applicant provides and the FDA approves a schedule for the submission of
the remaining information and the applicant has paid applicable user fees. The
FDA’s PDUFA review clock for both a standard and priority NDA for a fast track
product does not begin until the complete application is submitted.
Additionally, fast track designation may be withdrawn by the FDA if it believes
that the designation is no longer supported by emerging data, or if the
designated drug development program is no longer being pursued.
In some
cases, a fast track designated drug candidate may also qualify for one or more
of the following programs:
·
|
Priority
Review. As
explained above, a drug candidate may be eligible for a six-month priority
review. The FDA assigns priority review status to an application if the
drug candidate provides a significant improvement compared to marketed
drugs in the treatment, diagnosis or prevention of a disease. A fast track
drug would ordinarily meet the FDA’s criteria for priority review, but may
also be assigned a standard review. We do not know whether any of our drug
candidates will be assigned priority review status or, if priority review
status is assigned, whether that review or approval will be faster than
conventional FDA procedures, or that the FDA will ultimately approve the
drug.
|
·
|
Accelerated
Approval.
Under the FDA’s accelerated approval regulations, the FDA is
authorized to approve drug candidates that have been studied for their
safety and efficacy in treating serious or life-threatening illnesses and
that provide meaningful therapeutic benefit to patients over existing
treatments based upon either a surrogate endpoint that is reasonably
likely to predict clinical benefit or on the basis of an effect on a
clinical endpoint other than patient survival or irreversible morbidity.
In clinical trials, surrogate endpoints are alternative measurements of
the symptoms of a disease or condition that are substituted for
measurements of observable clinical symptoms. A drug candidate approved on
this basis is subject to rigorous post-marketing compliance requirements,
including the completion of randomized post-approval clinical trials to
validate the surrogate endpoint or confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies with due
diligence, or to validate a surrogate endpoint or confirm a clinical
benefit during post-marketing studies, may cause the FDA to seek to
withdraw the drug from the market on an expedited basis. All promotional
materials for drug candidates approved under accelerated regulations are
subject to prior review by the
FDA.
|
15
We plan
to pursue accelerated approval for our product candidate Marqibo, subject to the
results of the rALLy trial. There is no assurance that the FDA will
grant accelerated approval of Marqibo based on the rALLy
trial. Instead, the FDA may require us to conduct the Phase 3
confirmatory study of Marqibo to obtain full approval. We and our
collaboration partners intend to seek fast track designation, accelerated
approval or priority review for our other product candidates, when appropriate.
We cannot predict whether any of our product candidates will obtain fast track,
accelerated approval, or priority review designation, or the ultimate impact, if
any, of these expedited review mechanisms on the timing or likelihood of the FDA
approval of any of our product candidates.
Satisfaction
of the FDA regulations and approval requirements or similar requirements of
foreign regulatory agencies typically takes several years, and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. Typically, if a drug candidate is intended to treat a
chronic disease, as is the case with some of the product candidates we are
developing, safety and efficacy data must be gathered over an extended period of
time. Government regulation may delay or prevent marketing of drug candidates
for a considerable period of time and impose costly procedures upon our
activities. The FDA or any other regulatory agency may not grant approvals for
changes in dosage form or new indications for our product candidates on a timely
basis, or at all. Even if a drug candidate receives regulatory approval, the
approval may be significantly limited to specific disease states, patient
populations and dosages. Further, even after regulatory approval is obtained,
later discovery of previously unknown problems with a drug may result in
restrictions on the drug or even complete withdrawal of the drug from the
market. Delays in obtaining, or failures to obtain, regulatory approvals for any
of our product candidates would harm our business. In addition, we cannot
predict what adverse governmental regulations may arise from future United
States or foreign governmental action.
Pediatric
Studies and Exclusivity
The FDA
provides an additional six months of non-patent marketing exclusivity and patent
protection for any such protections listed in the Orange Book for new or
marketed drugs if a sponsor conducts specific pediatric studies at the written
request of the FDA. The Pediatric Research Equity Act of 2003, or PREA,
authorizes the FDA to require pediatric studies for drugs to ensure the drugs’
safety and efficacy in children. PREA requires that certain new NDAs or NDA
supplements contain data assessing the safety and effectiveness for the claimed
indication in all relevant pediatric subpopulations. Dosing and administration
must be supported for each pediatric subpopulation for which the drug is safe
and effective. The FDA may also require this data for approved drugs that are
used in pediatric patients for the labeled indication, or where there may be
therapeutic benefits over existing products. The FDA may grant deferrals for
submission of data, or full or partial waivers from PREA. PREA pediatric
assessments may qualify for pediatric exclusivity. Unless otherwise required by
regulation, PREA does not apply to any drug for an indication with orphan
designation. We may also seek pediatric exclusivity for conducting any required
pediatric assessments.
Other
Regulatory Requirements
Any drugs
manufactured or distributed by us or our collaboration partners pursuant to
future FDA approvals are subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences associated with
the drug. Drug manufacturers and their subcontractors are required to register
with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with ongoing
regulatory requirements, including cGMP, which impose certain procedural and
documentation requirements upon us and our third-party manufacturers. Failure to
comply with the statutory and regulatory requirements can subject a manufacturer
to possible legal or regulatory action, such as warning letters, suspension of
manufacturing, sales or use, seizure of product, injunctive action or possible
civil penalties. We cannot be certain that we or our present or future
third-party manufacturers or suppliers will be able to comply with the cGMP
regulations and other ongoing FDA regulatory requirements. If our present or
future third-party manufacturers or suppliers are not able to comply with these
requirements, the FDA may halt our clinical trials, require us to recall a drug
from distribution, or withdraw approval of the NDA for that drug.
The FDA
closely regulates the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising, off-label
promotion, industry-sponsored scientific and educational activities and
promotional activities involving the Internet. A company can make only those
claims relating to safety and efficacy that are approved by the FDA. Failure to
comply with these requirements can result in adverse publicity, warning and/or
untitled letters, corrective advertising and potential civil and criminal
penalties.
16
Foreign
Regulation
In
addition to regulations in the United States, we will be subject to a variety of
foreign regulations governing clinical trials and commercial sales and
distribution of our future products. Whether or not we obtain FDA approval for a
product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for
FDA approval. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to
country.
Under
European Union regulatory systems, marketing authorizations may be submitted
either under a centralized or mutual recognition procedure. The centralized
procedure provides for the grant of a single marking authorization that is valid
for all European Union member states. The mutual recognition procedure provides
for mutual recognition of national approval decisions. Under this procedure, the
holder of a national marking authorization may submit an application to the
remaining member states. Within 90 days of receiving the applications and
assessment report, each member state must decide whether to recognize
approval.
In
addition to regulations in Europe and the United States, we will be subject to a
variety of foreign regulations governing clinical trials and commercial
distribution of our future products.
Reimbursement
In many
of the markets where we intend to commercialize a product following regulatory
approval, the prices of pharmaceutical products are subject to direct price
controls by law and to drug reimbursement programs with varying price control
mechanisms.
In the
United States, there has been an increased focus on drug pricing in recent
years. Although there are currently no direct government price controls over
private sector purchases in the United States, federal legislation requires
pharmaceutical manufacturers to pay prescribed rebates on certain drugs to
enable them to be eligible for reimbursement under certain public health care
programs such as Medicaid. Various states have adopted further mechanisms under
Medicaid and otherwise that seek to control drug prices, including by
disfavoring certain higher priced drugs and by seeking supplemental rebates from
manufacturers. Managed care has also become a potent force in the market place
that increases downward pressure on the prices of pharmaceutical products.
Federal legislation, enacted in December 2003, has altered the way in which
physician-administered drugs covered by Medicare are reimbursed. Under the new
reimbursement methodology, physicians are reimbursed based on a product’s
“average sales price,” or ASP. This new reimbursement methodology has generally
led to lower reimbursement levels. The new federal legislation also has added an
outpatient prescription drug benefit to Medicare, effective January 2006.
In the interim, Congress has established a discount drug card program for
Medicare beneficiaries. Both benefits will be provided primarily through private
entities, which will attempt to negotiate price concessions from pharmaceutical
manufacturers.
Public
and private health care payors control costs and influence drug pricing through
a variety of mechanisms, including through negotiating discounts with the
manufacturers and through the use of tiered formularies and other mechanisms
that provide preferential access to certain drugs over others within a
therapeutic class. Payors also set other criteria to govern the uses of a drug
that will be deemed medically appropriate and therefore reimbursed or otherwise
covered. In particular, many public and private health care payors limit
reimbursement and coverage to the uses of a drug that are either approved by the
FDA or that are supported by other appropriate evidence (for example, published
medical literature) and appear in a recognized drug compendium. Drug compendia
are publications that summarize the available medical evidence for particular
drug products and identify which uses of a drug are supported or not supported
by the available evidence, whether or not such uses have been approved by the
FDA. For example, in the case of Medicare coverage for physician-administered
oncology drugs, the Omnibus Budget Reconciliation Act of 1993, with certain
exceptions, prohibits Medicare carriers from refusing to cover unapproved uses
of an FDA-approved drug if the unapproved use is supported by one or more
citations in the American Hospital Formulary Service Drug Information, the
American Medical Association Drug Evaluations, or the U.S. Pharmacopoeia Drug
Information. Another commonly cited compendium, for example under Medicaid, is
the DRUGDEX Information System.
Different
pricing and reimbursement schemes exist in other countries. For example, in the
European Union, governments influence the price of pharmaceutical products
through their pricing and reimbursement rules and control of national health
care systems that fund a large part of the cost of such products to consumers.
The approach taken varies from member state to member state. Some jurisdictions
operate positive and/or negative list systems under which products may only be
marketed once a reimbursement price has been agreed. Other member states allow
companies to fix their own prices for medicines, but monitor and control company
profits. The downward pressure on health care costs in general, particularly
prescription drugs, has become very intense. As a result, increasingly high
barriers are being erected to the entry of new products, as exemplified by the
National Institute for Clinical Excellence in the UK, which evaluates the data
supporting new medicines and passes reimbursement recommendations to the
government. In addition, in some countries cross-border imports from low-priced
markets (parallel imports) exert a commercial pressure on pricing within a
country.
Manufacturing
We
currently rely on a number of third-parties, including contract manufacturing
organizations and our collaborative partners, to produce our compounds. Marqibo
requires three separate ingredients, sphingomyelin/cholesterol liposomes for
injection (SCLI), vincristine sulfate injection (VSI), and sodium phosphate for
injection (SPI), all of which are handled by separate suppliers. SCLI is
manufactured by Cangene Corporation, VSI is manufactured by Hospira and SPI is
manufactured by Hollister-Steir Laboratories. Alocrest and Brakiva are
both manufactured by Gilead. For Menadione, we have contracted with
Contract Pharmaceuticals Limited.
17
Competition
We
compete primarily in the segment of the biopharmaceutical market that addresses
cancer and cancer supportive care, which is highly competitive. We face
significant competition from many pharmaceutical, biopharmaceutical and
biotechnology companies that are researching and selling products designed to
address cancer in this market. Many of our competitors have significantly
greater financial, manufacturing, marketing and drug development resources than
we do. Large pharmaceutical companies in particular have extensive experience in
clinical testing and in obtaining regulatory approvals for drugs. These
companies also have significantly greater research capabilities than we do. In
addition, many universities and private and public research institutes are
active in cancer research. We also compete with commercial biotechnology
companies for the rights to product candidates developed by public and private
research institutes. Smaller or early-stage companies are also significant
competitors, particularly those with collaborative arrangements with large and
established companies.
We
believe that our ability to successfully compete will depend on, among other
things:
·
|
our ability to develop novel
compounds with attractive pharmaceutical properties and to secure and
protect intellectual property rights based on our
innovations;
|
·
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the efficacy, safety and
reliability of our product
candidates;
|
·
|
the speed at which we develop our
product candidates;
|
·
|
our ability to design and
successfully complete appropriate clinical
trials;
|
·
|
our ability to maintain a good
relationship with regulatory
authorities;
|
·
|
the timing and scope of
regulatory approvals;
|
·
|
our ability to manufacture and
sell commercial quantities of future products to the market or enter into
strategic partnership agreements with others;
and
|
·
|
acceptance of future products by
physicians and other healthcare
providers.
|
Research
and Development Expenses
Research
and development expenses, which include salaries and related personnel costs,
fees paid to consultants and outside service providers for laboratory
development, manufacturing, legal expenses resulting from intellectual property
protection, business development and organizational affairs and other expenses
relating to the acquiring, design, development, testing, and enhancement of our
product candidates, including milestone payments for licensed technology, are
the primary source of our overall expenses. Research and development
expenses totaled $15.6 million for the year ended December 31, 2009 and $18.4
million for the year ended December 31, 2008.
Employees
As of
December 31, 2009, we employed 25 full-time employees and no part-time
employees. All employees are based at our South San Francisco office.
None of our employees are covered by a collective bargaining agreement. We
believe our relationship with our employees to be good.
Additional
Information
Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to these reports filed or furnished pursuant to
Sections 13(a) or 15(d) of the Exchange Act are available free of charge via our
website (www.hanabiosciences.com) as soon as reasonably practicable after they
are filed with, or furnished to, the SEC.
18
ITEM
1A. RISK FACTORS
Investment
in our common stock involves significant risk. You should carefully consider the
information described in the following risk factors, together with the other
information appearing elsewhere in this prospectus, before making an investment
decision regarding our common stock. If any of these risks actually occur, our
business, financial conditions, results of operation and future growth prospects
would likely be materially and adversely affected. In these circumstances, the
market price of our common stock could decline, and you may lose all or a part
of your investment in our common stock. Moreover, the risks described below are
not the only ones that we face. Additional risks not presently known to us or
that we currently deem immaterial may also affect our business, operating
results, prospects or financial condition.
Risks
Related to Our Business
We
need to raise additional capital to fund our planned operations
beyond mid-2010. If we are unable to raise additional capital when needed,
we will have to discontinue our product development programs or relinquish our
rights to some or all of our product candidates. The manner in which we raise
any additional funds may affect the value of your investment in our common
stock.
We
believe that our currently available capital is only sufficient to fund our
operations into mid-2010. Given our desired clinical development
plans for the next 12 months, our financial statements reflect an uncertainty
about our ability to continue as a going concern, which is also stated in the
report from our auditors on the audit of our financial statements as of and for
the year ended December 31, 2009. Accordingly, we need additional
capital to fund our operations beyond such point. Further, our
available capital may be consumed sooner than we anticipate depending on a
variety of factors, including:
|
·
|
costs
associated with conducting our ongoing and planned clinical trials and
regulatory development activities;
|
|
·
|
costs,
timing and outcome of regulatory
reviews;
|
|
·
|
costs
of establishing arrangements for manufacturing our product
candidates;
|
|
·
|
costs
associated with commercializing our lead programs, including establishing
sales and marketing functions;
|
|
·
|
payments
required under our current and any future license agreements and
collaborations;
|
|
·
|
costs
of obtaining, maintaining and defending patents on our product candidates;
and
|
|
·
|
costs
of acquiring any new drug
candidates.
|
Since
we do not generate any recurring revenue, the most likely sources of such
additional capital include private placements of our equity securities,
including our common stock, debt financing or from a potential strategic
licensing or collaboration transaction involving the rights to one or more of
our product candidates. To the extent that we raise additional
capital by issuing equity securities, our stockholders will likely experience
significant dilution. We may also grant future investors rights superior to
those of our current stockholders. If we raise additional funds through
collaborations and licensing arrangements, it may be necessary to relinquish
some rights to our technologies, product candidates or products, or grant
licenses on terms that are not favorable to us. If we raise additional funds by
incurring debt, we could incur significant interest expense and become subject
to covenants in the related transaction documentation that could affect the
manner in which we conduct our business.
However,
we have no committed sources of additional capital and our access to capital
funding is always uncertain. This uncertainty is exacerbated due to the ongoing
global economic turmoil, which has severely restricted access to the U.S. and
international capital markets, particularly for small biopharmaceutical and
biotechnology companies like us. Accordingly, despite our ability to secure
adequate capital in the past, there is no assurance that additional equity or
debt financing will be available to us when needed, on acceptable terms or even
at all. If we fail to obtain the necessary additional capital when needed, we
will be forced to significantly curtail our planned research and development
activities, which will cause a delay in our drug development
programs. If we do not obtain additional capital before we have
consumed our currently available resources, we may be forced to cease our
operations altogether, in which case you will lose your entire investment in our
company.
19
Our
business is substantially dependent on the results of our ongoing rALLy study of
Marqibo and our ability to obtain accelerated approval of Marqibo.
A
substantial portion of our current human and financial resources is focused in
the development of Marqibo, our lead product candidate. We are
currently evaluating Marqibo in a global, registration-enabling Phase 2 clinical
trial in adult Philadelphia chromosome negative ALL patients in second relapse
or those who have progressed following two prior lines of therapy. We
refer to this Phase 2 clinical trial as the rALLy study. The primary
outcome measure of the rALLy study is complete remission, or CR, or CR
without full hematological recovery, or CRi. Our target enrollment
for the rALLy study is 65 patients, which we achieved in December
2009. In December 2009, we announced preliminary data indicating that
of the first 56 patients dosed in the study, 12 patients, or 21 % of the first
56 patients enrolled, had achieved a CR or CRi and that the estimated median
overall survival in complete responders was 7.3 months. Subject to
the final results of the rALLy study, we plan to file a rolling submission new
drug application, or NDA, with the FDA seeking accelerated approval of Marqibo
for the treatment of ALL in the second half of 2010. See “ITEM 1.
Description of Business – Product Pipeline – Marqibo (vincristine sulfate
liposomes injection).”
If the
final data is insufficient to support the submission of an NDA for
accelerated approval, or if the FDA accepts our NDA for review but subsequently
denies approval, our business would be substantially and adversely affected and
we would be forced to significantly curtail or even cease our
operations.
We
have a limited operating history and may not be able to commercialize any
products, generate significant revenues or attain profitability.
We
have not generated significant revenue and have incurred significant net losses
in each year since our inception. We expect to incur substantial losses and
negative cash flow from operations for the foreseeable future, and we may never
achieve or maintain profitability. For the years ended December 31, 2009
and December 31, 2008, we had net losses of $24.1 million and $22.2 million,
respectively.
We
expect our cash requirements to increase substantially in the foreseeable future
as we:
·
|
continue
to undertake clinical development of our current product
candidates;
|
·
|
seek
regulatory approvals for Marqibo and our other product candidates at the
appropriate time in the future;
|
·
|
implement
additional internal systems and
infrastructure;
|
·
|
seek
to acquire additional technologies to develop;
and
|
·
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hire
additional personnel.
|
We
expect to incur losses for the foreseeable future as we fund our operations and
capital expenditures. As a result, we will need to generate significant revenues
in order to achieve and maintain profitability. Even if we succeed in developing
and commercializing/partnering one or more of our product candidates, which
success is not assured, we may not be able to generate significant revenues.
Even if we do generate significant revenues, we may never achieve or maintain
profitability. Our failure to achieve or maintain profitability could negatively
impact the trading price of our common stock.
If
we are unable to successfully manage our growth, our business may be
harmed.
In the
future, if we are able to advance Marqibo or our other product candidates to the
point of, and thereafter through, clinical trials, we may need to expand our
development, regulatory, manufacturing, marketing and sales capabilities or
contract with third parties to provide these capabilities. Any future growth
will place a significant strain on our management and on our administrative,
operational and financial resources. Our future financial performance and our
ability to commercialize Marqibo and our product candidates and to compete
effectively will depend, in part, on our ability to manage any future growth
effectively. We must manage our development efforts and clinical trials
effectively, and hire, train and integrate additional management, administrative
and sales and marketing personnel. We may not be able to accomplish these tasks,
and our failure to accomplish any of them could prevent us from successfully
growing.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We will
need to hire additional qualified personnel with expertise in preclinical
testing, clinical research and testing, government regulation, formulation and
manufacturing and sales and marketing. We compete for qualified individuals with
numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals, particularly in the
San Francisco Bay Area where we are headquartered, is intense, and we
cannot be certain that our search for such personnel will be successful. Our
ability to attract and retain qualified personnel is critical to our
success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of pharmaceutical products entail an inherent risk of
product liability. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our product candidates, if approved. Even successful
defense would require significant financial and management resources. Regardless
of the merit or eventual outcome, liability claims may result
in:
20
·
|
decreased
demand for our product candidates;
|
·
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injury
to our reputation;
|
·
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withdrawal
of clinical trial participants;
|
·
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withdrawal
of prior governmental approvals;
|
·
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costs
of related litigation;
|
·
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substantial
monetary awards to patients;
|
·
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product
recalls;
|
·
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loss
of revenue; and
|
·
|
the
inability to commercialize our product
candidates.
|
Our
inability to obtain sufficient product liability insurance at an acceptable cost
to protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products we develop, alone or with
collaborators. We currently do not carry product liability insurance but instead
maintain a $10 million clinical trial insurance policy for our ongoing
clinical trials of our product candidates. Even if our agreements with any
future collaborators entitle us to indemnification against damages from product
liability claims, such indemnification may not be available or adequate should
any claim arise.
If
we fail to acquire and develop other product candidates we may be unable to grow
our business.
We hope
to acquire rights to develop and commercialize additional product candidates.
Because we currently neither have nor intend to establish internal research
capabilities, we are dependent upon pharmaceutical and biotechnology companies
and academic and other researchers to sell or license us their product
candidates. The success of our strategy depends upon our ability to identify,
select and acquire pharmaceutical product candidates.
Proposing,
negotiating and implementing an economically viable product acquisition or
license agreement is a lengthy and complex process. We compete for partnering
arrangements and license agreements with pharmaceutical, biopharmaceutical and
biotechnology companies, many of which have significantly more experience than
us and have significantly more financial resources than we do. Our competitors
may have stronger relationships with certain third parties with whom we are
interested in partnering, such as academic research institutions, and may,
therefore, have a competitive advantage in entering into partnering arrangements
with those third parties. We may not be able to acquire rights to additional
product candidates on terms that we find acceptable, or at all.
We expect
that any product candidate to which we acquire rights will require significant
additional development and other efforts prior to commercial sale, including
extensive clinical testing and approval by the FDA and applicable foreign
regulatory authorities. All product candidates are subject to the risks of
failure inherent in pharmaceutical product development, including the
possibility that the product candidate will not be shown to be sufficiently safe
or effective for approval by regulatory authorities. Even if our product
candidates are approved, they may not be manufactured or produced economically
or commercialized successfully.
Risks
Related to the Clinical Testing, Regulatory Approval and Manufacturing of Our
Product Candidates
If
we are unable to obtain regulatory approval to sell our lead product candidate,
Marqibo, or any of our other product candidates, our business will
suffer.
In May
2006, we licensed Marqibo from Inex, which was succeeded by Tekmira
Pharmaceuticals Corp. in April 2007. Marqibo is not currently permitted to be
commercially used. Inex submitted an NDA pursuant to Section 505(b)(2) of the
FDCA for accelerated marketing approval of Marqibo primarily based upon a single
arm, Phase II clinical trial, which was reviewed by the FDA in 2004 and 2005. In
January 2005, the FDA issued a not approvable letter to Inex for the Marqibo NDA
for the treatment of patients with relapsed refractory NHL previously treated
with at least two chemotherapy regimens. The FDA’s not approvable letter cited a
variety of reasons for not approving the NDA, including the
following:
·
|
The information presented by Inex
was inadequate and contained clinical
deficiencies;
|
21
·
|
The information presented by Inex
failed to provide evidence of an effect on a surrogate that is reasonably
likely to predict clinical
benefit;
|
·
|
The information presented by Inex
contained chemistry, manufacturing and control
deficiencies;
|
·
|
A supportive study in NHL
patients and ALL patients was not well conducted or well controlled;
and
|
·
|
The information presented by Inex
did not demonstrate an improvement over available
therapy.
|
In
rejecting the NDA, the FDA recommended that, if Inex planned to pursue
development of Marqibo for the treatment of relapsed refractory NHL, Inex should
conduct additional studies, including but not limited to randomized controlled
studies comparing Marqibo to other chemotherapy regimens. Even if such studies
are successfully performed, Marqibo may not receive FDA approval.
With
respect to Marqibo and any of our other product candidates, additional FDA
regulatory risks exist which may prevent FDA approval of these drug candidates
and thereby prevent their commercial use. Additionally, if Marqibo or any of our
product candidates are approved by the FDA, such approval may be withdrawn by
the FDA for a variety of reasons, including:
·
|
that clinical or other
experience, tests, or other scientific data show that the drug is unsafe
for use;
|
·
|
that new evidence of clinical
experience or evidence from new tests, evaluated together with the
evidence available to the FDA when the NDA was approved, shows that the
drug is not shown to be safe for use under the approved conditions of
use;
|
·
|
that on the basis of new
information presented to the FDA, there is a lack of substantial evidence
that the drug will have the effect it purports or is represented to have
under the approved conditions of
use;
|
·
|
that an NDA contains any untrue
statement of a material fact;
or
|
·
|
for a drug approved under the
FDA’s accelerated approval regulations or as a fast track drug, if any
required post-approval study is not conducted with due diligence or if
such study fails to verify the clinical benefit of the
drug.
|
Other
regulatory risks may arise as a result of a change in applicable law or
regulation or the interpretation thereof, and may result in material
modification or withdrawal of prior FDA approvals.
Many
of our product candidates are in early stages of clinical trials, which are very
expensive and time-consuming. Any failure or delay in completing clinical trials
for our product candidates could harm our business.
Other
than Marqibo, the other product candidates that we are developing, Alocrest,
Brakiva, and Menadione, are in early stages of development and will require
extensive clinical and other testing and analysis before we will be in a
position to consider seeking FDA approval to sell such product candidates. In
addition to the risks set forth above for Marqibo, which also apply to Alocrest,
Brakiva and Menadione, these product candidates also have additional risks as
each is in an earlier stage of development and review.
Conducting
clinical trials is a lengthy, time consuming and very expensive process and the
results are inherently uncertain. The duration of clinical trials can vary
substantially according to the type, complexity, novelty and intended use of the
product candidate. We estimate that clinical trials of our product candidates
will take at least several years to complete. The completion of clinical trials
for our product candidates may be delayed or prevented by many factors,
including:
·
|
delays in patient enrollment, and
variability in the number and types of patients available for clinical
trials;
|
·
|
difficulty in maintaining contact
with patients after treatment, resulting in incomplete
data;
|
·
|
poor effectiveness of product
candidates during clinical
trials;
|
·
|
safety issues, side effects, or
other adverse events;
|
·
|
results that do not demonstrate
the safety or effectiveness of the product
candidates;
|
·
|
governmental or regulatory delays
and changes in regulatory requirements, policy and guidelines;
and
|
·
|
varying interpretation of data by
the FDA.
|
22
In
conducting clinical trials, we may fail to establish the effectiveness of a
compound for the targeted indication or discover that it is unsafe due to
unforeseen side effects or other reasons. Even if our clinical trials are
commenced and completed as planned, their results may not support our product
candidate claims. Further, failure of product candidate development can occur at
any stage of the clinical trials, or even thereafter, and we could encounter
problems that cause us to abandon or repeat clinical trials. These problems
could interrupt, delay or halt clinical trials for our product candidates and
could result in FDA, or other regulatory authorities, delaying approval of our
product candidates for any or all indications. The results from preclinical
testing and prior clinical trials may not be predictive of results obtained in
later or other larger clinical trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in clinical trials,
even in advanced clinical trials after showing promising results in earlier
clinical trials. Our failure to adequately demonstrate the safety and
effectiveness of any of our product candidates will prevent us from receiving
regulatory approval to market these product candidates and will negatively
impact our business.
In
addition, we or the FDA may suspend or curtail our clinical trials at any time
if it appears that we are exposing participants to unacceptable health risks or
if the FDA finds deficiencies in the conduct of these clinical trials or in the
composition, manufacture or administration of the product candidates.
Accordingly, we cannot predict with any certainty when or if we will ever be in
a position to submit an NDA for any of our product candidates, or whether any
such NDA would ever be approved.
If
we do not obtain the necessary U.S. or foreign regulatory approvals to
commercialize our product candidates, we will not be able to market and sell our
product candidates.
None of
our product candidates have been approved for commercial sale in any country.
FDA approval is required to commercialize all of our product candidates in the
United States and approvals from the FDA equivalent regulatory authorities are
required in foreign jurisdictions in order to commercialize our product
candidates in those jurisdictions. We possess world-wide rights to develop and
commercialize Marqibo and our other product candidates.
In order
to obtain FDA approval of any of our product candidates, we must submit to the
FDA an NDA, demonstrating that the product candidate is safe for humans and
effective for its intended use and otherwise meets the requirements of existing
laws and regulations governing new drugs. This demonstration requires
significant research and animal tests, which are referred to as preclinical
studies, and human tests, which are referred to as clinical trials, as well as
additional information and studies. Satisfaction of the FDA’s regulatory
requirements typically takes many years, depending on the type, complexity and
novelty of the product candidate and requires substantial resources for
research, development and testing as well as for other purposes. To date, none
of our product candidates have been approved for sale in the United States or in
any foreign market. We cannot predict whether our research and clinical
approaches will result in drugs that the FDA considers safe for humans and
effective for indicated uses. Historically, only a small percentage of all drug
candidates that start clinical trials are eventually approved by the FDA for
sale. After clinical trials are completed, the FDA has substantial discretion in
the drug approval process and may require us to conduct additional preclinical
and clinical testing or to perform post-marketing studies. The approval process
may also be delayed by changes in government regulation, future legislation or
administrative action or changes in FDA policy that occur prior to or during our
regulatory review. Delays in obtaining regulatory approvals may:
·
|
delay or prevent
commercialization of, and our ability to derive product revenues from, our
product candidates;
|
·
|
impose costly procedures on
us;
|
·
|
reduce the potential prices we
may be able to charge for our product candidates, assuming they are
approved for sale; and
|
·
|
diminish any competitive
advantages that we may otherwise
enjoy.
|
Even if
we comply with all FDA requests, the FDA may ultimately reject one or more of
our NDAs. We cannot be sure that we will ever obtain regulatory approval for any
of our product candidates. Additionally, a change in applicable law or
regulation, or the interpretation thereof, may result in material modification
or withdrawal of prior FDA approvals.
Failure
to obtain FDA approval of any of our product candidates will severely undermine
our business by reducing our number of saleable products and, therefore,
corresponding product revenues. If we do not complete clinical trials and obtain
regulatory approval for a product candidate, we will not be able to recover any
of the substantial costs invested by us in the development of the product
candidate.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We cannot assure you that we will receive the
approvals necessary to commercialize any of our product candidates for sale
outside the United States.
23
Our
competitive position may be harmed if a competitor obtains orphan drug
designation and approval for the treatment of ALL for a clinically superior
drug.
Orphan
drug designation is an important element of our competitive strategy because the
latest of our licensors’ patents for Marqibo expires in November 2021. In
2007, the FDA granted orphan drug designation for the use of Marqibo in treating
adult ALL and adult metastatic uveal melanoma. The company that obtains the
first FDA approval for a designated orphan drug for a rare disease generally
receives marketing exclusivity for use of that drug for the designated condition
for a period of seven years. However, even though we obtained orphan drug status
for Marqibo in the treatments noted, the FDA may permit other companies to
market a drug for the same designated and approved condition during our period
of orphan drug exclusivity if it can be demonstrated that the drug is clinically
superior to our drug. This could create a more competitive market for
us.
Even
if we obtain regulatory approvals for our products, the terms of approvals and
ongoing monitoring and regulation of our products may limit how we manufacture
and market our products, which could materially impair our ability to generate
revenue.
Even if
regulatory approval is granted in the United States or in a foreign country, the
approved product and its manufacturer, as well as others involved in the
manufacturing and packaging process, remain subject to continual regulatory
review and monitoring. Any regulatory approval that we receive for a product
candidate may be subject to limitations on the indicated uses for which the
product may be marketed, or include requirements for potentially costly
post-approval clinical trials. In addition, if the FDA and/or foreign regulatory
agencies approve any of our product candidates, the labeling, packaging,
storage, advertising, promotion, recordkeeping and submission of safety and
other post-marketing information on the product will be subject to extensive
regulatory requirements which may change over time. We and the manufacturers of
our products, their ingredients, and many aspects of the packaging are also
required to comply with current good manufacturing practice regulations, which
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and documentation. Further,
regulatory agencies must approve these manufacturing facilities before they can
be used to manufacture our products or their ingredients or certain packaging,
and these facilities are subject to ongoing regulatory inspection. Discovery of
problems with a product or manufacturer may result in restrictions or sanctions
with respect to the product, manufacturer and relevant manufacturing facility,
including withdrawal of the product from the market. If we fail to comply with
the regulatory requirements of the FDA and other applicable foreign regulatory
authorities, or if problems with our products, manufacturers or manufacturing
processes are discovered, we could be subject to administrative or judicially
imposed sanctions, including:
·
|
restrictions on the products,
manufacturers or manufacturing
process;
|
·
|
warning letters or untitled
letters;
|
·
|
civil or criminal penalties or
fines;
|
·
|
injunctions;
|
·
|
product seizures, detentions or
import bans;
|
·
|
voluntary or mandatory product
recalls and publicity
requirements;
|
·
|
suspension or withdrawal of
regulatory approvals;
|
·
|
total or partial suspension of
production and/or sale; and
|
·
|
refusal to approve pending
applications for marketing approval of new drugs or supplements to
approved applications.
|
In order to market any
products outside of the United States, we must establish and comply with the
numerous and varying regulatory requirements of other countries regarding safety
and efficacy. Approval procedures vary among countries and can involve
additional product testing and additional administrative review periods. The
time required to obtain approval in other countries might differ from that
required to obtain FDA approval. Regulatory approval in one country does not
ensure regulatory approval in another, but failure or delay in obtaining
regulatory approval in one country may have a negative effect on the regulatory
process in others.
Because
we are dependent on clinical research institutions and other contractors for
clinical testing and for research and development activities, the results of our
clinical trials and such research activities are, to a certain extent, beyond
our control.
We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our preclinical and clinical trials under
agreements with us. These parties are not our employees and we cannot control
the amount or timing of resources that they devote to our programs. These
investigators may not assign as great a priority to our programs or pursue them
as diligently as we would if we were undertaking such programs ourselves. If
outside collaborators fail to devote sufficient time and resources to our
drug-development programs, or if their performance is substandard, the approval
of our FDA applications, if any, and our introduction of new drugs, if any, will
be delayed. These collaborators may also have relationships with other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors at our expense, our competitive position would be
harmed.
24
Our
reliance on third parties to formulate and manufacture our product candidates
exposes us to a number of risks that may delay the development, regulatory
approval and commercialization of our products or result in higher product
costs.
We have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We contract with one or
more manufacturers to manufacture, supply, store and distribute drug supplies
for our clinical trials. If any of our product candidates receive FDA approval,
we will rely on one or more third-party contractors to manufacture our drugs.
Our anticipated future reliance on a limited number of third-party manufacturers
exposes us to the following risks:
·
|
We may be unable to identify
manufacturers on acceptable terms or at all because the number of
potential manufacturers is limited and the FDA must approve any
replacement contractor. This approval would require new testing and
compliance inspections. In addition, a new manufacturer would have to be
educated in, or develop substantially equivalent processes for, production
of our products after receipt of FDA approval, if
any.
|
|
|
·
|
Our third-party manufacturers
might be unable to formulate and manufacture our drugs in the volume and
of the quality required to meet our clinical and/or commercial needs, if
any.
|
|
|
·
|
Our future contract manufacturers
may not perform as agreed or may not remain in the contract manufacturing
business for the time required to supply our clinical trials or to
successfully produce, store and distribute our
products.
|
|
|
·
|
Drug manufacturers are subject to
ongoing periodic unannounced inspection by the FDA and corresponding state
agencies to ensure strict compliance with good manufacturing practice and
other government regulations and corresponding foreign standards. We do
not have control over third-party manufacturers’ compliance with these
regulations and standards, but we will be ultimately responsible for any
of their failures.
|
|
|
·
|
If any third-party manufacturer
makes improvements in the manufacturing process for our products, we may
not own, or may have to share, the intellectual property rights to the
innovation. This may prohibit us from seeking alternative or additional
manufacturers for our
products.
|
Each of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA, or the commercialization of our product
candidates or result in higher costs or deprive us of potential product
revenues.
Risks
Related to Our Ability to Commercialize Our Product Candidates
Our success
depends substantially on our most advanced product candidate, Marqibo, which is
still under development and requires further regulatory approvals. If we are
unable to obtain regulatory approval of and commercialize Marqibo alone or with
a strategic partner, or experience significant delays in doing so, our ability
to generate product revenue and our likelihood of success will be significantly
diminished.
In 2009,
we completed enrollment of the rALLy study. We intend to use the results of the
rALLy study to file a new drug application, or NDA, with the FDA under an
“accelerated approval” pathway. We also plan to conduct a
confirmatory Phase 3 clinical trial to commence in 2010. The design
of this confirmatory study is still under review. A significant
portion of our time and financial resources for at least the next twelve months
will be used in the development of our Marqibo program. We anticipate that our
ability to generate revenues in the near term will depend solely on the
successful development, regulatory approval and commercialization of Marqibo or
our ability to enter into a partnership or licensing agreement wherein we
receive cash payments. We currently do not have sufficient funds to
continue operations through the time period required to obtain NDA approval for
Marqibo and will need to obtain significant additional capital before we obtain
FDA approval for an NDA in Marqibo.
All of
our other product candidates are in the very early stages of development. Any of
our product candidates could be unsuccessful if they:
·
|
do not demonstrate acceptable
safety and efficacy in preclinical studies or clinical trials or otherwise
do not meet applicable regulatory standards for
approval;
|
|
|
·
|
do not offer therapeutic or other
improvements over existing or future therapies used to treat the same
conditions;
|
|
|
·
|
are not capable of being produced
in commercial quantities at acceptable costs or pursuant to applicable
rules and regulations;
or
|
|
|
·
|
are not accepted in the medical
community and by third-party
payors.
|
If we are
unable to commercialize our product candidates, we will not generate product
revenues. The results of our clinical trials to date do not provide assurance
that acceptable efficacy or safety will be shown.
25
If
we are unable either to create sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will be
unable to commercialize our product candidates successfully.
We
currently have no sales, marketing or distribution capabilities nor do we
currently have funds sufficient to develop these capabilities. To commercialize
our product candidates, we must either develop internal sales, marketing and
distribution capabilities, which will be expensive and time consuming, or make
arrangements with third parties to perform these services. If we decide to
market any of our products directly, we must commit financial and managerial
resources to develop marketing capabilities and a sales force with technical
expertise and with supporting distribution capabilities. Other factors that may
inhibit our efforts to commercialize our product candidates, if approved,
directly and without strategic partners include:
·
|
our inability to recruit and
retain adequate numbers of effective sales and marketing personnel;
|
|
|
·
|
the inability of sales personnel
to obtain access to or persuade adequate numbers of physicians to
prescribe our products;
|
|
|
·
|
the lack of complementary
products to be offered by sales personnel, which may put us at a
competitive disadvantage relative to companies with more extensive product
lines; and
|
|
|
·
|
unforeseen costs and expenses
associated with creating an independent sales and marketing
organization.
|
If we are
not able to partner with a third party and are not successful in recruiting
sales and marketing personnel or in building a sales and marketing
infrastructure, we will have difficulty commercializing our product candidates,
which would harm our business. If we rely on pharmaceutical or biotechnology
companies with established distribution systems to market our products, we will
need to establish and maintain partnership arrangements, and we may not be able
to enter into these arrangements on acceptable terms or at all. To the extent
that we enter into co-promotion or other arrangements, any revenues we receive
will depend upon the efforts of third parties which may not be successful and
which will be only partially in our control. Our product revenues would likely
be lower than if we marketed and sold our products directly.
The
terms of our license agreements relating to intellectual property ownership
rights may make it more difficult for us to establish collaborations for the
development and commercialization of our product candidates.
The terms
of our license agreements obligate us to include intellectual property
assignment provisions in any sublicenses or collaboration agreements that may be
unacceptable to our potential sublicensees and partners. These terms may impede
our ability to enter into partnerships for some of our existing product
candidates. Under our license agreement with Tekmira, Tekmira will be the owner
of patents and patent applications claiming priority to certain patents licensed
to us, and we not only have an obligation to assign to Tekmira our rights to
inventions covered by such patents or patent applications, but also, when
negotiating any joint venture, collaborative research, development,
commercialization or other agreement with a third party, to require such third
party to do the same. Our license agreement with Elan Pharmaceuticals, Inc., or
Elan, relating to Marqibo, provides that Elan will own all improvements to the
licensed patents or licensed know-how made by us or any of our sublicensees.
Potential collaboration and commercialization partners for these product
candidates may not agree to such intellectual property ownership requirements
and therefore not elect to partner with us for these product
candidates.
If
physicians and patients do not accept and use our product candidates, our
ability to generate revenue from sales of our products will be materially
impaired.
Even if
the FDA approves Marqibo or any of our product candidates, if physicians and
patients do not accept and use them, our business will be adversely affected.
Acceptance and use of our products will depend upon a number of factors
including:
·
|
perceptions by members of the
health care community, including physicians, about the safety and
effectiveness of our
drugs;
|
|
|
·
|
pharmacological benefit and
cost-effectiveness of our products relative to competing
products;
|
|
|
·
|
availability of reimbursement for
our products from government or other healthcare
payors;
|
|
|
·
|
effectiveness of marketing and
distribution efforts by us and our licensees and distributors, if
any; and
|
|
|
·
|
the price at which we sell our
products.
|
26
Adequate
coverage and reimbursement may not be available for our product candidates,
which could diminish our sales or affect our ability to sell our products
profitably.
Market
acceptance and sales of our product candidates will depend in significant part
on the levels at which government payors and other third-party payors, such as
private health insurers and health maintenance organizations, cover and pay for
our products. We cannot provide any assurances that third-party payors will
provide adequate coverage of and reimbursement for any of our product
candidates. If we are unable to obtain adequate coverage of and payment levels
for our product candidates from third-party payors, physicians may limit how
much or under what circumstances they will prescribe or administer them and
patients may decline to purchase them. This in turn could affect our ability to
successfully commercialize our products and impact our profitability and future
success.
In both
the U.S. and certain foreign jurisdictions, there have been a number of
legislative and regulatory policies and proposals in recent years to change the
healthcare system in ways that could impact our ability to sell our products
profitably. In 2003, Congress enacted the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, or the MMA, which contains, among
other changes to the law, a wide variety of changes that impact Medicare
reimbursement of pharmaceuticals to physicians and hospitals. The MMA requires
that, as of January 1, 2005, payment rates for most drugs covered under
Medicare Part B, including drugs furnished incident to physicians’
services, are to be based on manufacturer’s average sales price, or ASP, of the
product. Implementation of the ASP payment methodology for drugs furnished in
physician’s offices generally resulted in reduced payments in 2005, and could
result in lower payment rates for drugs in the future.
The MMA
requires that, beginning in 2006, payment amounts for most drugs administered in
physician offices are to be based on either ASP or on amounts bid by vendors
under the Competitive Acquisition Program, or CAP. Under the CAP, physicians who
administer drugs in their offices will be offered an option to acquire drugs
covered under the Medicare Part B benefit from vendors that are selected in a
competitive bidding process. Winning vendors would be selected based on criteria
that included bid prices. The ASP payment methodology and the CAP could
negatively impact our ability to sell our product candidates.
The MMA
also revised the method by which Medicare pays for many drugs administered in
hospital outpatient departments beginning in 2005. In addition, the Centers for
Medicare & Medicaid Services, or CMS, which administers the Medicare
program, published a proposed rule on payment amounts for drugs administered in
hospital outpatient departments for 2006. As a result of the changes in the MMA
and, if the methods suggested by CMS in the proposed 2006 rule are implemented,
certain newly introduced drugs administered in hospital outpatient departments,
which we believe would include our therapeutics and supportive care product
candidates, will generally be reimbursed under an ASP payment methodology,
except that during a short introductory period in which drugs have not been
assigned a billing code a higher payment rate is applicable. As in the case of
physician offices, implementation of the ASP payment methodology in the hospital
outpatient department could negatively impact our ability to sell our product
candidates.
The MMA
created a new, voluntary prescription drug benefit for Medicare beneficiaries,
Medicare Part D, which took effect in 2006. Medicare Part D is a new type
of coverage that allows for payment for certain prescription drugs not covered
under Part B. This new benefit will be offered by private managed care
organizations and freestanding prescription drug plans, which, subject to review
and approval by CMS, may, and are expected to, establish drug formularies and
other drug utilization management controls based in part on the price at which
they can obtain the drugs involved. The drugs that will be covered in each
therapeutic category and class on the formularies of participating Part D plans
may be limited, and obtaining favorable treatment on formularies and with
respect to utilization management controls may affect the prices we can obtain
for our products. If our product candidates are not placed on such formularies,
or are subject to utilization management controls, this could negatively impact
our ability to sell them. It is difficult to predict which of our candidate
products will be placed on the formularies or subjected to utilization
management controls and the impact that the Part D program, and the MMA
generally, will have on us.
There
also likely will continue to be legislative and regulatory proposals that could
bring about significant changes in the healthcare industry. We cannot predict
what form those changes might take or the impact on our business of any
legislation or regulations that may be adopted in the future. The implementation
of cost containment measures or other healthcare reforms may prevent us from
being able to generate revenue, attain profitability or commercialize our
products.
In
addition, in many foreign countries, particularly the countries of the European
Union, the pricing of prescription drugs is subject to government control. We
may face competition for our product candidates from lower priced products in
foreign countries that have placed price controls on pharmaceutical products. In
addition, there may be importation of foreign products that compete with our own
products which could negatively impact our profitability.
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will
suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies
developed, manufactured and marketed by others. If approved, Marqibo will
compete with unencapsulated vincristine, which is generic, other cytotoxic
agents such as antimetabolites, alkylating agents, cytotoxic antibiotics, vinca
alkyloids, platinum compounds and taxanes, and other cytotoxic agents that use
different encapsulation technologies. These or other future competing products
and product candidates may provide greater therapeutic convenience or clinical
or other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost. If our products fail to capture and
maintain market share, we may not achieve sufficient product revenues and our
business will suffer.
27
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs and have substantially greater financial resources than we do, as well
as significantly greater experience in:
·
|
developing
drugs;
|
|
|
·
|
undertaking preclinical testing
and human clinical trials;
|
|
|
·
|
obtaining FDA and other
regulatory approvals of
drugs;
|
|
|
·
|
formulating and manufacturing
drugs; and
|
|
|
·
|
launching, marketing and selling
drugs.
|
Developments
by competitors may render our products or technologies obsolete or
non-competitive.
Alternative
technologies are being developed to treat cancer and immunological disease,
several of which are in advanced clinical trials. In addition, companies
pursuing different but related fields represent substantial competition. Many of
these organizations have substantially greater capital resources, larger
research and development staffs and facilities, longer drug development history
in obtaining regulatory approvals and greater manufacturing and marketing
capabilities than we do. These organizations also compete with us to attract
qualified personnel, parties for acquisitions, joint ventures or other
collaborations.
Risks
Related to Our Intellectual Property
If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in large part on
our ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.
We have
licensed from third parties rights to numerous issued patents and patent
applications. To date, through our license agreements for Marqibo, Alocrest,
Brakiva and Menadione, we hold certain exclusive patent rights, including
rights under U.S. patents and U.S. patent applications. We also have
patent rights to applications pending in several foreign jurisdictions. We have
filed and anticipate filing additional patent applications both in the United
States and internationally, as appropriate.
The
rights to product candidates that we acquire from licensors or collaborators are
protected by patents and proprietary rights owned by them, and we rely on the
patent protection and rights established or acquired by them. We generally do
not unilaterally control, or do not control at all, the prosecution of patent
applications licensed from third parties. Accordingly, we are unable to exercise
the same degree of control over this intellectual property as we may exercise
over internally developed intellectual property.
The
patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and involve complex legal and factual questions. Even if we are able
to obtain patents, any patent may be challenged, invalidated, held unenforceable
or circumvented. The existence of a patent will not necessarily protect us from
competition. Competitors may successfully challenge our patents, produce similar
drugs or products that do not infringe our patents or produce drugs in countries
where we have not applied for patent protection or that do not respect our
patents. Under our license agreements, we generally do not unilaterally control,
or do not control at all, the enforcement of the licensed patents or the defense
of third party suits of infringement or invalidity.
Furthermore,
if we become involved in any patent litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts of
our technical and management personnel will be significantly diverted. As a
result of such litigation or proceedings we could lose our proprietary position
and be restricted or prevented from developing, manufacturing and selling the
affected products, incur significant damage awards, including punitive damages,
or be required to seek third-party licenses that may not be available on
commercially acceptable terms, if at all.
The
degree of future protection for our proprietary rights is uncertain in part
because legal means afford only limited protection and may not adequately
protect our rights, and we will not be able to ensure that:
·
|
we or our licensors or
collaborators were the first to make the inventions described in patent
applications;
|
28
·
|
we or our licensors or
collaborators were the first to file patent applications for
inventions;
|
|
|
·
|
others will not independently
develop similar or alternative technologies or duplicate any of our
technologies without infringing our intellectual property
rights;
|
|
|
·
|
any of our pending patent
applications will result in issued
patents;
|
|
|
·
|
any patents licensed or issued to
us will provide a basis for commercially viable products or will provide
us with any competitive advantages or will not be challenged by third
parties;
|
·
|
we will ultimately be able to
enforce our owned or licensed patent rights pertaining to our
products;
|
|
|
·
|
any patents licensed or issued to
us will not be challenged, invalidated, held unenforceable or
circumvented;
|
|
|
·
|
we will develop or license
proprietary technologies that are patentable;
or
|
|
|
·
|
the patents of others will not
have an adverse effect on our ability to do
business.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require all of
our employees to enter into agreements which prohibit the disclosure of
confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions
important to our business. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such
information. If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how and other
proprietary rights would be significantly impaired and our business and
competitive position would suffer.
Our
license agreements relating to our product candidates may be terminated in the
event we commit a material breach, the result of which would harm our business
and future prospects.
In the
event any of our license agreements relating to our product candidates are
terminated, we could lose all of our rights to develop and commercialize the
applicable product candidate covered by such license, which would harm our
business and future prospects. Our license agreement with Albert Einstein
College of Medicine, or AECOM, provides that AECOM may terminate the agreement,
after providing us with notice and an opportunity to cure, for our material
breach or default, or upon our bankruptcy. Our license to
Marqibo, Alocrest and Brakiva are governed by a series of agreements which
may be individually or collectively terminated, not only by Tekmira, but also by
M.D. Anderson Cancer Center, British Columbia Cancer Agency or University of
British Columbia under the underlying agreements governing the license or
assignment of technology to Tekmira. Tekmira may terminate these agreements for
our uncured material breach, for our involvement in a bankruptcy, for our
assertion or intention to assert any invalidity challenge on any of the patents
licensed to us for these products or for our failure to meet our development or
commercialization obligations, including the obligations of continuing to sell
each product in all major market countries after its launch. In the event that
these agreements are terminated, not only will we lose all rights to these
products, we will also have the obligation to transfer all of our data,
materials, regulatory filings and all other documentation to our licensor, and
our licensor may on its own exploit these products without any compensation to
us, regardless of the progress or amount of investment we have made in the
products.
Third
party claims of intellectual property infringement would require us to spend
significant time and money and could prevent us from developing or
commercializing our products.
In order
to protect or enforce patent rights, we may initiate patent litigation against
third parties. Similarly, we may be sued by others. We also may become subject
to proceedings conducted in the U.S. Patent and Trademark Office, including
interference proceedings to determine the priority of inventions, or
reexamination proceedings. In addition, any foreign patents that are granted may
become subject to opposition, nullity, or revocation proceedings in foreign
jurisdictions having such proceedings opposed by third parties in foreign
jurisdictions having opposition proceedings. The defense and prosecution, if
necessary, of intellectual property actions are costly and divert technical and
management personnel from their normal responsibilities.
No patent
can protect its holder from a claim of infringement of another patent.
Therefore, our patent position cannot and does not provide any assurance that
the commercialization of our products would not infringe the patent rights of
another. While we know of no actual or threatened claim of infringement that
would be material to us, there can be no assurance that such a claim will not be
asserted.
If such a
claim is asserted, there can be no assurance that the resolution of the claim
would permit us to continue marketing the relevant product on commercially
reasonable terms, if at all. We may not have sufficient resources to bring these
actions to a successful conclusion. If we do not successfully defend any
infringement actions to which we become a party or are unable to have infringed
patents declared invalid or unenforceable, we may have to pay substantial
monetary damages, which can be tripled if the infringement is deemed willful, or
be required to discontinue or significantly delay commercialization and
development of the affected products.
29
Any legal
action against us or our collaborators claiming damages and seeking to enjoin
developmental or marketing activities relating to affected products could, in
addition to subjecting us to potential liability for damages, require us or our
collaborators to obtain licenses to continue to develop, manufacture or market
the affected products. Such a license may not be available to us on commercially
reasonable terms, if at all.
An
adverse determination in a proceeding involving our owned or licensed
intellectual property may allow entry of generic substitutes for our
products.
Risks
Related to Our Securities
Our
stock price has, and we expect it to continue to, fluctuate significantly, and
the value of your investment may decline.
From
January 1, 2008 to December 31, 2009, the market price of our common
stock has ranged from a high of $1.22 per share to a low of $0.08 per
share. The volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit at any given
time, or to plan purchases and sales in advance. You might not be able to sell
your shares of common stock at or above the offering price due to fluctuations
in the market price of the common stock arising from changes in our operating
performance or prospects. In addition, the stock markets in general, and the
markets for biotechnology and biopharmaceutical companies in particular, have
experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. A variety of factors may affect our
operating performance and cause the market price of our common stock to
fluctuate. These include, but are not limited to:
·
|
announcements by us or our
competitors of regulatory developments, clinical trial results, clinical
trial enrollment, regulatory filings, product development updates, new
products and product launches, significant acquisitions, strategic
partnerships or joint
ventures;
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|
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·
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any intellectual property
infringement, product liability or any other litigation involving
us;
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·
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developments or disputes
concerning patents or other proprietary
rights;
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·
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regulatory developments in the
United States and foreign
countries;
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·
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market conditions in the
pharmaceutical and biotechnology sectors and issuance of new or changed
securities analysts’ reports or
recommendations;
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·
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economic or other crises and
other external factors;
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·
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actual or anticipated
period-to-period fluctuations in our results of
operations;
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·
|
departure of any of our key
management personnel; or
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·
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sales of our common
stock.
|
These and
other factors may cause the market price and demand of our common stock to
fluctuate substantially, which may limit investors from readily selling their
shares of common stock and may otherwise negatively affect the liquidity or
value of our common stock.
If
our results do not meet analysts’ forecasts and expectations, our stock price
could decline.
While
research analysts and others have published forecasts as to the amount and
timing of our future revenues and earnings, we have stated that we will not be
providing any forecasts of the amount and timing of our future revenues and
earnings until after two quarters of our sales and marketing efforts. Analysts
who cover our business and operations provide valuations regarding our stock
price and make recommendations whether to buy, hold or sell our stock. Our stock
price may be dependent upon such valuations and recommendations. Analysts’
valuations and recommendations are based primarily on our reported results and
their forecasts and expectations concerning our future results regarding, for
example, expenses, revenues, clinical trials, regulatory marketing approvals and
competition. Our future results are subject to substantial uncertainty, and we
may fail to meet or exceed analysts’ forecasts and expectations as a result of a
number of factors, including those discussed in this “Risk Factors” section. If
our results do not meet analysts’ forecasts and expectations, our stock price
could decline as a result of analysts lowering their valuations and
recommendations or otherwise.
30
We
are at risk of securities class action litigation.
In the
past, securities class action litigation has often been brought against a
company following a decline in the market price of its securities. This risk is
especially relevant for us because biotechnology companies have experienced
greater than average stock price volatility in recent years. If we faced such
litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
Our
common stock is considered a “penny stock.”
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. Because the market price of our common stock is currently
less than $5.00 per share, and none of the specific exemptions are applicable,
our common stock is considered a “penny stock” according to SEC rules. This
designation requires any broker or dealer selling our common stock to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser and determine that the purchaser is reasonably suitable to
purchase our common stock. These rules may restrict the ability of brokers or
dealers to sell shares of our common stock.
Because
we do not expect to pay dividends, you will not realize any income from an
investment in our common stock unless and until you sell your shares at
profit.
We have
never paid dividends on our common stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment in
our stock if you require dividend income. Further, you will only realize income
on an investment in our shares in the event you sell or otherwise dispose of
your shares at a price higher than the price you paid for your shares. Such a
gain would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
There
may be issuances of shares of blank check preferred stock in the
future.
Our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares
of preferred stock, none of which are issued or currently outstanding. Our board
of directors will have the authority to fix and determine the relative rights
and preferences of preferred shares, as well as the authority to issue such
shares, without further stockholder approval. As a result, our board of
directors could authorize the issuance of a series of preferred stock that is
senior to our common stock and that would grant to holders preferred rights to
our assets upon liquidation, the right to receive dividends, additional
registration rights, anti-dilution protection, the right to the redemption to
such shares, together with other rights, none of which will be afforded holders
of our common stock.
Because
our common stock is primarily traded on the OTC Bulletin Board, the volume of
shares traded and the prices at which such shares trade may result in lower
prices than might otherwise exist if our common stock was traded on a national
securities exchange.
We were
delisted from the Nasdaq Capital Market in September 2009 and trading in our
common stock has since been conducted on the OTC Bulletin
Board. Stocks traded on the OTC Bulletin Board are often less liquid
than stocks traded on national securities exchanges, not only in terms of the
number of shares that can be bought and sold at a given price, but also in terms
of delays in the timing of transactions and reduced coverage of us by security
analysts and the media. This may result in lower prices for our common stock
than might otherwise be obtained if our common stock were traded on a national
securities exchange, and could also result in a larger spread between the bid
and asked prices for our common stock.
31
None.
Our
executive offices are located at 7000 Shoreline Court, Suite 370, South San
Francisco, California 94080. We occupy this space, which consists of 18,788
square feet of office space, pursuant to a written sublease agreement under
which we currently pay rent of approximately $46,000 per month, decreasing to
approximately $36,600 per month beginning in June 2010. Our sublease currently
expires on March 31, 2011. We believe that our existing facilities are adequate
to meet our current requirements. We do not own any real property.
We are
not a party to any material legal proceedings.
32
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
Market
for Common Stock
From
April 17, 2006 to June 2, 2008 our common stock traded on the NASDAQ Global
Market under the symbol “HNAB.” From June 3, 2008 to September 9,
2009, our common stock traded on the NASDAQ Capital Market under the same
symbol. Since September 11, 2009, our common stock has traded on the
OTC Bulletin Board under the symbol “HNAB.OB.”
The
following table lists the high and low sale price for our common stock as
quoted, in U.S. dollars, by the NASDAQ Global Market, the NASDAQ Capital Market,
and the OTC Bulletin Board, as applicable, during each quarter within the last
two fiscal years.
Price Range
|
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Quarter Ended
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High
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Low
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||||||
March
31, 2008
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$
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1.48
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$
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0.74
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||||
June
30, 2008
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1.10
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0.70
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||||||
September
30, 2008
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0.79
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0.50
|
||||||
December
31, 2008
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0.63
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0.15
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||||||
March
31, 2009
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0.33
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0.08
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||||||
June
30, 2009
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1.00
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0.13
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||||||
September
30, 2009
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0.94
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0.42
|
||||||
December
31, 2009
|
0.65
|
0.13
|
Record
Holders
As of
March 24, 2010, we had approximately 137 holders of record of our common
stock, one of which was Cede & Co., a nominee for Depository Trust Company,
or DTC. Shares of common stock that are held by financial institutions as
nominees for beneficial owners are deposited into participant accounts at DTC,
and are considered to be held of record by Cede & Co. as one
stockholder.
Dividends
We have
not paid or declared any dividends on our common stock and we do not anticipate
paying dividends on our common stock in the foreseeable future.
Issuer
Purchases of Equity Securities
None
Recent
Sales of Unregistered Securities
On
December 30, 2009, a holder of warrants issued by us in our October 2009 private
placement exercised its right to purchase 3,504,827 shares of our common stock
at an exercise price of $0.01 per share. The sale of these shares was
made pursuant to a private transaction that did not involve a public offering,
and accordingly, we believe this transaction was exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof and the rules and regulations promulgated thereto, that the holder
acquired the shares for investment and not distribution, it could bear the risks
of the investment, and it could hold the securities for an indefinite period of
time. The holder received written disclosures that the securities had not been
registered under the Securities Act and any resale must be made pursuant to a
registration or an available exemption from such registration. All of the
foregoing securities are deemed restricted securities for purposes of the
Securities Act.
Not
applicable.
33
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and the notes to those
statements included elsewhere in this Annual Report. This discussion includes
forward-looking statements that involve risks and uncertainties. As a result of
many factors, such as those set forth under “Risk Factors” in Item 1A of this
Annual Report, our actual results may differ materially from those anticipated
in these forward-looking statements.
Overview
We are a
biopharmaceutical company dedicated to developing and commercializing new,
differentiated cancer therapies designed to improve and enable current standards
of care. We currently have four product candidates in various stages
of development:
·
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Marqibo® (vincristine sulfate
liposomes injection), a novel, targeted Optisome™ encapsulated formulation
product candidate of the FDA-approved anticancer drug vincristine, being
developed for the treatment of adult acute lymphoblastic
leukemia.
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|
|
·
|
Menadione Topical Lotion, a novel
supportive care product candidate, being developed for the prevention
and/or treatment of the skin toxicities associated with the use of
epidermal growth factor receptor inhibitors, a type of anti-cancer agent
used in the treatment of certain
cancers.
|
|
|
·
|
Brakiva™ (topotecan liposomes
injection), a novel targeted Optisome™ encapsulated formulation product
candidate of the FDA-approved anticancer drug topotecan, being developed
for the treatment of solid tumors including small cell lung cancer and
ovarian cancer.
|
|
|
·
|
Alocrest™ (vinorelbine liposomes
injection), a novel, targeted Optisome™ encapsulated formulation product
candidate of the FDA-approved anticancer drug vinorelbine, being developed
for the treatment of solid tumors such as non-small-cell lung
cancer.
|
Revenues
We do not
expect to generate any significant revenue from product sales or royalties in
the foreseeable future. We anticipate that any revenues that we may recognize
prior to the approval of any of our product candidates will be related to
upfront, milestone development funding payments received pursuant to strategic
license agreements or partnerships and that we may have large fluctuations of
revenue recognized from quarter to quarter as a result of the timing and the
amount of these payments. We may be unable to control the development of
commercialization of these products and may be unable to estimate the timing and
amount of revenue to be recognized pursuant to these agreements. Revenue from
these agreements and partnerships helps us fund our continuing operations. Our
revenues may increase in the future if we are able to develop and commercialize
our products, license our technology and/or enter into strategic partnerships.
If we are unsuccessful, our future revenues will decrease and we may be forced
to limit our development of our product candidates.
Research
and Development Expenses
Research
and development expenses, which account for the bulk of our expenses, consist
primarily of salaries and related personnel costs, fees paid to consultants and
outside service providers for laboratory development, manufacturing, legal
expenses resulting from intellectual property protection, business development
and organizational affairs and other expenses relating to the acquiring, design,
development, testing, and enhancement of our product candidates, including
milestone payments for licensed technology. We expense research and development
costs as they are incurred.
While
expenditures on current and future clinical development programs are expected to
be substantial, particularly in light of our available resources, they are
subject to many uncertainties, including the results of clinical trials and
whether we develop any of our drug candidates with a partner or independently.
As a result of such uncertainties, we cannot predict with any significant degree
of certainty the duration and completion costs of our research and development
projects or whether, when and to what extent we will generate revenues from the
commercialization and sale of any of our product candidates. The duration and
cost of clinical trials may vary significantly over the life of a project as a
result of unanticipated events arising during clinical development and a variety
of factors, including:
34
|
·
|
the number of trials and studies
in a clinical program;
|
|
·
|
the number of patients who
participate in the trials;
|
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·
|
the number of sites included in
the trials;
|
|
·
|
the rates of patient recruitment
and enrollment;
|
|
·
|
the duration of patient treatment
and follow-up;
|
|
·
|
the costs of manufacturing our
drug candidates; and
|
|
·
|
the costs, requirements, timing
of, and the ability to secure regulatory
approvals.
|
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and related expenses
for executive, finance and other administrative personnel, recruitment expenses,
professional fees and other corporate expenses, including accounting
and general legal activities.
Share-Based
Compensation
Share-based
compensation expenses consist primarily of expensing the fair-market value of a
share-based award over the vesting term. This expense is included in our
operating expenses for each reporting period. As of December 31, 2009, we
estimate that there is $0.6 million in total, unrecognized compensation costs
related to non-vested share-based awards, which is expected to be recognized
over a weighted average period of 1.1 years.
CRITICAL
ACCOUNTING POLICIES
The
accompanying discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. We believe there are certain accounting policies that are critical to
understanding our financial statements, as these policies affect the reported
amounts of expenses and involve management’s judgment regarding significant
estimates. We have reviewed our critical accounting policies and their
application in the preparation of our financial statements and related
disclosures with the Audit Committee of our Board of Directors. Our critical
accounting policies and estimates are described below.
Share-Based
Compensation
We have
adopted revised authoritative guidance related to stock-based compensation under
FASB ASC TOPIC 718 “Compensation – Stock
Compensation.” We have adopted a Black-Scholes-Merton model to
estimate the fair value of stock options issued and the resultant expense is
recognized in the statement of operations each reporting period. See
Note 4 of our unaudited condensed financial statements included elsewhere in
this Form 10-K for further information regarding the required disclosures
related to share-based compensation.
Warrant
Liabilities
On
October 30, 2007, we entered into a loan facility agreement with Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield
Special Situations Fund International Limited and Deerfield Private Design
International, L.P. We collectively refer to these entities as Deerfield. As
partial consideration for the loan, we also issued to Deerfield warrants to
purchase shares of our common stock. Certain of these warrants included an
anti-dilution feature. This feature required that, as we issued additional
shares of our common stock during the term of the warrant, the number of shares
purchasable under this series was automatically increased so that they always
represented a fixed percentage of our then outstanding common stock. Because the
warrants were redeemable if certain events occurred, we recorded the fair value
of the warrants as a liability, updating our estimate of the fair value of the
warrant liabilities in each reporting period as new information became available
and any gains or losses resulting from the changes in fair value from period to
period being included as other income or
expense.
35
On
September 8, 2009, we received a notice from the Staff of The NASDAQ Stock
Market indicating that we had failed to regain compliance with NASDAQ listing
requirements and that trading of our common stock on the NASDAQ Capital Market
would be suspended effective at the opening of business on September 10,
2009. In accordance with the terms of the warrants issued pursuant to
the October 2007 loan agreement, Deerfield had previously notified us of its
intention to require us to redeem the warrants, upon such
suspension. However, pursuant to the terms of a September 3, 2009
letter agreement, we and Deerfield agreed that, in lieu of satisfying the
warrant redemption price of approximately $3.87 million in cash, we could
satisfy such obligation at Deerfield’s election as follows:
|
·
|
upon the completion by us of a
“Qualified Financing” at any time or from time to time on or prior to June
30, 2010, by the issuance to Deerfield of the same type of securities that
Deerfield would have received had the redemption price been invested in
such financing; or
|
|
·
|
on any date on or prior to July
1, 2010 specified in a written notice by Deerfield to us, by the issuance
to Deerfield of shares of our common stock equal to the redemption price
divided by the lesser of $.60 or the average closing sale price of the
common stock during the 10 trading days immediately preceding the date of
such notice.
|
We
satisfied the warrant redemption price by issuing to Deerfield securities in
connection with our October 2009 private placement. Also in
conjunction with this financing, we issued certain warrants that had
characteristics of both equity and liabilities. These warrants were
evaluated to be classified as liabilities at the time of issuance and are
revalued at fair value from period to period with the resulting change in value
included in the statement of operations.
Licensed
In-Process Research and Development
Licensed
in-process research and development relates primarily to technology,
intellectual property and know-how acquired from another entity. We evaluate the
stage of development as well as additional time, resources and risks related to
development and eventual commercialization of the acquired technology. As we
historically have acquired non-FDA approved technologies, the nature of the
remaining efforts for completion and commercialization generally include
completion of clinical trials, completion of manufacturing validation,
interpretation of clinical and preclinical data and obtaining marketing approval
from the FDA and other regulatory bodies. The cost in resources, probability of
success and length of time to commercialization are extremely difficult to
determine. Numerous risks and uncertainties exist with respect to the timely
completion of development projects, including clinical trial results,
manufacturing process development results and ongoing feedback from regulatory
authorities, including obtaining marketing approval. Additionally, there is no
guarantee that the acquired technology will ever be successfully commercialized
due to the uncertainties associated with the pricing of new pharmaceuticals, the
cost of sales to produce these products in a commercial setting, changes in the
reimbursement environment or the introduction of new competitive products. Due
to the risks and uncertainties noted above, we will expense such licensed
in-process research and development projects when incurred. However, the cost of
acquisition of technology is capitalized if there are alternative future uses in
other research and development projects or otherwise based on internal review.
All milestone payments will be expensed in the period the milestone is
reached.
Clinical
Study Activities and Other Expenses from Third-Party Contract Research
Organizations
Much of
our research and development activities related to clinical study activity are
conducted by various third parties, including contract research organizations,
which may also provide contractually defined administration and management
services. Expense incurred for these contracted activities are based upon a
variety of factors, including actual and estimated patient enrollment rates,
clinical site initiation activities, labor hours and other activity-based
factors. On a regular basis, our estimates of these costs are reconciled to
actual invoices from the service providers, and adjustments are made
accordingly.
Revenue
Recognition
We
recognize all revenue in accordance with Staff Accounting Bulletin No. 104,
“Revenue Recognition,”
where revenue is recognized when (i) persuasive evidence of an arrangement
exists; (ii) delivery of the services, supplies or technology license has
occurred; (iii) the price is fixed or determinable; and
(iv) collectability is reasonably assured.
We
recognize revenue from the license or assignment of intellectual property and
rights to third parties, including development milestone payments associated
with such agreement if the funds have been received, the rights to the property
have been delivered, and we have no further obligations on the date(s) when the
payment has been received or collection is assured.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
General and
administrative expenses. For the year ended December
31, 2009, general and administrative, or G&A, expense was $4.0 million, as
compared to $5.8 million for the year ended December 31, 2008. The
decrease of $1.8 million is due to decreased personnel related expenses of $1.3
million, decreased costs for outside services and professional services of $0.3
million and decreased allocable expenses of $0.2 million.
36
The $1.3
million decrease in employee-related expenses includes:
·
|
a decrease of $1.2 million in
employee related share-based compensation expense is due to the decreased
valuation of stock options issued to employees as a result of the decrease
in value of the Company’s stock price;
and
|
·
|
a decrease of $0.1 million in
salary and benefits.
|
Research and
development expenses. The following table
summarizes our R&D expenses incurred for preclinical support, contract
manufacturing for clinical supplies and clinical trial services provided by
third parties, as well as milestone payments for in-licensed technology for each
of our current major product development programs for the years ended December
31, 2009 and 2008, plus the cumulative amounts for the last five years or
since we began development of a product candidate if it has not been in
development for five years. The table also summarizes unallocated
costs, which consist of personnel, facilities and other costs not directly
allocable to development programs.
Product candidates ($ in thousands)
|
2009
|
2008
|
Annual %
Change
|
(5 years) Jan.
1, 2005 to Dec
31, 2009
|
||||||||||||
Marqibo
|
$ | 5,362 | $ | 4,248 | 26 | % | $ | 8,420 | ||||||||
Menadione
|
550 | 2,929 | -81 | % | 5,681 | |||||||||||
Brakiva
|
444 | 953 | -53 | % | 3,319 | |||||||||||
Alocrest
|
2 | 699 | -99 | % | 3,413 | |||||||||||
Discontinued/out-licensed
product candidates
|
10 | (17 | ) | N/A | 12,372 | |||||||||||
Total
third party costs
|
2,729 | 3,222 | -15 | % | 24,644 | |||||||||||
Allocable
costs and overhead
|
1,092 | 1,421 | -23 | % | 5,517 | |||||||||||
Personnel
related expense
|
4,909 | 4,309 | 14 | % | 15,112 | |||||||||||
Share-based
compensation expense
|
515 | 663 | -22 | % | 7,452 | |||||||||||
Total
research and development expense
|
$ | 15,613 | $ | 18,427 | -15 | % | $ | 85,930 |
Marqibo. Marqibo costs
increased by $1.1 million in 2009 compared to 2008. The main cause of
the increase costs was increased enrollment in the rALLy study in
2009. In 2009, we completed enrollment in our Phase 2, open-label
trial in relapsed adult ALL and continued enrollment in our pilot Phase 2 trial
in metastic uveal melanoma. Pending final results of the Phase 2 trial in ALL we
intend to submit a rolling New Drug Application (NDA) with the FDA in mid-2010
to seek limited approval in the ALL indication. We also plan to
initiate a confirmatory trial in 2010. We expect to spend
approximately $7.3 million on external project costs relating to Marqibo in
2010. We estimate that we will need to expend at least an additional aggregate
of approximately $45 million in order for us to obtain full FDA approval for
Marqibo, if ever, which includes milestone payments that would be owed to our
licensor upon FDA approval. We expect that it will take approximately
three to four years until we will have completed development and obtained full
FDA approval of Marqibo, if ever. We anticipate that we will need to
spend at least an additional $5 million in order to obtain accelerated, limited
approval.
Menadione Topical Lotion.
Menadione costs decreased by $2.4 million in 2009 compared to 2008, due
largely to a Phase 1 study started and completed in 2008 in healthy
volunteers. In 2009, we completed enrollment in a Phase 1 clinical
trial in cancer patients. We plan to initiate a Phase 2 clinical
trial in cancer patients in mid 2010, pending final results of the Phase 1
study. As this drug is early in its clinical development, both the
registrational strategy and total expenditures to obtain FDA approval are still
being evaluated. However, we expect to spend approximately $0.5 million on
external project costs relating to Menadione in 2010, and we estimate that we
will need to expend at least an aggregate of approximately $40 million of
additional funds in order for us to obtain full FDA approval for Menadione, if
ever, which includes milestone payments that would be owed to our licensor upon
FDA approval. We expect that it will take approximately two to three years
until we will have completed development and obtained FDA approval, if
ever. Per the terms of the securities purchase agreement completed in
October 2009, we agreed to use the proceeds of the sale of those securities
solely for the clinical and regulatory development of our Marqibo program. As
such, future development of Menadione is contingent on obtaining additional
funding, if any such funding is available in the future.
Brakiva.
Brakiva costs decreased by $0.5 million in 2009, due to decreased manufacturing
costs. We continued enrollment in a Phase 1 clinical trial in 2009.
We plan to complete enrollment in this clinical trial in 2010 and expect that we
will expend approximately $0.5 million in 2010. We are exploring
options for further development of Brakiva beyond the phase 1
trial. As this drug is early in its clinical development, both the
registrational strategy and total expenditures to obtain FDA approval are still
being evaluated. Per the terms of the securities purchase agreement
completed in October 2009, we agreed to use the proceeds of the sale of those
securities solely for the clinical and regulatory development of our Marqibo
program. As such, future development of Brakiva is contingent on obtaining
additional funding, if any such funding is available in the future.
Alocrest. We
are currently exploring options for the continued development of Alocrest and do
not expect to incur significant project costs in 2010.
37
Discontinued/Out-licensed
projects.
We did not pursue development on our Zensana product candidates in 2009 which
was out-licensed in 2007. We may incur only incidental expenses in
2010 related to the continued disposition of this product.
Other R&D expenses.
Third-party costs related to indirect support of our clinical trials and product
candidates decreased to $2.7 million in 2009 compared to $3.2 million in
2008. The decrease of $0.5 million is largely due to decreased
payment to license partners in 2009. These costs are not directly
allocable to an individual product candidate. We expect these costs
to remain flat or decrease slightly in 2010 as we have finished the rALLy study
in Marqibo and are preparing for a confirmatory study and prepare for filing an
NDA in mid-2010.
Allocable
costs decreased by $0.2 million as a result of cost-cutting measures pursued by
us. We expect these costs to stay flat or decrease slightly in
2010.
Personnel
related costs increased by $0.6 million in 2009 compared to 2008. The
increase was due largely to certain key executive positions that were filled in
late 2008 and early 2009 as well as higher compensation costs. This
was partially offset by lower benefit costs in 2009. We expect these
costs to increase slightly in 2010. Stock compenstation decreased
slightly due to a lower valuation for options issued in 2009 due to the
Company’s lower stock price. We expect stock-based compensation will
continue to decrease until our stock price increases or the amount of options
issued increases.
Interest income. For the year
ended December 31, 2009, interest income was less than $15,000 as compared to
interest income of $0.3 million for the year ended December 31, 2008. The
decrease resulted from decreased cash balance in our interest bearing accounts
and lower yields on our deposits.
Interest expense. For the
year ended December 31, 2009, interest expense was $3.4 million as compared to
interest expense of $1.4 million for the year ended December 31, 2008. The
increase resulted from a larger average balance outstanding on our loan facility
with Deerfield. We originally entered into this loan agreement in
October 2007.
Other expense, net. For the
year ended December 31, 2009, net other expense was insignificant. In
2008, we incurred a $0.1 million loss related to an impairment of our
available-for-sale securities.
Gain on change in fair market value
of warrant liabilities. For the year ended December 31, 2009, we
recognized a loss related to the change in fair market value of the warrant
liabilities, (see Note 5) of $1.1 million. In 2008, our gain on this
warrant liability was $3.3 million. The value of these warrants is largely
dependant the price of our common stock, and as the stock price is reduced, the
value of these warrants will decrease and our gain on the change in market value
will increase.
Income tax expense. There was
no current or deferred income tax expense (other than state minimum tax) for the
years ended December 31, 2009 and 2008 because of our operating losses. A 100%
valuation allowance has been recorded against our $56.9 million of deferred tax
assets as of December 31, 2009. Historical performance leads management to
believe that realization of these assets is uncertain. As a result of the
valuation allowance, our effective tax rate differs from the statutory rate.
Liquidity
and Capital Resources
As of
December 31, 2009, we had aggregate cash and cash equivalents and
available-for-sale securities of $9.6 million. In addition, pursuant
to the Deerfield loan facility, we have $2.5 million that may become available
to us if we achieve a certain milestone in the development of our product
candidate Menadione. However, we do not anticipate achieving this
milestone by the middle of 2010, unless we are able to obtain additional capital
by such time to fund the additional development needed to achieve the
milestone. We have drawn down $27.5 million of the total $30 million
available under the loan facility agreement.
Through
December 31, 2009, we have sustained recurring net losses, such that we have an
accumulated deficit of $135.1 million and a stockholders deficit of $17.5
million. Management expects this deficit to increase in future
periods as we continue to develop our product candidates. We expect
to incur sizeable expenses in our Marqibo development program as we finalize
data from the Phase 2 rALLy and prepare to initiate a rolling NDA submission in
mid-2010. We also expect to incur considerable expenses by initiating
a confirmatory trial in Marqibo in 2010. Our continued operations
will depend on whether we are able to raise additional funds through various
potential sources, such as equity and debt financing. Through December 31, 2009,
a significant portion of our financing has been and will continue to be through
private placements of common stock and debt financing.
38
In
October 2009, we entered into a securities purchase agreement to sell in a
private placement an aggregate of 54,593,864 units of our securities, each unit
consisting of (i) either (a) one share of common stock, or (b) a seven-year
warrant to purchase one share of common stock at an exercise price of $0.01 per
share (a “Series A Warrant”), and (ii) a seven-year warrant to purchase
one-tenth of one share of common stock at an exercise price of $0.60 (a “Series
B Warrant”), which represented the closing bid price of our common stock on
October 7, 2009. Pursuant to the securities purchase agreement, we
sold 43,562,142 units consisting of shares of common stock and Series B Warrants
at a purchase price of $0.30 per unit, and 11,031,722 units consisting of Series
A Warrants and Series B Warrants at a purchase price of $0.29 per unit, for
total gross proceeds of approximately $16.27 million. Of these
proceeds, approximately $12.4 million was received as cash and approximately
$3.87 million represents the satisfaction of an outstanding warrant redemption
obligation we owed to Deerfield. In total, Deerfield received
12,906,145 units consisting of an equal number of shares of common stock and
Series B Warrants in the offering in satisfaction of our warrant redemption
obligation
We do not
currently have sufficient capital to fund operations through the next twelve
months. We can give no assurances that any additional capital that we
are able to obtain will be sufficient to meet our needs which raises substantial
doubt about our ability to continue operating as a going
concern. Given the current and desired pace of clinical development
of our product candidates, we estimate that we only have sufficient cash on hand
to fund clinical development into mid-2010. We will be required to
raise additional capital in 2010 in order to fund our future development
activities, likely by selling shares of our capital stock or through debt
financing. If we are unable to raise additional capital or enter into strategic
partnerships and/or license agreements, we will be required to cease operations
or curtail our desired development activities, which will delay the development
of our product candidates. There can be no assurance that such
capital will be available to us on favorable terms or at all, particularly in
light of the general economic conditions, which have severely limited our access
to the capital markets. We will need additional financing thereafter until we
can achieve profitability, if ever.
Current and Future Financing
Needs. We currently do not have enough capital resources to fund our
entire development plan through 2010. Our plan of operation for the year ending
December 31, 2010 is to continue implementing our business strategy, including
the continued development of our main product candidate Marqibo. We
expect our principal expenditures during the next 12 months to
include:
·
|
operating expenses, including
expanded research and development and general and administrative
expenses;
|
|
|
·
|
product development expenses,
including the costs incurred with respect to applications to conduct
clinical trials in the United States, as well as outside of the United
States, for our product candidates, including manufacturing, intellectual
property prosecution and regulatory
compliance.
|
As part
of our planned research and development, we intend to use clinical research
organizations and third parties to help perform our clinical studies and
manufacturing. As indicated above, at our current and desired pace of clinical
development of our product candidates, over the next 12 months we expect to
spend approximately between $16.0 million and $18.0 million on clinical
development (including milestone payments that we expect to be triggered under
the license agreements relating to our product candidates). We expect
to spend approximately $3.5 million on general corporate and administrative
expenses as well as $0.5 million on facilities and rent.
We
believe that our cash, cash equivalents and marketable securities, which totaled
$9.6 million at December 31, 2009, will only be sufficient to meet our
anticipated operating needs to mid-2010 based upon current operating and
spending assumptions. However, we expect to incur substantial expenses as we
continue our drug development efforts, particularly to the extent we advance our
lead candidate Marqibo through a pivotal clinical study. Pursuant to
the terms of the October 2009 private placement, we agreed to use those proceeds
solely for the clinical and regulatory development of our Marqibo program.
Future development of our other products, including Menadione, is therefore
contingent on obtaining additional financing. We cannot guarantee that future
financing will be available in amounts or on terms acceptable to us, if at
all.
The
actual amount of funds we will need to operate is subject to many factors, some
of which are beyond our control. These factors include the
following:
·
|
costs associated with conducting
preclinical and clinical
testing;
|
|
|
·
|
costs of establishing
arrangements for manufacturing our product
candidates;
|
|
|
·
|
payments required under our
current and any future license agreements and
collaborations;
|
|
|
·
|
costs, timing and outcome of
regulatory reviews;
|
|
|
·
|
costs of obtaining, maintaining
and defending patents on our product candidates;
and
|
|
|
·
|
costs of increased general and
administrative expenses.
|
We have
based our estimate on assumptions that may prove to be wrong. We may need to
obtain additional funds sooner or in greater amounts than we currently
anticipate. Potential sources of financing include strategic relationships,
public or private sales of our stock or debt and other sources. We may seek to
access the public or private equity markets when conditions are favorable due to
our long-term capital requirements. We do not have any committed sources of
financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at
all. If we raise funds by selling additional shares of common stock
or other securities convertible into common stock, the ownership interest of our
existing stockholders will be diluted. If we are not able to obtain
financing when needed, we will be unable to carry out our business plan. As a
result, we will have to significantly limit our operations and our business,
financial condition and results of operations would be materially
harmed.
39
Off-Balance
Sheet Arrangements
We do not
have any “off-balance sheet agreements,” as that term is defined by SEC
regulation. We do, however, have various commitments under certain agreements,
as follows:
Contractual
Obligations
In the
event we achieve certain milestones in connection with the development of our
product candidates, we will be obligated to make milestone payments to our
licensors in accordance with the terms of our license agreements, as discussed
below. The development of pharmaceutical product candidates is subject to
numerous risks and uncertainties, including, without limitation, the following:
(1) risk of delays in or discontinuation of development from lack of financing,
(2) our inability to obtain necessary regulatory approvals to market the
products, (3) unforeseen safety issues relating to the products, (4) our ability
to enroll a sufficient number of patients in our clinical trials, and (5)
dependence on third party collaborators to conduct research and development of
the products. Additionally, on a historical basis, only approximately 11 % of
all product candidates that enter human clinical trials are eventually approved
for sale. Accordingly, we cannot state that it is reasonably likely that we will
be obligated to make any milestone payments under our license agreements.
Summarized below are our future commitments under our license agreements, as
well as the amounts we have paid to date under such agreements.
Tekmira License
Agreement.
In May 2006, we entered into a series of related agreements with Tekmira
Pharmaceuticals Corporation, formerly Inex Pharmaceuticals Corporation. Pursuant
to a license agreement with Tekmira, as amended in April 2007, we received an
exclusive, worldwide license to patents, technology and other intellectual
property relating to our Marqibo, Alocrest and Brakiva product
candidates. We also hold an exclusive, worldwide license to other patents
and intellectual property relating to these product candidates owned by the M.D.
Anderson Cancer Center. In addition, we entered into a sublicense agreement with
Tekmira and the University of British Columbia, or UBC, which licenses to
Tekmira other patents and intellectual property relating to the technology used
in Marqibo, sphingosome encapsulated vinorelbine and sphingosome encapsulated
topotecan. Further, Tekmira assigned to us its rights under a license agreement
with Elan Pharmaceuticals, Inc., from which Tekmira had licensed additional
patents and intellectual property relating to the three Optisomal product
candidates.
In
consideration for the rights and assets acquired from Tekmira, we paid to
Tekmira aggregate consideration of $11.8 million, which payment consisted of
$1.5 million in cash and 1,118,568 shares of our common stock. We also agreed to
pay to Tekmira royalties on sales of the licensed products, as well as upon the
achievement of specified development and regulatory milestones and up to a
maximum aggregate amount of $37 million for all product candidates. The
milestones and other payments may include annual license maintenance fees and
milestones. To date, we have achieved two development milestones related to our
Tekmira product candidates for which we have paid a total of $1.0 million to
Tekmira.
Menadione License
Agreement. In October 2006, we entered into a license agreement with the
AECOM. Pursuant to the Agreement, we acquired an exclusive, worldwide,
royalty-bearing license to certain patent applications, and other intellectual
property relating to topical menadione. In consideration for the license, we
agreed to issue the college $0.2 million of our common
stock. We also made a cash payment within 30 days of signing the
agreement and we agreed to pay annual maintenance fees. Further, we agreed
to make milestone payments in the aggregate amount of $2.8 million upon the
achievement of various clinical and regulatory milestones, as described in the
agreement, of which we have achieved one milestone and have paid AECOM total
consideration of $0.3 million. We may also make annual maintenance fees as part
of the agreement. We also agreed to make royalty payments to the College on net
sales of any products covered by a claim in any licensed patent.
Lease
Agreements. We entered into a three year sublease, which commenced on May
31, 2006, for property at 7000 Shoreline Court in South San Francisco,
California, where our executive offices are located. In May 2008, we and our
sublessor entered into an amendment to the sublease agreement, which increased
the term of the lease from three years to four years. The total cash payments
due for the duration of the sublease equaled approximately $0.9 million at
December 31, 2009.
Employment
Agreements. On June 6, 2008, we entered into a new employment agreement
with our President and Chief Executive Officer. This agreement provides for an
employment term that expires in December 2010. The minimum aggregate amount of
gross salary compensation to be provided for over the remaining term of the
agreement amounted to approximately $0.4 million at December 31,
2009.
40
RECENT
ACCOUNTING PRONOUNCEMENTS
In June
2009, the Financial Accounting Standards Board, or FASB, established the FASB
Accounting Standards Codification TM, or ASC, as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in preparation of financial statements in conformity with generally
accepted accounting principles in the United States. All other accounting
literature not included in the ASC is now nonauthoritative. The ASC was
effective for financial statements issued for interim and annual periods ending
after September 15, 2009 and its adoption did not have any impact on the
Company’s financial statements. The ASC is updated through the FASB’s issuance
of Accounting Standard Updates, or ASUs. Summarized below are recently issued
accounting pronouncements as described under the new ASC structure
In August
2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair
Value,” or ASU 2009-05, which amends ASC 820 to provide clarification of
circumstances in which a quoted price in an active market for an identical
liability is not available. A reporting entity is required to measure fair value
using one or more of the following methods: 1) a valuation technique that uses
a) the quoted price of the identical liability when traded as an asset or b)
quoted prices for similar liabilities (or similar liabilities when traded as
assets) and/or 2) a valuation technique that is consistent with the principles
of ASC 820. ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
adoption of this ASU did not have an impact on the Company’s financial
statements.
Not
applicable.
The
response to this Item is submitted as a separate section of this report
commencing on Page F-1.
Not
applicable.
Evaluation
of Disclosure Controls and Procedures
We
conducted an evaluation as of December 31, 2009, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures, which are defined under SEC
rules as controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within required time periods. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of such date, our disclosure controls and procedures were
effective.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act. 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 our assets; (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
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on criteria
established in the Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Management’s assessment
included evaluation of such elements as the design and operating effectiveness
of key financial reporting controls, process documentation, accounting policies,
and our overall control environment. Based on this evaluation, our management
concluded that our internal control over financial reporting was effective as of
December 31, 2009.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal controls over financial reporting.
Management’s report was not subject to attestation by the Company’s
registered public accounting firm pursuant to the temporary rules of the
Securities and Exchange Commission that permit the Company to only provide
management’s report in this annual report.
41
Limitations
on the Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefit of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Hana have been detected. 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.
Changes
in Internal Controls over Financial Reporting
There was
no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) that occurred during the fourth
quarter of the year ended December 31, 2009 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
We held a
Special Meeting of Stockholders at the Radisson Sierra Point Hotel, 5000 Sierra
Point Parkway in Brisbane, California on December 17, 2009. At the meeting, our
stockholders approved an amendment to our certificate of
incorporation to increase the number of authorized shares of common stock from
100,000,000 to 200,000,000. The stockholders present in person or by proxy cast
42,412,546 votes in favor of proposed amendment and 2,391,571 votes against.
42
Information
in response to this Item is incorporated herein by reference to our 2010 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this form 10-K.
Information
in response to this Item is incorporated herein by reference to our 2010 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Equity
Compensation Plan Information
The
following table provides additional information on the Company's equity based
compensation plans as of December 31, 2009:
Plan category
|
Number of
securities to
be
issued upon
exercise of
Outstanding
options,
warrants and
Rights
(a)
|
Weighted
average
exercise price
of
Outstanding
options,
warrants
and rights
(b)
|
Number of
Securities
Remaining
available for
future
issuance
(excluding
Securities
reflected in
column (a)
(c)
|
|||||||||
|
||||||||||||
Equity
compensation plans not approved by stockholders-outside any
plan(1)
|
239,713 | $ | 0.65 | N/A | ||||||||
Equity
compensation plans approved by stockholders-2003 Plan(2)
|
342,997 | 2.95 | 0 | |||||||||
Equity
compensation plans approved by stockholders-2004 Plan(2)
|
4,251,328 | 1.80 | 0 | |||||||||
Equity
compensation plans approved by stockholders-2006 Employee Stock Purchase
Plan (3)
|
138,315 | $ | 0.16 | 283,189 | ||||||||
Total
|
4,972,353 | 283,189 |
(1)
|
Represents shares of common stock
issuable outside of any stock option
plan.
|
(2)
|
Represents shares issued under
the Company's 2003 Stock Option Plan, or 2003 Plan, and 2004 Stock
Incentive Plan, or 2004 Plan. During 2004 the Company's Board
of Directors adopted the 2004 Plan. In February 2010, the
Company’s Board of Directors amended the 2003 and 2004 Plans such that the
total number of shares issuable under the plan equaled the total shares
issuable under the current awards outstanding at the time plus any
previously exercised awards. For the 2003 plan, the total plan
was reduced from 1,410,068 to 528,342 shares of common stock issuable, of
which 259,664 shares are reserved for issuance for awards outstanding at
the time of adoption. For the 2004 plan, the total plan was
reduced from 7,000,000 to 4,747,257 shares of common stock issuable, of
which 4,279,661 shares are reserved for issuance for awards outstanding at
the time of adoption. Thus, there are no shares available for issuance
under these plans. Also in February 2010, the Company adopted
the 2010 Equity Incentive Plan or the 2010 Plan. See also Note
4 of the Company's audited financial statements as of and for the year
ended December 31, 2009 included in this Annual
Report.
|
(3)
|
Represents
shares issued under the Company's 2006 Employee Stock Purchase Plan, or
2006 Plan. During 2006, the Company’s Board of Directors adopted the 2006
Plan. Shares to be issued are shares that were purchased on January 2,
2010. See also Note 4 of the Company's audited financial
statements as of and for the year ended December 31, 2009 included in this
Annual Report.
|
Information
in response to this Item relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to our 2010 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
43
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information
in response to this Item is incorporated herein by reference to our 2010 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
Information
in response to this Item is incorporated herein by reference to our 2010 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
44
Exhibit
No.
|
|
Description
|
2.1
|
Agreement
and Plan of Merger dated June 17, 2004 by and among the Registrant, Hudson
Health Sciences, Inc. (n/k/a Hana Biosciences, Inc.) and EMLR Acquisition
Corp. (incorporated by reference to Exhibit 2.0 of the Registrant’s Form
8-K filed June 24, 2004).
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Hana Biosciences, Inc., as
amended (filed herewith).
|
|
3.2
|
Amended
and Restated Bylaws of Hana Biosciences, Inc. (incorporated by reference
to Exhibit 3.2 of the Registrant’s Registration Statement on Form SB-2/A
(SEC File No. 333-118426) filed on October 12, 2004).
|
|
4.1
|
Specimen
common stock certificate (incorporated by reference to Exhibit 4.1 of the
Registrant’s Registration Statement on Form SB-2/A (SEC File No.
333-118426) filed October 12, 2004).
|
|
4.2
|
Form
of common stock purchase warrant issued to Paramount BioCapital, Inc. in
connection with February 2004 and April 2005 private placement
(incorporated by reference to Exhibit 4.2 of the Registrant’s Annual
Report on Form 10-KSB (SEC File No. 000-50782) for the year ended December
31, 2004).
|
|
4.3
|
Form
of option to purchase an aggregate of 138,951 shares of common stock
originally issued to Yale University and certain employees thereof
(incorporated by reference to Exhibit 4.2 of the Registrant’s Annual
Report on Form 10-KSB (SEC File No. 000-50782) for the year ended December
31, 2004).
|
|
4.4
|
Schedule
of options in form of Exhibit 4.3 (incorporated by reference to Exhibit
4.2 of the Registration’s Annual Report on Form 10-KSB (SEC. File No.
000-50782) for the year ended December 31, 2004).
|
|
4.5
|
Form
of warrant issued in connection with April 2005 private placement
(incorporated by reference to Exhibit 4.5 of Registrant’s Form SB-2 (SEC
File. No. 333-125083) filed on May 20, 2005).
|
|
4.6
|
Form
of warrant issued in connection with Registrant’s October 2005 private
placement (incorporated by reference to Exhibit 4.6 of Registrant’s Form
S-3 (SEC File No. 333-129722) filed on November 15,
2005).
|
|
4.7
|
Form
of Promissory Note issued to lenders in connection with October 30, 2007
Facility Agreement. (incorporated by reference to Exhibit 4.9 to the
Registrant’s Form 10-K for the year ended December 31,
2007).
|
|
4.8
|
Form
of Series A warrant to purchase common stock issued in connection with
October 2009 private placement (incorporated by reference to Exhibit 4.8
to the Company’s Registration Statement on Form S-1 filed November 3, 2009
(SEC File No. 333-162836)).
|
|
4.9
|
Schedule
of warrants issued on form of warrant attached as Exhibit 4.8 hereof
(incorporated by reference to Exhibit 4.9 to the Company’s Registration
Statement on Form S-1 filed November 3, 2009 (SEC File No.
333-162836)).
|
|
4.10
|
Form
of Series B warrant to purchase common stock issued in connection with
October 2009 private placement (incorporated by reference to Exhibit 4.10
to the Company’s Registration Statement on Form S-1 filed November 3, 2009
(SEC File No. 333-162836)).
|
|
4.11
|
Schedule
of warrants issued on form of warrant attached as Exhibit 4.10 hereof
(incorporated by reference to Exhibit 4.11 to the Company’s Registration
Statement on Form S-1 filed November 3, 2009 (SEC File No.
333-162836)).
|
|
10.1
|
Hana
Biosciences, Inc. 2004 Stock Incentive Plan, as amended through June 22,
2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed June 27, 2007).*
|
|
10.2
|
Form
of stock option agreement for use in connection with 2004 Stock Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Form
10-K for the year ended December 31, 2006).*
|
|
10.3
|
2003
Stock Option Plan of Hana Biosciences, Inc. (incorporated by reference to
Appendix B of the Company's Definitive Proxy Statement on Schedule 14A
filed April 7, 2006).*
|
|
10.4
|
Summary
terms of non-employee director compensation (incorporated by reference to
Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31,
2007).*
|
|
10.5
|
2006
Employee Stock Purchase Plan of Hana Biosciences, Inc. (incorporated by
reference to Appendix D of the Company's Definitive Proxy Statement
on Schedule 14A filed April 7, 2006).*
|
|
10.6
|
Amended
and Restated License Agreement dated April 30, 2007 between the Company
and Tekmira Pharmaceuticals Corp., as successor in interest to Inex
Pharmaceuticals Corp. (incorporated by reference to Exhibit 10.4 of the
Registrant’s Form 10-Q for the quarter ended June 30,
2007)+
|
|
10.7
|
Sublicense
Agreement dated May 6, 2006 among the Registrant, Inex Pharmaceuticals
Corporation and the University of British Columbia (incorporated by
reference to Exhibit 10.5 of the Registrant’s Form 10-Q for the quarter
ended June 30, 2006).+
|
|
10.8
|
Registration
Rights Agreement dated May 6, 2006 between the Registrant and Inex
Pharmaceuticals Corporation (incorporated by reference to Exhibit 10.6 of
the Registrant’s Form 10-Q for the quarter ended June 30,
2006).
|
|
10.9
|
Amended
and Restated License Agreement among Elan Pharmaceuticals, Inc., Inex
Pharmaceuticals Corporation (for itself and as successor in interest to IE
Oncology Company Limited), as assigned to the Registrant by Inex
Pharmaceuticals Corporation on May 6, 2006 (incorporated by reference to
Exhibit 10.8 of the Registrant’s Form 10-Q for the quarter ended June 30,
2006).
|
45
10.10
|
Form
of common stock purchase agreement dated May 17, 2006 between the
Registrant and certain investors (incorporated by reference to Exhibit
10.2 of the Registrant’s Form 8-K filed May 17, 2006).
|
|
10.11
|
Sublease
Agreement dated May 31, 2006 between the Registrant and MJ Research
Company, Inc., including amendment thereto dated May 31, 2006
(incorporated by reference to Exhibit 10.15 of the Registrant’s Form 10-Q
for the quarter ended June 30, 2006).
|
|
10.12
|
Research
and License Agreement dated October 9, 2006 between the Registrant and
Albert Einstein College of Medicine of Yeshiva University, a division of
Yeshiva University (incorporated by reference to Exhibit 10.38 to the
Registrant’s Form 10-K for the year ended December 31,
2006).+
|
|
10.13
|
Patent
and Technology License Agreement dated February 14, 2000 (including
amendment dated August 15, 2000) between the Board of Regents of the
University of Texas System on behalf of the University of Texas M.D.
Anderson Cancer Center and Hana Biosciences, Inc., as successor in
interest to Inex Pharmaceuticals Corp. (incorporated by reference to
Exhibit 10.3 of the Registrant’s Form 10-Q for the quarter ended June 30,
2007).+
|
|
10.14
|
Facility
Agreement dated October 30, 2007 among Hana Biosciences, Inc., Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund L.P.,
Deerfield Special Situations Fund International Limited, and Deerfield
Private Design International, L.P. (incorporated by reference to Exhibit
10.24 to the Registrant’s Form 10-K for the year ended December 31,
2007).
|
|
10.15
|
Security
Agreement dated October 30, 2007 between Hana Biosciences, Inc. in favor
of Deerfield Private Design Fund, L.P., Deerfield Special Situations Fund
L.P., Deerfield Special Situations Fund International Limited, and
Deerfield Private Design International, L.P. (incorporated by reference to
Exhibit 10.25 to the Registrant’s Form 10-K for the year ended December
31, 2007).
|
|
10.16
|
Letter
agreement dated March 16, 2008 between Hana Biosciences, Inc. and Anne E.
Hagey, M.D. (incorporated by reference to Exhibit 10.2 of the Registrant’s
Form 10-Q for the quarter ended March 31, 2008).*
|
|
10.17
|
Employment
Agreement by and between Hana Biosciences, Inc. and Steven R. Deitcher,
dated June 6, 2008 (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed June 11, 2008).
|
|
10.18
|
Second
Amendment to Sublease Agreement dated May 19, 2008 by and between MJ
Research Company and Hana Biosciences, Inc. (incorporated by reference to
Exhibit 10.2 of the Registrant’s Form 10-Q for the quarter ended June 30,
2008).
|
|
10.19
|
Amendment
No. 1 dated June 2, 2009 to Amended and Restated License Agreement dated
April 30, 2007 between Hana Biosciences, Inc. and Tekmira Pharmaceuticals
Corp. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form
10-Q for the quarter ended June 30, 2009).+
|
|
10.20
|
Agreement
dated September 3, 2009 by and among Hana Biosciences, Inc., Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund L.P.,
Deerfield Special Situations Fund International Limited, and Deerfield
Private Design International, L.P. (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K filed September 10,
2009).
|
|
10.21
|
Form
of Securities Purchase Agreement entered into among the Company and
certain accredited investors on October 7, 2009 (incorporated by reference
to Exhibit 10.1 to the Company’s Form 8-K filed October 8,
2009).
|
|
10.22
|
Hana
Biosciences, Inc. 2010 Equity Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed February 22,
2010).*
|
|
10.23
|
Form
of Stock Option Agreement under 2010 Equity Incentive Plan (incorporated
by reference to Exhibit 10.2 to the Company’s Form 8-K filed February 22,
2010).*
|
|
23.1
|
Consent
of BDO Seidman, LLP, Independent Registered Public Accounting Firm (filed
herewith).
|
|
24.1
|
Power
of Attorney (included on signature page hereof).
|
|
31.1
|
Certification
of Chief Executive Officer (filed herewith).
|
|
31.2
|
Certification
of Chief Financial Officer (filed herewith).
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
+
|
Confidential treatment has been
granted as to certain omitted portions of this exhibit pursuant to Rule
406 of the Securities Act or Rule 24b-2 of the Exchange
Act.
|
*
|
Indicates a management contract
or compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-K.
|
46
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.
|
HANA
BIOSCIENCES, INC.
|
|
|
||
Date:
March 25, 2010
|
By:
|
/s/ Steven R.
Deitcher
|
Steven
R. Deitcher, M.D
|
||
President
and Chief Executive Officer
|
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Steven R. Deitcher and Tyler M. Nielsen, and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this
annual 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 connection therewith, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitutes or substitute, may lawfully
do or cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Exchange Act, this report has been duly signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Steven R. Deitcher
|
|
President,
Chief Executive Officer and Director
(principal
executive officer)
|
|
March
25, 2010
|
Steven
R. Deitcher
|
|
|
|
|
|
|
|
|
|
/s/ Tyler M.
Nielsen
|
|
Interim
Vice President, Chief Financial Officer and
Controller (principal
financial and accounting officer)
|
|
March
25, 2010
|
Tyler
M. Nielsen
|
|
|
|
|
|
|
|
|
|
/s/ Howard P.
Furst
|
|
Director
|
|
March
24, 2010
|
Howard
P. Furst
|
|
|
|
|
|
|
|
|
|
/s/ Paul V.
Maier
|
Director
|
March
24, 2010
|
||
Paul
V. Maier
|
||||
|
|
|
|
|
/s/ Leon E.
Rosenberg
|
|
Director
|
|
March
24, 2010
|
Leon
E. Rosenberg
|
|
|
|
|
|
|
|
|
|
/s/ Michael
Weiser
|
|
Director
|
|
March
24, 2010
|
Michael
Weiser
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
24, 2010
|
|
Linda
(Lyn) E. Wiesinger
|
|
|
|
|
47
Hana Biosciences,
Inc.
Audited Financial Statements:
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Balance
Sheets as of December 31, 2009 and 2008
|
F-3
|
|
Statements
of Operations and Other Comprehensive Loss for the Years Ended December
31, 2009 and 2008
|
F-4
|
|
Statements
of Changes in Stockholders' Equity (Deficit) for the Years Ended December
31, 2009 and 2008
|
F-5
|
|
Statements
of Cash Flows for the Years Ended December 31, 2009 and
2008
|
F-6
|
|
Notes
to Financial Statements
|
F-7
|
F-1
Board of
Directors and Stockholders
Hana
Biosciences, Inc.
South San
Francisco, California
We have
audited the accompanying balance sheets of Hana Biosciences, Inc. as of December
31, 2009 and 2008 and the related statements of operations and comprehensive
loss, stockholders’ equity (deficit), and cash flows for each of the two years
in the period ended December 31, 2009. These financial statements are
the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements and
schedules. We believe that our audits provide a reasonable basis for
our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Hana Biosciences, Inc. at December
31, 2009 and 2008, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO SEIDMAN, LLP
|
|
BDO
SEIDMAN, LLP
|
|
San
Francisco, California
|
|
March
25, 2010
|
F-2
HANA
BIOSCIENCES, INC.
BALANCE
SHEETS
December 31,
2009
|
December 31,
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 9,570,453 | $ | 13,999,080 | ||||
Available-for-sale
securities
|
68,000 | 128,000 | ||||||
Prepaid
expenses and other current assets
|
114,067 | 131,663 | ||||||
Total
current assets
|
9,752,520 | 14,258,743 | ||||||
Property
and equipment, net
|
252,455 | 400,168 | ||||||
Restricted
cash
|
125,000 | 125,000 | ||||||
Debt
issuance costs
|
1,193,594 | 1,361,356 | ||||||
Total
assets
|
$ | 11,323,569 | $ | 16,145,267 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 4,027,075 | $ | 4,225,863 | ||||
Other
short-term liabilities
|
43,586 | 61,341 | ||||||
Warrant
liabilities, short-term
|
— | 1,450,479 | ||||||
Total
current liabilities
|
4,070,661 | 5,737,683 | ||||||
Notes
payable, net of discount
|
22,597,050 | 16,851,541 | ||||||
Warrant
liabilities, long-term
|
2,145,511 | — | ||||||
Other
long-term liabilities
|
6,540 | 41,775 | ||||||
Total
long term liabilities
|
24,749,101 | 16,893,316 | ||||||
Total
liabilities
|
28,819,762 | 22,630,999 | ||||||
Commitments
and contingencies (Notes 3, 5 ,8, 10, 12 and 15):
|
||||||||
Stockholders'
deficit:
|
||||||||
Common
stock; $0.001 par value:
|
||||||||
200,000,000
and 100,000,000 shares authorized, 79,649,976 and 32,386,130 shares issued
and outstanding at December 31, 2009 and 2008,
respectively
|
79,650 | 32,386 | ||||||
Additional
paid-in capital
|
117,572,373 | 104,431,469 | ||||||
Accumulated
other comprehensive income (loss)
|
(24,000 | ) | 36,000 | |||||
Accumulated
deficit
|
(135,124,216 | ) | (110,985,587 | ) | ||||
Total
stockholders' deficit
|
(17,496,193 | ) | (6,485,732 | ) | ||||
Total
liabilities and stockholders' deficit
|
$ | 11,323,569 | $ | 16,145,267 |
See
accompanying notes to financial statements.
F-3
HANA
BIOSCIENCES, INC.
STATEMENTS
OF OPERATIONS
AND
COMPREHENSIVE LOSS
Years Ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Operating
expenses:
|
||||||||
General
and administrative
|
$ | 3,986,992 | $ | 5,800,595 | ||||
Research
and development
|
15,613,105 | 18,426,757 | ||||||
Total
operating expenses
|
19,600,097 | 24,227,352 | ||||||
Loss
from operations
|
(19,600,097 | ) | (24,227,352 | ) | ||||
Other
income (expense):
|
||||||||
Interest
income
|
12,935 | 336,968 | ||||||
Interest
expense
|
(3,442,893 | ) | (1,415,913 | ) | ||||
Other
expense, net
|
(4,908 | ) | (130,622 | ) | ||||
Change
in fair market value of warrant liabilities
|
(1,103,666 | ) | 3,265,090 | |||||
Total
other income (expense)
|
(4,538,532 | ) | 2,055,523 | |||||
Net
loss
|
$ | (24,138,629 | ) | $ | (22,171,829 | ) | ||
Net
loss per share, basic and diluted
|
$ | (0.57 | ) | $ | (0.69 | ) | ||
Weighted
average shares used in computing net loss per share, basic and
diluted
|
42,551,419 | 32,295,455 | ||||||
Comprehensive
loss:
|
||||||||
Net
loss
|
$ | (24,138,629 | ) | $ | (22,171,829 | ) | ||
Unrealized
holdings gains (losses) arising during the period
|
(60,000 | ) | 32,000 | |||||
Less:
reclassification adjustment for losses included in net
loss
|
— | 108,000 | ||||||
Comprehensive
loss
|
$ | (24,198,629 | ) | $ | (22,031,829 | ) |
See
accompanying notes to financial statements.
F-4
HANA
BIOSCIENCES, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
|
||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid-in
capital
|
Accumulated
Other
Comprehensive
income (loss)
|
Accumulated
deficit
|
Total
stockholders'
equity (deficit)
|
|||||||||||||||||||
Balance
at January 1, 2008
|
32,169,553 | $ | 32,170 | $ | 101,843,390 | $ | (104,000 | ) | $ | (88,813,758 | ) | $ | 12,957,802 | |||||||||||
Stock-based
compensation of employees amortized over vesting period of stock
options
|
— | — | 2,410,396 | — | — | 2,410,396 | ||||||||||||||||||
Share-based
compensation to nonemployees for services
|
— | — | (825 | ) | — | — | (825 | ) | ||||||||||||||||
Issuance
of shares under employee stock purchase plan
|
82,168 | 82 | 53,642 | — | — | 53,724 | ||||||||||||||||||
Issuance
of shares-partial consideration of license milestone
|
134,409 | 134 | 124,866 | — | — | 125,000 | ||||||||||||||||||
Unrealized
gain on marketable securities
|
— | — | — | 140,000 | — | 140,000 | ||||||||||||||||||
Net
loss
|
— | — | — | — | (22,171,829 | ) | (22,171,829 | ) | ||||||||||||||||
Balance
at December 31, 2008
|
32,386,130 | $ | 32,386 | $ | 104,431,469 | $ | 36,000 | $ | (110,985,587 | ) | $ | (6,485,732 | ) | |||||||||||
Stock-based
compensation of employees amortized over vesting period of stock
options
|
— | — | 1,046,926 | — | — | 1,046,926 | ||||||||||||||||||
Issuance
of shares under employee stock purchase plan
|
196,874 | 197 | 39,965 | — | — | 40,162 | ||||||||||||||||||
Issuance
of shares upon exercise of warrants
|
3,504,827 | 3,505 | 662,651 | — | — | 666,156 | ||||||||||||||||||
Proceeds
from October 2009 from private placement
|
30,655,999 | 30,656 | 7,804,679 | — | — | 7,835,335 | ||||||||||||||||||
Issuance
of shares to satisfy warrant redemption obligation
|
12,906,146 | 12,906 | 3,586,683 | — | — | 3,599,589 | ||||||||||||||||||
Unrealized
loss on marketable securities
|
— | — | — | (60,000 | ) | — | (60,000 | ) | ||||||||||||||||
Net
loss
|
— | — | — | — | (24,138,629 | ) | (24,138,629 | ) | ||||||||||||||||
Balance
at December 31, 2009
|
79,649,976 | $ | 79,650 | $ | 117,572,373 | $ | (24,000 | ) | $ | (135,124,216 | ) | $ | (17,496,193 | ) |
See
accompanying notes to financial statements.
F-5
HANA
BIOSCIENCES, INC.
STATEMENTS
OF CASH FLOWS
Years Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (24,138,629 | ) | $ | (22,171,829 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
174,562 | 191,446 | ||||||
Share-based
compensation to employees for services
|
1,046,926 | 2,410,396 | ||||||
Share-based
compensation to nonemployees for services
|
— | (825 | ) | |||||
Amortization
of discount and debt issuance costs
|
913,271 | 371,155 | ||||||
Loss
on sale of capital assets
|
— | 5,781 | ||||||
Realized
loss on available for sale securities
|
— | 108,000 | ||||||
Gain(loss)
on change in fair value of warrant liability
|
1,103,666 | (3,265,090 | ) | |||||
Issuance
of shares in partial consideration of milestone payment
|
— | 125,000 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Increase
in prepaid expenses and other assets
|
17,596 | 357,630 | ||||||
Increase(decrease)
in accounts payable and accrued liabilities
|
(198,788 | ) | 127,824 | |||||
Net
cash used in operating activities
|
(21,081,396 | ) | (21,740,512 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(16,954 | ) | (73,823 | ) | ||||
Net
cash used in investing activities
|
(16,954 | ) | (73,823 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
on capital leases
|
(62,885 | ) | (35,707 | ) | ||||
Proceeds
from issuances of notes payable
|
5,000,000 | 15,000,000 | ||||||
Proceeds
from exercise of warrants and options and issuance of shares under
employee stock purchase plan
|
75,210 | 53,724 | ||||||
Net
proceeds from private placement of common stock and
warrants
|
11,657,398 | — | ||||||
Net
cash provided by financing activities
|
16,669,723 | 15,018,017 | ||||||
Net
decrease in cash and cash equivalents
|
(4,428,627 | ) | (6,796,318 | ) | ||||
Cash
and cash equivalents, beginning of year
|
13,999,080 | 20,795,398 | ||||||
Cash
and cash equivalents, end of year
|
$ | 9,570,453 | $ | 13,999,080 | ||||
Supplemental
disclosures of cash flow data:
|
||||||||
Cash
paid for interest
|
$ | 2,325,200 | $ | 566,426 | ||||
Supplemental
disclosures of noncash financing activities:
|
||||||||
Purchase
of equipment through capital lease obligation
|
9,895 | 91,043 | ||||||
Extinguishment
of warrant liability obligation through issuance of shares of common stock
and additional warrants
|
$ | 3,871,844 | $ | — |
See
accompanying notes to financial statements.
F-6
HANA
BIOSCIENCES, INC.
NOTES
TO FINANCIAL STATEMENTS
Years
Ended December 31, 2009 and 2008
NOTE
1. BUSINESS
DESCRIPTION AND BASIS OF PRESENTATION
BUSINESS
Hana
Biosciences, Inc. (“Hana”, “we”, “our”, “us” or the “Company”) is a
biopharmaceutical company based in South San Francisco, California, which seeks
to acquire, develop, and commercialize innovative products to strengthen the
foundation of cancer care. The Company is committed to creating value by
accelerating the development of its product candidates, including entering
into strategic partnership agreements and expanding its product candidate
pipeline by being an alliance partner of choice to universities, research
centers and other companies. Our product candidates consist of the
following:
·
|
Marqibo® (vincristine sulfate
liposomes injection), our lead product candidate, is a novel, targeted
Optisome™ encapsulated formulation product candidate of the FDA-approved
anticancer drug vincristine, currently in development primarily for the
treatment of adult acute lymphoblastic leukemia, or ALL, and metastatic
uveal melanoma.
|
·
|
Menadione Topical Lotion, a novel
supportive care product candidate being developed for the prevention
and/or treatment of the skin toxicities associated with the use of
epidermal growth factor receptor inhibitors (EGFRI), a type of anti-cancer
agent used in the treatment of lung, colon, head and neck , pancreatic and
breast cancer.
|
·
|
Brakiva™ (topotecan liposomes
injection), a novel targeted Optisome™ encapsulated formulation product
candidate of the FDA-approved anticancer drug topotecan, being developed
for the treatment of solid tumors including small cell lung cancer and
ovarian cancer.
|
·
|
Alocrest™ (vinorelbine liposomes
injection), a novel, targeted Optisome™ encapsulated formulation product
candidate of the FDA-approved anticancer drug
vinorelbine.
|
BASIS
OF PRESENTATION AND LIQUIDITY
The
accompanying audited financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) and the
instructions to Form 10-K. In the opinion of the Company’s management, the
audited financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for the fair presentation of the Company’s
financial position for the periods presented herein.
As of
December 31, 2009, the Company has a stockholder's deficit of approximately
$17.5 million, and for the fiscal year ended December 31, 2009, the Company
experienced a net loss of $24.1 million. The Company has financed operations
primarily through equity and debt financing and expects such losses to continue
over the next several years. The Company currently has a limited supply of
cash available for operations. As of December 31, 2009, the Company had
aggregate cash and cash equivalents and available-for-sale securities of $9.6
million. In addition, pursuant to an outstanding loan facility, the
Company has $2.5 million that may become available if it achieves a certain
milestone in the development of it's product candidate Menadione.
However, the Company does not anticipate achieving this milestone by the middle
of 2010, unless the Company is able to obtain additional capital by such
time as the capital raised in the October 2009 securities purchase was
restricted to use in general operations and in the development of Marqibo.
The Company has drawn down $27.5 million of the total $30 million available
under the loan facility agreement. See Note 3.
The
Company does not generate any recurring revenue and will require substantial
additional capital before it will generate cash flow from its operating
activities, if ever. The Company does not currently have sufficient capital to
continue operations for the next twelve months. The Company’s continued
operations are entirely reliant upon obtaining additional capital. The Company
will be unable to continue development of its product candidates unless it is
able to obtain additional funding through equity or debt financings or from
payments in connection with potential strategic transactions. The Company
can give no assurances that any additional capital that it is able to obtain, if
any, will be sufficient to meet its needs. Moreover, there can be no assurance
that such capital will be available to the Company on favorable terms or at all,
especially given the current economic environment which has severely restricted
access to the capital markets. Based on the anticipated use of cash resources
between $4.5 million and $5.5 million per quarter, including any milestones
pursuant to the Company’s license agreements, the Company estimates that it will
be able to continue with planned development activities into
mid-2010. If anticipated costs are higher than planned or if the Company
is unable to raise additional capital, it will have to significantly curtail
planned development to maintain operations through 2010 and beyond. These
conditions raise substantial doubt as to the Company’s ability to continue as a
going concern.
F-7
NOTE
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
based upon current assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Examples include provisions for deferred taxes, the valuation of the
warrant liabilities, the cost of contracted clinical study activities and
assumptions related to share-based compensation expense. Actual results may
differ materially from those estimates.
CASH
AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The
Company considers all highly-liquid investments with a maturity of three months
or less when acquired to be cash equivalents. Short-term investments
consist of investments acquired with maturities exceeding three months and are
classified as available-for-sale. All short-term investments are reported
at fair value, based on quoted market price, with unrealized gains or losses
included in other comprehensive loss.
CONCENTRATIONS
OF CREDIT RISK
Financial
instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash and cash equivalents. The Company’s credit risk
lies with the exposure to loss in the event of nonperformance by these financial
institutions as balances on deposit exceed federally insured
limits.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Financial
instruments include cash and cash equivalents, marketable securities, accounts
payable, notes payable and warrant liabilities. Marketable securities are
carried at fair value. Cash and cash equivalents and accounts payable are
carried at cost, which approximates fair value due to the relative short
maturities of these instruments. The fair value of the Company’s notes
payable at December 31, 2009 is $13.2 million. The fair value of the
Company’s warrant liabilities is discussed in Note 5.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost and depreciated over the estimated useful lives
of the assets using the straight-line method. Tenant improvement costs are
depreciated over the shorter of the life of the lease or their economic life,
and equipment, computer software and furniture and fixtures are depreciated over
three to five years.
DEBT
ISSUANCE COSTS
As
discussed in Note 3, the debt issuance costs relate to fees paid in the form of
cash and warrants to secure a firm commitment to borrow funds. These fees
are deferred, and if the commitment is exercised, amortized over the life of the
related loan using the interest method. If the commitment expires
unexercised, the deferred fee is expensed immediately.
WARRANT
LIABILITIES
On
October 30, 2007, we entered into a loan facility agreement with Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield
Special Situations Fund International Limited and Deerfield Private Design
International, L.P. (collectively, “Deerfield”). As partial consideration for
the loan, we also issued to Deerfield warrants to purchase shares of our common
stock. Certain of these warrants included an anti-dilution feature. This feature
required that, as we issued additional shares of our common stock during the
term of the warrant, the number of shares purchasable under this series was
automatically increased so that they always represented a fixed percentage of
our then outstanding common stock. Because the warrants were redeemable if
certain events occurred, we recorded the fair value of the warrants as a
liability, updating our estimate of the fair value of the warrant liabilities in
each reporting period as new information became available and any gains or
losses resulting from the changes in fair value from period to period being
included as other income/(expense).
On
September 8, 2009, we received a notice from the Staff of The NASDAQ Stock
Market indicating that we failed to regain compliance with NASDAQ listing
requirements and that trading of our common stock on the NASDAQ Capital Market
would be suspended effective at the opening of business on September 10,
2009. In accordance with the terms of the warrants issued pursuant to the
October 2007 loan agreement, Deerfield had previously notified us of its
intention to require us redeem the warrants, upon such suspension.
However, pursuant to the terms of a September 3, 2009 letter agreement, we and
Deerfield agreed that, in lieu of satisfying the warrant redemption price of
approximately $3.87 million in cash, we could satisfy such obligation at
Deerfield’s election as follows:
F-8
|
·
|
upon the completion by us of a
“Qualified Financing” at any time or from time to time on or prior to June
30, 2010, by the issuance to Deerfield of the same type of securities that
Deerfield would have received had the redemption price been invested in
such financing; or
|
|
·
|
on any date on or prior to July
1, 2010 specified in a written notice by Deerfield to we, by the issuance
to Deerfield of shares of our common stock equal to the redemption price
divided by the lesser of $.60 or the average closing sale price of the
common stock during the 10 trading days immediately preceding the date of
such notice.
|
We
satisfied the warrant redemption price by issuing to Deerfield securities in
connection with our October 2009 private placement. Also in conjunction
with this financing, we issued certain warrants that had characteristics of both
equity and liabilities. These warrants were evaluated to be classified as
liabilities at the time of issuance and are revalued at fair value from period
to period with the resulting change in value included in net
income/(expense).
LICENSED
IN-PROCESS RESEARCH AND DEVELOPMENT
Licensed
in-process research and development relates primarily to technology,
intellectual property and know-how acquired from another entity. We evaluate the
stage of development as well as additional time, resources and risks related to
development and eventual commercialization of the acquired technology. As we
historically have acquired non-FDA approved technologies, the nature of the
remaining efforts for completion and commercialization generally include
completion of clinical trials, completion of manufacturing validation,
interpretation of clinical and preclinical data and obtaining marketing approval
from the FDA and other regulatory bodies. The cost in resources, probability of
success and length of time to commercialization are extremely difficult to
determine. Numerous risks and uncertainties exist with respect to the timely
completion of development projects, including clinical trial results,
manufacturing process development results and ongoing feedback from regulatory
authorities, including obtaining marketing approval. Additionally, there is no
guarantee that the acquired technology will ever be successfully commercialized
due to the uncertainties associated with the pricing of new pharmaceuticals, the
cost of sales to produce these products in a commercial setting, changes in the
reimbursement environment or the introduction of new competitive products. Due
to the risks and uncertainties noted above, the Company will expense such
licensed in-process research and development projects when incurred. However,
the cost of acquisition of technology is capitalized if there are alternative
future uses in other research and development projects or otherwise based on
internal review. All milestone payments are expensed in the period the milestone
is reached.
CLINICAL
STUDY ACTIVITIES AND OTHER EXPENSES FROM THIRD-PARTY CONTRACT RESEARCH
ORGANIZATIONS
A
significant amount of the Company’s research and development activities related
to clinical study activity are conducted by various third parties, including
contract research organizations, which may also provide contractually defined
administration and management services. Expense incurred for these contracted
activities are based upon a variety of factors, including actual and estimated
patient enrollment rates, clinical site initiation activities, labor hours and
other activity-based factors. On a regular basis, the Company’s estimates of
these costs are reconciled to actual invoices from the service providers, and
adjustments are made accordingly.
SHARE-BASED
COMPENSATION
We have
adopted revised authoritative guidance related to stock-based compensation under
FASB ASC TOPIC 718 “Compensation – Stock
Compensation.” We have adopted a Black-Scholes-Merton model to
estimate the fair value of stock options issued and the resultant expense is
recognized in the operating expense for each reporting period. See Note 4
of our audited financial statements included elsewhere in this Form 10-K for
further information regarding the required disclosures related to share-based
compensation.
INCOME
TAXES
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
COMPUTATION
OF NET LOSS PER COMMON SHARE
Basic net
loss per common share is calculated by dividing net loss by the weighted-average
number of common shares outstanding for the period. Diluted net loss per common
share is the same as basic net loss per common share, since potentially dilutive
securities from stock options, stock warrants and restricted stock would have an
anti-dilutive effect because the Company incurred a net loss during each period
presented. The number of shares potentially issuable at December 31, 2009 and
2008 upon exercise or conversion that were not included in the computation of
net loss per share totaled 19,577,289 and 12,594,828, respectively.
F-9
SEGMENT
REPORTING
The
Company has determined that it currently operates in only one segment, which is
the research and development of oncology therapeutics and supportive care for
use in humans. All assets are located in the United States.
RECLASSIFICATION
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
RECENT
ACCOUNTING PRONOUNCEMENTS
In April
2009, the FASB issued an amendment to ASC 825, entitled “Interim Disclosures About Fair Value
of Financial Instruments,” to require disclosures about fair value of
financial instruments not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements. Prior to this
amendment, fair values for these assets and liabilities were only disclosed
annually. This amendment applies to all financial instruments within the scope
of ASC 825 and requires all entities to disclose the method(s) and significant
assumptions used to estimate the fair value of financial instruments. This
amendment was effective for interim periods ending after June 15, 2009. This
amendment does not require disclosures for earlier periods presented for
comparative purposes at initial adoption. In periods after initial adoption,
this amendment requires comparative disclosures only for periods ending after
initial adoption. The adoption did not have any impact on the Company’s
financial statements.
In June
2009, the Financial Accounting Standards Board, or FASB, established the FASB
Accounting Standards Codification TM, or ASC, as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in preparation of financial statements in conformity with generally
accepted accounting principles in the United States. All other accounting
literature not included in the ASC is now nonauthoritative. The ASC was
effective for financial statements issued for interim and annual periods ending
after September 15, 2009 and its adoption did not have any impact on the
Company’s financial statements. The ASC is updated through the FASB’s issuance
of Accounting Standard Updates, or ASUs. Summarized below are recently issued
accounting pronouncements as described under the new ASC structure.
In August
2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair
Value,” or ASU 2009-05, which amends ASC 820 to provide clarification of
a circumstances in which a quoted price in an active market for an identical
liability is not available. A reporting entity is required to measure fair value
using one or more of the following methods: 1) a valuation technique that uses
a) the quoted price of the identical liability when traded as an asset or b)
quoted prices for similar liabilities (or similar liabilities when traded as
assets) and/or 2) a valuation technique that is consistent with the principles
of ASC 820. ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
adoption of this ASU did not have an impact on the Company’s financial
statements.
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue
Arrangements,” or ASU 2009-13, which amends existing revenue recognition
accounting pronouncements that are currently within the scope of ASC 605. This
guidance eliminates the requirement to establish the fair value of undelivered
products and services and instead provides for separate revenue recognition
based upon management’s estimate of the selling price for an undelivered item
when there is no other means to determine the fair value of that undelivered
item. ASU 2009-13 is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010. The Company is currently evaluating the impact, if any, that the adoption
of this amendment will have on its financial statements.
NOTE
3. FACILITY
LOAN AGREEMENT
On
October 30, 2007, we entered into a Facility Agreement (the “loan agreement”)
with Deerfield under which Deerfield has agreed to loan to us an aggregate
principal amount of up to $30 million. Of the total $30 million funds committed
pursuant to the loan agreement, $20 million is available for disbursement to us
in four installments every six months commencing October 30, 2007. As
of December 31, 2009, we have drawn down $27.5 million pursuant to these
funds. The remaining $2.5 million available is subject to
disbursement upon the achievement of clinical development milestones relating to
our Marqibo and Menadione product candidates. Deerfield’s obligation to
disburse loan proceeds expires October 30, 2010, and we must repay all
outstanding principal and interest owing under the loan no later than October
30, 2013. We are also required to make quarterly interest payments on
outstanding principal, at a stated annual rate of 9.85%. In accordance with and
upon execution of the loan agreement, we paid a loan commitment fee of $1.1
million to an affiliate of Deerfield. Our obligations under the loan are
secured by all assets owned (or that will be owned in the future) by us, both
tangible and intangible. The effective interest rate on the $20 million notes
payable for funds available on the six month installments, including discount on
debt, is approximately 18.05%. The effective interest rate on the $7.5
million notes payable related to the achievement of development milestones,
including discount on debt, is approximately 11.6%. As of December 31,
2009, we had accrued $0.7 million in interest payable that was paid in January
2010.
F-10
In the
past, we had issued to Deerfield 6-year warrants to purchase an aggregate of 6.1
million shares of our common stock at an exercise price of $1.31 per
share. These warrants were additional consideration for the loan
agreement. In September 2009, all warrants issued to Deerfield were
redeemed for $3.87 million which obligation was payable in the Company’s
securities pursuant to the terms of a September 3, 2009 agreement between
Deerfield and the Company. In accordance with the terms of the warrants,
Deerfield required the Company to redeem the warrants upon the suspension of
trading on the NASDAQ Capital Market of the Company’s common stock on September
8, 2009. See Note 2 for additional details. This liability was
satisfied as part of the Company’s private placement which closed on October 8,
2009, pursuant to which the Company issued to Deerfield 12,906,145 shares of
common stock and seven-year warrants to purchase an additional 1,290,613 shares
of common stock at an exercise price of $0.60 per share.
Fair Value of Warrants. The
aggregate fair values of the warrant series issued upon execution of the loan
agreement, under which an aggregate of the 5,225,433 shares of our common stock
were issuable upon purchase, pursuant to the loan agreement was $5.9 million.
$5.5 million of the total fair value, related to the warrant series to purchase
an aggregate of 4,825,433 shares with an anti-dilution feature, was recorded as
a discount to the note payable. The remaining $0.4 million fair value, relating
to the additional warrant series to purchase an aggregate of 400,000 shares of
common stock, was recorded as a debt issuance cost and is being amortized, using
the interest method, over the life of the loan. The aggregate fair values
of the warrant series issued when we drew down the funds related to clinical
development milestones, under which an aggregate of the 850,136 shares of our
common stock were issuable upon purchase, pursuant to the loan agreement was
$0.5 million, which was accounted for as a discount to the notes payable in the
balance sheet. Deerfield required us to redeem these warrants in September
2009, which obligation was satisfied by issuing units of common stock and
warrants. The total obligation for the redemption of these warrants was
approximately $3.87 million. See Note 5 for additional details of the
securities issued to Deerfield to satisfy the warrant redemption payment.
As of December 31, 2009, there were no warrants outstanding pursuant to the loan
facility agreement with Deerfield.
Summary of Notes Payable. On
November 1, 2007, we drew down $7.5 million of the $30.0 million in total loan
proceeds available. On October 14, 2008 and November 12, 2008, we drew down an
additional $12.5 million and $2.5 million, respectively. On May 20, 2009, drew
down $5.0 million which was available pursuant to the terms of the loan
agreement. We are not required to pay back any portion of the principal
amount until October 30, 2013. Upon issuance of these notes, the fair
value of the warrants was determined and included as additional discount on the
debt to Deerfield. Because the Company issued the warrants pursuant to the
loan, the Company recognized a discount on the note. The table below is a
summary of the change in carrying value of the notes payable, including the
discount on debt for the years ended December 31, 2009 and 2008:
Carrying
Value at
January 1,
|
Gross
Borrowings
Incurred
|
Debt
Discount
Incurred
|
Amortized
Discount
|
Carrying
Value at
December 31,1
|
||||||||||||||||
2009
|
||||||||||||||||||||
Notes
payable
|
$ | 22,500,000 | $ | 5,000,000 | $ | — | $ | — | $ | 27,500,000 | ||||||||||
Discount
on debt
|
(5,648,459 | ) | — | — | 745,509 | (4,902,950 | ) | |||||||||||||
Carrying
value
|
16,851,541 | 22,597,050 | ||||||||||||||||||
2008
|
||||||||||||||||||||
Notes
payable
|
$ | 7,500,000 | $ | 15,000,000 | $ | — | $ | — | $ | 22,500,000 | ||||||||||
Discount
on debt
|
(5,474,376 | ) | — | (483,214 | ) | 309,131 | (5,648,459 | ) | ||||||||||||
Carrying
value
|
$ | 2,025,624 | $ | 16,851,541 |
1 As of
December 31, 2009 and 2008, there was unallocated debt discount related to
undrawn funds on the Deerfield loan facility of $0 and $1.4 million,
respectively
F-11
A summary
of the debt issuance costs and changes during the periods ending December 31,
2009 and 2008 is as follows:
Deferred
Transaction
Costs on
January 1,
|
Amortized
Debt Issuance
Costs
|
Carrying
Value2
|
||||||||||
2009
|
$ | 1,361,356 | $ | (167,762 | ) | $ | 1,193,594 | |||||
2008
|
$ | 1,423,380 | $ | (62,024 | ) | $ | 1,361,356 |
NOTE
4. STOCKHOLDERS'
EQUITY
Issuances of Common
Stock. In May 2008, the Company issued 134,409 shares as partial
consideration of a milestone achieved under a license agreement for
AECOM.
On
October 7 2009, the Company entered into a securities purchase agreement
pursuant to which it agreed to sell in a private placement an aggregate of
54,593,864 units of its securities, each unit consisting of (i) either (a) one
share of common stock, or (b) a seven-year warrant to purchase one share of
common stock at an exercise price of $0.01 per share (a “Series A Warrant”), and
(ii) a seven-year warrant to purchase one-tenth of one share of common stock at
an exercise price of $0.60 (a “Series B Warrant”), which represented the closing
bid price of the Company’s common stock on October 7, 2009.
Pursuant
to the securities purchase agreement, the Company sold 30,655,999 units for $8.5
million, or $0.30 per unit. These units consisted of shares of common
stock and Series B Warrants, with a fair value of $7.8 million and $0.6 million,
respectively. The Company also sold 11,031,722 units consisting of Series
A Warrants and Series B Warrants at a purchase price of $3.2 million, or $0.29
per unit. The total cash proceeds of the offering were, net of offering
costs of $0.7 million, approximately $11.7 million. The Company also
issued 12,906,146 units to Deerfield, consisting of shares of common stock
and Series B Warrants, with fair values of $3.6 million and $0.3 million,
respectively. These units were issued to satisfy a $3.87 million warrant
redemption obligation of the Company to Deerfield, as discussed in Note 3
above. As described in Note 5, all warrants issued in the offering are
classified as liabilities.
Stock Incentive Plans. As of
December 31, 2009, the Company had two stockholder approved stock incentive
plans under which it grants or has granted options to purchase shares of its
common stock and restricted stock awards to employees: the 2003 Stock Option
Plan (the “2003 Plan”) and the 2004 Stock Incentive Plan (the “2004
Plan”). The Board of Directors, or the Chief Executive Officer when
designated by the Board, is responsible for administration of the Company’s
employee stock incentive plans and determines the term, exercise price and
vesting terms of each option. In general, stock options issued under all the
current plans have a vesting period of three years and expire ten years from the
date of grant. Additionally, the Company has an Employee Stock Purchase Plan,
the 2006 Employee Stock Purchase Plan (the “2006
Plan”).
The 2003
Plan was adopted by the Company's Board of Directors in October 2003. The 2003
Plan originally authorized a total of 1,410,068 shares of common stock for
issuance. The Company's stockholders ratified and approved the 2003 Plan in May
2006. In September 2004, the Company's Board of Directors approved and adopted
the 2004 Plan, which initially authorized 2,500,000 shares of common stock for
issuance. On March 31, 2006, the Board approved, subject to stockholder
approval, an amendment to the 2004 Plan to increase the total number of shares
authorized for issuance there under to 4,000,000. At the Company’s May 2006
Annual Meeting, the Company's stockholders ratified and approved the 2004 Plan,
as amended. At the 2007 Annual Meeting on June 22, 2007, the Company's
stockholders approved an additional increase of shares authorized for issuance
from 4,000,000 to 7,000,000.
On
February 16, 2010, the Company's Board of Directors adopted the 2010 Equity
Incentive Plan. See Note 15. Also on February 16, 2010, the Board
adopted amendments to the Company’s 2003 and 2004 Plan. Pursuant to the
amendments, the number of shares of common stock authorized for issuance under
the 2003 Plan was reduced from 1,410,068 to 528,342, of which 259,664 shares are
reserved for issuance pursuant to the exercise of outstanding stock options, and
268,678 shares have previously been issued under the 2003 Plan. Similarly,
the number of shares of common stock authorized for issuance under the 2004 Plan
was reduced from 7,000,000 to 4,747,257, of which 4,279,661 shares are reserved
for issuance pursuant to the exercise of outstanding stock options, and 467,596
shares have previously been issued under the 2004 Plan. The Company
intends for all future stock option awards to be issued under the 2010 Plan,
with no additional awards being issued under the 2003 Plan or 2004
Plan.
2 There
are $0.2 million of unallocated debt issuance costs associated with the unearned
portion of the loan facility agreement. We are not amortizing this portion
of the debt issuance costs until the related debt is drawn
down.
F-12
At the
May 2006 Annual Meeting, the Company's Stockholders also ratified and approved
the Company's 2006 Plan, which had been approved by the Company’s Board of
Directors on March 31, 2006. The 2006 Plan provides the Company's eligible
employees with the opportunity to purchase shares of Company common stock
through lump sum payments or payroll deductions. The 2006 Plan is intended to
qualify as an “employee stock purchase plan” under Section 423 of the
Internal Revenue Code. As adopted, the 2006 Plan authorized the issuance of up
to a maximum of 750,000 shares of common stock.
At
December 31, 2009, there were 421,504 shares available for issuance related to
the 2006 Plan. Of these, 138,315 were issued in January 2010.
Share-Based Compensation. The
Company currently awards stock option grants under its 2003 and 2004 Plan. Under
the 2003 Plan, the Company may grant incentive and non-qualified stock options
to employees, directors, consultants and service providers to purchase up to an
aggregate of 1,410,068 shares of its common stock. Under the 2004 Plan, the
Company may grant incentive and non-qualified stock options to employees,
directors, consultants and service providers to purchase up to an aggregate of
7,000,000 shares. Historically, stock options issued under these plans primarily
vest ratably on an annual basis over the vesting period, which has generally
been three years.
The
following tables summarize information about the Company’s stock options
outstanding at December 31, 2009 and changes in outstanding options in the two
years then ended, all of which are at fixed prices:
Number Of
Shares Subject To
Options Outstanding
|
Weighted Average
Exercise Price
Per Share
|
Weighted Average
Remaining
Contractual Term
(In Years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding
January 1, 2008
|
5,290,038 | $ | 4.27 | |||||||||||||
Options
granted
|
760,500 | 0.89 | ||||||||||||||
Options
exercised
|
— | — | ||||||||||||||
Options
cancelled
|
(1,579,667 | ) | 4.19 | |||||||||||||
Outstanding
December 31, 2008
|
4,470,871 | $ | 2.36 | 8.1 | $ | 12,125 | ||||||||||
Options
granted
|
1,305,000 | 0.16 | ||||||||||||||
Options
exercised
|
— | — | ||||||||||||||
Options
cancelled
|
(941,833 | ) | 2.06 | |||||||||||||
Outstanding
December 31, 2009
|
4,834,038 | $ | 1.82 | 7.5 | $ | 67,640 | ||||||||||
Exercisable
at December 31, 2009
|
2,907,702 | $ | 2.63 | 6.8 | $ | 8,390 |
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||
Exercise Price
|
Number of
Shares
Subject to
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life of
Options
Outstanding
|
Number
of Options
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||||
$
0.07 - $ 0.20
|
1,024,505 | $ | 0.14 |
8.9 yrs
|
70,505 | $ | 0.07 | ||||||||||
$
0.21 - $ 1.32
|
1,996,711 | 0.97 |
7.7 yrs
|
1,230,379 | 1.02 | ||||||||||||
$
1.33 - $ 4.53
|
1,035,989 | 1.67 |
6.6 yrs
|
831,319 | 1.68 | ||||||||||||
$
4.54 - $ 10.98
|
776,833 | 6.44 |
6.4 yrs
|
775,499 | 6.44 | ||||||||||||
$ 0.07 - $ 10.98
|
4,834,038 | $ | 1.82 |
7.5 yrs
|
2,907,702 | $ | 2.63 |
The
weighted-average grant date fair value of options granted during the years 2009
and 2008 was $0.16 and $0.65, respectively. During the years ended
December 31, 2009 and 2008, the Company recorded share-based compensation cost
of $1.0 million and $2.4 million, respectively. Included in the
stock-based compensation expense for the year ending December 31, 2008 is
approximately $0.4 million of expense related to the correction of an error
related to prior periods.
F-13
The
following table summarizes the assumptions used in applying the
Black-Scholes-Merton option-pricing model to determine the fair value of
employee stock options granted during the year ended:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Stock
options
|
||||||||
Risk-free interest rate
|
1.90 | % | 2.65 | % | ||||
Expected life (in years)
|
5.5 - 6.0 | 5.5 - 6.0 | ||||||
Volatility
|
0.85 – 0.95 | 0.90 | ||||||
Dividend Yield
|
0 | % | 0 | % | ||||
Employee stock purchase plan
|
||||||||
Risk-free interest rate
|
0.27% - 1.11 | % | 0.27% - 2.63 | % | ||||
Expected life (in years)
|
0.5 - 2.0 | 0.5 - 2.0 | ||||||
Volatility
|
1.30 – 2.45 | 0.85 – 1.99 | ||||||
Dividend Yield
|
0 | % | 0 | % |
The
Company estimates the fair value of each option award on the date of grant using
the Black-Scholes-Merton option-pricing model and we use the assumptions as
allowed by ASC 718,
“Compensation – Stock Compensation.” As allowed by ASC 718-10-55,
companies with a short period of publicly traded stock history, the
Company’s estimate of expected volatility is based on the average expected
volatilities of a sampling of three companies with similar attributes to it,
including industry, stage of life cycle, size and financial leverage as well as
the Company’s own historical data. As the Company has so far only awarded
“plain vanilla” options as described by the SEC’s Staff Accounting Bulletin
Topic No. 14, “Share-Based
Payment”, it used the “simplified method” for determining the expected
life of the options granted. The Company will continue to use the “simplified
method” under certain circumstances, which it will continue to use as it does
not have sufficient historical data to estimate the expected term of share-based
award. The risk-free rate for periods within the contractual life of the
option is based on the U.S. treasury yield curve in effect at the time of grant
valuation. ASC 718 does not allow companies to account for option forfeitures as
they occur. Instead, estimated option forfeitures must be calculated
upfront to reduce the option expense to be recognized over the life of the award
and updated upon the receipt of further information as to the amount of options
expected to be forfeited. Based on our historical information, the Company
currently estimates that 22% annually of its stock options awarded will be
forfeited.
The
Company has elected to track the portion of its federal and state net operating
loss carryforwards attributable to stock option benefits in a separate memo
account. Therefore, these amounts are no longer included in our gross or
net deferred tax assets. The benefit of these net operating loss carryforwards
will only be recorded in equity when they reduce cash taxes
payable.
Warrants. As of December 31,
2009, all outstanding warrants were available for exercise. Warrants to acquire
258,927 shares of common stock at $1.85 per share expired in February of 2009.
Warrants to acquire 892,326 shares of common stock at $1.57 per share
expire in April of 2010. Warrants to acquire 864,648 shares of common
stock at $5.80 per share expire in October of 2010. On August 24, 2009,
Deerfield notified the Company that it was electing to require the Company to
redeem 6,142,754 warrants, which constituted all warrants issued and outstanding
to Deerfield on such date.
As
discussed above in this Note 4, in connection with the its October 2009 private
placement, the Company issued Series A and Series B warrants to purchase a total
of 11,031,722 and 5,459,382 shares of common stock, respectively. If the
Company issues equity securities in the future, other than to employees,
directors or consultants of the Company pursuant to the Company’s stock plans,
at a price per share lower than $0.60, the exercise price of the Series B
Warrants will be reduced to such lower price, but not lower than $0.30 per
share.
The
following table summarizes the warrants outstanding as of December 31, 2009 and
2008 and the changes in outstanding warrants in the years then
ended:
|
Number Of
Shares Subject
To Warrants
Outstanding
|
Weighted-Average
Exercise Price
|
||||||
Warrants outstanding January 1, 2008
|
7,241,334 | $ | 1.90 | |||||
Warrants
granted
|
882,622 | 1.31 | ||||||
Warrants
cancelled
|
— | — | ||||||
Warrants
outstanding December 31, 2008
|
8,123,956 | 1.83 | ||||||
Warrants
granted
|
16,525,803 | 0.21 | ||||||
Warrants
cancelled
|
(258,927 | ) | 1.85 | |||||
Warrants
redeemed
|
(6,142,754 | ) | 1.31 | |||||
Warrants
exercised
|
(3,504,827 | ) | 0.01 | |||||
Warrants
outstanding December 31, 2009
|
14,743,251 | $ | 0.66 |
F-14
NOTE
5. WARRANT
LIABILITY
The
warrants issued as part of the October 2009 securities purchase (see Note 4)
agreement are classified as a liability on the balance sheet based on certain
cash settlement provisions available to the warrant holders upon certain
reorganization events in our equity structure, including mergers.
Specifically, in the event we are acquired in an all cash transaction, a
transaction whereby we cease to be a publicly held entity under Rule 13e-3 of
the Securities Exchange Act of 1934, or a reorganization involving an entity not
traded on a national securities exchange, the warrant holders may elect to
receive an amount of cash equal to the value of the warrants as determined in
accordance with the Black-Scholes-Merton option pricing model with certain
defined assumptions. In addition, the warrants provide protection to
holders in the event we issue certain securities at a price less than the
current exercise price of $0.01 and $0.60 per share for Series A and Series B
warrants, respectively. In such events, the exercise price of the warrants
will be reduced to the price of the newly issued securities (subject to a $0.30
floor for Series B warrants). At any time when the resale of the warrant shares
is not covered by an effective registration statement under the Securities Act
of 1933, the warrant holders can elect a cashless exercise of all or any portion
of shares outstanding under a warrant, in which case they would receive a number
of shares with a value equal to the intrinsic value on the date of exercise of
the portion of the warrant being exercised. Additionally, warrant holders
have certain registration rights and we would be obligated to make penalty
payments to them under certain circumstances if we were unable to maintain
effective registration of the shares underlying the warrants with the
SEC.
The
Company determined the fair value of the 11,031,722 Series A Warrants and the
5,459,382 Series B Warrants on the date of October 8, 2009, the Offering date,
using a Black-Scholes-Merton option pricing model under various
probablility-weighted outcomes which take into consideration the protective
feature of the warrants. We used the following assumptions in the
Black-Scholes-Merton pricing model for both Series A and B Warrants: risk-free
interest rate of 2.83%, an expected life of seven years; an expected volatility
factor of 99% and a dividend yield of 0.0%. Using these assumptions, we
determined the fair value of the Series A Warrants was approximately $3.0
million and the fair value of the Series B Warrants was approximately $1.1
million. The fair value of the warrants is recalculated each reporting
period with the change in value taken as a gain or loss in the Statement of
Operations.
On
December 30, 2009, the Company issued approximately 3.5 million shares of its
common stock pursuant to the exercise of a Series A Warrant issued pursuant to
the October 2009 securities purchase agreement, realizing total proceeds of
approximately $35,000. The Company remeasured the warrants to the fair
value on the date of exercise and recognized a gain of $0.3 million upon
remeasurement of the warrant liability related to the exercised
warrants.
As of
December 31, 2009, the Company remeasured the fair value of the remaining Series
A and Series B Warrants with the following assumptions: risk-free interest
rate of 3.39%, an expected life of 6.8 years; an expected volatility factor of
103% and a dividend yield of 0.0%. Using these assumptions, the Company
determined the fair value of the Series A and B Warrants were approximately $1.4
million and $0.8 million, respectively. The accompanying non-cash gain of
$1.0 million was taken as income in the Statement of Operations.
We used
the following assumptions for purposes of December 30 and December 31, 2009
remeasurements: risk-free interest rate of 3.39%, an expected life of 6.8 years;
an expected volatility factor of 103% and a dividend yield of 0.0%.
Changes
in the Company’s stock price or volatility would result in a change in the value
of the warrants and impact the Statement of Operations. A 10% increase in the
Company’s stock price would cause the fair value of the warrants and the warrant
liability to increase by approximately 10%.
NOTE
6. FAIR VALUE
MEASUREMENTS
ASC 820
defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures about fair
value measurements. Fair value is defined under ASC 820 as the exchange price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value under ASC 820 must maximize the
use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value which are the following:
·
|
Level 1 - Quoted prices in active
markets for identical assets or
liabilities;
|
·
|
Level 2 - Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or
liabilities; and.
|
·
|
Level 3 - Unobservable inputs
that are supported by little or no market activity and that are
significant to the fair value of the assets or
liabilities.
|
F-15
The
following table represents the fair value hierarchy for our financial assets and
liabilities held by the Company measured at fair value on a recurring
basis:
As of December 31, 2009
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$ | 50,976 | $ | — | $ | — | $ | 50,976 | ||||||||
Available-for-sale
equity securities
|
68,000 | — | — | 68,000 | ||||||||||||
Total
|
$ | 118,976 | $ | — | $ | — | $ | 118,976 | ||||||||
Liabilities
|
||||||||||||||||
Warrant
liabilities
|
— | — | $ | 2,145,510 | $ | 2,145,510 | ||||||||||
Total
|
$ | — | $ | — | $ | 2,145,510 | $ | 2,145,510 |
As of December 31, 2008
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$ | 13,671,135 | $ | — | $ | — | $ | 13,671,135 | ||||||||
Available-for-sale
equity securities
|
128,000 | — | — | 128,000 | ||||||||||||
Total
|
$ | 13,799,135 | $ | — | $ | — | $ | 13,799,135 | ||||||||
Liabilities
|
||||||||||||||||
Warrant
liabilities
|
— | — | $ | 1,450,479 | $ | 1,450,479 | ||||||||||
Total
|
$ | — | $ | — | $ | 1,450,479 | $ | 1,450,479 |
F-16
A summary
of the activity of the fair value of the Level 3 liabilities is as
follows:
Beginning
Value of
Level 3
Liabilities
|
Additional
Level 3
Liabilities
Incurred
|
Liabilities
extinguished
|
Net
(Gain)/Loss on
Change in Fair
Value of
Level 3
Liabilities
|
Ending Fair
Value of
Level 3
Liabilities
|
||||||||||||||||
For
the twelve months ended December 31, 2009
|
$ | 1,450,479 | $ | 4,094,317 | $ | (4,502,750 | )3 | $ | 1,103,464 | 2,145,510 | ||||||||||
For
the twelve months ended December 31, 2008
|
$ | 4,232,355 | $ | — | $ | — | $ | (2,781,876 | ) | 1,450,479 |
NOTE
7. SHORT-TERM
INVESTMENTS
On
December 31, 2009, the Company had $68,000 in total marketable securities which
consisted of shares of NovaDel Pharma, Inc. (“NovaDel”) purchased in conjunction
with the Zensana license agreement originally entered into in October 2004.
During
2009, the Company recorded unrealized losses of $60,000. The Company
recorded realized losses in 2008, as the decline in value of the shares, in the
opinion of management, was considered other-than-temporary. The following table
summarizes the NovaDel shares classified as available-for-sale securities during
the year 2009 and 2008:
Beginning
Value
|
Net
Unrealized
Gain/(Loss)
|
Gross
Realized
Gain/(Loss)
|
Ending Value
|
|||||||||||||
For
the twelve months ended December 31, 2009
|
$ | 128,000 | $ | (60,000 | ) | $ | — | $ | 68,000 | |||||||
For
the twelve months ended December 31, 2008
|
$ | 96,000 | $ | 140,000 | $ | (108,000 | ) | $ | 128,000 |
NOTE
8. LICENSE
AGREEMENTS
Tekmira License
Agreement.
In May 2006, The Company entered into a series of related agreements with
Tekmira Pharmaceuticals Corporation. Pursuant to a license agreement with
Tekmira, as amended in April 2007, the Company received an exclusive, worldwide
license to patents, technology and other intellectual property relating to its
Marqibo, Alocrest and Brakiva product candidates.
In
consideration for the rights and assets acquired from Tekmira, we paid to
Tekmira aggregate consideration of $11.8 million, which payment consisted of
$1.5 million in cash and 1,118,568 shares of our common stock. We also agreed to
pay to Tekmira royalties on sales of the licensed products, as well as upon the
achievement of specified development and regulatory milestones and up to a
maximum aggregate amount of $37.5 million for all product candidates. The
milestones and other payments may include annual license maintenance fees and
milestones. To date, we have achieved two development milestones related to our
Tekmira product candidates for which we have paid a total of $1.0 million to
Tekmira.
Menadione License
Agreement. In October 2006, the Company entered into a license agreement
with the Albert Einstein’s College of Medicine (AECOM). In consideration for the
license, we agreed to issue the college $0.2 million of our common
stock. We also made a cash payment within 30 days of signing the agreement
and we agreed to pay annual maintenance fees. Further, we agreed to make
milestone payments in the aggregate amount of $2.8 million upon the achievement
of various clinical and regulatory milestones, as described in the agreement, of
which we have achieved one milestone and have paid AECOM total consideration of
$0.3 million. We may also make annual maintenance fees as part of the agreement.
We also agreed to make royalty payments to the College on net sales of any
products covered by a claim in any licensed patent.
3
Comprised of $3.9 million related to settlement of warrants issued to Deerfield
in connection with the 2007 loan facility agreement and $0.6 million
reclassified to equity upon exercise of Series A
Warrants.
F-17
NOTE
9. PROPERTY
AND EQUIPMENT
Property
and equipment consists of the following at December 31:
2009
|
2008
|
|||||||
Property
and equipment:
|
||||||||
Furniture
& fixtures
|
$ | 52,766 | $ | 35,813 | ||||
Computer
hardware
|
249,667 | 266,451 | ||||||
Computer
software
|
231,911 | 231,907 | ||||||
Manufacturing
equipment
|
163,836 | 163,836 | ||||||
Tenant
improvements
|
144,337 | 144,340 | ||||||
842,517 | 842,347 | |||||||
Less
accumulated depreciation
|
(590,062 | ) | (442,179 | ) | ||||
Property
and equipment, net
|
$ | 252,455 | $ | 400,168 |
For the
years ended December 31, 2009 and 2008, depreciation expense was
approximately $0.2 million in each period.
NOTE
10. ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consist of the following at December
31:
2009
|
2008
|
|||||||
Trade
accounts payable
|
$
|
1,008,560
|
$
|
457,725
|
||||
Clinical
research and other development related costs
|
1,232,291
|
2,554,374
|
||||||
Accrued
personnel related expenses
|
979,963
|
549,469
|
||||||
Interest
payable
|
682,753
|
478,332
|
||||||
Accrued
other expenses
|
123,508
|
185,963
|
||||||
Total
|
$
|
4,027,075
|
$
|
4,225,863
|
F-18
NOTE
11. INCOME
TAXES
There was
no current or deferred income tax expense (other than state minimum tax) for the
years ended December 31, 2009 and 2008 because of the Company’s operating
losses.
The
components of deferred tax assets (there were no deferred tax liabilities) as of
December 31, 2009 and 2008 are as follows:
Deferred tax assets consist of the following (in thousands):
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Deferred tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | 24,082 | $ | 17,364 | ||||
Research
and development credit
|
4,795 | 3,387 | ||||||
Basis
difference in capitalized assets
|
20,659 | 18,193 | ||||||
Stock-based
compensation
|
7,262 | 6,885 | ||||||
Accruals
and reserves
|
54 | 484 | ||||||
Total
deferred tax asset
|
56,852 | 46,313 | ||||||
Less
valuation allowance
|
(56,852 | ) | (46,313 | ) | ||||
Net
deferred tax asset
|
$ | — | $ | — |
A reconciliation between
our effective tax rate and the U.S. statutory tax rate follows:
For the Years Ended,
|
||||||||
December 31, 2009
|
December 31, 2008
|
|||||||
Footnote Disclosure:
|
||||||||
Tax
Benefit at Federal Statutory Rate
|
34.0 | % | 34.0 | % | ||||
State
Taxes, Net of Federal Benefit
|
5.8 | % | 5.8 | % | ||||
Permanent
Book/Tax Differences
|
-2.1 | % | 5.8 | % | ||||
Others
|
0.0 | % | 0.0 | % | ||||
Tax
Credit
|
7.8 | % | 5.8 | % | ||||
Change
in Valuation Allowance
|
-45.6 | % | -51.4 | % | ||||
Provision
(Benefit) for Taxes
|
0.0 | % | 0.0 | % |
The
Company has conducted a current IRC section 382 study for 2009, and concluded
there was no ownership change during the current year.
As of
December 31, 2009, the Company had potentially utilizable federal and state net
operating loss tax carryforwards of approximately $61.8 million and $49.0
million, respectively. The net operating loss carryforwards expire in various
amounts for federal tax purposes from 2022 through 2029 and for state tax
purposes from 2016 through 2030. As of December 31, 2009, the Company
also had research and development credit carryforwards of approximately $0.8 and
$1.1 million for federal and state tax reporting purposes, and orphan drug
credit carryfowards of approximately $2.9 million for federal purposes. The
research and development credit carryforwards expire in various amounts, for
federal purposes, from 2027 through 2029 and carryforward indefinitely for state
purposes. The orphan drug credit carry forward expires in 2029 for federal
purposes.
Management
maintains a valuation allowance for its deductible temporary differences (i.e.
deferred tax assets) when it concludes that it is more likely than not that the
benefit of such deferred tax assets will not be recognized. The ultimate
realization of deferred tax assets is dependent upon the Company’s ability to
generate taxable income during the periods in which the temporary differences
become deductible. Management considers the historical level of taxable income,
projections for future taxable income, and tax planning strategies in making
this assessment. Management’s assessment in the near term is subject to change
if estimates of future taxable income during the carryforward period are
reduced. The Company’s valuation allowance increased by $10.6 million and $11.4
million in the years ended December 31, 2009 and 2008,
respectively.
F-19
The Company has adopted the provisions
of FIN 48 as of January 1, 2007, which is now codified as part of ASC
740. The total amount of unrecognized tax benefits as of December 31, 2009 was
$1.0 million. A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
Unrecognized Tax Benefits
(in thousands)
|
2009
|
2008
|
||||||
Balance
as of January 1, 2009
|
$ | 438 | $ | 765 | ||||
Additions
for current year tax positions
|
494 | 155 | ||||||
Reductions
for current year tax positions
|
- | - | ||||||
Additions
for prior year tax positions
|
22 | - | ||||||
Reductions
for prior year tax positions
|
0 | (482 | ) | |||||
Settlements
|
- | - | ||||||
Reductions
related to expirations of statute of limitations
|
- | - | ||||||
Balance
as of December 31, 2009
|
$ | 954 | $ | 438 |
None of
the unrecognized tax benefits as of December 31, 2009 would affect the Company’s
effective tax rate if recognized. As the Company would currently need to
increase their valuation allowance for any additional amounts benefited, the
effective rate would not be impacted until the valuation allowance was
removed.
Penalties
and interest expense related to income taxes are included as a component of
other expense and interest expense, respectively, if they are incurred.
For the years ended December 31, 2009 and 2008, no penalties or interest
expense related to income tax positions were recognized. As of December
31, 2009 and 2008, no penalties or interest related to income tax positions were
accrued. The Company does not anticipate that any of the unrecognized tax
benefits will increase or decrease significantly in the next twelve
months.
The
Company is subject to federal and California state income tax. As of December
31, 2009, the Company’s federal returns for the years ended 2002 through the
current period and state returns for the years ended 2004 through the current
period are still open to examination. Net operating losses and research and
development carryforwards that may be used in future years are still
subject to inquiry given that the statute of limitation for these items would be
from the year of the utilization. There are no tax years under examination by
any jurisdiction at this time.
NOTE
12. COMMITMENTS AND
CONTINGENCIES
Lease Agreements. The Company
entered into a three year sublease, which commenced on May 31, 2006, for
property at 7000 Shoreline Court in South San Francisco, California, where the
Company’s executive offices are located. In May 2008, the Company and its
sublessor entered into an amendment to the sublease agreement, which increased
the term of the lease from three years to four years. Effective June 24, 2009,
the Company entered into a further amendment to the sublease, which extended the
term of the lease through March 2011 and reduced the monthly lease payments from
$2.80 per square foot to $2.45 per square foot for the eleven month period from
July 2009 through May 2010 and reduced the lease payments from $2.90 per square
foot to $1.95 per square feet for the ten month period from June 2010 through
March 2011. The total cash payments due for the duration of the sublease
equaled approximately $0.6 million at December 31, 2009.
Approximate
expenses associated with operating leases were as follows:
|
Years Ended December 31,
|
|||||||
|
2009
|
2008
|
||||||
Rent
expense
|
$
|
580,000
|
$
|
598,000
|
Employment Agreements. On
June 6, 2008, the Company entered into a new employment agreement with its
President and Chief Executive Officer. This agreement provides for an employment
term that expires in December 2010. The minimum aggregate amount of gross salary
compensation to be provided for over the remaining term of the agreement
amounted to approximately $0.4 million at December 31, 2009.
NOTE
13. 401(K) SAVINGS
PLAN
During
2004, the Company adopted a 401(k) Plan (the “401(k) Plan”) for the benefit of
its employees. The Company elects to match contributions to the 401(k) Plan
equal to 100% of the first 5% of wages deferred by each participating employee.
During 2009 and 2008, the Company incurred total charges of approximately
$232,000 and $225,000, respectively, for employer matching
contributions.
F-20
NOTE
14. RESTRICTED
CASH
On May
31, 2006, the Company entered into a sublease agreement. The sublease required
the Company to issue a security deposit in the amount of $125,000. To satisfy
this obligation the Company opened a $125,000 letter of credit, with the
sublessor as the beneficiary in case of default or failure to comply with the
sublease requirements. In order to fund the letter of credit, the Company was
required to deposit a compensating balance of $125,000 into a restricted money
market account with its financial institution. This compensating balance for the
line of credit will be restricted for the entire period of the sublease or at
least until May 2010.
NOTE
15. SUBSEQUENT
EVENTS
On
February 16, 2010, the Company’s Board of Directors adopted the Hana
Biosciences, Inc. 2010 Equity Incentive Plan (the “2010 Plan”). Under the
2010 Plan, the Board or a committee appointed by the Board may award
nonqualified stock options, incentive stock options, restricted stock,
restricted stock units, performance awards, and stock appreciation rights to
participants. Officers, directors, employees or non-employee consultants
or advisors of the Company (including its subsidiaries and affiliates) are
eligible to receive Awards under the 2010 Plan. The total number of shares of
the Company's common stock available for grants of awards to participants under
the 2010 Plan is 8,000,000 shares.
F-21
INDEX
TO EXHIBITS FILED WITH THIS REPORT
Index to Exhibits Filed with
this Report
Exhibit
No.
|
Description
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Hana Biosciences, Inc., as
amended.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
|
31.1
|
Certification
of Chief Executive Officer.
|
|
31.2
|
Certification
of Chief Financial Officer.
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
48