As filed with
the Securities and Exchange Commission on February 4,
2011
Registration
No. 333-168904
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 6
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
ENDOCYTE, INC.
(Exact name of Registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
2834
|
|
35-1969-140
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
3000 Kent Avenue,
Suite A1-100
West Lafayette, IN
47906
(765) 463-7175
(Address, including zip code and
telephone number, including area code, of Registrants
principal executive offices)
P. Ron Ellis
President and Chief Executive
Officer
3000 Kent Avenue,
Suite A1-100
West Lafayette, IN
47906
(765) 463-7175
(Name, address, including zip
code and telephone number, including area code, of agent for
service)
Copies to:
|
|
|
David J. Segre, Esq.
Elton Satusky, Esq.
Scott K. Murano, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
|
|
Bruce K. Dallas, Esq.
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, CA 94025
(650) 752-2000
|
Approximate date of commencement of the proposed sale to the
public: From time to time after the effective
date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer o
|
|
Non-accelerated
filer þ
|
|
Smaller reporting
company o
|
(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed Maximum
|
|
|
|
Proposed Maximum
|
|
|
|
|
|
Title of Each Class of
|
|
|
Amount to
|
|
|
|
Offering
|
|
|
|
Aggregate
|
|
|
|
Amount of
|
|
Securities to be Registered
|
|
|
be Registered(2)
|
|
|
|
Price Per Share(1)
|
|
|
|
Offering Price(1)(2)
|
|
|
|
Registration Fee(3)
|
|
Common stock, par value $0.001 per share
|
|
|
|
14,375,000
|
|
|
|
$
|
6.00
|
|
|
|
$
|
86,250,000
|
|
|
|
$
|
10,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(a)
under the Securities Act of 1933, as amended, based on an
assumed initial public offering price of $6.00.
|
|
|
|
(2)
|
|
Includes shares which the
underwriter has the option to purchase to cover over-allotments,
if any.
|
|
|
|
(3)
|
|
Of the amount stated, $6,149.63 was
previously paid in the initial filing, $700.96 was previously
paid in connection with filing Amendment No. 3 to the
registration statement, $5,000.14 was previously paid in
connection with filing Amendment No. 5 to the registration
statement, and $1,441.96 will be paid in connection with the
filing of this amendment to the registration statement.
|
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information contained in this prospectus is not complete and may
be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and we are not soliciting an offer to buy these
securities in any state or other jurisdiction where the offer or
sale is not permitted.
|
Subject to
completion dated February 4, 2011
12,500,000 Shares
Common Stock
This is the initial public offering of shares of common stock by
Endocyte, Inc. We are offering shares of our common stock. We
anticipate the initial public offering price will be $6.00 per
share.
We expect our common stock to be listed on The NASDAQ Global
Market under the symbol ECYT.
This investment involves risk. See Risk Factors
beginning on page 12.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
Initial Public Offering Price
|
|
$
|
|
|
|
$
|
|
|
Underwriting Discount and Commissions
|
|
$
|
|
|
|
$
|
|
|
Proceeds, Before Expenses, to Endocyte, Inc.
|
|
$
|
|
|
|
$
|
|
|
We have granted the underwriters the right to purchase up to
1,875,000 additional shares of common stock from us to
cover over-allotments, if any.
Entities affiliated with certain of our current stockholders
have indicated an interest in purchasing an aggregate of
approximately $8.0 million of shares of our common stock in
this offering. However, because indications of interest are not
binding agreements or commitments to purchase, the underwriters
may determine to sell more, less or no shares in this offering
to any of these entities, or any of these entities may determine
to purchase more, less or no shares in this offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The shares of common stock will be ready for delivery on or
about ,
2011.
|
|
RBC
Capital Markets |
Leerink Swann |
|
|
Wedbush
PacGrow Life Sciences |
Baird |
The date of this prospectus
is ,
2011
SMALL MOLECULAR DRUG
CONJUGATES We use a modular approach to develop proprietary SMDCs.
The folate receptor is among the cellular targets enabling the
delivery of highly active drugs specifically to diseased cells. |
We are also developing companion imaging diagnostics for each of our SMDCs that are
designed to identify the patients whose disease over-expresses the target of the therapy and who are
therefore more likely to benefit from treatment. Drug Payload Linker
System Targeting Ligand Folate receptor positive ovarian patient 1
Folate SMDC binds to the high affinity folate receptor. 2 Upon
binding to the folate receptor, the folate SMDC is internalized via
endocytosis. 3 The SMDC is cleaved inside endosome. 4 Drug payload
escapes and exerts activity on cell. 5 Folate receptor recycles to
the cell surface. The reduced folate carrier binds with low affinity.
SMDCs will not enter cell through the reduced folate carrier. |
Our drug candidates
are in clinical trails, we have no approved products and have not
generated any revenue from commercial sales to date. |
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
8
|
|
|
|
|
10
|
|
|
|
|
12
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
42
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
66
|
|
|
|
|
100
|
|
|
|
|
109
|
|
|
|
|
119
|
|
|
|
|
135
|
|
|
|
|
139
|
|
|
|
|
143
|
|
|
|
|
147
|
|
|
|
|
149
|
|
|
|
|
153
|
|
|
|
|
158
|
|
|
|
|
158
|
|
|
|
|
158
|
|
|
|
|
F-1
|
|
EX-23.1 |
We have not authorized anyone to provide any information other
than that contained or incorporated by reference in this
prospectus or in any free writing prospectus prepared by or on
behalf of us or to which we have referred you. Neither we nor
the underwriters take responsibility for, and can provide no
assurance as to the reliability of, any other information that
others may give you. This prospectus is an offer to sell only
the shares offered hereby but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date,
regardless of the time of delivery of this prospectus or any
sale of shares of our common stock.
Through and
including ,
2011 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
For investors outside the United States: Neither we nor any of
the underwriters have done anything that would permit this
offering or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other
than the United States. You are required to inform yourselves
about and to observe any restrictions relating to this offering
and the distribution of this prospectus.
i
SUMMARY
This summary highlights information contained in greater
detail elsewhere in this prospectus. This summary may not
contain all the information that you should consider before
investing in our common stock. You should read the entire
prospectus carefully, including Risk Factors
beginning on page 12 and our financial statements and
related notes included elsewhere in this prospectus, before
making an investment decision. Unless otherwise indicated, the
terms Endocyte, we, us and
our refer to Endocyte, Inc., a Delaware
corporation.
Overview
We are a biopharmaceutical company developing targeted therapies
for the treatment of cancer and inflammatory diseases. We use
our proprietary technology to create novel small molecule drug
conjugates, or SMDCs, and companion imaging diagnostics. Our
SMDCs actively target receptors that are over-expressed on
diseased cells, relative to healthy cells. This targeted
approach is designed to enable the treatment of patients with
highly active drugs at greater doses, delivered more frequently,
and over longer periods of time than would be possible with the
untargeted drug alone. We are also developing companion imaging
diagnostics for each of our SMDCs that are designed to identify
the patients whose disease over-expresses the target of the
therapy and who are therefore more likely to benefit from
treatment. This combination of an SMDC with its companion
imaging diagnostic is designed to personalize the treatment of
patients by delivering effective therapy, selectively to
diseased cells, in the patients most likely to benefit.
Our lead SMDC, EC145, targets the folate receptor, which is
frequently over-expressed in some of the most prevalent, and
difficult to treat solid tumor indications, including ovarian,
non-small cell lung, breast, colorectal, kidney, endometrial and
other cancers. We identify the presence of the folate receptor
in cancer patients by using EC20, our proprietary companion
imaging diagnostic for EC145. We have chosen platinum-resistant
ovarian cancer, or PROC, a highly treatment-resistant disease,
as our lead indication for development of EC145 because of the
high unmet need in treating this patient population and the high
percentage of ovarian cancer patients whose tumors over-express
the targeted folate receptor. In the final progression free
survival, or PFS, analysis of PRECEDENT, our randomized phase 2
clinical trial in women with PROC, EC145 increased PFS from a
median of 11.7 weeks to a median of 21.7 weeks,
representing an 85 percent improvement over standard
therapy (p=0.031). The p represents p-value, which
is the probability that the difference observed between the
treatment arm and the control arm is due to chance, in this case
3.1 percent. We studied a subset of patients in which
100 percent of their target lesions over-expressed the
folate receptor as determined by an EC20 scan, which patients we
refer to as EC20(++). We treated these EC20(++) patients with a
combination of EC145 and PLD and observed a median PFS of
24.0 weeks compared to a median of 6.6 weeks for
patients receiving PLD alone, an improvement of over
260 percent. The hazard ratio was 0.381 (p=0.018), or a
reduction in the risk of progression of 61.9 percent. We
anticipate beginning enrollment in PROCEED, our phase 3
registration trial for EC145, in the first half of 2011.
We are also developing EC145 for use in non-small cell lung
cancer, where we have completed a phase 2 single-arm clinical
trial in heavily pre-treated patients and observed a disease
control rate, or DCR, of 57 percent at the eight week
assessment in patients whose target tumors were all identified
as over-expressing the folate receptor. This compares to
historical DCRs ranging from 21 to 30 percent reported in
other trials of approved therapies in less heavily pre-treated
patients. In a subset of EC20(++) patients who had received
three or fewer prior therapies, the DCR was 70 percent. We
also evaluated OS in EC20(++) patients (n=14) compared to
patients in which at least one of the target lesions, but not
all, over-expressed the folate receptor, which patients we refer
to as EC20(+) (n=14). Median OS improved from 14.9 weeks
for EC20(+) patients to 47.2 weeks for EC20(++) patients.
The hazard ratio was 0.539,
1
meaning EC20(++) patients were 46.1 percent less likely to
die when compared to EC20(+) patients when receiving EC145
(p=0.101).
We currently have no commercial products and we have not
received regulatory approval for, nor have we generated
commercial revenue from, any of our product candidates. Our net
loss for the years ended December 31, 2007, 2008, and 2009,
and for the nine months ended September 30, 2009 and 2010
was $13.7 million, $18.5 million, $17.0 million,
$11.4 million and $16.7 million, respectively. As of
September 30, 2010, we had a retained deficit of
$94.7 million.
Technology
Platform and Product Pipeline
Our technology platform has enabled us to develop multiple new
SMDCs and companion imaging diagnostics for a range of disease
indications, with an initial focus on oncology and inflammatory
diseases. Our SMDCs are comprised of three modules: a targeting
ligand, a linker and a drug payload. The foundation of our
technology is our high-affinity small molecule targeting
ligands, which bind to over-expressed receptors on target cells,
while largely avoiding healthy cells. We are developing a number
of different targeting ligands to address a broad range of
cancers and inflammatory diseases. Our linker system attaches
the targeting ligand to the drug payload. It is designed to be
stable in the bloodstream, but to release the active drug from
the targeting ligand when the SMDC is taken up by the diseased
cell. The drug payload is the biologically active component of
our SMDCs. The majority of our drug payloads are highly active
molecules that are too toxic to be administered in their
untargeted forms at therapeutic dose levels. To create our
companion imaging diagnostics, we replace the drug payload of
the SMDC with an imaging agent that is easily seen with widely
available nuclear imaging equipment.
Below is a table listing our current SMDCs and companion imaging
diagnostics.
Lead
SMDC Candidate (EC145) and Advanced Clinical
Trials
Our lead SMDC candidate, EC145, consists of a highly cytotoxic
anti-cancer drug, DAVLBH, joined by a linker system to the
targeting ligand, folate. DAVLBH is a member of a class of
proven anti-cancer drugs that destabilize microtubules within
the cell, leading to cell death. As folate is required for cell
division, many rapidly dividing cancer cell types have been
found to over-express high-affinity folate receptors. These
folate receptors on cancer cells bind with high-affinity to
EC145 and bring it inside the
2
cell through a process known as endocytosis. Once EC145 is
inside the cell, the linker system is cleaved, releasing the
active drug payload within the cancer cell.
We have completed final PFS analysis for PRECEDENT, our
randomized phase 2 clinical trial of EC145 in 149 women with
PROC. PRECEDENT is a randomized controlled trial in which
patients received EC145 in combination with pegylated liposomal
doxorubicin, or PLD, versus PLD alone, which is a current
standard of care. The primary endpoint of the trial is
progression free survival, or PFS. Historically, PROC has proven
difficult to treat, and no approved therapy has extended either
PFS or overall survival, or OS, in a randomized trial.
In the final PRECEDENT PFS analysis of 149 patients and 95
PFS events, the combination therapy with EC145 and PLD increased
median PFS by 85 percent over therapy with PLD alone.
Median PFS increased from a median of 11.7 weeks in the PLD
arm to a median of 21.7 weeks in the EC145 and PLD
combination therapy arm (p=0.031). The hazard ratio was 0.626,
meaning patients receiving EC145 were 37.4 percent less
likely to have died or have their cancer progress compared to
patients receiving only PLD. The graph below compares PFS in
patients receiving EC145 and PLD versus PLD alone. This observed
improvement in median PFS was provided in the context of low
additional toxicity over PLD. In addition, this analysis
suggests an early positive trend in OS with 81 percent of
patients treated with EC145 and PLD alive at six months versus
72 percent of patients alive at six months when treated
with PLD alone. The OS data set has a 66 percent censoring
rate, includes only 50 events and is not considered mature. We
currently expect that we will receive final OS data from the
PRECEDENT trial by the first quarter of 2012.
Kaplan-Meier
curve for PFS in PRECEDENT
The predictive power of our EC20 companion imaging
diagnostic was also evaluated in the PRECEDENT trial. In an
analysis of EC20(++) patients, an increased improvement in PFS
was observed. In this subgroup of 38 patients having a
greater over-expression of the folate receptor, PFS improved
from a median of 6.6 weeks for patients receiving PLD alone
to a median of 24.0 weeks for patients receiving the
combination of EC145 and PLD, an improvement of over
260 percent. The hazard ratio was 0.381 (p=0.018) or a
reduction in the risk of progression of 61.9 percent.
We are planning to commence enrollment of our PROCEED phase 3
registration trial of EC145 for the treatment of women with PROC
in the first half of 2011. PROCEED will share the same
fundamental design characteristics of the PRECEDENT trial,
except that it will be a double-blinded trial, it will measure
PFS based on radiological progression alone without including
clinical progression, and it will
3
be powered for an OS analysis with a planned enrollment of
512 patients. The primary endpoint, 2 to 1 randomization,
dose and schedule are the same as those used in the PRECEDENT
trial. As was the case with the PRECEDENT trial, PROCEEDs
primary endpoint will be PFS. We intend to exclude patients who
have none of their target lesions over-express the folate
receptor as determined by an EC20 scan, which patients we refer
to as EC20(-), resulting in a population of EC20(+) and EC20(++)
patients. Based on data we collected in the PRECEDENT trial, and
the EC145 mechanism of action, we believe that these patients
are not expected to benefit from treatment with EC145. PROCEED
will also include a co-primary PFS endpoint for EC145 for
EC20(++) patients. EC20(+) patients are those patients who have
some, but not all, of their target lesions over-express the
folate receptor as determined by an EC20 scan. If PROCEED meets
either primary endpoint, we intend to file a new drug
application, or NDA, with the U.S. Food and Drug
Administration, or FDA, for use of EC145 in combination with PLD
in EC20(+) and EC20(++) patients with PROC or in EC20(++)
patients with PROC. The FDA has stated that PROCEED must provide
evidence of persuasive and robust statistically significant
clinical benefit. If we fail to demonstrate a benefit of this
magnitude, we would expect that the FDA would require us to
conduct a second phase 3 clinical trial in order to file an NDA
and receive marketing approval of EC145 for the treatment of
PROC. In addition, the results of PROCEED may not yield safety
and efficacy results sufficient to be approved by the FDA for
commercial sale.
Our second indication for EC145 is non-small cell lung cancer,
or NSCLC. Lung cancer is the leading cause of cancer-related
death worldwide and an area of high unmet medical need. Although
several therapies are commercially available for the treatment
of first and second line NSCLC, ultimately, in most patients the
therapy fails and their cancer grows. In our clinical trials
that incorporated EC20, approximately 80 percent of NSCLC
tumors over-express the folate receptor. As a result, we believe
NSCLC is also an attractive indication for EC145 development. In
a phase 2 single-arm trial in NSCLC patients who had at least
one tumor that over-expressed the folate receptor, EC145 met the
primary endpoint by demonstrating clinical benefit, as well as
improved median PFS and OS in EC20(++) patients. We plan on
defining the development strategy for this indication in 2011
and will execute a trial or trials as funding becomes available.
EC20
and Companion Imaging Diagnostics
We believe the future of medicine includes not only safer and
more effective drugs, but also the ability to identify the
appropriate therapy for a particular patient. We are committed
to this approach, which is commonly referred to as personalized
medicine or predictive medicine.
To create a companion imaging diagnostic targeting the same
diseased cells as the SMDC, we replace the drug payload with a
radioisotope imaging agent. The companion imaging diagnostic
allows for real-time, full-body assessment of the receptor
target without requiring an invasive tissue biopsy.
Using full-body imaging, the receptor expression can be measured
in every tumor and monitored throughout treatment. EC20 is the
companion imaging diagnostic for all of our SMDCs that target
the folate receptor. EC20 is a conjugate of the targeting
ligand, folate, and the radioisotope imaging agent,
technetium-99m. Following intravenous administration, EC20
rapidly binds to tumors that over-express the folate receptor,
allowing the treating physician to distinguish between patients
who are EC20 positive or EC20 negative within one to two hours
following its administration. In our phase 2 single-arm clinical
trials and the randomized phase 2 PRECEDENT trial with
EC145, we have seen correlations between favorable therapeutic
outcomes and uptake of our companion imaging diagnostic, which
we believe supports this approach. We intend to utilize EC20 as
part of our planned phase 3 clinical trial for EC145 and
use the data from this trial to file an NDA with the FDA for the
approval of EC20 for use in women with PROC.
4
Other
Pipeline Programs
We are developing a number of other SMDCs and companion imaging
diagnostics which leverage our modular platform technology. For
example, EC0489 utilizes an alternative linker system to alter
the biodistribution of the drug, which may allow for higher
dosage of drug payload than that found in EC145. EC0225 utilizes
two distinct and highly active drugs, DAVLBH and mitomycin-C.
These two drugs are attached to a single targeting ligand and
are delivered simultaneously to cancer cells, which may increase
the overall anti-cancer activity of the SMDC. In EC17, we
incorporate hapten as the drug payload, which can elicit an
immunologic response from the host immune system in order to
facilitate tumor-cell killing. In EC0652, we replace the folate
receptor ligand with a ligand that binds to prostate specific
membrane antigen, or PSMA.
Beyond cancer, we have discovered that activated macrophages, a
type of white blood cell found at sites of acute and chronic
inflammation, also over-express the folate receptor. Activated
macrophages release a variety of mediators of inflammation that
contribute to a broad range of diseases, such as rheumatoid
arthritis, osteoarthritis, inflammatory bowel disease and
psoriasis. We have a number of SMDCs in preclinical development
for autoimmune disease that are designed to inhibit the
production of pro-inflammatory cytokines by activated
macrophages. In preclinical models of rheumatoid arthritis, our
SMDCs targeted to activated macrophages result in significant
reduction in inflammation and prevention of bone destruction
that often accompanies these diseases. For example, EC0746 is an
SMDC constructed with the targeting ligand, folate, and an
inhibitor of cellular metabolism, called aminopterin. In
preclinical models, we observed that EC0746 was safe and reduced
inflammation more than the most commonly prescribed
anti-inflammatory agent, methotrexate, and the anti-TNF-alpha
agent, etanercept.
Our
Strategy
Our strategy is to develop and commercialize SMDCs to treat
patients who suffer from a variety of cancers and inflammatory
diseases that are not well addressed by currently available
therapies. The critical elements of our business strategy are to:
|
|
|
|
|
obtain marketing approval of our phase 3-ready SMDC, EC145, for
treatment of women with platinum-resistant ovarian cancer;
|
|
|
|
expand the use of EC145 to other cancers including NSCLC;
|
|
|
|
build a pipeline of SMDCs by leveraging our technology platform;
|
|
|
|
develop companion imaging diagnostics for each of our
therapies; and
|
|
|
|
build commercial capabilities and partner to maximize the value
of our SMDCs.
|
Patents
and Proprietary Rights
We own or have rights to 64 issued patents and 177 patent
applications worldwide covering our core technology, SMDCs and
companion imaging diagnostics. Our U.S. patent covering our
core technology and our lead SMDC, EC145, expires in 2026, and
our U.S. patent covering the EC145 companion imaging
diagnostic, EC20, expires in 2024. We entered into exclusive,
worldwide licenses that currently encompass 33 issued patents
and 79 patent applications for select folate-targeted technology
and for select technology related to PSMA owned by Purdue
Research Foundation, a non-profit organization which manages the
intellectual property of Purdue University. These exclusive,
worldwide license agreements expire on the expiration date of
the last to expire of the patents licensed thereunder, including
those that are issued on patents currently pending and on
matters not yet filed. Purdue Research Foundation may terminate
the licenses for material default by us, in the event we fail to
meet public demand for approved products or upon our bankruptcy.
We have royalty obligations to Purdue Research
5
Foundation based on sales of products that are designed,
developed or tested using the licensed technology as well as
annual minimum royalty obligations.
Risks
Associated With Our Business
Our business is subject to a number of risks of which you should
be aware before making an investment decision. These risks are
discussed more fully under the heading the Risk
Factors beginning on page 12, and include but are not
limited to the following:
|
|
|
|
|
We currently have no commercial products and we have not
received regulatory approval for, nor have we generated
commercial revenue from, any of our product candidates. As a
result, it is difficult to predict our future commercial success
and the viability of any of our product candidates.
|
|
|
|
We are dependent on the success of our lead drug candidate,
EC145, which has completed phase 2 clinical development.
Recent PRECEDENT results may not be predictive of the results of
our phase 3 clinical trial, and as a result, may not be
sufficient for approval of EC145. Furthermore, EC145 may not be
approved even if we achieve the primary endpoints of our phase 3
clinical trial.
|
|
|
|
We have never been profitable and have incurred net operating
losses since our inception. Our net loss for the years ended
December 31, 2007, 2008, and 2009, and for the nine months
ended September 30, 2009 and 2010 was $13.7 million,
$18.5 million, $17.0 million, $11.4 million and
$16.7 million, respectively. As of September 30, 2010,
we had a retained deficit of $94.7 million. We anticipate
that our operating losses will increase over the next several
years.
|
|
|
|
We will need to raise substantial additional funds to achieve
our goals. A failure to raise such additional funds may require
us to delay, limit, reduce or terminate current or planned
activities.
|
|
|
|
We expect that any product candidate that we commercialize will
compete with existing, market-leading products and those that
are currently in development. For example, even if EC145 is
approved by the FDA for the treatment of PROC, it may compete
with current therapies or other products in late-stage
development, which may prove to be safer and more effective.
|
|
|
|
We currently have no marketing, sales or distribution
capabilities. If our product candidates receive regulatory
approval, we intend to establish our sales and marketing
organization with technical expertise and supporting
distribution capabilities to commercialize our product
candidates, which will be expensive and time consuming. Any
failure or delay in the development of our internal sales,
marketing and distribution capabilities would adversely impact
the commercialization of these products.
|
|
|
|
If we do not establish development or commercialization
collaborations, we may have to alter our development and
marketing plans. As we progress with the clinical development of
our SMDCs, we may seek to collaborate with select pharmaceutical
and biotechnology companies to assist us in furthering
development and potential commercialization of some of our
product candidates in the United States or internationally. If
we are unable to negotiate collaborations on acceptable terms,
we may need to curtail the development of a product candidate,
reduce the scope of our sales or marketing activities, or
increase our expenditures and undertake development or
commercialization activities at our own expense.
|
|
|
|
Our inability to obtain adequate patent protection for our
product candidates or technology platform or failure to
successfully defend against any third-party infringement claims
could also adversely affect our business.
|
|
|
|
We are subject to risks associated with the availability of key
raw materials.
|
6
Our
Corporate Information
We were incorporated in the State of Indiana in 1995, and we
were reincorporated in the State of Delaware in 2001. Our
principal executive offices are located at 3000 Kent Avenue,
Suite A1-100,
West Lafayette, Indiana 47906, and our telephone number is
(765) 463-7175.
Our website address is www.endocyte.com. Information contained
on our website is not incorporated by reference into this
prospectus, and you should not consider information contained on
our website as part of this prospectus or in deciding whether to
purchase shares of our common stock.
The name Endocyte and our logo are our trademarks.
All other trademarks and trade names appearing in this
prospectus are the property of their respective owners.
7
THE
OFFERING
|
|
|
Common stock offered by us |
|
12,500,000 shares |
|
|
|
Common stock to be outstanding after this offering |
|
27,702,357 shares |
|
|
|
Initial public offering price per share |
|
$6.00 |
|
|
|
Use of proceeds |
|
We estimate that the net proceeds from this offering will be
approximately $67.8 million, or approximately
$78.2 million if the underwriters exercise their
over-allotment option in full, assuming an initial public
offering price of $6.00 per share after deducting underwriting
discounts and commissions and estimated offering expenses
payable by us. We expect to use substantially all of the net
proceeds from this offering to fund our phase 3 clinical
trial related to the use of EC145 and EC20 in PROC and to move
preclinical products forward in the development process. We
intend to use the remainder of our net proceeds, if any, for
working capital and other general corporate purposes. See
Use of Proceeds for a more complete description of
the intended use of proceeds from this transaction. |
|
|
|
Risk factors |
|
You should read the Risk Factors section of this
prospectus for a discussion of factors to consider carefully
before deciding to invest in shares of our common stock. |
|
NASDAQ Global Market symbol |
|
ECYT |
The number of shares of our common stock to be outstanding
following this offering is based on 12,898,436 shares of
our common stock outstanding as of September 30, 2010,
which excludes:
|
|
|
|
|
133,968 shares of common stock issuable upon the exercise
of warrants for our
Series C-3
convertible preferred stock at an exercise price of $8.12 per
share;
|
|
|
|
560,259 shares of common stock issuable upon the exercise
of options outstanding under the 1997 Stock Plan with a
weighted-average exercise price of $2.01 per share;
|
|
|
|
1,516,697 shares of common stock issuable upon the exercise
of options outstanding under the 2007 Stock Plan with a
weighted-average exercise price of $3.09 per share;
|
|
|
|
192,987 shares of common stock reserved for future issuance
as of September 30, 2010 under the 2007 Stock Plan;
|
|
|
|
the issuance of Subordinated Convertible Promissory Notes in
December 2010 and January 2011;
|
|
|
|
1,308,900 shares of common stock reserved for issuance
under the 2010 Equity Incentive Plan, which will become
effective in connection with this offering, and any future
increase in shares reserved for issuance under such
plan; and
|
|
|
|
261,780 shares of our common stock reserved for future
issuance under the 2010 Employee Stock Purchase Plan, which will
initially become effective upon approval by our Board of
Directors at
|
8
|
|
|
|
|
its discretion on a date following this offering, and any future
increase in shares reserved for issuance under such plan.
|
Unless otherwise noted, the information in this prospectus
reflects and assumes the following:
|
|
|
|
|
the conversion of all outstanding shares of our convertible
preferred stock into an aggregate of 11,747,564 shares of
common stock upon the closing of this offering;
|
|
|
|
the conversion of all outstanding warrants to purchase shares of
our convertible preferred stock into warrants to purchase an
aggregate of 133,968 shares of common stock upon the
closing of this offering;
|
|
|
|
|
|
automatic conversion of all of the outstanding Subordinated
Convertible Promissory Notes, or Subordinated Notes, into
2,303,921 shares of our common stock at an assumed
conversion price of $5.10 (85 percent of the assumed
initial public offering price of $6.00);
|
|
|
|
|
|
no exercise of options outstanding as of September 30, 2010;
|
|
|
|
the filing of our amended and restated certificate of
incorporation immediately prior to the effectiveness of this
offering and adoption of our amended and restated bylaws;
|
|
|
|
no exercise by the underwriters of their over-allotment option;
|
|
|
|
a 1.00 for 1.91 reverse split of the shares of our common stock
and our convertible preferred stock; and
|
|
|
|
|
|
the purchase of $8.0 million of shares of our common stock
in this offering by our current stockholders as described below.
|
Entities affiliated with Burrill & Company and Sanderling
Ventures, each of which is a current stockholder, have indicated
an interest in purchasing an aggregate of approximately $8.0
million of shares of our common stock in this offering. However,
because indications of interest are not binding agreements or
commitments to purchase, the underwriters may determine to sell
more, less or no shares in this offering to any of these
entities, or any of these entities may determine to purchase
more, less or no shares in this offering.
9
SUMMARY
FINANCIAL DATA
We have derived the summary statement of operations data for the
year ended December 31, 2007, 2008 and 2009 from our
audited financial statements included elsewhere in this
prospectus. We have derived the summary statement of operations
data for the nine months ended September 30, 2009 and 2010
and the balance sheet data as of September 30, 2010 from
our unaudited financial statements included elsewhere in this
prospectus. Our historical results are not necessarily
indicative of the results that may be expected in the future.
The following summary financial data should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
financial statements and related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands Except Share and Per Share Amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,082
|
|
|
$
|
500
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,305
|
|
|
|
13,323
|
|
|
|
14,804
|
|
|
|
10,680
|
|
|
|
11,271
|
|
General and administrative
|
|
|
4,401
|
|
|
|
4,786
|
|
|
|
3,934
|
|
|
|
2,677
|
|
|
|
4,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,706
|
|
|
|
18,109
|
|
|
|
18,738
|
|
|
|
13,357
|
|
|
|
15,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(14,624
|
)
|
|
|
(17,609
|
)
|
|
|
(15,738
|
)
|
|
|
(10,357
|
)
|
|
|
(15,993
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,297
|
|
|
|
682
|
|
|
|
49
|
|
|
|
43
|
|
|
|
3
|
|
Interest expense
|
|
|
(25
|
)
|
|
|
(1,579
|
)
|
|
|
(1,436
|
)
|
|
|
(1,142
|
)
|
|
|
(670
|
)
|
Other income (expense)
|
|
|
(306
|
)
|
|
|
13
|
|
|
|
119
|
|
|
|
65
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
966
|
|
|
|
(884
|
)
|
|
|
(1,268
|
)
|
|
|
(1,034
|
)
|
|
|
(752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(13,658
|
)
|
|
|
(18,493
|
)
|
|
|
(17,006
|
)
|
|
|
(11,391
|
)
|
|
|
(16,745
|
)
|
Income tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,658
|
)
|
|
$
|
(18,493
|
)
|
|
$
|
(17,006
|
)
|
|
$
|
(11,391
|
)
|
|
$
|
(16,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share(1)
|
|
$
|
(15.76
|
)
|
|
$
|
(20.54
|
)
|
|
$
|
(18.67
|
)
|
|
$
|
(12.50
|
)
|
|
$
|
(18.24
|
)
|
Shares used in computation of basic and diluted loss per share
|
|
|
866,530
|
|
|
|
900,141
|
|
|
|
911,081
|
|
|
|
911,081
|
|
|
|
917,799
|
|
Pro forma basic and diluted loss per share (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
$
|
(1.34
|
)
|
|
|
|
|
|
$
|
(1.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of pro forma basic and diluted loss
per share (unaudited)
|
|
|
|
|
|
|
|
|
|
|
12,658,710
|
|
|
|
|
|
|
|
12,665,428
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma(2)
|
|
|
As Adjusted(3)(4)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
8,067
|
|
|
$
|
24,817
|
|
|
$
|
92,567
|
|
Working capital
|
|
|
4,747
|
|
|
|
21,788
|
|
|
$
|
89,538
|
|
Total assets
|
|
|
11,357
|
|
|
|
28,444
|
|
|
$
|
96,194
|
|
Senior debt
|
|
|
9,891
|
|
|
|
14,811
|
|
|
|
14,811
|
|
Subordinated notes
|
|
|
|
|
|
|
13,824
|
|
|
|
|
|
Convertible preferred stock
|
|
|
89,799
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(92,367
|
)
|
|
|
(4,270
|
)
|
|
$
|
77,303
|
|
|
|
|
(1)
|
|
See Note 15 of the notes to
our financial statements for a description of the method used to
compute basic and diluted loss per share attributable to common
stockholders.
|
|
(2)
|
|
Pro forma to reflect (i) the
conversion of all outstanding shares of our convertible
preferred stock into shares of our common stock immediately
prior to the completion of this offering, (ii) the
conversion, but not the exercise, of all outstanding warrants to
purchase shares of our
Series C-3
preferred stock into warrants to purchase shares of our common
stock immediately prior to completion of this offering,
(iii) the impact of accessing the remaining tranche of
$5.0 million with Mid-Cap Financial, or Mid-Cap, and
Silicon Valley Bank, or SVB, (iv) the issuance of warrants
to Mid-Cap and SVB in consideration for the loan amount and
interest rate, to purchase convertible preferred stock,
(v) the conversion, but not the exercise, of all warrants
issued to Mid-Cap and SVB to purchase convertible preferred
stock into warrants to purchase shares of our common stock
immediately prior to completion of this offering, and
(vi) the impact of proceeds received from the issuance of
our Subordinated Notes, but not the conversion of such Notes
into shares of our common stock. See Note 2 of the notes to
our financial statements for further discussion.
|
|
|
|
(3)
|
|
Pro forma as adjusted to reflect
(i) the conversion of all outstanding shares of our
convertible preferred stock into shares of our common stock
immediately prior to the completion of this offering,
(ii) the conversion, but not the exercise, of all
outstanding warrants to purchase shares of our
Series C-3
preferred stock into warrants to purchase shares of our common
stock immediately prior to the completion of this offering,
(iii) our receipt of estimated net proceeds of
$67.8 million from our sale of shares of common stock in
this offering at an assumed initial public offering price of
$6.00 per share after deducting the estimated underwriting
discounts and commissions and estimated offering expenses
payable by us, and (iv) the automatic conversion of all of
our outstanding Subordinated Notes into 2,303,921 shares of
our common stock at an assumed conversion price of $5.10 (85
percent of the assumed initial public offering price of $6.00),
assuming the gross proceeds of this offering exceed
$50.0 million.
|
|
|
|
(4)
|
|
A $1.00 increase (decrease) in the
assumed initial public offering price of $6.00 per share,
would increase (decrease) cash, cash equivalents and short-term
investments and each of working capital, total assets and total
stockholders equity (deficit) by $11.6 million,
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same, and
after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us. Each increase or
decrease of 1.0 million shares in the number of shares
offered by us would increase or decrease cash, cash equivalents
and short-term investments and each of working capital, total
assets and total stockholders equity (deficit) by
approximately $5.6 million. A $1.00 increase or decrease in
the assumed initial public offering price of $6.00 per
share would decrease or increase the number of shares issued
upon conversion of the Subordinated Notes by 329,132 or
460,784 shares of our common stock, respectively. The pro
forma as adjusted information discussed above is illustrative
only and will be adjusted based on the actual public offering
price and other terms of this offering determined at pricing.
|
11
RISK
FACTORS
This investment in our common stock involves a high degree of
risk. You should carefully read and consider the following risk
factors, in addition to the other information set forth in this
prospectus, including our financial statements and the related
notes, before purchasing shares of our common stock. If any of
these risks actually occurs, our business, business prospects,
financial condition, operating results or cash flows could be
materially harmed. In any such case, the trading price of our
common stock could decline and you could lose all or part of
your investment.
Risks
Related to Our Business and Industry
We have incurred significant losses since our inception
and anticipate that we will continue to incur losses for the
foreseeable future. We may never achieve or sustain
profitability.
We are a clinical-stage biopharmaceutical company with a limited
operating history. Biopharmaceutical product development is a
highly speculative undertaking and involves a substantial degree
of risk. We are not profitable and have incurred losses in each
year since our inception in December 1995. We have not generated
any revenue from product sales to date. We continue to incur
significant research and development and other expenses related
to our ongoing operations. Our net loss for the year ended
December 31, 2007, 2008, and 2009, and for the nine months
ended September 30, 2009 and 2010 was $13.7 million,
$18.5 million, $17.0 million, $11.4 million and
$16.7 million, respectively. As of September 30, 2010,
we had a retained deficit of $94.7 million. We expect to
continue to incur losses for the foreseeable future, and we
expect these losses to increase as we continue our development
of, and seek regulatory approvals for, our small molecule drug
conjugates, or SMDCs, and companion imaging diagnostics, and
begin to commercialize any approved products. As such, we are
subject to all the risks incident to the creation of new SMDCs
and companion imaging diagnostics, and we may encounter
unforeseen expenses, difficulties, complications, delays and
other unknown factors that may adversely affect our business. If
any of our product candidates fail in clinical trials or do not
gain regulatory approval, or if any of our approved products
fail to achieve market acceptance, we may never become
profitable. Even if we achieve profitability in the future, we
may not be able to sustain profitability in subsequent periods.
We are a clinical-stage company with no approved products,
which makes it difficult to assess our future viability.
We were incorporated in December 1995, are a clinical-stage
company and, as of September 30, 2010, have not derived any
revenue from the sales of our products. Our operations to date
have been limited to organizing and staffing our company,
acquiring, developing and securing our technology, undertaking
preclinical studies and clinical trials of our product
candidates and engaging in research and development under
collaboration agreements. We have not yet demonstrated an
ability to obtain regulatory approval, formulate and manufacture
commercial-scale products, or conduct sales and marketing
activities necessary for successful product commercialization.
Consequently, it is difficult to predict our future success and
the viability of any commercial programs that we may choose to
take forward. From our inception through September 30,
2010, we have derived non-grant related revenues of
$11.9 million from payments under collaborative agreements
with Bristol-Myers Squibb, or BMS, and Sanofi-Aventis. We do not
expect any further payments under these agreements, neither of
which are still in force.
12
We are highly dependent on the success of our lead SMDC,
EC145, and we cannot give any assurance that we will
successfully complete its clinical development, or that it will
receive regulatory approval or be successfully
commercialized.
Our lead SMDC, EC145, has been evaluated in a randomized
phase 2 clinical trial for the treatment of women with
platinum-resistant ovarian cancer, or PROC, and we recently
completed a phase 2 single-arm clinical trial for advanced
non-small cell lung cancer, or NSCLC. Our future trials may not
be successful, and EC145 may never receive regulatory approval
or be successfully commercialized. We may fail to obtain
necessary marketing approvals for EC145 from the U.S. Food
and Drug Administration, or FDA, or similar
non-U.S. regulatory
authorities if our clinical development program for EC145 fails
to demonstrate that it is safe and effective to the satisfaction
of such authorities, or if we have inadequate financial or other
resources to advance EC145 through clinical trials. Even if
EC145 receives regulatory approval, we may not be successful in
marketing it for a number of reasons, including the introduction
by our competitors of more clinically-effective or
cost-effective alternatives or failure in our sales and
marketing efforts. Any failure to obtain approval of EC145 and
successfully commercialize it would have a material and adverse
impact on our business.
The results of previous clinical trials may not be
predictive of future results, and our current and planned
clinical trials may not satisfy the requirements of the FDA or
other
non-U.S.
regulatory authorities.
The clinical trials of our product candidates are, and the
manufacturing and marketing of any approved products will be,
subject to extensive and rigorous review and regulation by
numerous government authorities in the United States and in
other countries where we intend to test and market our product
candidates. Before obtaining regulatory approvals for the
commercial sale of any product candidate, we must demonstrate
through preclinical testing and clinical trials that the product
candidate is safe and effective for use in each indication for
which we intend to market such product candidate. This process
can take many years and requires the expenditure of substantial
financial and human resources and may include post-marketing
trials and surveillance. To date, we have not completed any
randomized phase 3 clinical trials. We have completed two
phase 2 single-arm and one phase 2 randomized clinical
trials with EC145 for the treatment of patients with advanced
ovarian cancer and NSCLC. We have three other product candidates
in phase 1 clinical trials. In addition, we have other
product candidates in the discovery and preclinical testing
stages.
Positive results from preclinical studies and early clinical
trials should not be relied upon as evidence that later-stage or
large-scale clinical trials will succeed. A number of companies
in the biopharmaceutical industry have suffered significant
setbacks in advanced clinical trials due to lack of efficacy or
adverse safety profiles, even after promising results in earlier
trials. We will be required to demonstrate with substantial
evidence through adequate and well-controlled clinical trials,
including our planned phase 3 trial of EC145 for the
treatment of women with PROC, that our product candidates are
safe and effective for use in the target population before we
can seek regulatory approvals for their commercial sale.
Further, our product candidates may not be approved even if they
achieve the primary endpoints in phase 3 clinical trials or
registration trials. The FDA or other
non-U.S. regulatory
authorities may disagree with our trial design or our
interpretation of data from preclinical studies and clinical
trials. For example, while we have discussed with the FDA the
design of our initial phase 3 randomized clinical trial for
the approval of EC145 to treat women with PROC, we have not
sought a Special Protocol Assessment, or SPA, from the FDA for
this clinical trial, and therefore do not have the FDAs
agreement that the trial design is adequate to support a new
drug application, or an NDA, for EC145. Accordingly,
13
it is possible that the FDA will not view this phase 3
trial as adequate support of an NDA, based on the endpoints
chosen or other elements of the trial design.
In our end of phase 2 meeting with the FDA related to
EC145, the FDA stated that, because of the difficulty in
reliably determining cancer progression based on imaging studies
in ovarian cancer, its office policy is to require that the
primary endpoint for an ovarian cancer registration trial be
overall survival, or OS. However, the FDA stated that we may
choose, at our own risk, to conduct a phase 3 trial in
which progression free survival, or PFS, is the primary
endpoint; provided that for such a trial to be the basis for
approval, the PFS results must be very robust statistically and
clinically meaningful, and the trial must be powered to
demonstrate a statistically significant OS benefit. In addition
to evaluating PFS in the patient population whose lesions
over-expressed the folate receptor, EC20(+) and EC20(++)
patients, we also plan to conduct a PFS analysis of the EC20(++)
patient subset as part of the PROCEED clinical trial protocol.
Even if our phase 3 trial meets either of its PFS primary
endpoints, a positive trend in OS at the time of filing our NDA
may be required for approval or the FDA may delay consideration
of approval until final OS data becomes available, which would
result in significant additional costs and delay our ability to
market EC145 for this indication. The FDA also noted that the
final OS analysis from our phase 3 trial would be required
as a post-marketing commitment should approval be granted based
upon PFS. In addition, if the FDA approves EC145 based upon
meeting either of our PFS primary endpoints, in certain
circumstances the approval could be withdrawn if any required
post-marketing trials or analyses do not meet FDA requirements.
Furthermore, as is typical for cancer drug approvals, the FDA
stated that for the initial approval of EC145 to be based on a
single phase 3 clinical trial, the trial must provide
evidence of persuasive and robust statistically significant
clinical benefit such that it would be considered unethical to
conduct another trial. If we fail to demonstrate a benefit of
this magnitude in our planned phase 3 trial, we would
expect that the FDA would require us to conduct a second
phase 3 trial in order to receive marketing approval of
EC145 for the treatment of PROC. Such a requirement would result
in significant additional cost and would delay our ability to
market EC145 for this indication.
Patients in our initial phase 3 trial will be imaged with
our companion imaging diagnostic, EC20, prior to treatment with
EC145. Although EC20 is part of our phase 3 trial design, there
can be no assurance that this trial will provide a sufficient
basis for approval of an NDA for EC20. Similarly, we can provide
no assurance to you that EC145 will be approved without EC20
approval. In addition, although we expect to exclude EC20(-)
patients from our PROCEED trial, there can be no assurance that
the FDA will not require us to include these patients in the
trial.
The FDA, and other regulatory authorities, may change
requirements for the approval of our product candidates even
after reviewing and providing non-binding comment on a protocol
for a pivotal phase 3 clinical trial that has the potential
to result in FDA approval. In addition, regulatory authorities
may also approve any of our product candidates for fewer or more
limited indications than we request, may grant approval
contingent on the performance of costly post-marketing clinical
trials, or may approve a product candidate with a label that
does not include the labeling claims necessary or desirable for
the successful commercialization of that product candidate. Any
of the foregoing scenarios could materially harm the commercial
prospects for our product candidates.
There is a high risk that our development and clinical
activities will not result in commercial products, and we will
have invested in our current development and clinical programs,
to the exclusion of others, for several more years before it is
known whether one or more of our product candidates will receive
regulatory approval or be commercially introduced.
Our product candidates are in various stages of development and
are prone to the risks of failure inherent in biopharmaceutical
development. We will need to complete significant additional
clinical trials
14
before we can demonstrate that our product candidates are safe
and effective to the satisfaction of the FDA and other
non-U.S. regulatory
authorities. Clinical trials are expensive and uncertain
processes that take years to complete. Failure can occur at any
stage of the process. Further, even if our product candidates
receive required regulatory approvals, we cannot assure you that
they will be successful commercially. In addition, we have a
large number of product candidates in our development pipeline,
and while we invest in the technology and indications that we
believe are most promising, financial and resource constraints
may require us to forego or delay opportunities that may
ultimately have greater commercial potential than those programs
we are currently actively developing.
The coverage and reimbursement status of newly approved
biopharmaceuticals is uncertain, and failure to obtain adequate
coverage and adequate reimbursement of EC145 or other product
candidates could limit our ability to generate revenue.
There is significant uncertainty related to the third-party
coverage and reimbursement of newly approved drugs. The
commercial success of our product candidates, including EC145,
in both domestic and international markets will depend in part
on the availability of coverage and adequate reimbursement from
third-party payors, including government payors, such as the
Medicare and Medicaid programs, and managed care organizations.
Government and other third-party payors are increasingly
attempting to contain healthcare costs by limiting both coverage
and the level of reimbursement for new drugs and, as a result,
they may not cover or provide adequate payment for our product
candidates. These payors may conclude that our product
candidates are less safe, less effective or less cost-effective
than existing or later introduced products, and third-party
payors may not approve our product candidates for coverage and
reimbursement or may cease providing coverage and reimbursement
for these product candidates. Because each country has one or
more payment systems, obtaining reimbursement in the United
States and internationally may take significant time and cause
us to spend significant resources. The failure to obtain
coverage and adequate reimbursement for our product candidates
or healthcare cost containment initiatives that limit or deny
reimbursement for our product candidates may significantly
reduce any future product revenue.
In the United States and in other countries, there have been and
we expect there will continue to be a number of legislative and
regulatory proposals to change the healthcare system in ways
that could significantly affect our business. International,
federal and state lawmakers regularly propose and, at times,
enact legislation that would result in significant changes to
the healthcare system, some of which are intended to contain or
reduce the costs of medical products and services. The
U.S. government and other governments have shown
significant interest in pursuing healthcare reform, as evidenced
by the recent passing of the Patient Protection and Affordable
Care Act and its amendment, the Health Care and Education
Reconciliation Act. Such government-adopted reform measures may
adversely impact the pricing of healthcare products and services
in the United States or internationally and the amount of
reimbursement available from governmental agencies or other
third-party payors. In addition, in some foreign jurisdictions,
there have been a number of legislative and regulatory proposals
to change the healthcare system in ways that could affect our
ability to sell our products profitably. The continuing efforts
of U.S. and other governments, insurance companies, managed
care organizations and other payors of healthcare services to
contain or reduce healthcare costs may adversely affect our
ability to set prices for our products, which we believe are
fair, and our ability to generate revenues and achieve and
maintain profitability.
In some countries, particularly in the European Union,
prescription drug pricing is subject to governmental control. In
these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of
marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available
therapies. If
15
reimbursement of our product candidates is unavailable or
limited in scope or amount in a particular country, or if
pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability of our products in such country.
Our development activities could be delayed or stopped for
a number of reasons, many of which are outside our control,
including failure to recruit and enroll patients for clinical
trials.
We do not know whether our current clinical trials will be
completed on schedule, or at all, and we cannot guarantee that
our future planned clinical trials will begin on time, or at
all. Our current and planned clinical trials could be
substantially delayed or prevented by several factors, including:
|
|
|
|
|
limited number of, and competition for, suitable sites to
conduct our clinical trials;
|
|
|
|
government or regulatory delays and changes in regulatory
requirements, policy and guidelines;
|
|
|
|
delay or failure to obtain sufficient supplies of the product
candidate for our clinical trials as a result of non-compliance
of current Good Manufacturing Practice, or cGMP, of our
suppliers or for other reasons;
|
|
|
|
delay or failure to reach agreement on acceptable clinical trial
agreement terms with prospective sites or investigators; and
|
|
|
|
delay or failure to obtain institutional review board, or IRB,
approval to conduct a clinical trial at a prospective site.
|
The completion of our clinical trials could also be
substantially delayed or prevented by several factors, including:
|
|
|
|
|
slower than expected rates of patient recruitment and enrollment;
|
|
|
|
unforeseen safety issues;
|
|
|
|
lack of efficacy evidenced during clinical trials, which risk
may be heightened given the advanced state of disease and lack
of response to prior therapies of patients in our clinical trial
for EC145 in PROC;
|
|
|
|
termination of our clinical trials by an IRB at one or more
clinical trial sites;
|
|
|
|
inability or unwillingness of patients or medical investigators
to follow our clinical trial protocols; and
|
|
|
|
inability to monitor patients adequately during or after
treatment or high patient dropout rates.
|
For example, we have in the past experienced slower than
expected rates of patient recruitment and enrollment with our
PRECEDENT trial due to a number of reasons, including slower
than expected clinical trial site activations due to prolonged
contract negotiations and delays in scheduling or approval by
IRBs, lack of qualified patients at a particular site,
competition with other clinical trials for patients, and
clinical investigator scheduling and availability due to
vacations or absences.
Our clinical trials may be suspended or terminated at any time
by the FDA, other regulatory authorities or us. For example, a
Data Safety Monitoring Board, or DSMB, will monitor PROCEED and
could recommend closing the trial based on the results of a
pre-specified interim futility analysis or any observed
unexpected safety concern that may occur during the trial.
Failure or significant delay in completing clinical trials for
our product candidates could materially harm our financial
results and the commercial prospects for our product candidates.
16
Even if we are able to obtain regulatory approval of EC145
based on our initial phase 3 clinical trial, marketing will
be limited to our intended indication of PROC and not ovarian
cancer generally, or any other type of cancer.
Even if we are able to obtain regulatory approval of EC145 based
on our initial phase 3 clinical trial, PROCEED, and formulate
and manufacture a commercial-scale product, our marketing of
EC145 will be limited to our initial intended indication of PROC
and not ovarian cancer generally, or any other type of cancer.
According to the American Cancer Society, approximately 21,500
new cases of ovarian cancer were reported in the United States
in 2009. Of those ovarian cancer cases, approximately
50 percent of patients will eventually develop PROC.
Marketing of EC145, if approved for our intended indication,
will be limited to those women with ovarian cancer who
demonstrate a resistance to platinum-based therapies and who are
EC20(+) or EC20(++). The intended indication for use may be
further limited to only patients who are EC20(++). Marketing
efforts for EC145 outside of our approved indication of PROC
will require additional regulatory approvals, which we may never
pursue or receive.
Our product candidates may cause undesirable side effects
that could delay or prevent their regulatory approval or
commercialization.
Common side effects of EC145 include abdominal pain, vomiting,
constipation, nausea, fatigue, loss of appetite and peripheral
sensory neuropathy. Because our products have been tested in
relatively small patient populations and for limited durations
to date, additional side effects may be observed as their
development progresses.
Undesirable side effects caused by any of our product candidates
could cause us or regulatory authorities to interrupt, delay or
discontinue clinical trials and could result in the denial of
regulatory approval by the FDA or other
non-U.S. regulatory
authorities for any or all targeted indications. This, in turn,
could prevent us from commercializing our product candidates and
generating revenues from their sale. In addition, if one of our
products receives marketing approval and we or others later
identify undesirable side effects caused by this product:
|
|
|
|
|
regulatory authorities may withdraw their approval of this
product;
|
|
|
|
we may be required to recall this product, change the way this
product is administered, conduct additional clinical trials or
change the labeling of this product;
|
|
|
|
this product may be rendered less competitive and sales may
decrease; or
|
|
|
|
our reputation may suffer generally both among clinicians and
patients.
|
Any one or a combination of these events could prevent us from
achieving or maintaining market acceptance of the affected
product or could substantially increase the costs and expenses
of commercializing the product, which in turn could delay or
prevent us from generating significant revenues from the sale of
the product.
We may not obtain approval to market our product
candidates outside the United States or negotiate satisfactory
pricing for our product candidates in foreign jurisdictions,
which could adversely impact our future profitability.
We intend to seek approval to market certain of our product
candidates in both the United States and in
non-U.S. jurisdictions.
In order to market our products in the European Union and many
other
non-U.S. jurisdictions,
we must obtain separate regulatory approvals and comply with
numerous and varying regulatory requirements. To date, we have
not filed for marketing approval for any of our product
candidates and may not receive the approvals necessary to
commercialize our product candidates in any market. The approval
procedure varies among countries and can involve additional
testing and data review. The time and safety and efficacy data
required to obtain foreign regulatory approval may differ from
that required to obtain
17
FDA approval. The foreign regulatory approval process may
include all of the risks associated with obtaining FDA approval.
We may not obtain foreign regulatory approvals on a timely
basis, if at all. Approval by the FDA does not ensure approval
by regulatory agencies in other countries, and approval by one
foreign regulatory authority does not ensure approval by
regulatory agencies in other countries or by the FDA. However, a
failure or delay in obtaining regulatory approval in one
jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by
the FDA. The failure to obtain regulatory approval in any
jurisdiction could materially harm our business.
We will require substantial additional funding which may
not be available to us on acceptable terms, or at all.
We are advancing multiple product candidates through clinical
development. As of September 30, 2010, our working capital
was $4.7 million. We will need to raise substantial
additional capital to continue our clinical development and
commercialization activities. Moreover, we will need to raise
additional capital if the proceeds from this offering are
insufficient to fund PROCEED in its entirety.
Our future funding requirements will depend on many factors,
including but not limited to:
|
|
|
|
|
our need to expand our research and development activities;
|
|
|
|
the rate of progress and cost of our clinical trials and the
need to conduct clinical trials beyond those planned;
|
|
|
|
the costs associated with establishing a sales force and
commercialization capabilities;
|
|
|
|
the costs of acquiring, licensing or investing in businesses,
product candidates and technologies;
|
|
|
|
the costs and timing of seeking and obtaining approval from the
FDA and
non-U.S. regulatory
authorities;
|
|
|
|
our ability to maintain, defend and expand the scope of our
intellectual property portfolio;
|
|
|
|
our need and ability to hire additional management and
scientific and medical personnel;
|
|
|
|
the effect of competing technological and market developments;
|
|
|
|
our need to implement additional internal systems and
infrastructure, including financial and reporting systems
appropriate for a public company; and
|
|
|
|
the economic and other terms and timing of collaboration,
licensing or other arrangements into which we may enter.
|
Until we can generate a sufficient amount of revenue to finance
our cash requirements, which we may never do, we expect to
finance future cash needs primarily through public or private
equity financings, debt financings or strategic collaborations.
We do not know whether additional funding will be available on
acceptable terms, or at all. If we are not able to secure
additional funding when needed, we may have to delay, reduce the
scope of or eliminate one or more of our clinical trials or
research and development programs, or enter into collaboration
or other arrangements with other companies to provide such
funding for one or more of such clinical trials or programs in
exchange for our affording such partner commercialization or
other rights to the product candidates that are the subject of
such clinical trials or programs.
We believe that the proceeds we receive from this offering and
our existing cash, cash equivalents and short-term investments
will be sufficient to support our current operating plan through
at least the end of the third quarter of 2012. We will require
additional funding through either collaboration arrangements,
borrowings or sales of additional securities to commercialize
any of our SMDCs or companion imaging diagnostics. In addition,
if the FDA requires us to undertake a second phase 3
18
clinical trial or obtain final OS data from PROCEED, the net
proceeds from this offering will not be sufficient for such
purposes. However, our operating plan may change as a result of
many factors currently unknown to us, and we may need additional
funds sooner than planned. In addition, we may seek additional
capital due to favorable market conditions or strategic
considerations even if we believe we have sufficient funds for
our current or future operating plans.
Raising additional capital may cause dilution to existing
stockholders, restrict our operations or require us to
relinquish rights.
We may seek the additional capital necessary to fund our
operations through public or private equity financings, debt
financings, and collaborative and licensing arrangements. To the
extent that we raise additional capital through the sale of
equity or convertible debt securities, your ownership interest
will be diluted and the terms may include liquidation or other
preferences that adversely affect your rights as a common
stockholder. Debt financing, if available, may involve
agreements that include covenants limiting or restricting our
ability to take specific actions such as incurring additional
debt, making capital expenditures, or declaring dividends, or
which impose financial covenants on us that limit our operating
flexibility to achieve our business objectives. If we raise
additional funds through collaboration and licensing
arrangements with third parties, we may have to relinquish
valuable rights to our technologies or product candidates, or
grant licenses on terms that are not favorable to us. In
addition, we cannot assure you that additional funds will be
available to us on favorable terms or at all.
If our competitors develop and market products that are
more effective, safer or less expensive than our product
candidates, our commercial opportunities will be negatively
impacted.
The life sciences industry is highly competitive, and we face
significant competition from many pharmaceutical,
biopharmaceutical and biotechnology companies that are
researching and marketing products designed to address various
types of cancer and other indications we treat or may treat in
the future. We are currently developing cancer therapeutics that
will compete with other drugs and therapies that currently exist
or are being developed. Also, our lead SMDC, EC145, is being
clinically developed not as a primary therapy but as a therapy
for patients whose tumors have developed resistance to
chemotherapy, which limits its potential addressable market.
Products we may develop in the future are also likely to face
competition from other drugs and therapies. Many of our
competitors have significantly greater financial, manufacturing,
marketing and drug development resources than we do. Large
biopharmaceutical companies, in particular, have extensive
experience in clinical testing and in obtaining regulatory
approvals for drugs. Additional mergers and acquisitions in the
biopharmaceutical industry may result in even more resources
being concentrated by our competition. Competition may increase
further as a result of advances in the commercial applicability
of technologies currently being developed and a greater
availability of capital investment in those fields. These
companies also have significantly greater research and marketing
capabilities than we do. Some of the companies developing
products which may compete with EC145 include Roche Holdings,
Eisai Company, Nektar Therapeutics, Sunesis Pharmaceuticals, Eli
Lilly and Sanofi-Aventis. In addition, many universities and
U.S. private and public research institutes are active in
cancer research, the results of which may result in direct
competition with EC145 or other of our product candidates.
In certain instances, the drugs which will compete with our
product candidates are widely available or established, existing
standards of care. To compete effectively with these drugs, our
product candidates will need to demonstrate advantages that lead
to improved clinical safety or efficacy compared to these
competitive products. We cannot assure you that we will be able
to achieve competitive advantages versus alternative drugs or
therapies. If our competitors market products that are more
effective, safer or less expensive than our product candidates,
if any, or that reach the market sooner than our product
candidates, if any, we may not achieve commercial success.
19
We believe that our ability to successfully compete will depend
on, among other things:
|
|
|
|
|
our ability to design and successfully execute appropriate
clinical trials;
|
|
|
|
our ability to recruit and enroll patients for our clinical
trials;
|
|
|
|
the results of our clinical trials and the efficacy and safety
of our product candidates;
|
|
|
|
the speed at which we develop our product candidates;
|
|
|
|
achieving and maintaining compliance with regulatory
requirements applicable to our business;
|
|
|
|
the timing and scope of regulatory approvals, including labeling;
|
|
|
|
adequate levels of reimbursement under private and governmental
health insurance plans, including Medicare;
|
|
|
|
our ability to protect intellectual property rights related to
our product candidates;
|
|
|
|
our ability to commercialize and market any of our product
candidates that may receive regulatory approval;
|
|
|
|
our ability to have our partners manufacture and sell commercial
quantities of any approved product candidates to the market;
|
|
|
|
acceptance of our product candidates by physicians, other
healthcare providers and patients; and
|
|
|
|
the cost of treatment in relation to alternative therapies.
|
In addition, the biopharmaceutical industry is characterized by
rapid technological change. Our future will depend in large part
on our ability to maintain a competitive position with respect
to these technologies. Our competitors may render our
technologies obsolete by advances in existing technological
approaches or the development of new or different approaches,
potentially eliminating the advantages in our drug discovery
process that we believe we derive from our research approach and
proprietary technologies. Also, because our research approach
integrates many technologies, it may be difficult for us to stay
abreast of the rapid changes in each technology. If we fail to
stay at the forefront of technological change, we may be unable
to compete effectively.
If we fail to attract and retain key management and
scientific personnel, we may be unable to successfully develop
or commercialize our product candidates.
We will need to expand and effectively manage our managerial,
operational, financial, development and other resources in order
to successfully pursue our research, development and
commercialization efforts for our product candidates. Our
success depends on our continued ability to attract, retain and
motivate highly qualified management and preclinical and
clinical personnel. The loss of the services of any of our
senior management, including Ron Ellis, our President and Chief
Executive Officer, Philip Low, our Chief Science Officer, and
Michael Sherman, our Chief Financial Officer, could delay or
prevent the commercialization of our product candidates. We
maintain key man insurance policies on the lives of
these officers; however, we generally do not expect the proceeds
from any of these policies to adequately compensate us for the
loss of any these individuals. We employ these individuals on an
at-will basis and their employment can be terminated by us or
them at any time, for any reason and with or without notice. We
will need to hire additional personnel as we continue to expand
our research and development activities and build a sales and
marketing function.
We have scientific and clinical advisors who assist us in
formulating our research, development and clinical strategies.
These advisors are not our employees and may have commitments
to, or
20
consulting or advisory contracts with, other entities that may
limit their availability to us. In addition, our advisors may
have arrangements with other companies to assist those companies
in developing products or technologies that may compete with
ours.
We may not be able to attract or retain qualified management and
scientific personnel in the future due to the intense
competition for a limited number of qualified personnel among
biopharmaceutical, biotechnology, pharmaceutical and other
businesses, particularly in Indiana. If we are not able to
attract and retain the necessary personnel to accomplish our
business objectives, we may experience constraints that will
impede the achievement of our research and development
objectives, our ability to raise additional capital and our
ability to implement our business strategy. In particular, if we
lose any members of our senior management team, we may not be
able to find suitable replacements in a timely fashion, or at
all, and our business may be harmed as a result.
As we evolve from a company primarily involved in clinical
development to a company also involved in commercialization, we
may encounter difficulties in managing our growth and expanding
our operations successfully.
As we advance our product candidates through clinical trials, we
will need to expand our development, regulatory, manufacturing,
marketing and sales capabilities or contract with third parties
to provide these capabilities for us. As our operations expand,
we expect that we will need to manage additional relationships
with such third parties, as well as additional collaborators and
suppliers. Maintaining these relationships and managing our
future growth will impose significant added responsibilities on
members of our management and other personnel. We must be able
to: manage our development efforts effectively; manage our
clinical trials effectively; hire, train and integrate
additional management, development, administrative and sales and
marketing personnel; improve our managerial, development,
operational and finance systems; and expand our facilities, all
of which may impose a strain on our administrative and
operational infrastructure.
We currently have no marketing, sales or distribution
capabilities. If our product candidates receive regulatory
approval, we intend to establish our sales and marketing
organization with technical expertise and supporting
distribution capabilities to commercialize our product
candidates, which will be expensive and time consuming. Any
failure or delay in the development of our internal sales,
marketing and distribution capabilities would adversely impact
the commercialization of these products. With respect to our
product candidates, we may choose to collaborate with third
parties that have direct sales forces and established
distribution systems, either to augment our own sales force and
distribution systems or in lieu of our own sales force and
distribution systems. To the extent that we enter into
co-promotion or other licensing arrangements, our product
revenue is likely to be lower than if we directly marketed or
sold our products. In addition, any revenue we receive will
depend in whole or in part upon the efforts of such third
parties, which may not be successful and are generally not
within our control. If we are unable to enter into such
arrangements on acceptable terms or at all, we may not be able
to successfully commercialize any of our product candidates that
receive regulatory approval. If we are not successful in
commercializing our product candidates, either on our own or
through collaborations with one or more third parties, our
future product revenue will suffer and we may incur significant
additional losses.
If we do not establish development or commercialization
collaborations, we may have to alter our development and
marketing plans.
Our development programs and potential commercialization of our
product candidates will require substantial additional cash to
fund expenses. Our strategy includes potentially selectively
collaborating with leading biopharmaceutical, pharmaceutical and
biotechnology companies to assist us in furthering development
and potential commercialization of some of our product
candidates in the United States or internationally. Although we
are not currently party to any collaboration agreements, we may
enter into
21
collaborations in the future, especially for target indications
in which the potential collaborator has particular therapeutic
expertise or for markets outside of the United States. We face
significant competition in seeking appropriate collaborators and
these collaborations are complex and time-consuming to negotiate
and document. We may not be able to negotiate collaborations on
acceptable terms, or at all. If that were to occur, we may have
to curtail the development of a product candidate, reduce or
delay its development program or one or more of our other
development programs, delay its potential commercialization,
reduce the scope of our sales or marketing activities, or
increase our expenditures and undertake development or
commercialization activities at our own expense. If we elect to
increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on
acceptable terms, or at all. If we do not have sufficient funds,
we will not be able to bring our product candidates to market
and generate product revenue. In addition, even if we do enter
into one or more development or commercialization arrangements,
we cannot assure you that the objectives of such arrangements
will be realized or that the arrangement will not be terminated
or expire. For example, we previously entered into an exclusive
license agreement with BMS in a collaboration to develop and
commercialize folate conjugates, which was terminated in June
2010, we believe as a result of a change in its strategic focus.
We rely on third parties to conduct clinical trials for
our product candidates and plan to rely on third parties to
conduct future clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected
deadlines, we may be unable to obtain regulatory approval for or
commercialize our product candidates.
We do not have the ability to independently conduct phase 2
or phase 3 clinical trials for any of our product
candidates. We rely on third parties, such as contract research
organizations, medical institutions, clinical investigators and
contract laboratories, to conduct all of our clinical trials of
our product candidates; however, we remain responsible for
ensuring that each of our clinical trials is conducted in
accordance with its investigational plan and protocol. Moreover,
the FDA and other
non-U.S. regulatory
authorities require us to comply with regulations and standards,
commonly referred to as Good Clinical Practices, or GCPs, for
conducting, monitoring, recording and reporting the results of
clinical trials to ensure that the data and results are
scientifically credible and accurate and that the trial subjects
are adequately informed of the potential risks of participating
in clinical trials. Our reliance on third parties does not
relieve us of these responsibilities and requirements. If the
third parties conducting our clinical trials do not perform
their contractual duties or obligations, do not meet expected
deadlines or need to be replaced, or if the quality or accuracy
of the clinical data they obtain is compromised due to lack of
compliance with GCPs or for any other reason, we may need to
enter into new arrangements with alternative third parties and
our clinical trials may be extended, delayed or terminated, and
such lack of compliance with GCPs may render any such clinical
data potentially worthless to us and jeopardize the integrity
and viability of the affected clinical trials.
We rely on third parties to manufacture and supply our
product candidates.
We do not currently own or operate manufacturing facilities for
clinical or commercial production of our product candidates. We
have limited experience in drug formulation or manufacturing,
and we lack the resources and the capability to manufacture any
of our product candidates on a clinical or commercial scale. We
rely on four third-party suppliers to make the key components of
EC145. The linker system for EC145 is currently obtained from a
single source supplier. Should that source be interrupted, we
may be delayed in obtaining alternative supply and, as a result,
our manufacturing of EC145 could be disrupted. We believe that
we currently have, or can access, sufficient supplies of all of
the other key components of EC145 in sufficient quantities to
conduct and complete our PROCEED clinical trial; however, there
is only one manufacturer we are aware of that has the capacity
to manufacture EC145 in the quantities that our development and
future commercialization efforts, if any,
22
may require. If this manufacturer was unable to produce EC145 in
the amounts that we require, we may not be able to obtain a
sufficient alternative supply from another supplier on a timely
basis and in the quantities we require and as a result, PROCEED,
our other clinical trials or our commercialization plans may be
significantly impaired. We do not have any long-term supply
arrangements with any of these third parties and obtain our raw
materials on a purchase order-basis. We expect to continue to
depend on third-party contract manufacturers for the foreseeable
future.
If for some reason our contract manufacturers cannot perform as
agreed, we may be unable to replace them in a timely manner and
the production of our product candidates would be interrupted,
resulting in delays in clinical trials and additional costs. For
example, we are currently obtaining clinical trial quantities of
EC145 and our other product candidates from our contract
manufacturers. We have no experience with managing the
manufacturing of commercial quantities of any of our product
candidates and
scaling-up
production to commercial quantities could take us significant
time and result in significant costs, both of which could delay
commercialization of EC145 for PROC or any other indication or
of any of our other SMDCs. Switching manufacturers may be
difficult because the number of potential manufacturers is
limited and the FDA must approve any replacement manufacturer
prior to manufacturing our product candidates. Such 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 product candidates after receipt of FDA approval to
manufacture any of our product candidates. It may be difficult
or impossible for us to find a replacement manufacturer on
acceptable terms quickly, or at all.
To date, our product candidates have been manufactured in small
quantities for preclinical studies and clinical trials by
third-party manufacturers. If the FDA or other regulatory
agencies approve any of our product candidates for commercial
sale, we expect that we would continue to rely, at least
initially, on third-party manufacturers to produce commercial
quantities of our approved product candidates, as is the case
with EC145. These manufacturers may not be able to successfully
increase the manufacturing capacity for any of our approved
product candidates in a timely or economic manner, or at all.
Significant
scale-up of
manufacturing may require additional validation studies, which
the FDA must review and approve. Additionally, any third-party
manufacturer we retain to manufacture our product candidates on
a commercial scale must pass an FDA pre-approval inspection for
conformance to the cGMPs before we can obtain approval of our
product candidates. If we are unable to successfully increase
the manufacturing capacity for a product candidate in
conformance with cGMPs, the regulatory approval or commercial
launch of such products may be delayed or there may be a
shortage in supply.
Our product candidates require precise, high quality
manufacturing. Failure by our contract manufacturers to achieve
and maintain high manufacturing standards could result in
patient injury or death, product recalls or withdrawals, delays
or failures in testing or delivery, cost overruns, or other
problems that could seriously harm our business. Contract
manufacturers may encounter difficulties involving production
yields, quality control and quality assurance. These
manufacturers are subject to ongoing periodic unannounced
inspection by the FDA and corresponding state and
non-U.S.
authorities to ensure strict compliance with cGMP and other
applicable government regulations and corresponding foreign
standards; however, we do not have control over third-party
manufacturers compliance with these regulations and
standards.
We are subject to risks associated with the availability
of key raw materials such as
technetium-99m.
Our EC20 companion imaging diagnostic requires the use of
the radioisotope
technetium-99m,
or Tc-99m,
and there is currently a limited supply of Tc-99m worldwide.
Tc-99m for
nuclear medicine purposes is usually extracted from
Tc-99m
generators, which contain
molybdenum-99,
or Mo-99, as
the usual parent nuclide for
Tc-99m. The
majority of
Mo-99
produced for
Tc-99m
medical use comes from fission of highly enriched uranium from
only five reactors around the world located in Canada, Belgium,
23
South Africa, the Netherlands and France. Although
Tc-99m is
used in various nuclear medicine diagnostics utilized by
healthcare providers,
Tc-99m has a
very short half-life (6 hours). As a result, healthcare
providers extract
Tc-99m from
generators which use
Mo-99.
Mo-99 itself
has a short half-life (2.75 days) and is sent to the
nuclear medicine pharmacy directly from one of the five
reactors. Accordingly,
Tc-99m
diagnostics are made on-site at the clinic, and neither
Tc-99m nor
Mo-99 can be
inventoried. Sources of
Tc-99m may
be insufficient for our clinical trial site needs due to its
limited supply globally. For example, global shortages of
Tc-99m
emerged in the past few years because aging nuclear reactors in
the Netherlands and Canada that provided about two-thirds of the
worlds supply of
Mo-99 were
shut down repeatedly for extended maintenance periods and two
replacement Canadian reactors constructed in the 1990s were
closed before beginning operation for safety reasons.
We use, and plan to continue to use, EC20 or other companion
imaging diagnostics that employ
Tc-99m in
our clinical trials. For example, EC20 is a component of PROCEED
and, in the future, if our clinical trial sites are not able to
obtain sufficient quantities of
Tc-99m for
use in EC20, we may not be able to gather sufficient data on
EC20 during PROCEED and as a result, the approval of EC20 may be
delayed. In addition, to the extent the approval of our product
candidates depends on the screening and monitoring of the
patient population with a companion imaging diagnostic such as
EC20 in our clinical trials, we would experience a corresponding
delay in approval and commercialization of these SMDCs if we are
not able to obtain sufficient
Tc-99m.
If a successful product liability claim or series of
claims is brought against us for uninsured liabilities or in
excess of insured liabilities, we could be forced to pay
substantial damage awards.
The use of any of our product candidates in clinical trials, and
the sale of any approved products, may expose us to product
liability claims. We currently maintain product liability
insurance coverage in an amount of up to $6.0 million,
which we believe is adequate for our clinical trials currently
in progress. We monitor the amount of coverage we maintain as
the size and design of our clinical trials evolve and intend to
adjust the amount of coverage we maintain accordingly. However,
we cannot assure you that such insurance coverage will fully
protect us against some or all of the claims to which we might
become subject. We might not be able to maintain adequate
insurance coverage at a reasonable cost or in sufficient amounts
or scope to protect us against potential losses. In the event a
claim is brought against us, we might be required to pay legal
and other expenses to defend the claim, as well as uncovered
damages awards resulting from a claim brought successfully
against us. Furthermore, whether or not we are ultimately
successful in defending any such claims, we might be required to
direct financial and managerial resources to such defense and
adverse publicity could result, all of which could harm our
business.
If we violate the rules and regulations governing our
business, including guidelines pertaining to promotion and
advertising of our clinical candidates or approved products, we
may be subject to disciplinary action by the FDAs Division
of Drug Marketing, Advertising, and Communications or other
regulatory bodies.
Our business is subject to significant regulation both in the
United States and internationally. The FDAs Division
of Drug Marketing, Advertising, and Communications, or DDMAC, is
responsible for reviewing prescription drug advertising and
promotional labeling to ensure that the information contained in
these materials is not false or misleading. There are specific
disclosure requirements and the applicable regulations mandate
that advertisements cannot be false or misleading or omit
material facts about the product. Prescription drug promotional
materials must present a fair balance between the drugs
effectiveness and the risks associated with its use. Most
warning letters from DDMAC cite inadequate disclosure of risk
information or promotion of off-label use.
DDMAC prioritizes its actions based on the degree of risk to the
public health, and often focuses on newly introduced drugs and
those associated with significant health risks. There are two
types of
24
letters that DDMAC typically sends to companies that violate its
drug advertising and promotional guidelines: notice of violation
letters, or untitled letters, and warning letters. In the case
of an untitled letter, DDMAC typically alerts the company of the
violation and issues a directive to refrain from future
violations, but does not typically demand other corrective
action. A warning letter is typically issued in cases that are
more serious or where the company is a repeat offender. We may
violate DDMACs guidelines in the future and be subject to
a DDMAC untitled letter or warning letter, which may require
restrictions on our ability to market our product candidates or
even require full market withdrawal, either of which will have a
negative impact on our business.
We deal with hazardous materials and must comply with
environmental laws and regulations, which can be expensive and
restrict how we do business.
Our activities involve the controlled storage, use, and disposal
of hazardous materials, including corrosive, explosive and
flammable chemicals, biologic waste and various radioactive
compounds. We are subject to federal, state, and local laws and
regulations governing the use, manufacture, storage, handling,
and disposal of these hazardous materials. Although we believe
that our safety procedures for the handling and disposing of
these materials comply with the standards prescribed by these
laws and regulations, we cannot eliminate the risk of accidental
contamination or injury from these materials.
In the event of an accident, state or federal authorities may
curtail our use of these materials, and we could be liable for
any civil damages, which may exceed our financial resources and
may seriously harm our business. We currently maintain insurance
covering hazardous waste clean up costs in an amount of up to
$25,000 per site. While we believe that the amount of insurance
we carry is sufficient for typical risks regarding our handling
of these materials, it may not be sufficient to cover
extraordinary or unanticipated events. Additionally, an accident
could damage, or force us to temporarily shut down, our
operations. In addition, if we develop a manufacturing capacity,
we may incur substantial costs to comply with environmental
regulations and would be subject to the risk of accidental
contamination or injury from the use of hazardous materials in
our manufacturing process.
Our ability to use net operating losses to offset future
taxable income may be subject to certain limitations.
As of December 31, 2009, we had federal net operating loss
carryforwards, or NOLs, of $73.9 million to offset future
taxable income, which expire in various years beginning in 2022,
if not utilized. A lack of future taxable income would adversely
affect our ability to utilize these NOLs. In addition, under
Section 382 of the U.S. Internal Revenue Code, or Code, a
corporation that experiences a more-than 50 percent
ownership change over a three-year testing period is subject to
limitations on its ability to utilize its pre-change NOLs to
offset future taxable income. Our existing NOLs may be subject
to limitations arising from previous ownership changes, and if
we undergo an ownership change in connection with or after this
offering, our ability to utilize NOLs could be further limited
by Section 382 of the Code. Future changes in our stock
ownership, many of the causes of which are outside of our
control, could result in an ownership change under
Section 382 of the Code. Our NOLs may also be impaired
under state law. As a result of these limitations, we may not be
able to utilize a material portion of the NOLs.
Risks
Related to Intellectual Property
Our proprietary rights may not adequately protect our
technologies and product candidates.
Our commercial success will depend in part on our ability to
obtain additional patents and protect our existing patent
position as well as our ability to maintain adequate protection
of other intellectual property for our technologies, product
candidates, and any future products in the United
States and other countries. If we do not adequately protect
our intellectual property, competitors may be able to use our
technologies and erode or negate any competitive advantage we
may have, which could harm our business and ability to achieve
profitability. The laws of some foreign countries do not protect
our
25
proprietary rights to the same extent or in the same manner as
U.S. laws, and we may encounter significant problems in
protecting and defending our proprietary rights in these
countries. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that
our proprietary technologies, product candidates and any future
products are covered by valid and enforceable patents or are
effectively maintained as trade secrets.
We apply for patents covering both our technologies and product
candidates, as we deem appropriate. However, we may fail to
apply for patents on important technologies or product
candidates in a timely fashion, or at all. Our existing patents
and any future patents we obtain may not be sufficiently broad
to prevent others from practicing our technologies or from
developing competing products and technologies. We cannot be
certain that our patent applications will be approved or that
any patents issued will adequately protect our intellectual
property. For example, our issued patents do not claim
composition of matter protection for the drug payloads connected
to the linker system and targeting ligand modules of our SMDCs.
In addition, we generally do not control the patent prosecution
of subject matter that we license from others, including those
licensed from Purdue Research Foundation, a non-profit
organization which manages the intellectual property of Purdue
University. Accordingly, we are unable to exercise the same
degree of control over this intellectual property as we would
over our own and would need to involve Purdue Research
Foundation in legal proceedings to enforce these intellectual
property rights. Moreover, the patent positions of
biopharmaceutical companies are highly uncertain and involve
complex legal and factual questions for which important legal
principles are often evolving and remain unresolved. As a
result, the validity and enforceability of patents cannot be
predicted with certainty. In addition, we do not know whether:
|
|
|
|
|
we or our licensors were the first to make the inventions
covered by each of our issued patents and pending patent
applications;
|
|
|
|
we or our licensors were the first to file patent applications
for these inventions;
|
|
|
|
any of our product candidates will be Orange Book eligible;
|
|
|
|
others will independently develop similar or alternative
technologies or duplicate any of our technologies;
|
|
|
|
any of our or our licensors pending patent applications
will result in issued patents;
|
|
|
|
any of our or our licensors patents will be valid or
enforceable;
|
|
|
|
any patents issued to us or our licensors and collaboration
partners will provide us with any competitive advantages, or
will be challenged by third parties;
|
|
|
|
we will develop additional proprietary technologies that are
patentable;
|
|
|
|
the U.S. government will exercise any of its statutory
rights to our intellectual property that was developed with
government funding; or
|
|
|
|
our business may infringe the patents or other proprietary
rights of others.
|
The actual protection afforded by a patent varies based on
products or processes, from country to country and depends upon
many factors, including the type of patent, the scope of its
coverage, the availability of regulatory related extensions, the
availability of legal remedies in a particular country, the
validity and enforceability of the patents and our financial
ability to enforce our patents and other intellectual property.
Our ability to maintain and solidify our proprietary position
for our products will depend on our success in obtaining
effective claims and enforcing those claims once granted. Our
issued patents and those that may issue in the future, or those
licensed to us, may be challenged, narrowed, invalidated or
circumvented, and the rights granted under any issued patents
may not provide us with
26
proprietary protection or competitive advantages against
competitors with similar products. Due to the extensive amount
of time required for the development, testing and regulatory
review of a potential product, it is possible that, before any
of our product candidates can be commercialized, any related
patent may expire or remain in force for only a short period
following commercialization, thereby reducing any advantage of
the patent.
We also rely on trade secrets to protect some of our technology,
especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult
to maintain. While we use reasonable efforts to protect our
trade secrets, our or any of our collaboration partners
employees, consultants, contractors or scientific and other
advisors may unintentionally or willfully disclose our
proprietary information to competitors and we may not have
adequate remedies in respect of that disclosure. Enforcement of
claims that a third party has illegally obtained and is using
trade secrets is expensive, time consuming and uncertain. In
addition,
non-U.S. courts
are sometimes less willing than U.S. courts to protect
trade secrets. If our competitors independently develop
equivalent knowledge, methods and know-how, we would not be able
to assert our trade secrets against them and our business could
be harmed.
The intellectual property protection for our product
candidates is dependent on third parties.
With respect to patent applications relating to our product
candidates that incorporate patents licensed from Purdue
Research Foundation, the right and obligation to prosecute and
maintain the patents and patent applications covered by these
license agreements are retained by Purdue Research Foundation.
Generally, we do not have the right to prosecute and maintain
such patents in our territories, unless Purdue Research
Foundation elects not to file, prosecute or maintain any or all
of such patents. We would need to determine, with our other
potential partners, who would be responsible for the prosecution
of patents relating to any joint inventions. If any of our
licensing partners fail to appropriately prosecute and maintain
patent protection for any of our product candidates, our ability
to develop and commercialize those product candidates may be
adversely affected and we may not be able to prevent competitors
from making, using and selling competing products.
If we breach any of the agreements under which we license
commercialization rights to our product candidates or technology
from third parties, we could lose license rights that are
important to our business.
We license the use, development and commercialization rights for
some of our product candidates, and we expect to enter into
similar licenses in the future. For example, we licensed
exclusive worldwide rights from Purdue Research Foundation,
pursuant to a license agreement, which enables us to use and
administer EC145 in the treatment of cancer. Under this license
we are subject to commercialization and development, diligence
obligations, sublicense revenue sharing requirements, royalty
payments and other obligations. If we fail to comply with any of
these obligations or otherwise breach this license agreement or
any other current or future licenses, our licensing partners may
have the right to terminate the license in whole or in part or
to terminate the exclusive nature of the license. Generally, the
loss of any of current or future licenses or the exclusivity
rights provided therein could materially harm our financial
condition and operating results.
The patent protection for our product candidates may
expire before we are able to maximize their commercial value,
which may subject us to increased competition and reduce or
eliminate our opportunity to generate product revenue.
The patents for our product candidates have varying expiration
dates and, if these patents expire, we may be subject to
increased competition and we may not be able to recover our
development costs or market any of our approved products
profitably. For example, one of our U.S. patents claims
compounds encompassing EC145 and is due to expire in 2026, and
our other U.S. patents claim compounds
27
encompassing EC20 and are due to expire in 2024. In some of the
larger potential market territories, such as the United States
and Europe, patent term extension or restoration may be
available to compensate for time taken during aspects of the
products development and regulatory review. However, we
cannot be certain that such an extension will be granted, or if
granted, what the applicable time period or the scope of patent
protection afforded during any extension period will be. In
addition, even though some regulatory authorities may provide
some other exclusivity for a product under their own laws and
regulations, we may not be able to qualify the product or obtain
the exclusive time period. If we are unable to obtain patent
term extension/restoration or some other exclusivity, we could
be subject to increased competition and our opportunity to
establish or maintain product revenue could be substantially
reduced or eliminated. Furthermore, we may not have sufficient
time to recover our development costs prior to the expiration of
our U.S. and
non-U.S. patents.
We may not be able to protect our intellectual property
rights throughout the world.
Filing, prosecuting and defending patents on all of our product
candidates throughout the world would be prohibitively
expensive. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop their
own products and further, may export otherwise infringing
products to territories where we have patent protection, but
enforcement is not as strong as that in the United States. These
products may compete with our products in jurisdictions where we
do not have any issued patents and our patent claims or other
intellectual property rights may not be effective or sufficient
to prevent them from so competing.
Many companies have encountered significant problems in
protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the
enforcement of patents and other intellectual property
protection, particularly those relating to biopharmaceuticals,
which could make it difficult for us to stop the infringement of
our patents or marketing of competing products in violation of
our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in
substantial cost and divert our efforts and attention from other
aspects of our business.
We may be subject to claims that we have wrongfully hired
an employee from a competitor or that we or our employees have
wrongfully used or disclosed alleged confidential information or
trade secrets of their former employers.
As is commonplace in our industry, we employ individuals who
were previously employed at other biopharmaceutical companies,
including our competitors or potential competitors. Although we
have not received any claim to date, we may be subject in the
future to claims that our employees or prospective employees are
subject to a continuing obligation to their former employers,
such as
non-competition
or non-solicitation obligations, or claims that our employees or
we have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of their former
employers. Litigation may be necessary to defend against these
claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to our management.
If we are sued for infringing intellectual property rights
of third parties, litigation will be costly and time-consuming
and could prevent us from developing or commercializing our
product candidates.
Our commercial success depends, in part, on our not infringing
the patents and proprietary rights of other parties and not
breaching any collaboration or other agreements we have entered
into with regard to our technologies and product candidates.
Numerous third-party U.S. and
non-U.S. issued
patents and pending applications exist in the areas of targeted
therapy and targeted diagnostics, including cytotoxic agents and
other active compounds and formulations comprising such
compounds.
28
Because patent applications can take several years to issue, if
they are issued at all, there may currently be pending
applications, unknown to us, that may result in issued patents
that cover our technologies or product candidates. It is
uncertain whether the issuance of any
third-party
patent would require us to alter our products or processes,
obtain licenses or cease activities related to the development
or commercialization of our product candidates. If we wish to
use the technology or compound claimed in issued and unexpired
patents owned by others, we may need to obtain a license from
the owner, enter into litigation to challenge the validity of
the patents or incur the risk of litigation in the event that
the owner asserts that any of our product candidates infringe
its patents. The failure to obtain a license to technology or
the failure to challenge an issued patent that we may require to
discover, develop or commercialize our products may have a
material adverse impact on us.
There is a substantial amount of litigation involving
intellectual property in the biopharmaceutical industry
generally. If a third party asserts that our products or
technologies infringe its patents or other proprietary rights,
we could face a number of risks that could seriously harm our
results of operations, financial condition and competitive
position, including:
|
|
|
|
|
infringement and other intellectual property claims, which would
be costly and time-consuming to defend, whether or not the
claims have merit, and which could delay the regulatory approval
process and divert managements attention from our business;
|
|
|
|
substantial damages for past infringement, which we may have to
pay if a court determines that our product candidates or
technologies infringe a competitors patent or other
proprietary rights;
|
|
|
|
a court prohibiting us from selling or licensing our
technologies or our product candidates unless the third-party
licenses its patents or other proprietary rights to us on
commercially reasonable terms, which it is not required to do;
|
|
|
|
if a license is available from a third party, we may have to pay
substantial royalties or lump sum payments or grant
cross-licenses to our patents or other proprietary rights to
obtain that license; and
|
|
|
|
redesigning our products so they do not infringe, which may not
be possible or may require substantial monetary expenditure and
time.
|
Although we are not currently a party to any legal proceedings
relating to our intellectual property, in the future, third
parties may file claims asserting that our technologies or
products infringe on their intellectual property. We cannot
predict whether third parties will assert these claims against
us or against the current or future licensors of technology
licensed to us, or whether those claims will harm our business.
If we are forced to defend against these claims, whether they
are with or without any merit, whether they are resolved in
favor of or against us or our licensors, we may face costly
litigation and diversion of managements attention and
resources. As a result of these disputes, we may have to develop
costly non-infringing technology, or enter into licensing
agreements. These agreements, if necessary, may be unavailable
on terms acceptable to us, if at all, which could seriously harm
our business or financial condition.
One or more third-party patents or patent applications may
conflict with patent applications to which we have rights. Any
such conflict may substantially reduce the coverage of any
rights that may issue from the patent applications to which we
have rights. If third parties file patent applications in
technologies that also claim technology to which we have rights,
we may have to participate in interference proceedings with the
U.S. Patent and Trademark Office, or USPTO, or non-U.S.
patent regulatory authorities, as applicable, to determine
priority of invention.
29
We may become involved in lawsuits to protect enforce our
patents or other intellectual property rights, which could be
expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or other intellectual
property rights. To counter infringement or unauthorized use, we
may be required to file infringement claims, which can be
expensive and time consuming. To the extent such claims relate
to patents held by the Purdue Research Foundation, it would have
to file such an infringement lawsuit since we do not have the
independent right to enforce the Purdue Research
Foundations intellectual property. In addition, in an
infringement proceeding, a court may decide that a patent of
ours is not valid or is unenforceable, or may refuse to stop the
other party from using the technology at issue on the grounds
that our patents do not cover the technology in question. An
adverse result in any litigation or defense proceedings could
put one or more of our patents at risk of being invalidated or
interpreted narrowly and could put our patent applications at
risk of not issuing.
Interference proceedings brought by the USPTO may be necessary
to determine the priority of inventions with respect to our
patents and patent applications or those of our current or
future collaborators. An unfavorable outcome could require us to
cease using the technology or to attempt to license rights to it
from the prevailing party. Our business could be harmed if a
prevailing party does not offer us a license on terms that are
acceptable to us. Litigation or interference proceedings may
fail and, even if successful, may result in substantial costs
and distraction of our management and other employees. We may
not be able to prevent, alone or with our collaborators,
misappropriation of our proprietary rights, particularly in
countries where the laws may not protect those rights as fully
as in the United States.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential and proprietary
information could be compromised by disclosure during this type
of litigation. In addition, there could be public announcements
of the results of hearings, motions or other interim proceedings
or developments. If securities analysts or investors perceive
these results to be negative, it could have a substantial
adverse effect on the price of our common stock.
Risks
Related to this Offering and Ownership of Our Common
Stock
The price of our common stock may be volatile, and you may
not be able to resell your shares at or above the initial public
offering price.
You should consider an investment in our common stock as risky
and invest only if you can withstand a significant loss and wide
fluctuations in the market value of your investment. Prior to
this offering, there has been no public market for our common
stock. An active and liquid trading market for our common stock
may not develop or be sustained after this offering. You may be
unable to sell your shares of common stock at or above the
initial public offering price due to fluctuations in the market
price of our common stock resulting from changes in our
operating performance or prospects. Factors that could cause
volatility in the market price of our common stock include, but
are not limited to:
|
|
|
|
|
results from, and any delays in, our current or planned clinical
trials, including PROCEED;
|
|
|
|
announcements of FDA non-approval of our product candidates,
including EC145, or delays in FDA or other
non-U.S. regulatory
authority review processes;
|
|
|
|
FDA or other U.S. or
non-U.S. regulatory
actions affecting us or our industry;
|
|
|
|
litigation or public concern about the safety of our product
candidates;
|
30
|
|
|
|
|
failure or discontinuation of any of our research or clinical
trial programs;
|
|
|
|
delays in the commercialization of our product candidates;
|
|
|
|
our ability to effectively partner with collaborators to develop
or sell our products;
|
|
|
|
market conditions in the pharmaceutical, biopharmaceutical and
biotechnology sectors and issuance of new or changed securities
analysts reports or recommendations;
|
|
|
|
actual and anticipated fluctuations in our quarterly operating
results;
|
|
|
|
developments or disputes concerning our intellectual property or
other proprietary rights;
|
|
|
|
introduction of technological innovations or new products by us
or our competitors;
|
|
|
|
issues in manufacturing our product candidates;
|
|
|
|
market acceptance of our product candidates;
|
|
|
|
deviations in our operating results from the estimates of
securities analysts;
|
|
|
|
coverage and reimbursement policies of governments and other
third-party payors;
|
|
|
|
sales of our common stock by our officers, directors or
significant stockholders;
|
|
|
|
price and volume fluctuations in the overall stock market from
time to time;
|
|
|
|
general economic conditions and trends;
|
|
|
|
major catastrophic events;
|
|
|
|
our ability to expand our operations, domestically and
internationally, and the amount and timing of expenditures
related to this expansion; and
|
|
|
|
additions or departures of key personnel.
|
In addition, the stock markets in general, and the markets for
biopharmaceutical, pharmaceutical and biotechnology stocks in
particular, have experienced extreme volatility that has been
often unrelated to the operating performance of the issuer.
These broad market fluctuations may adversely affect the trading
price or liquidity of our common stock. In the past, when the
market price of a stock has been volatile, holders of that stock
have sometimes instituted securities class action litigation
against the issuer. If any of our stockholders were to bring
such a lawsuit against us, we could incur substantial costs
defending the lawsuit and the attention of our management would
be diverted from the operation of our business.
The initial public offering price for our common stock will be
determined through our negotiations with the underwriters, and
may not bear any relationship to the market price at which our
common stock will trade after this offering or to any other
established criteria of the value of our business. The price of
our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay,
depending on many factors, many of which are beyond our control
and may not be related to our operating performance or the
progress of the clinical trials of our product candidates. It is
possible that, in future quarters, our operating results may be
below the expectations of securities analysts or investors. As a
result of these and other factors, the price of our common stock
may decline, possibly materially. These fluctuations could cause
you to lose all or part of your investment in our common stock.
31
Our stock price could decline due to the large number of
outstanding shares of our common stock eligible for future
sale.
Sales of substantial amounts of our common stock in the public
market following this offering, or the perception that these
sales could occur, could cause the market price of our common
stock to decline. These sales could also make it more difficult
for us to raise capital by selling equity or equity-related
securities in the future at a time and price that we deem
appropriate.
Upon closing of this offering, we will have
27,754,710 outstanding shares of common stock based on the
number of shares outstanding on December 31, 2010 and
assuming conversion of the Subordinated Notes, no exercise of
the underwriters over-allotment option and no exercise of
outstanding options after December 31, 2010. The shares
sold pursuant to this offering will be immediately tradable
without restriction. Of the remaining shares:
|
|
|
|
|
no shares will be eligible for sale immediately upon closing of
this offering; and
|
|
|
|
|
|
15,254,710 shares will become eligible for sale, subject to
the provisions of Rule 144 or Rule 701, upon the expiration
of agreements not to sell such shares entered into between the
underwriters and such stockholders beginning 180 days after
the date of this prospectus, subject to extension in certain
circumstances.
|
We and all of our directors and officers, as well as the
stockholders, have agreed that, without the prior written
consent of RBC Capital Markets, LLC and Leerink Swann LLC on
behalf of the underwriters, we and they will not, during the
period ending 180 days after the date of this prospectus:
|
|
|
|
|
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or
exercisable or exchangeable for our common stock; or
|
|
|
|
enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of our common stock;
|
whether any transaction described above is to be settled by
delivery of shares of our common stock or such other securities,
in cash or otherwise. This agreement is subject to certain
exceptions, and is also subject to extension for up to an
additional 34 days, as described under the heading
Underwriting.
The representatives of the underwriters may, in their sole
discretion and at any time without notice, release all or any
portion of the securities subject to lockup. After the closing
of this offering, we intend to register approximately
1,501,887 shares of common stock that have been reserved
for future issuance under our stock incentive plans.
In addition, in the event that we propose to register any of our
securities under the Securities Act, either for our own account
or for the account of other securityholders, our holders of
registrable securities are entitled to notice of such
registration and are entitled to include their common stock in
such registration, subject to certain marketing and other
limitations. The holders of at least 50 percent of these
registrable securities have the right to require us, on not more
than two occasions, to file a registration statement on
Form S-1
under the Securities Act in order to register the resale of
shares of their common stock, subject to our right, in certain
circumstances, to defer such registrations. Further,
32
these holders may require us to register the resale of all or a
portion of their shares on a registration statement on
Form S-3,
subject to certain conditions and limitations. Finally, these
holders have certain piggyback registration rights.
If we propose to register any of our equity securities under the
Securities Act other than pursuant to the registration rights
noted above or specified excluded registrations, which include
the registration of the shares issued and issuable under our
equity incentive plans and shares sold in this offering, holders
may require us to include all or a portion of their registrable
securities in the registration and in any related underwritten
offering.
The existence or exercise of these registration rights may
result in the perception of or actual sales of substantial
amounts of our common stock in the public market following this
offering, which may make it difficult for us to raise additional
capital.
Insiders will continue to have substantial control over us
after this offering, which could limit your ability to influence
the outcome of key transactions, including a change of
control.
Our directors, executive officers and each of our stockholders
who own greater than five percent of our outstanding common
stock and their affiliates, in the aggregate, will beneficially
own approximately 23.3 percent of the outstanding shares of
our common stock after this offering excluding up to
$8.0 million of shares of our common stock that certain of
these stockholders may purchase in this offering. As a result,
these stockholders, if acting together, would be able to
influence or control matters requiring approval by our
stockholders, including the election of directors and the
approval of mergers, acquisitions or other extraordinary
transactions. They may have interests that differ from yours and
may vote in a way with which you disagree and which may be
adverse to your interests. This concentration of ownership may
have the effect of delaying, preventing or deterring a change of
control of our company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part
of a sale of our company and might affect the market price of
our common stock.
Our management will have broad discretion over the use of
the proceeds from this offering and may not apply the proceeds
of this offering in ways that increase the value of your
investment.
Our management will have broad discretion to use the net
proceeds we receive from this offering, and you will be relying
on their judgment regarding the application of these proceeds.
We expect to use the net proceeds from this offering as
described under the heading Use of Proceeds.
However, management may not apply the net proceeds of this
offering in ways that increase the value of your investment.
If you purchase shares of our common stock in this
offering, you will experience substantial and immediate
dilution.
If you purchase shares of our common stock in this offering, you
will experience substantial and immediate dilution of $(3.20)
per share based on an assumed initial public offering price of
$6.00 per share because the price that you pay will be
substantially greater than the net tangible book value per share
of the common stock that you acquire. This dilution is due in
large part to the fact that our earlier investors paid
substantially less than the initial public offering price when
they purchased their shares of our capital stock. You will
experience additional dilution upon the exercise of options to
purchase common stock under our equity incentive plans, if we
issue restricted stock to our employees under these plans or if
we otherwise issue additional shares of our common stock. See
Dilution.
33
Provisions in our certificate of incorporation and bylaws
and under Delaware law might discourage, delay or prevent a
change of control of our company or changes in our management
and, therefore, depress the trading price of our common
stock.
Our certificate of incorporation and bylaws contain provisions
that could depress the trading price of our common stock by
acting to discourage, delay or prevent a change of control of
our company or changes in our management that our stockholders
may deem advantageous. These provisions include:
|
|
|
|
|
establishing a classified board so that not all members of our
Board of Directors are elected at one time;
|
|
|
|
authorizing blank check preferred stock that our
Board of Directors could issue to increase the number of
outstanding shares to discourage a takeover attempt;
|
|
|
|
eliminating the ability of stockholders to call a special
stockholder meeting;
|
|
|
|
eliminating the ability of stockholders to act by written
consent;
|
|
|
|
being subject to provisions of Section 203 of the Delaware
General Corporate Law regulating corporate takeovers;
|
|
|
|
providing that our Board of Directors is expressly authorized to
make, alter or repeal our bylaws; and
|
|
|
|
establishing advance notice requirements for nominations for
elections to our Board of Directors or for proposing other
matters that can be acted upon by stockholders at stockholder
meetings.
|
Since we do not expect to pay any dividends for the
foreseeable future, investors in this offering may be forced to
sell their stock in order to realize a return on their
investment.
We do not anticipate that we will pay any dividends to holders
of our common stock for the foreseeable future. Any payment of
cash dividends will be at the discretion of our Board of
Directors and will depend on our financial condition, capital
requirements, legal requirements, earnings and other factors.
Our ability to pay dividends is restricted by the terms of our
current credit facility and might be restricted by the terms of
any indebtedness that we incur in the future. Consequently, you
should not rely on dividends in order to receive a return on
your investment. See Dividend Policy.
The limitations on personal liability of our directors in
our certificate of incorporation, our bylaws and our
indemnification agreements may prevent litigation that may be
beneficial to our stockholders.
As permitted by Section 102(b)(7) of the Delaware General
Corporation Law, our certificate of incorporation, bylaws and
our indemnification agreements that we have entered into with
our directors and officers to be in effect upon the closing of
this offering will include provisions that limit the personal
liability of our directors for monetary damages for breach of
their fiduciary duty as directors. Such limitations on personal
liability may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty. Also,
such limitation of liability provisions may reduce the
likelihood of derivative litigation against our directors, even
though an action, if successful, might benefit us and our
stockholders.
34
Claims for indemnification by our directors and officers
may reduce our available funds to satisfy successful third-party
claims against us and may reduce the amount of money available
to the Company.
Our certificate of incorporation provides that we may indemnify
our directors and officers, in each case to the fullest extent
permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware
General Corporation Law, our bylaws and our indemnification
agreements that we have entered into with our directors and
officers to be effective upon completion of this offering will
provide that:
|
|
|
|
|
We shall indemnify our directors and officers for serving us in
those capacities or for serving other business enterprises at
our request, to the fullest extent permitted by Delaware law.
Delaware law provides that a corporation may indemnify such
person if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best
interests of the registrant and, with respect to any criminal
proceeding, had no reasonable cause to believe such
persons conduct was unlawful.
|
|
|
|
We may, in our discretion, indemnify employees and agents in
those circumstances where indemnification is permitted by
applicable law.
|
|
|
|
We are required to advance expenses, as incurred, to our
directors and officers in connection with defending a
proceeding, except that such directors or officers shall
undertake to repay such advances if it is ultimately determined
that such person is not entitled to indemnification.
|
|
|
|
We will not be obligated pursuant to the bylaws to indemnify a
person with respect to proceedings initiated by that person
against us or our other indemnitees, except with respect to
proceedings authorized by our Board of Directors or brought to
enforce a right to indemnification.
|
|
|
|
The rights conferred in the bylaws are not exclusive, and we are
authorized to enter into indemnification agreements with our
directors, officers, employees and agents and to obtain
insurance to indemnify such persons.
|
|
|
|
We may not retroactively amend the bylaw provisions to reduce
our indemnification obligations to directors, officers,
employees and agents.
|
Establishing, maintaining and improving our financial
controls and the requirements of being a public company may
strain our resources and divert managements attention, and
if we fail to establish and maintain proper internal controls,
our ability to produce accurate financial statements or comply
with applicable regulations could be impaired.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the
rules and regulations of The NASDAQ Stock Market LLC. As a
privately held company, we have not been subject to these
reporting requirements, and so have not yet performed procedures
to determine our compliance with Section 404 of the
Sarbanes-Oxley Act. The requirements of these rules and
regulations will increase our legal, accounting and financial
compliance costs, will make some activities more difficult,
time-consuming and costly and may also place undue strain on our
personnel, systems and resources.
Section 404 of the Sarbanes-Oxley Act requires that
beginning with our annual report for the year ending
December 31, 2011, management report annually on the
effectiveness of our internal control over financial reporting
and identify any material weaknesses in our internal control and
financial reporting environment. Prior to this offering, we have
not been required to comply with Section 404 of the
Sarbanes-Oxley Act. As a result, we have not evaluated our
compliance with Section 404 of the Sarbanes-Oxley Act.
There can be no assurance that we will not identify one or more
material
35
weaknesses in our internal controls in connection with
evaluating our compliance with Section 404 of the
Sarbanes-Oxley Act. The presence of material weaknesses could
result in financial statement errors which, in turn, could
require us to restate our operating results. In order to
maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting, we will need to expend significant resources and
provide significant management oversight. We have a substantial
effort ahead of us to implement appropriate processes, document
our system of internal control over relevant processes, assess
their design, remediate any deficiencies identified and test
their operation. Implementing any appropriate changes to our
internal controls may require specific compliance training of
our directors, officers and employees, entail substantial costs
in order to modify our existing accounting systems, take a
significant period of time to complete and divert
managements attention from other business concerns. These
changes may not, however, be effective in maintaining the
adequacy of our internal controls.
In the event that we are not able to demonstrate compliance with
Section 404 of the Sarbanes-Oxley Act in a timely manner,
that our internal controls are perceived as inadequate or that
we are unable to produce timely or accurate financial
statements, investors may lose confidence in our operating
results, our stock price could decline and we may be subject to
litigation or regulatory enforcement actions. In addition, if we
are unable to meet the requirements of Section 404 of the
Sarbanes-Oxley Act, we may not be able to remain listed on The
NASDAQ Global Market.
36
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including
statements regarding the progress and timing of clinical trials,
the safety and efficacy of our product candidates, the goals of
our development activities, estimates of the potential markets
for our product candidates, estimates of the capacity of
manufacturing and other facilities to support our product
candidates, projected cash needs and our expected future
revenues, operations and expenditures. The forward-looking
statements are contained principally in the sections entitled
Prospectus Summary, Risk Factors,
Use of Proceeds, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and Business. These statements
relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors
that could cause our actual results, levels of activity,
performance or achievement to differ materially from those
expressed or implied by these forward-looking statements. The
forward-looking statements in this prospectus include, among
other things, statements about:
|
|
|
|
|
our plans to develop and commercialize EC145;
|
|
|
|
our ongoing and planned preclinical studies and clinical trials
and our approach to seeking FDA approval of our product
candidates;
|
|
|
|
the potential benefits of, and our ability to enter into,
collaboration arrangements;
|
|
|
|
the timing and our ability to obtain and maintain regulatory
approvals for our product candidates;
|
|
|
|
the rate and degree of market acceptance and clinical utility of
our products;
|
|
|
|
our plans to leverage our linker system platform technology to
discover and develop additional product candidates;
|
|
|
|
our ability to quickly and efficiently identify and develop
product candidates;
|
|
|
|
our commercialization, marketing and manufacturing capabilities
and strategy for EC145 and our other product candidates;
|
|
|
|
our intellectual property position;
|
|
|
|
our estimates regarding expenses, future revenues, capital
requirements and needs for additional financing; and
|
|
|
|
other risks and uncertainties, including those described under
the heading Risk Factors.
|
Forward-looking statements include all statements that are not
historical facts. In some cases, you can identify
forward-looking statements by terms such as may,
will, should, could,
would, expect, plan,
anticipate, believe,
estimate, project, predict,
potential, or the negative of those terms, and
similar expressions and comparable terminology intended to
identify forward-looking statements. These statements reflect
our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. These forward-looking statements
represent our estimates and assumptions only as of the date of
this prospectus and, except as required by law, we undertake no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise after the date of this prospectus. The
forward-looking statements contained in this prospectus are
excluded from the safe harbor protection provided by the Private
Securities Litigation Reform Act of 1995 and Section 27A of
the Securities Act of 1933, as amended.
We obtained the industry, market and competitive position data
in this prospectus from our own internal estimates and research
as well as from industry and general publications and research
surveys and trials conducted by third parties. While we believe
that each of these trials and publications is reliable, we have
not independently verified market and industry data from
third-party sources. While we believe our internal company
research is reliable and the market definitions we use are
appropriate, neither such research nor these definitions have
been verified by any independent source.
37
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of
12,500,000 shares of our common stock that we are selling
in this offering will be approximately $67.8 million, based
on an assumed initial public offering price of $6.00 per
share after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. If the
underwriters
over-allotment
option is exercised in full, we estimate that we will receive
net proceeds of approximately $78.2 million. A $1.00
increase or decrease in the assumed initial public offering
price of $6.00 per share would increase or decrease the net
proceeds to us from this offering by $11.6 million,
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us. We may also
increase or decrease the number of shares we are offering. Each
increase or decrease of 1.0 million shares in the number of
shares offered by us would increase or decrease cash, cash
equivalents and
short-term
investments and each of working capital, total assets and total
stockholders equity (deficit) by approximately
$5.6 million.
We expect to use substantially all of the net proceeds from this
offering to fund our operating plan through the completion of
final analysis of the co-primary PFS endpoints for our PROCEED
phase 3 clinical trial related to the use of EC145 and EC20 in
PROC and to move preclinical product candidates forward in the
development process. If the FDA requires us to undertake a
second phase 3 clinical trial or obtain final OS data
from PROCEED, the net proceeds from this offering will not be
sufficient for such purposes. We will require additional funding
through either collaboration arrangements, borrowings or sales
of additional securities to commercialize any of our SMDCs or
companion imaging diagnostics. We may use a portion of our net
proceeds to acquire complementary products, technologies or
businesses. We currently have no agreements or commitments to
complete any such transactions and are not involved in
negotiations to do so. We intend to use the remainder of our net
proceeds, if any, for working capital and other general
corporate purposes.
As of the date of this prospectus, we cannot specify with
certainty all of the particular uses for the net proceeds to be
received upon the completion of this offering. The amount and
timing of our expenditures will depend on several factors,
including cash flows from our operations and the anticipated
growth of our business. Accordingly, our management will have
broad discretion in the application of the net proceeds and
investors will be relying on the judgment of our management
regarding the application of the proceeds from this offering. We
reserve the right to change the use of these proceeds as a
result of certain contingencies such as the results of our
development efforts, competitive developments, opportunities to
acquire products, technologies or businesses or other factors.
Pending use of the proceeds from this offering, we intend to
invest the proceeds in a variety of capital preservation
investments, including short-term, investment-grade and
interest-bearing instruments.
DIVIDEND
POLICY
We have never declared or paid any dividends on our capital
stock. We currently intend to retain all future earnings for the
operation and expansion of our business and, therefore, we do
not anticipate declaring or paying cash dividends in the
foreseeable future. The payment of dividends will be at the
discretion of our Board of Directors and will depend on our
results of operations, capital requirements, financial
condition, prospects, contractual arrangements, any limitations
on payment of dividends present in our current and future debt
agreements, and other factors that our Board of Directors may
deem relevant. In addition, provisions contained in our current
credit facility restrict our ability to pay dividends.
38
CAPITALIZATION
The following table sets forth our cash, cash equivalents and
short-term investments and capitalization as of
September 30, 2010 on:
|
|
|
|
|
an actual basis;
|
|
|
|
a pro forma basis to reflect (i) the conversion of all
outstanding shares of our convertible preferred stock into
shares of our common stock immediately prior to the completion
of this offering, (ii) the impact of accessing the
remaining term loan tranche of $5.0 million with
Mid-Cap and
SVB, (iii) the issuance of warrants to
Mid-Cap and
SVB in consideration for the loan amount and interest rate, to
purchase convertible preferred stock, and (iv) the
conversion, but not the exercise, of all outstanding warrants to
purchase 133,968 shares of our
Series C-3
convertible preferred stock into warrants to purchase shares of
our common stock immediately prior to the completion of this
offering, (v) the issuance, but not the conversion, of our
Subordinated Notes; and
|
|
|
|
|
|
a pro forma as adjusted basis to reflect our receipt of the net
proceeds from our sale of 12,500,000 shares of common stock
in this offering at an assumed initial public offering price of
$6.00 per share after deducting estimated underwriting discounts
and commissions and estimated offering expenses and
(ii) the automatic conversion of all of our outstanding
Subordinated Notes into 2,303,921 shares into our common
stock, which assumes a conversion price of 85 percent of
the assumed initial public offering price of $6.00. The
conversion also assumes that the gross proceeds of this offering
exceed $50.0 million. In addition, a $1.00 increase or
decrease in the assumed initial public offering price would
decrease or increase the number of shares issued upon conversion
of the Subordinated Notes by 329,132 or 460,784 shares of
our common stock respectively.
|
39
y
The information below is illustrative only and our
capitalization following the completion of this offering will be
adjusted based on the actual initial public offering price and
other terms of this offering determined at pricing. You should
read this table together with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our financial statements and the related
notes appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
As Adjusted(1)
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands)
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
8,067
|
|
|
$
|
24,817
|
|
|
$
|
92,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt
|
|
|
9,891
|
|
|
|
14,811
|
|
|
|
14,811
|
|
Subordinated notes
|
|
|
|
|
|
|
13,824
|
|
|
|
|
|
Preferred stock warrants
|
|
|
291
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.001 par value:
|
|
|
|
|
|
|
|
|
|
|
|
|
14,310,992 shares authorized, 11,747,564 shares issued
and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
|
|
|
89,799
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; no shares authorized,
issued or outstanding, actual or pro forma;
10,000,000 shares authorized, no shares issued or
outstanding, pro forma as adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 19,162,303 shares
authorized, 1,150,872 shares issued and outstanding,
actual; 100,000,000 shares authorized, 12,898,436 shares
issued and outstanding, pro forma, and 27,702,357 shares issued
and outstanding, pro forma as adjusted
|
|
|
2
|
|
|
|
13
|
|
|
|
28
|
|
Additional paid-in capital
|
|
|
2,352
|
|
|
|
90,438
|
|
|
|
171,997
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained deficit
|
|
|
(94,721
|
)
|
|
|
(94,721
|
)
|
|
|
(94,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(92,367
|
)
|
|
|
(4,270
|
)
|
|
|
77,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
7,614
|
|
|
$
|
24,364
|
|
|
$
|
92,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A $1.00 increase (decrease) in the
assumed initial public offering price of $6.00 per share would
increase (decrease) cash, cash equivalents and short-term
investments and each of additional paid-in capital, total
stockholders equity and total capitalization by
$11.6 million, assuming that the number of shares offered
by us, as set forth on the cover page of this prospectus,
remains the same, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses
payable by us. Each increase of 1.0 million shares in the
number of shares offered by us, at the assumed offering price of
$6.00 per share, would increase cash, cash equivalents and
short-term investments and each of additional paid-in capital,
total stockholders equity and total capitalization by
approximately $5.6 million. In addition, a $1.00 increase
or decrease in the assumed initial public offering price would
decrease or increase the number of shares issued upon
conversion of the Subordinated Notes by 329,132 or
460,784 shares of our common stock, respectively.
|
40
The number of shares shown as issued and outstanding in the
table above excludes as of September 30, 2010:
|
|
|
|
|
133,968 shares of common stock issuable upon the exercise
of warrants for our Series C-3 convertible preferred stock at an
exercise price of $8.12 per share;
|
|
|
|
560,259 shares of common stock issuable upon the exercise
of options outstanding under the 1997 Stock Plan with a
weighted-average exercise price of $2.01 per share;
|
|
|
|
1,516,697 shares of common stock issuable upon the exercise
of options outstanding under the 2007 Stock Plan with a
weighted-average exercise price of $3.09 per share;
|
|
|
|
192,987 shares of common stock reserved for future issuance
as of September 30, 2010 under the 2007 Stock Plan;
|
|
|
|
issuance of Subordinated Convertible Promissory Notes in
December 2010 and January 2011;
|
|
|
|
1,308,900 shares of our common stock reserved for future
issuance under the 2010 Equity Incentive Plan, which will become
effective in connection with this offering, and any future
increase in shares reserved for issuance under such plan;
|
|
|
|
261,780 shares of our common stock reserved for future
issuance under the 2010 Employee Stock Purchase Plan, which will
become effective upon approval by our Board of Directors at its
discretion on a date following this offering, and any future
increase in shares reserved for issuance under such
plan; and
|
|
|
|
automatic annual increases beginning in 2012 in the number of
shares of common stock reserved for issuance under the 2010
Equity Incentive Plan and the 2010 Employee Stock Purchase Plan.
|
41
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the amount per share
paid by purchasers of shares of common stock in this initial
public offering and the pro forma as adjusted net tangible book
value per share of common stock immediately after completion of
this offering.
At September 30, 2010, our net tangible book value was
approximately $(2.6) million, or $(2.23) per share of
common stock. Net tangible book value per share represents the
amount of our tangible assets less our liabilities, divided by
the shares of common stock outstanding at September 30,
2010. After giving effect to our sale of 12,500,000 shares
of common stock in this offering at an initial public offering
price of $6.00 after deducting estimated underwriting discounts
and commissions and estimated offering expenses, our pro forma
as adjusted net tangible book value at September 30, 2010
would have been $77.3 million, or $2.80 per share of common
stock. This represents an immediate increase in pro forma as
adjusted net tangible book value of $2.95 per share to existing
stockholders and an immediate dilution of $(3.20) per share to
new investors.
The following table illustrates this dilution:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
6.00
|
|
Net tangible book value per share as of September 30, 2010
|
|
$
|
(0.09
|
)
|
|
|
|
|
Pro forma decrease per share in net tangible book value
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share prior to this
offering
|
|
$
|
(0.15
|
)
|
|
|
|
|
Increase per share attributable to this offering
|
|
|
2.45
|
|
|
|
|
|
Increase attributable to the conversion of the subordinated notes
|
|
|
0.50
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering
|
|
|
|
|
|
|
2.80
|
|
|
|
|
|
|
|
|
|
|
Net tangible book value dilution per share to new investors in
this offering
|
|
|
|
|
|
$
|
(3.20
|
)
|
|
|
|
|
|
|
|
|
|
If all our outstanding options had been exercised and after
giving effect to the conversion of all outstanding shares of
convertible preferred stock into common stock and the
reclassification of our preferred stock warrant liability into
additional paid in capital, the pro forma net tangible book
value as of September 30, 2010 would have been
$1.6 million, or $0.10 per share and the pro forma net
tangible book value after this offering would have been
$83.1 million, or $2.79 per share, causing dilution to new
investors of $(3.21) per share.
The following table summarizes, on a pro forma as adjusted basis
as of September 30, 2010, the total number of shares of
common stock purchased from us, the total consideration paid to
us and the average price per share paid to us by existing
stockholders, holders of the Subordinated Notes and by new
investors purchasing shares in this offering at the initial
public offering price of $6.00 before deducting estimated
underwriting discounts and commissions and estimated offering
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
|
Existing stockholders
|
|
|
12,898,436
|
|
|
|
47
|
%
|
|
$
|
90.4
|
|
|
|
53
|
%
|
|
$
|
7.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated noteholders
|
|
|
2,303,921
|
|
|
|
8
|
|
|
|
11.8
|
|
|
|
7
|
|
|
|
5.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New investors
|
|
|
12,500,000
|
|
|
|
45
|
|
|
|
67.8
|
|
|
|
40
|
|
|
|
5.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,702,357
|
|
|
|
100
|
%
|
|
$
|
170.0
|
|
|
|
100
|
%
|
|
$
|
6.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The foregoing calculations are based on 15,202,357 shares
of our common stock outstanding as of September 30, 2010
after giving effect to the conversion of all outstanding shares
of our convertible preferred stock and conversion of our
Subordinated Notes into common stock upon the closing of this
offering and exclude:
|
|
|
|
|
133,968 shares of common stock issuable upon the exercise
of warrants for our Series C-3 convertible preferred stock at an
exercise price of $8.12 per share;
|
|
|
|
560,259 shares of common stock issuable upon the exercise
of all options outstanding under the 1997 Stock Plan with a
weighted-average exercise price of $2.01 per share;
|
|
|
|
1,516,697 shares of common stock issuable upon the exercise
of all options outstanding under the 2007 Stock Plan with a
weighted-average exercise price of $3.09 per share;
|
|
|
|
192,987 shares of common stock reserved for future issuance
as of September 30, 2010 under the 2007 Stock Plan;
|
|
|
|
1,308,900 shares of our common stock reserved for future
issuance under the 2010 Equity Incentive Plan, which will become
effective in connection with this offering, and any future
increase in shares reserved for issuance under such plan;
|
|
|
|
261,780 shares of our common stock reserved for future
issuance under the 2010 Employee Stock Purchase Plan, which will
become effective upon approval by our Board of Directors at its
discretion on a date following this offering, and any future
increase in shares reserved for issuance under such plan; and
|
|
|
|
automatic annual increases beginning in 2012 in the number of
shares of common stock reserved for issuance under the 2010
Equity Incentive Plan and the 2010 Employee Stock Purchase Plan.
|
43
SELECTED
FINANCIAL DATA
We have derived the selected statement of operations data for
the year ended December 31, 2007, 2008 and 2009 and
selected balance sheet data as of December 31, 2008 and
2009 from our audited financial statements and related notes
included elsewhere in this prospectus. We have derived the
summary statement of operations data for the nine months ended
September 30, 2009 and September 30, 2010 and the
balance sheet data as of September 30, 2010 from our
unaudited financial statements included elsewhere in this
prospectus. We have derived the statement of operations data for
the year ended December 31, 2005 and 2006 and the balance
sheet data as of December 31, 2005, 2006 and 2007 from our
audited financial statements not included in this prospectus.
Our historical results are not necessarily indicative of the
results to be expected for any future period. The following
selected financial data should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial
statements and related notes included elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands, Except Per Share Amounts)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
5,055
|
|
|
$
|
1,511
|
|
|
$
|
1,082
|
|
|
$
|
500
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,329
|
|
|
|
6,479
|
|
|
|
11,305
|
|
|
|
13,323
|
|
|
|
14,804
|
|
|
|
10,680
|
|
|
|
11,271
|
|
General and administrative
|
|
|
2,749
|
|
|
|
3,277
|
|
|
|
4,401
|
|
|
|
4,786
|
|
|
|
3,934
|
|
|
|
2,677
|
|
|
|
4,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,078
|
|
|
|
9,756
|
|
|
|
15,706
|
|
|
|
18,109
|
|
|
|
18,738
|
|
|
|
13,357
|
|
|
|
15,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,023
|
)
|
|
|
(8,245
|
)
|
|
|
(14,624
|
)
|
|
|
(17,609
|
)
|
|
|
(15,738
|
)
|
|
|
(10,357
|
)
|
|
|
(15,993
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
837
|
|
|
|
1,113
|
|
|
|
1,297
|
|
|
|
682
|
|
|
|
49
|
|
|
|
43
|
|
|
|
3
|
|
Interest expense
|
|
|
(21
|
)
|
|
|
(33
|
)
|
|
|
(25
|
)
|
|
|
(1,579
|
)
|
|
|
(1,436
|
)
|
|
|
(1,142
|
)
|
|
|
(670
|
)
|
Other income (expense)
|
|
|
25
|
|
|
|
93
|
|
|
|
(306
|
)
|
|
|
13
|
|
|
|
119
|
|
|
|
65
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
841
|
|
|
|
1,173
|
|
|
|
966
|
|
|
|
(884
|
)
|
|
|
(1,268
|
)
|
|
|
(1,034
|
)
|
|
|
(752
|
)
|
Loss before income taxes
|
|
|
(3,182
|
)
|
|
|
(7,072
|
)
|
|
|
(13,658
|
)
|
|
|
(18,493
|
)
|
|
|
(17,006
|
)
|
|
|
(11,391
|
)
|
|
|
(16,745
|
)
|
Income tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,182
|
)
|
|
$
|
(7,072
|
)
|
|
$
|
(13,658
|
)
|
|
$
|
(18,493
|
)
|
|
$
|
(17,006
|
)
|
|
$
|
(11,391
|
)
|
|
$
|
(16,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(3.77
|
)
|
|
$
|
(8.28
|
)
|
|
$
|
(15.76
|
)
|
|
$
|
(20.54
|
)
|
|
$
|
(18.67
|
)
|
|
$
|
(12.50
|
)
|
|
$
|
(18.24
|
)
|
Shares used in computation of basic and diluted loss per share
|
|
|
843,919
|
|
|
|
853,874
|
|
|
|
866,530
|
|
|
|
900,141
|
|
|
|
911,081
|
|
|
|
911,081
|
|
|
|
917,799
|
|
Pro forma basic and diluted loss per share (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.34
|
)
|
|
|
|
|
|
$
|
(1.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of pro forma basic and diluted loss
per share (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,658,710
|
|
|
|
|
|
|
|
12,665,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
24,409
|
|
|
$
|
20,207
|
|
|
$
|
31,735
|
|
|
$
|
18,383
|
|
|
$
|
23,909
|
|
|
$
|
8,067
|
|
Working capital
|
|
|
26,787
|
|
|
|
19,817
|
|
|
|
29,737
|
|
|
|
11,486
|
|
|
|
15,476
|
|
|
|
4,747
|
|
Total assets
|
|
|
28,601
|
|
|
|
21,327
|
|
|
|
34,354
|
|
|
|
20,188
|
|
|
|
25,268
|
|
|
|
11,357
|
|
Total debt
|
|
|
491
|
|
|
|
370
|
|
|
|
9,952
|
|
|
|
14,384
|
|
|
|
8,977
|
|
|
|
9,891
|
|
Total stockholders deficit
|
|
|
(21,133
|
)
|
|
|
(28,159
|
)
|
|
|
(41,318
|
)
|
|
|
(59,412
|
)
|
|
|
(76,058
|
)
|
|
|
(92,367
|
)
|
44
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and the related notes appearing at the end
of this prospectus. Some of the information contained in this
discussion and analysis or set forth elsewhere in this
prospectus, including information with respect to our plans and
strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties.
You should read the Risk Factors section of this
prospectus for a discussion of important factors that could
cause actual results to differ materially from the results
described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company developing targeted therapies
for the treatment of cancer and inflammatory diseases. We use
our proprietary technology to create novel small molecule drug
conjugates, or SMDCs, and companion imaging diagnostics. Our
SMDCs actively target receptors that are
over-expressed
on diseased cells, relative to healthy cells. This targeted
approach is designed to enable the treatment of patients with
highly active drugs at greater doses, delivered more frequently,
and over longer periods of time than would be possible with the
untargeted drug alone. We are also developing companion imaging
diagnostics for each of our SMDCs that are designed to identify
the patients whose disease
over-expresses
the target of the therapy and who are therefore more likely to
benefit from treatment. This combination of an SMDC with its
companion imaging diagnostic is designed to personalize the
treatment of patients by delivering effective therapy,
selectively to diseased cells, in the patients most likely to
benefit.
Our lead SMDC candidate, EC145, targets the folate receptor,
which is frequently over-expressed on cancer cells. We have
chosen platinum-resistant ovarian cancer, or PROC, a highly
treatment-resistant disease, as our lead indication for
development of EC145 because of the high unmet need in treating
this patient population and the high percentage of ovarian
cancer patients whose tumors over-express the targeted folate
receptor. We are currently conducting a multicenter, open-label
randomized phase 2 clinical trial of EC145 in 149 women with
PROC, referred to as the PRECEDENT trial. We received final PFS
data in the fourth quarter of 2010 and based upon our findings
from the PRECEDENT trial, we intend to begin enrollment of our
PROCEED trial, a phase 3 registration trial in women with PROC,
in the first half of 2011. We have spent a significant amount of
time and resources in 2009 and 2010 on the PRECEDENT trial and
as we shift focus to the PROCEED trial, we will be increasing
the amount of time and resources, both financial and personnel,
devoted to our EC145 program in PROC.
In addition to PROC, we are pursuing clinical trials of EC145 in
other indications, such as
non-small
cell lung cancer, or NSCLC. Based on results of a phase 2
single-arm clinical trial of EC145 in NSCLC, we plan to define
the development strategy for this indication in 2011 and will
execute a trial or trials as funding may become available. We
will also advance other SMDCs and companion imaging diagnostics
through development as preclinical and clinical trial results
merit and funding permits.
We have devoted substantially all of our resources to our drug
discovery efforts, including research and development,
conducting clinical trials, protecting intellectual property,
and general and administrative support for these operations. To
date, we have generated no revenue from sales of our SMDCs or
companion imaging diagnostics. Through September 30, 2010,
we have principally funded our operations through:
|
|
|
|
|
$11.9 million in license fees and milestone payments
received from our strategic partners;
|
|
|
|
$7.9 million of state and federal research grants; and
|
|
|
|
$90.3 million of capital from the sale of convertible
preferred stock to our investors.
|
45
Our revenue recognized in 2008 and 2009 was pursuant to a
license agreement with Bristol-Myers Squibb, or BMS. BMS
notified us of its intent to terminate in June 2010 and in July
2010 also notified us of its intent to abandon certain of the
patent applications subject to the license related to folate
conjugates with epothilone. There were no significant milestone
payments scheduled under this license for 2010 or 2011. We
continue to pursue additional collaborations for our SMDCs and
companion imaging diagnostics.
We have never been profitable and have incurred significant net
losses since our inception. As of September 30, 2010, we
had a retained deficit of $94.7 million. We incurred losses
of $13.7 million, $18.5 million and $17.0 million
in the year ended December 31, 2007, 2008 and 2009,
respectively. We expect to continue to incur significant and
increasing operating losses for the next several years as we
pursue the advancement of our SMDCs and companion imaging
diagnostics through the research, development, regulatory and
commercialization processes. We will need additional financing
to support our operations. As a result, we will seek to fund our
operations through public or private equity or debt financings
or other sources, such as strategic partnerships. Such funding
may not be available on favorable terms, or at all. Our failure
to raise capital as and when needed would have a negative impact
on our financial condition and our ability to pursue our
business strategies.
Recent
Developments
On October 29, 2010, we were notified we had been awarded a
total of $1.5 million under section 48D of the Code
for Qualifying Therapeutic Discovery Projects. In November 2010,
we received $1.4 million of this award. The remaining
$59,000 is payable to us in January 2011. This will be accounted
for as other income.
In December 2010, we issued $8.1 million of Subordinated
Convertible Promissory Notes, or Subordinated Notes and on
January 7, 2011 we issued an additional $3.7 million
of Subordinated Notes. The Subordinated Notes accrue interest in
kind at an annual rate of 10.0 percent and are not due until
maturity. The conversion price for the Subordinated Notes will
be 85 percent of the next equity financing price, including the
price of the common stock offered pursuant to this prospectus,
if it occurs on or before June 30, 2011 or 80 percent of
next equity financing price if it occurs after June 30,
2011. The fair value of the Subordinated Notes at issuance was
approximately $13.8 million. The Subordinated Notes and any
accrued and unpaid interest will automatically convert into
common shares if, before one year from issuance, we complete an
initial public offering with gross proceeds of at least
$50.0 million. Alternatively, the Subordinated Notes and
any accrued and unpaid interest automatically convert into a new
series of our preferred stock if, before one year from issuance,
a private preferred stock financing occurs in which gross
proceeds of at least $30.0 million are raised in a single
or series of transactions. If the Subordinated Notes have not
converted into equity by the one-year anniversary of their
issuance, then the outstanding principal amount and any accrued
and unpaid interest will automatically convert into shares of
Series C-3
convertible preferred stock at a price of $8.12 per share.
In December 2010, we amended our term loan with Mid-Cap and SVB
in order to access the remaining tranche of $5.0 million
and increased the number of shares of
Series C-3
preferred stock or other convertible preferred stock that may be
issued prior to the earlier of the completion of this offering
and December 31, 2010 available for exercise pursuant to
the warrants previously issued to these lenders, in
consideration of the loan amount and interest rate.
Financial
Operations Overview
Revenue
To date, we have generated no revenue from sales of our SMDCs or
companion imaging diagnostics. All of our revenue has been
derived from license fees, milestone payments and government
grants.
46
In the future, we may generate revenue from a combination of
direct sales of our SMDCs and companion imaging diagnostics,
license fees, milestone payments and royalties in connection
with strategic collaborations. We expect that any revenue we
generate will fluctuate from quarter to quarter as a result of
the timing and amount of license fees, achievement of
performance-based milestones and other payments received under
such collaborations, and the amount and timing of payments that
we receive upon the sale of our SMDCs and companion imaging
diagnostics, to the extent any are successfully commercialized.
Based upon our SMDCs and companion imaging diagnostics currently
in development and the stage of development, we do not expect to
generate revenue from product sales until 2013 at the earliest.
If we or our strategic partners fail to complete the development
of our SMDCs and companion imaging diagnostics in a timely
manner or obtain regulatory approval for them, our ability to
generate future revenue, and our results of operations and
financial position, would be materially adversely affected.
Research
and Development Expenses
Research and development expenses consist of expenses incurred
in connection with the discovery and development of our SMDCs
and companion imaging diagnostics, including:
|
|
|
|
|
employee-related expenses, which include salaries and
stock-based compensation expense;
|
|
|
|
expenses incurred under agreements with contract research
organizations, investigative sites and consultants that conduct
our clinical trials and a portion of our preclinical studies;
|
|
|
|
the cost of acquiring and manufacturing clinical trial materials;
|
|
|
|
license fees for and milestone payments related to in-licensed
products and technology;
|
|
|
|
costs associated with non-clinical activities and regulatory
approvals; and
|
|
|
|
research supplies.
|
We expense research and development costs as incurred. License
fees and milestone payments related to in-licensed products and
technology and research supplies are expensed if it is
determined that they have no alternative future use.
Conducting a significant amount of research and development is
central to our business model. Our SMDCs and companion imaging
diagnostics in later stages of clinical development generally
have higher development costs than those in earlier stages of
development, primarily due to the increased size and duration of
late stage clinical trials. We plan to increase our research and
development expenses for the foreseeable future as we begin to
enroll patients in the PROCEED trial for our most advanced SMDC,
EC145, and to further advance our earlier-stage research and
development projects.
Our internal resources, employees and infrastructure are not
directly tied to any individual research project and are
typically deployed across multiple projects. Through our
clinical development programs, we are advancing our SMDCs and
companion imaging diagnostics in parallel for multiple
therapeutic indications and through our preclinical development
programs we are seeking to develop potential SMDCs and companion
imaging diagnostics for additional disease indications. The
following table sets forth costs on a program-specific basis for
identified lead candidate SMDCs and companion imaging
diagnostics, excluding personnel-related costs. Discovery
Research includes such costs for projects where
47
no lead candidate has yet been identified. All employee-related
expenses for those employees working in research and development
functions are included in Research and Development Payroll.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands)
|
|
|
EC145
|
|
$
|
2,995
|
|
|
$
|
5,075
|
|
|
$
|
6,495
|
|
|
$
|
4,561
|
|
|
$
|
5,361
|
|
EC20
|
|
|
219
|
|
|
|
106
|
|
|
|
298
|
|
|
|
267
|
|
|
|
230
|
|
EC0489
|
|
|
604
|
|
|
|
754
|
|
|
|
753
|
|
|
|
505
|
|
|
|
671
|
|
EC0225
|
|
|
801
|
|
|
|
1,224
|
|
|
|
643
|
|
|
|
510
|
|
|
|
245
|
|
EC17
|
|
|
1,168
|
|
|
|
268
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
Discovery Research
|
|
|
1,903
|
|
|
|
1,650
|
|
|
|
1,285
|
|
|
|
941
|
|
|
|
1,029
|
|
Research and Development Payroll
|
|
|
3,615
|
|
|
|
4,246
|
|
|
|
5,311
|
|
|
|
3,877
|
|
|
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development Expenses
|
|
$
|
11,305
|
|
|
$
|
13,323
|
|
|
$
|
14,804
|
|
|
$
|
10,680
|
|
|
$
|
11,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table identifies the current status of our major
research and development projects and our currently expected
near-term milestone timing:
|
|
|
|
|
|
|
Project
|
|
Status
|
|
|
Expected Near-term
Milestones
|
|
EC145
|
|
|
Phase 2
|
|
|
In the first half of 2011 initiate phase 3 trial
|
EC20
|
|
|
Phase 2
|
|
|
In the first half of 2011 initiate phase 3 trial
|
EC0489
|
|
|
Phase 1
|
|
|
In 2011 complete phase 1 trial
|
EC0225
|
|
|
Phase 1
|
|
|
In early 2011 complete phase 1 trial
|
EC17
|
|
|
Phase 2
|
|
|
Evaluating future development options
|
General
and Administrative Expenses
General and administrative expenses consist principally of
salaries and stock-based compensation for personnel in
executive, finance, business development, legal and human
resources functions. Other general and administrative expenses
include employee benefits, facility, patent filing and
prosecution costs, and professional service fees.
We anticipate that our general and administrative expenses will
increase in the future primarily for the following reasons:
|
|
|
|
|
increased payroll and expanded infrastructure as a result of
more advanced development activity and potential preparation for
commercial operations;
|
|
|
|
increased expenses related to becoming a public company,
including increased legal, accounting and investor relations
fees, higher director compensation and increased insurance
premiums; and
|
|
|
|
expenses related to the sales and marketing of our SMDCs and
companion imaging diagnostics in anticipation of commercial
launch before we receive regulatory approval.
|
Other
Income
Other income consists primarily of gains or losses on sales of
equipment and amounts related to the change in the fair value of
our preferred stock warrant liability.
48
Interest
Income and Interest Expense
Interest income consists of interest earned on our cash, cash
equivalents and short-term investments. The primary objective of
our investment policy is capital preservation. Interest expense
consists primarily of interest, amortization of debt discount
and amortization of deferred financing costs associated with our
prior credit facility with General Electric Capital Corporation,
or GECC, and Oxford Finance Corporation, or Oxford.
Critical
Accounting Policies and Significant Judgments and
Estimates
Our 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. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities in our financial statements.
On an ongoing basis, we evaluate our estimates and judgments,
including those related to accrued expenses and stock-based
compensation. We base our estimates on historical experience,
known trends and events and various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates.
Our significant accounting policies are described in more detail
in Note 2 of the notes to our financial statements
appearing elsewhere in this prospectus. We believe the following
accounting policies to be most critical to the judgments and
estimates used in preparation of our financial statements and
have been reviewed and discussed with our audit committee.
Revenue
Recognition
To date, our revenues have been generated primarily through
collaborative research, development and commercialization
agreements. The terms of these collaborative agreements
typically include payments to us of one or more of the
following: nonrefundable, upfront license fees, milestone
payments and royalties on future product sales.
When evaluating multiple element arrangements, we consider
whether the components of the arrangement represent separate
units of accounting. This evaluation requires subjective
determinations and requires management to make judgments about
the fair value of the individual elements and whether such
elements are separable from the other aspects of the contractual
relationship.
We typically have received upfront, nonrefundable payments when
licensing our intellectual property in conjunction with a
research and development agreement. Upfront payments, if they
are nonrefundable and not contingent on further performance by
us, are recognized when due pursuant to the terms of the
underlying contract.
Our licensing agreements may also contain milestone payments.
Revenues from milestones are recognized upon the achievement of
the milestone event if the event is substantive, objectively
determinable and represents an important point in the
development life cycle of the SMDC. If not considered
substantive, milestones are initially deferred and recognized
over the remaining performance obligation.
We have not received any royalty revenues related to SMDC or
companion imaging diagnostic sales to date.
Grant revenue is recognized when earned, which is in the period
in which qualifying expenditures are incurred.
49
Accrued
Clinical Expenses
As part of the process of preparing our financial statements, we
are required to estimate our accrued expenses. This process
involves reviewing open contracts, identifying services that
have been performed on our behalf and estimating the level of
service performed and the associated cost incurred for the
service when we have not yet been invoiced or otherwise notified
of actual cost. The majority of our service providers invoice us
monthly in arrears for services performed. We estimate our
accrued expenses as of each balance sheet date in our financial
statements based on facts and circumstances known to us at that
time. We periodically confirm the accuracy of our estimates with
the service providers and make adjustments if necessary. Expense
accruals related to clinical trial activity typically comprise
the majority of these accruals. Examples of estimated expenses
related to clinical trial activity include:
|
|
|
|
|
fees paid to contract research organizations in connection with
clinical trials;
|
|
|
|
fees paid to investigative sites in connection with clinical
trials; and
|
|
|
|
fees paid to vendors in connection with preclinical development
activities.
|
We base our expenses related to clinical trials on our estimates
of the services received and efforts expended pursuant to
contracts with multiple research institutions and contract
research organizations that conduct and manage clinical trials
on our behalf. The financial terms of these agreements are
subject to negotiation, vary from contract to contract and may
result in uneven payment flows. Payments under certain contracts
depend on factors such as the successful enrollment of patients
and the completion of clinical trial milestones. In accruing
service fees, we estimate the time period over which services
are performed and the level of effort to be expended in each
period. If the actual timing of the performance of services or
the level of the effort varies from our estimate, we adjust the
accrual accordingly. Although our estimates in the past have not
been materially different from amounts actually incurred, and we
do not expect our estimates to be materially different from
amounts actually incurred in the future, if our estimate of the
status and timing of services performed differs from the actual
status and timing of services performed we may report amounts
that are too high or too low in any particular period. Based on
our level of clinical trial expenses for the nine months ended
September 30, 2010, a five percent change in our
estimate could result in an adjustment to our accrued clinical
trial expense in future periods of approximately $42,000.
Stock-Based
Compensation
Effective January 1, 2006, we adopted the recognition
provisions of Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC,
Compensation Stock Compensation, which we
refer to as ASC 718, using the prospective transition
method. This method requires that nonpublic companies that had
previously measured compensation expense using the minimum value
method continue to account for equity awards outstanding at the
date of adoption in the same manner as they had been accounted
for prior to adoption. For all awards granted, modified, or
settled after the date of adoption, we recognize compensation
expense based on the grant-date fair value of our common stock
estimated in accordance with the provisions of ASC 718.
Compensation expense is recognized over the vesting period of
the award. Determining the amount of stock-based compensation to
be recorded requires us to develop estimates of the value of
stock options as of the grant date. The calculated value of
stock-based awards requires that we make highly subjective
assumptions. We use the
Black-Scholes
option pricing model to value our stock option awards. As of
September 30, 2010, our peer companies were determined to
be early-stage venture capital backed companies that were not
publicly traded. However, we concluded that it is not practical
to estimate the volatility due to a lack of historical
volatility and therefore we utilized an industry index as
permitted under applicable accounting guidelines. We elected to
use the calculated value provisions for purposes of determining
our compensation expense. Our expected stock price volatility
utilizes the NASDAQ Biotechnology Index as a proxy for the
50
volatility of our stock price. The NASDAQ Biotechnology Index
was selected as it better approximates the volatility of our
common stock over the life of the options being valued because
we utilized multiple methodologies to value the options and
multiple sets of peer companies in the various scenarios,
including publicly-traded companies. The weighted-average
expected life of the option is based on the contractual term of
the option and historical terminations. We utilize a dividend
yield of zero based on our historical experience and estimate of
future dividend yields at the time. The risk-free interest rate
used for each grant is based on the U.S. Treasury yield
curve in effect at the time of grant for instruments with a
similar expected life.
The value of our stock options was estimated at the grant date
using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year Ended December 31,
|
|
September 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Volatility
|
|
|
35.14
|
%
|
|
|
34.87
|
%
|
|
|
35.59
|
%
|
|
|
35.61
|
%
|
|
|
33.77
|
%
|
Expected Term (in years)
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
Risk-Free Interest Rates
|
|
|
4.77
|
%
|
|
|
4.04
|
%
|
|
|
3.67
|
%
|
|
|
3.67
|
%
|
|
|
3.76
|
%
|
Dividend Yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
In accordance with ASC 718, we recognized stock-based
compensation expense of approximately $136,000, $257,000 and
$382,000 for the year ended December 31, 2007, 2008 and
2009, respectively and $246,000 and $390,000 for the nine months
ended September 30, 2009 and 2010, respectively. As of
September 30, 2010, we had $1.2 million in total
unrecognized compensation expense, net of related forfeiture
estimates, which we expect to recognize over a weighted-average
period of approximately 1.6 years.
Upon the adoption of ASC 718, we were also required to
estimate the level of forfeitures expected to occur and record
compensation expense only for those awards that we ultimately
expect will vest. We performed an historical analysis of option
awards that were forfeited prior to vesting and recorded total
stock option expense that reflected this estimated forfeiture
rate.
Our audit committee, with the assistance of management, was
required to estimate the fair value of our common stock at each
option grant date and make a recommendation of that value for
approval by our full Board of Directors. Our management and
audit committee used methodologies, approaches, and assumptions
consistent with the American Institute of Certified Public
Accountants Practice Guide, or the AICPA Practice Guide,
Valuation of Privately-Held Company Equity Securities Issued
as Compensation, considering numerous objective and
subjective factors to determine common stock fair market value
at each option grant date.
In determining the fair value of our common stock, we considered
several factors affecting the value of our stock, including the
following:
|
|
|
|
|
Probability weighted liquidation events. We
considered several liquidation and financing scenarios that were
evaluated based upon timing and likelihood of occurrence. The
events were based upon managements considerations at the
time and included initial public offering, acquisition scenarios
and remaining a private company.
|
|
|
|
|
|
Common stock pricing indications implied from our most recent
sales of preferred securities. We used arms
length private transactions involving our convertible preferred
stock, including the sale of our
Series C-3
convertible preferred stock at $8.12 per share in 2007 and 2009,
adjusted to reflect our capitalization structure, the prevailing
risk-free interest rate as of the date for the sale
|
51
|
|
|
|
|
of our convertible preferred stock, estimates of expected equity
volatility and the expected time to liquidity.
|
|
|
|
|
|
Market pricing information from companies that we considered
to be comparable or that we believed would be priced in a
similar fashion. The companies selected were focused on
the development of pharmaceuticals or comparable technologies.
Since the development progress of lead candidates is a
significant driver for acquisition and initial public offering
valuations, comparing the progress of the lead candidate was a
significant part of the selection process for determining
comparable companies. In addition, the development progress of
non-lead candidates and the number of non-lead candidates in
each clinical phase was also considered when selecting
comparable companies. We evaluated market equity values from
these selected companies and applied our expected stage of
development to determine the future equity value or future
common stock value. These values were then discounted to the
valuation date at a risk adjusted rate of return to determine a
current common stock value.
|
|
|
|
Discounted cash flow models. Discounted cash flow
models were based on the anticipated timing of our clinical
trials and related exit events as well as the additional cash
required to complete these trials and commercialize our
products. These cash flows were discounted to the present to
determine a present common stock value indication, using a
risk-adjusted equity rate of 34.0 percent.
|
|
|
|
Assessment of milestones achieved. The common stock
value was influenced by our performance as compared to expected
milestones set in the previous pricing assessment. Our success
or failure at achieving certain clinical trial and budget
targets influence the common stock value.
|
|
|
|
Risks. Specific risks we considered in the
assessment of our common stock price included our ability to
raise additional funds, the status of our clinical trials, our
ability to retain key management and employees and our ability
to consummate a liquidity event.
|
|
|
|
Market volatility. We factored prevailing market
conditions into our analysis when deriving the common stock
value indications. More specifically, we evaluated the
volatility of applicable capital markets and the change in stock
prices of companies we consider to be comparable to determine
the common stock value.
|
|
|
|
Pricing from initial public offerings in the biotechnology
industry. We also considered pricing information from
initial public offerings of companies in the biotechnology
industry in determining our common stock value. Specifically, we
used initial public offering pricing information of
biotechnology companies at certain stages of development to
determine the future equity value upon reaching that stage of
development. The future equity value was then discounted to the
present to determine the present equity value and common stock
value.
|
|
|
|
Pricing indications from mergers and acquisitions in our
industry. Pricing information from mergers and
acquisitions were considered in the determination of our common
stock value. The future equity value was derived based on the
projected developmental stage as compared to the developmental
stage of specific companies when they were acquired. The future
equity value indications were discounted to the present to
determine the present equity value and common stock value.
|
|
|
|
Liquidity considerations. We considered the
liquidity of our securities in determining our equity value and
common stock value. Because our stockholders have not had access
to an organized exchange on which to trade their securities, the
appropriate adjustment to the value to account for this lack of
liquidity was assessed.
|
52
We assess the value of our common stock through the use of
scenario analysis. In our valuations of our common stock, we
worked with scenarios where we assumed EC145 to be at the end of
a phase 2 trial or in a phase 3 trial at the time of the
liquidation events modeled for the pricing analysis. To that
effect we have different groups of comparable companies for
different exit assumptions. For example, for the phase 2
scenarios we use comparable companies that were in or at the end
of their phase 2 trials at the time of their initial public
offerings as well as the acquisition of such companies.
In each case the value set by our Board of Directors was equal
to or above the fair value valuation as determined by the audit
committee and management. These valuations considered one or
more of the following scenarios or valuation indicators:
|
|
|
|
|
an initial public offering of our common stock;
|
|
|
|
sale of the company;
|
|
|
|
remaining a private company; or
|
|
|
|
valuations based on contemporaneous sales of our convertible
preferred stock.
|
In the initial public offering or sale of the company scenarios
for each of our valuations, we included companies deemed
comparable because of their disease focus, stage of clinical
trials and size. As a result, we primarily included comparable
oncology, inflammation and drug delivery companies.
In the remaining-a-private-company scenario for each of our
valuations, we anticipated that we would stay private with
investors realizing value from our ability to generate cash
flow. We used a discounted cash flow model for this scenario. We
utilized the probability weighted equity return method, or
PWERM, to value our common stock and allocate the equity value
to our various classes of securities. Future values for each
scenario were converted to present value by applying a discount
rate estimated using a capital asset pricing model, or CAPM. The
CAPM takes into account risk-free rates, an equity risk premium,
the betas of selected public guideline companies and a risk
premium for size. The estimated discount rate includes a premium
for company-specific risk as well.
The value of our common stock was then discounted for lack of
marketability, or the inability to readily sell shares, which
increases the owners exposure to changing market
conditions and increases the risk of ownership. The discount for
lack of marketability is derived from the application of a
theoretical protective put option calculation. The following
table sets forth information for all stock option grants since
March 5, 2009 through November 10, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
Exercise
|
|
Common Stock Fair
|
|
|
Underlying
|
|
Price Per
|
|
Value Per Share at
|
Grant Date
|
|
Options Granted
|
|
Share
|
|
Grant Date
|
|
March 5, 2009
|
|
|
350,290
|
|
|
$
|
2.54
|
|
|
$
|
1.99
|
|
May 27, 2009
|
|
|
2,251
|
|
|
|
2.54
|
|
|
|
2.27
|
|
August 13, 2009
|
|
|
8,715
|
|
|
|
2.54
|
|
|
|
2.16
|
|
November 12, 2009
|
|
|
12,971
|
|
|
|
2.54
|
|
|
|
2.31
|
|
February 11, 2010
|
|
|
450,936
|
|
|
|
3.82
|
|
|
|
3.80
|
|
May 27, 2010
|
|
|
39,949
|
|
|
|
4.30
|
|
|
|
4.26
|
|
August 12, 2010
|
|
|
35,966
|
|
|
|
6.69
|
|
|
|
6.69
|
|
November 10, 2010
|
|
|
29,135
|
|
|
|
7.26
|
|
|
|
7.22
|
|
We generally have made annual stock option grants at the
beginning of each year based primarily on the corporate
performance as a whole during the preceding year. On March 5,
2009, our Board of Directors approved an annual option grant for
current and existing employees. Our Board of Directors
53
determined the fair value of our common stock to be $1.99 per
share, based on our determined fair value as of December 31,
2008. The valuation yielded a value of our equity, including
both common stock options and preferred stock warrants, of
approximately $44.0 million as of December 31, 2008. This
valuation assumed a weighting between an initial public offering
of our common stock of 25 percent, sale of the company of
35 percent, recent sales of convertible preferred stock of
five percent and remaining a private company of
35 percent. After accounting for the rights and
restrictions of each of our equity classes as well as our
outstanding common stock options and preferred stock warrants,
our Board of Directors determined a valuation of our common
stock of approximately $2.3 million as of December 31, 2008, or
$1.99 per share, after applying a marketability discount of
45 percent. Our Board of Directors elected to grant stock
options at an exercise price per share of $2.54, which is
consistent with our policy of granting stock options at or above
fair value.
On February 11, 2010, our Board of Directors determined the fair
value of our common stock to be $3.80 per share. Our valuation
summary prepared in contemplation of these option grants yielded
a valuation of our equity, including both common stock options
and preferred stock warrants, of approximately
$96.0 million as of December 31, 2009. After accounting for
the rights and restrictions of each of our equity classes as
well as our outstanding common stock option and preferred stock
warrants, our Board of Directors determined a valuation of our
common stock of approximately $4.3 million as of December
31, 2009, or $3.80 per share, after applying a marketability
discount of 40 percent. The increase in value was driven by
greater valuations for public market comparables for initial
public offerings and higher valuations for sales of comparable
companies occurring during that time-frame. The valuation also
assumed an increased weighting of an initial public offering to
35 percent, an increase in sale of the company weighting to
40 percent, a decrease in remaining a private company to
20 percent and a decline in the marketability discount due
to approaching a liquidity event. Our Board of Directors elected
to grant stock options at an exercise price per share of $3.82,
which is consistent with our policy of granting stock options at
or above fair value.
On July 1, 2010, the weighting in our valuation assumed an
initial public offering probability increased to
50 percent, the sale of the company weighting remained the
same and the remaining a private company weighting declined to
10 percent. After accounting for the rights and
restrictions of each of our equity classes as well as our
outstanding common stock options and preferred stock warrants,
our Board of Directors determined a valuation of our common
stock as of June 30, 2010 of $7.7 million, or $6.69
per share, after applying a marketability discount of
31 percent. Our Board of Directors elected to grant stock
options at an exercise price of $6.69 per share, which is
consistent with our policy of granting stock options at or above
fair value.
On September 30, 2010, the weightings in our valuation
remained unchanged from the June 30, 2010 valuation. Our
Board of Directors determined a valuation of our common stock as
of September 30, 2010 of $8.3 million or $7.26 per
share, after applying a marketability discount of
29 percent. Our Board of Directors elected to grant stock
options at an exercise price of $7.26 per share, which is
consistent with our policy of granting stock options at or above
fair value.
Valuation models require the input of highly subjective
assumptions. Because our common stock has characteristics
significantly different from that of publicly traded common
stock and because changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a reliable, single measure of the fair value
of our common stock. The foregoing valuation methodologies are
not the only valuation methodologies available and will not be
used to value our common stock once this offering is complete.
We cannot make assurances as to any particular valuation for our
common stock. Accordingly, investors are cautioned not to place
undue reliance on the foregoing valuation methodologies as an
indicator of future stock prices.
54
Results
of Operations
Comparison
of Nine Months Ended September 30, 2009 and
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Increase/
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
(Decrease)
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,000
|
|
|
$
|
|
|
|
$
|
(3,000
|
)
|
|
|
(100
|
)%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
10,680
|
|
|
|
11,271
|
|
|
|
591
|
|
|
|
6
|
%
|
General and administrative
|
|
|
2,677
|
|
|
|
4,722
|
|
|
|
2,045
|
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
13,357
|
|
|
|
15,993
|
|
|
|
2,636
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,357
|
)
|
|
|
(15,993
|
)
|
|
|
5,636
|
|
|
|
54
|
%
|
Other income, net
|
|
|
65
|
|
|
|
(85
|
)
|
|
|
(150
|
)
|
|
|
(231
|
%)
|
Interest income
|
|
|
43
|
|
|
|
3
|
|
|
|
(40
|
)
|
|
|
(93
|
%)
|
Interest expense
|
|
|
(1,142
|
)
|
|
|
(670
|
)
|
|
|
(472
|
)
|
|
|
(41
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,391
|
)
|
|
$
|
(16,745
|
)
|
|
$
|
5,354
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2009, we earned
revenue from a licensing agreement with BMS, which was entered
into on December 22, 2005. Under such license agreement, we
granted BMS an exclusive worldwide license to develop and
commercialize SMDCs using folate as the targeting ligand and
epothilone as the drug payload. In 2009, BMS advanced this
folate-epothilone SMDC, which BMS called BMS-753453, into a
phase 2 clinical trial, which triggered a $3.0 million
milestone payment under the license. On June 3, 2010, BMS
notified us of their intent to terminate the license. We believe
BMS elected to terminate the license as a result of a change in
its strategic focus. We received an aggregate of
$8.1 million from BMS from the fourth quarter 2005 to the
third quarter of 2009 pursuant to this license.
Research
and Development
The increase in research and development expense for the nine
months ended September 30, 2009 compared to the nine months
ended September 30, 2010 was primarily the result of an
increase in clinical trial costs from the PRECEDENT trial. This
increase was driven primarily by a higher level of patients
active in the trial during the period. There were also increased
expenses associated with the EC0489 program in 2010, also
associated with a higher level of patients in the associated
trial in 2010 compared to 2009. These increases were partially
offset by decreased expenses associated with our EC0225 program
in 2010, as the associated trial completed enrollment in the
second quarter 2010.
Included in research and development expense were stock-based
compensation charges of $214,000 and $300,000 for the nine
months ended September 30, 2009 and 2010, respectively.
Research and development expenses include expenses of $264,000
and $293,000 for the nine months ended September 30, 2009
and 2010, respectively, for company-funded research at Purdue
University, the primary employer of our Chief Science Officer.
General
and Administrative
The increase in general and administrative expenses in the nine
months ended September 30, 2010 compared to the nine months
ended September 30, 2009 was primarily attributable to
increases in patent
55
prosecution expenses associated with the growing portfolio and
professional fees associated with various partnering and
financing activities, including the preparation for a potential
initial public offering.
Included in general administrative expenses were stock-based
compensation charges of $33,000 and $90,000 for the nine months
ended September 30, 2009 and 2010, respectively.
Other
Income, Net
Other income in the nine months ended September 30, 2009 is
primarily comprised of the decline in the fair value of our
preferred stock warrant liability. Other loss in the nine months
ended September 30, 2010 includes a loss on extinguishment
of debt of $144,000, which was offset by income from the change
in the fair value of our preferred stock warrant liability.
Interest
Income
The decrease in interest income in the nine months ended
September 30, 2010 compared to the nine months ended
September 30, 2009 resulted from a decrease in balances
available for investment due to the use of these funds for
operations.
Interest
Expense
The decrease in interest expense in the nine months ended
September 30, 2010 compared to the nine months ended
September 30, 2009 was due to the decrease in the
outstanding and unpaid principal under our prior credit facility
with GECC and Oxford.
Comparison
of Year Ended December 31, 2008 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase/
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
%
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
500
|
|
|
$
|
3,000
|
|
|
$
|
2,500
|
|
|
|
500
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,323
|
|
|
|
14,804
|
|
|
|
1,481
|
|
|
|
11
|
%
|
General and administrative
|
|
|
4,786
|
|
|
|
3,934
|
|
|
|
(852
|
)
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,109
|
|
|
|
18,738
|
|
|
|
629
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(17,609
|
)
|
|
|
(15,738
|
)
|
|
|
(1,871
|
)
|
|
|
(11
|
)%
|
Other income, net
|
|
|
13
|
|
|
|
119
|
|
|
|
106
|
|
|
|
815
|
%
|
Interest income
|
|
|
682
|
|
|
|
49
|
|
|
|
(633
|
)
|
|
|
(93
|
)%
|
Interest expense
|
|
|
(1,579
|
)
|
|
|
(1,436
|
)
|
|
|
(143
|
)
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,493
|
)
|
|
$
|
(17,006
|
)
|
|
$
|
(1,487
|
)
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
For both years, revenue was from a license agreement with BMS.
Revenue in 2008 of $500,000 represented an annual maintenance
payment associated with this license. In 2009, BMS advanced this
folate-epothilone SMDC, which BMS called BMS-753453, into a
phase 2 clinical trial, which triggered a $3.0 million
milestone payment under the license.
56
Research
and Development
The increase in research and development expenses in 2009
compared to 2008 was primarily attributable to a
$1.5 million increase in clinical trial and product
manufacturing expenses principally due to the PRECEDENT trial,
which commenced enrollment in September 2008 and continued
enrollment throughout 2009.
Included in research and development expense were stock-based
compensation charges of $197,000 and $332,000 for the year ended
December 31, 2008 and 2009, respectively.
Research and development expenses include expenses of $394,000
and $352,000 for the year ended December 31, 2008 and
December 31, 2009, respectively, for company-funded
research at Purdue University, the primary employer of our
current Chief Science Officer.
General
and Administrative
The decrease in general and administrative expenses in 2009
compared to 2008 was caused primarily by a $470,000 shift of
payroll expense from general and administrative expenses to
research and development expenses resulting from a shift of
management time from administrative functions to development
activities. The remaining decrease was due to reduced recruiting
and consulting fees compared to the prior year.
Included in general and administrative expenses were stock-based
compensation charges of $60,000 and $50,000 for the year ended
December 31, 2008 and 2009, respectively.
Other
Income, Net
Other income in each period is primarily comprised of the change
in the fair value of our preferred stock warrant liability. The
increase was due primarily to the larger change in the fair
value of our preferred stock warrant liability compared to the
prior period.
Interest
Income
The decrease in interest income in 2009 compared to 2008 was a
result of a lower cash balance, a shift into more conservative
investment vehicles and a decrease in interest rates from an
average of 1.38 percent in 2008 to an average rate of
0.14 percent in 2009.
Interest
Expense
The decrease in interest expense in 2009 compared to 2008 was
due to the decrease in the outstanding and unpaid principal
under our prior credit facility with GECC and Oxford.
57
Comparison
of Year Ended December 31, 2007 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase/
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
%
|
|
|
|
(In Thousands)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,082
|
|
|
$
|
500
|
|
|
$
|
(582
|
)
|
|
|
(54
|
)%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,305
|
|
|
|
13,323
|
|
|
|
2,018
|
|
|
|
18
|
%
|
General and administrative
|
|
|
4,401
|
|
|
|
4,786
|
|
|
|
385
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,706
|
|
|
|
18,109
|
|
|
|
2,403
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(14,624
|
)
|
|
|
(17,609
|
)
|
|
|
2,985
|
|
|
|
20
|
%
|
Other income, net
|
|
|
(306
|
)
|
|
|
13
|
|
|
|
319
|
|
|
|
104
|
%
|
Interest income
|
|
|
1,297
|
|
|
|
682
|
|
|
|
(615
|
)
|
|
|
(47
|
)%
|
Interest expense
|
|
|
(25
|
)
|
|
|
(1,579
|
)
|
|
|
1,554
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,658
|
)
|
|
$
|
(18,493
|
)
|
|
$
|
4,835
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Revenue for both years was from our license agreement with BMS.
In 2007, BMS paid us a $1.0 million milestone associated
with the initiation of the phase 1 trial of BMS-753453. Revenue
in 2007 also included $82,000 related to grants. In 2008, BMS
paid us a $500,000 annual maintenance payment associated with
this license.
Research
and Development
The increase in research and development expenses in 2008
compared to 2007 primarily resulted from an increase in clinical
trial costs associated with the EC145 program and the initiation
of PRECEDENT. There were also increased expenses associated with
the development of EC0489 and EC0225 in 2008 as we increased
development and clinical activities related to trials for these
SMDCs, as well as increased expenses associated with added
personnel in the clinical operations function. These increases
were partially offset by decreased spending on our EC17 program
as enrollment in the phase 1 trial for this SMDC concluded.
Included in research and development expenses were stock-based
compensation charges of $101,000 and $197,000 for the year ended
December 31, 2007 and 2008, respectively.
Research and development expenses include expenses of $500,000
and $394,000 for the year ended December 31, 2007 and
December 31, 2008, respectively, for company-funded
research at Purdue University, the primary employer of our
current Chief Science Officer.
General
and Administrative
The modest increase in general and administrative expenses in
2008 compared to 2007 was attributable primarily to increases in
professional fees, patent fees, recruiting fees and depreciation
on equipment purchased in late 2007. This was partially offset
by a decrease in outside regulatory consulting fees due to the
commencement of employment of our current Vice President of
Regulatory Affairs.
Included in general administrative expenses were stock-based
compensation charges of $36,000 and $60,000 for the year ended
December 31, 2007 and 2008, respectively.
58
Other
Income, Net
At the issuance of the preferred stock warrants associated with
our prior credit facility with GECC and Oxford, a liability and
related expense was established for the fair value of these
warrants. In 2008, this liability was reduced primarily as a
result of a one year decrease in their remaining term.
Interest
Income
The decrease in interest income in 2008 compared to 2007 was a
result of lower cash balances and a decrease in interest rates
from an average of 4.46 percent in 2007 to an average rate
of 1.38 percent in 2008.
Interest
Expense
The increase in interest expense in 2008 compared to 2007 was
primarily due to increased borrowing associated with our prior
credit facility with GECC and Oxford, under which we initially
drew down $10.0 million in principal amount in December
2007. An additional $5.0 million was drawn down under this
credit facility with GECC and Oxford as we achieved a milestone
associated with the development of EC145 in June 2008.
Liquidity
and Capital Resources
We have funded our operations principally through the private
placement of equity securities, revenue from strategic
collaborations, revenue from grants and debt financings. As of
September 30, 2010, we have received gross proceeds of
$90.3 million from the issuance of convertible preferred
stock, including $26.6 million from the sale of
Series C-3
convertible preferred stock in 2009. As of September 30,
2010, we had received an aggregate of $11.9 million from
our license agreements with BMS and Sanofi-Aventis,
$7.9 million in funding from federal and state government
grant programs $15.0 million in funding from our prior
credit facility with GECC and Oxford and $10.0 million in
funding from our current credit facility with Mid-Cap Financial,
or Mid-Cap and Silicon Valley Bank, or SVB. As of
September 30, 2010, we had cash, cash equivalents and
short-term investments of approximately $8.1 million. We
drew down $5.0 million in additional debt under the
Mid-Cap and
SVB credit facility provided in December 2010. Currently, our
funds are invested in cash and cash equivalents. On
October 29, 2010, we were notified we had been awarded a
total of $1.5 million under section 48D of the Code
for Qualifying Therapeutic Discovery Projects. In November 2010,
we received $1.4 million of this award. The remaining
$100,000 is payable to us in January 2011. This will be
accounted for as other income.
In December 2010, we amended our term loan with Mid-Cap and SVB
in order to access the remaining tranche of $5.0 million
and increased the number of shares of
Series C-3
preferred stock or other convertible preferred stock that may be
issued prior to the earlier of the completion of this offering
and December 31, 2010 available for exercise pursuant to
the warrants previously issued to these lenders, in
consideration of the loan amount and interest rate.
In December 2010, we issued $8.1 million of Subordinated
Notes and in January 2011 we issued an additional
$3.7 million of Subordinated Notes. As more fully described
under the heading Recent Developments contained in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the notes to our
financial statements, the Subordinated Notes will convert into
shares of our common stock or preferred stock when our next
qualifying financing occurs. We expect to use the funds received
from the remaining $5.0 million tranche of our term loan
with Mid-Cap and SVB and our Subordinated Notes to help fund our
current operations and development plans.
Upon an initial public offering with gross proceeds of
$50.0 million or a private equity offering with gross
proceeds of $30.0 million in a single or series of
transactions, the Subordinated Notes
59
automatically settle in a variable number of common shares or a
variable number of the new private equity offering shares,
respectively. We have determined that it is probable that we
will either complete an initial public offering or a private
equity offering, as defined in the Subordinated Notes agreement
in order to finance our operations. Thus, we have concluded that
the predominant settlement method of this contract is an equity
offering, which will result in the Subordinated Notes being
share settled debt. The share settled debt assumes settlement in
shares at a 15 percent discount to the initial public
offering price or private offering price on or before
June 30, 2011. As the Subordinated Notes will be treated as
share-settled debt under
ASC 480-10-25-14,
they will be recorded at fair value upon issuance. Subsequent
changes to the fair value of the Subordinated Notes will be
marked to market through the statement of operations. These mark
to market adjustments will be determined based on the change in
fair value of the Subordinated Notes resulting from changes in
interest rates, changes in credit risk and changes in the
probability of an initial public offering or subsequent private
financing occurring. If an equity offering does not occur or
there is a change of control before December 2011, then the
Subordinated Notes will convert into
Series C-3
convertible preferred stock at a conversion price of $8.12 per
share. If it becomes probable that a public or private equity
offering will not occur, then we will need to re-evaluate the
Subordinated Note agreement to determine the predominant
settlement method to evaluate if any embedded features, such as
the share-settled put option or the conversion into preferred
stock, would potentially qualify as embedded features that would
need to be bifurcated and marked to market in each subsequent
period in the statement of operations.
The following table sets forth the primary sources and uses of
cash for each of the periods set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In Thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(12,973
|
)
|
|
$
|
(17,287
|
)
|
|
$
|
(15,396
|
)
|
|
$
|
(10,382
|
)
|
|
$
|
(16,412
|
)
|
Net cash provided by (used in) investing activities
|
|
|
6,732
|
|
|
|
(4,428
|
)
|
|
|
(1,866
|
)
|
|
|
(7,056
|
)
|
|
|
15,011
|
|
Net cash provided by (used in) financing activities
|
|
|
24,676
|
|
|
|
4,272
|
|
|
|
21,083
|
|
|
|
14,828
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
18,435
|
|
|
$
|
(17,443
|
)
|
|
$
|
3,821
|
|
|
$
|
(2,610
|
)
|
|
$
|
(632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
The use of cash in all periods primarily resulted from our net
losses adjusted for non-cash items and changes in operating
assets and liabilities. The increase in cash used for the year
ended 2008 compared to 2007 was primarily the result of an
increase in clinical trial expenses, an increase in interest
expense and a decrease in interest income. The decrease in cash
used for the year ended 2009 compared to 2008 resulted from an
increase in collaboration revenue received from BMS offset by a
decrease in interest income. The increase in cash used for the
nine months ended September 30, 2010 compared to
September 30, 2009 was primarily due to an increase in
clinical trial expenses.
Investing
Activities
The cash provided by (used in) investing activities for each of
the three years was due primarily to the net result of
maturities and sales of short-term investments, which was
partially offset by capital expenditures for equipment of
$659,000 in 2007, $460,000 in 2008 and $155,000 in 2009. For the
nine months ended September 30, 2009 and 2010, our
investing activities used $7.1 million and provided
$15.0 million, respectively. The cash used by investing
activities for the nine months ended
60
September 30, 2009 was due primarily to the purchase of
short-term investments. The cash provided by investing
activities for the nine months ended September 30, 2010 was
due primarily to the net result of maturities and sales of
short-term investments.
Financing
Activities
The cash provided by financing activities in 2007 was from the
sale and issuance of 1,853,509 shares of
Series C-3
convertible preferred stock for total net proceeds of
$15.0 million and from the borrowing of $10.0 million
under our prior credit facility with GECC and Oxford. The cash
provided by financing activities in 2008 was from the borrowing
of $5.0 million under our credit facility, which was
partially offset by principal payments of $705,000 on this and
other credit facilities. The cash provided by financing
activities in 2009 was from the sale and issuance of
3,282,456 shares of
Series C-3
convertible preferred stock for total net proceeds of
$26.6 million, which was partially offset by principal
payments of $5.5 million on our prior credit facility with
GECC and Oxford. For the nine months ended September 30,
2009, our financing activities consisted of the repayment of
principal amounts under our prior credit facility with GECC and
Oxford. For the nine months ended September 30, 2010, our
financing activities consisted of repaying our credit facility
with GECC and Oxford with proceeds from our new credit facility
with Mid-Cap and SVB.
Credit
Facilities
In December 2007, we entered into a $15.0 million
credit facility with GECC and Oxford to fund research and
development and general corporate purposes. We drew down
$10.0 million in principal amount upon signing the
agreement and drew down the remaining $5.0 million in
June 2008. Repayment of the principal on the first tranche
began following a
nine-month
interest-only period, followed by a
30-month
repayment of principal and interest. Repayment of the principal
on the second tranche began following a
six-month
interest-only period, followed by a
30-month
repayment of principal and interest. The interest rate was a
fixed rate based on a margin above a comparable period Treasury
at the time the money from each tranche was drawn, which
resulted in an interest rate of 10.56 percent on the first
$10.0 million and 10.51 percent on the additional
$5.0 million. The loan was collateralized by a security
interest in all of our assets, excluding intellectual property.
The loan agreement included customary covenants, including those
that require prior written consent of the lender before we can
incur or prepay indebtedness, create additional liens, or sell
or transfer any material portion of our assets. This credit
facility was repaid in August 2010.
In August 2010, we entered into a $15.0 million credit
facility with Mid-Cap and SVB to pay-off an existing credit
facility with GECC and Oxford, to fund research and development
and for general corporate purposes. We drew down
$10.0 million in principal amount upon signing the
agreement at a fixed 9.75 percent interest rate and intend
to draw down the remaining $5.0 million in December 2010
pursuant to the amendment described above. Repayment of the
principal on the first tranche will begin in April 2011
following a seven-month interest-only period, followed by a
30-month
repayment of principal and interest. The loan is collateralized
by a security interest in all of our assets, excluding
intellectual property. The loan agreement includes customary
covenants, including those that require prior written consent of
the lenders before we can incur or prepay indebtedness, create
additional liens, or sell or transfer any material portion of
our assets. The loan may be accelerated upon the occurrence of
any event of default in the loan agreement, including defects in
collateral securing the loan, judgment defaults or any event or
development that has a material adverse effect, as defined in
the agreement. The failure of any preclinical study or clinical
trial will not, in and of itself, constitute a material adverse
effect. Amounts drawn under the second tranche are subject to
the same terms and conditions as the first.
61
Operating
Capital Requirements
Assuming we successfully complete clinical trials and obtain
requisite regulatory approvals, we anticipate commercializing
our first product in 2013 at the earliest. Therefore, we
anticipate we will continue to generate significant losses for
the next several years as we incur expenses to complete our
clinical trial programs for EC145, build commercial
capabilities, develop our pipeline and expand our corporate
infrastructure. We will require additional funding through
either collaboration arrangements, borrowings or sales of
additional securities to commercialize any of our SMDCs or
companion imaging diagnostics.
If our available cash, cash equivalents and short-term
investments are insufficient to satisfy our liquidity
requirements, or if we develop additional opportunities to do
so, we may seek to sell additional equity or debt securities,
obtain additional credit facilities or refinance our current
credit facility with Mid-Cap and SVB. The sale of additional
equity and debt securities may result in additional dilution to
our stockholders. If we raise additional funds through the
issuance of debt securities or convertible preferred stock,
these securities may have rights senior to those of our common
stock and could contain covenants that would restrict our
operations. We may require additional capital beyond our
currently forecasted amounts. Any such required additional
capital may not be available on reasonable terms, if at all. If
we were unable to obtain additional financing, we may be
required to reduce the scope of, delay or eliminate some or all
of our planned research, development and commercialization
activities, which could harm our business.
Because of the numerous risks and uncertainties associated with
research, development and commercialization of pharmaceutical
products, we are unable to estimate the exact amounts of our
working capital requirements. Our future funding requirements
will depend on many factors, including but not limited to:
|
|
|
|
|
the number and characteristics of the SMDCs and companion
imaging diagnostics we pursue;
|
|
|
|
the scope, progress, results and costs of researching and
developing our SMDCs and companion imaging diagnostics and
conducting preclinical and clinical trials;
|
|
|
|
the timing of, and the costs involved in, obtaining regulatory
approvals for our SMDCs and companion imaging diagnostics;
|
|
|
|
the cost of commercialization activities if any of our SMDCs and
companion imaging diagnostics are approved for sale, including
marketing sales and distribution costs;
|
|
|
|
the cost of manufacturing any of our any SMDCs and companion
imaging diagnostics we successfully commercialize;
|
|
|
|
our ability to establish and maintain strategic partnerships,
licensing or other arrangements and the financial terms of such
agreements;
|
|
|
|
the costs involved in preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims, including
litigation costs and the outcome of such litigation; and
|
|
|
|
the timing, receipt and amount of sales of, or royalties on, our
SMDCs and companion imaging diagnostics, if any.
|
62
Contractual
Obligations and Commitments
The following table summarizes our contractual obligations at
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
1 to 3
|
|
|
|
|
|
|
Total
|
|
|
Year
|
|
|
Years
|
|
|
4 to 5 Years
|
|
|
|
(In Thousands)
|
|
|
Short-term and long-term debt (including interest)
|
|
$
|
11,748
|
|
|
$
|
3,060
|
|
|
$
|
8,688
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
569
|
|
|
|
220
|
|
|
|
248
|
|
|
|
101
|
|
Other long term obligations
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
12,617
|
|
|
$
|
3,280
|
|
|
$
|
9,236
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, we have certain obligations under licensing
agreements with third parties. In October 2007, we entered into
an exclusive worldwide license with R&D Biopharmaceuticals
to research, develop, and commercialize products containing
conjugates of folate receptor targeting compounds and tubulysin
compounds. We could pay $6,300,000 in additional contingent
payments upon the achievement of specific scientific, clinical
and regulatory milestones, in addition to royalties upon
commercial sales. Pursuant to our exclusive license agreement
with Purdue Research Foundation relating to folate, we are
obligated to pay an annual minimum royalty of $12,500 until
commercial sales commence, following which time the payment of
royalties with market rates will commence. Pursuant to our
exclusive license agreement with Purdue Research Foundation
relating to PSMA, we are obligated to pay annual minimum
payments of $15,000 until commercial sales commence, following
which time the payment of royalties with market rates will
commence, along with an annual milestone payment of $100,000. In
addition, certain clinical and regulatory milestone payments of
$500,000 along with sales-based milestones related to
third-party sales are also payable. We are also subject to
penalties totaling $300,000 if certain diligence milestones are
not met. Future milestone payments in excess of $500,000 may be
waived by Purdue Research Foundation. There were no material
obligations greater than five years.
Off-Balance
Sheet Arrangements
We did not have during the periods presented, and we do not
currently have, any off-balance sheet arrangements, as defined
under rules promulgated by the Securities and Exchange
Commission.
Tax Loss
Carryforwards
As of December 31, 2009, we have a net operating loss
carryforward of approximately $73.9 million to offset
future federal and state income taxes. These federal and state
loss carryforwards expire at various times through 2022. We also
have research and development tax credit carryforwards of
approximately $3.2 million to offset future federal income
taxes and approximately $1.1 million to offset future state
income taxes. The federal and state tax credits expire at
various times through 2029. To date, there has not been any
ownership changes under Section 382 of the Code that would
limit the amount of net operating loss carryforwards and tax
credit carryfowards available in future years. However, the
occurrence of certain events, including significant changes in
ownership interests, may limit the amount of the net operating
loss carryforwards and tax credit carryforwards available in
future years. At December 31, 2009, we recorded a
100 percent valuation allowance against our net operating
loss carryforwards of approximately $33.9 million, as our
management believes it is more likely than not they will not be
fully realized. If we determine in the future that we will be
able to realize all or a portion of our net operating loss
carryforwards, an adjustment to our net operating loss
carryforwards would increase net income in the period in which
we make such a determination.
63
Recently
Adopted Accounting Standards
Effective January 1, 2009, we adopted ASC 808,
Collaborative Arrangements. This guidance defines
collaborative arrangements and establishes reporting
requirements for transactions between participants in a
collaborative arrangement and between participants in the
arrangement and third parties. This guidance has been applied
retrospectively to all prior periods presented for significant
collaborative arrangements existing as of the effective date.
The adoption did not impact the financial statements.
Effective January 1, 2009, we adopted clarifying guidance
issued by the FASB on
other-than-temporary
impairments on debt securities, codified within
ASC 320-10,
Investments Debt and Equity Securities, on
January 1, 2009. This guidance amends the
other-than-temporary
recognition guidance for debt securities and requires additional
annual disclosures of
other-than-temporary
impairments on debt and equity securities. Pursuant to the new
guidance, an
other-than-temporary
impairment has occurred if a company does not expect to recover
the entire amortized cost basis of the security. In this
situation, if we do not intend to sell the impaired security,
and it is not more likely than not it will be required to sell
the security before the recovery of its amortized cost basis,
the amount of the
other-than-temporary
impairment recognized in earnings is limited to the portion
attributed to the credit loss. The remaining portion of the
other-than-temporary
impairment is then recorded in other comprehensive income
(loss). This guidance has been applied to existing and new
securities as of January 1, 2009. The applicable
disclosures are included in Note 4. The implementation of
this guidance was not material to our financial position or
results of operations, and there was no cumulative effect
adjustment.
Effective January 1, 2009, we adopted FASB authoritative
guidance relating to accounting for uncertainty in income taxes,
under ASC 740, amended by ASU
2009-06.
This guidance requires that realization of an uncertain income
tax position be more likely than not (i.e., greater than
50 percent likelihood of receiving a benefit) before it can
be recognized in the financial statements. Furthermore, this
guidance prescribes the benefit to be recorded in the financial
statements as the amount most likely to be realized assuming a
review by tax authorities having all relevant information and
applying current conventions. This interpretation also clarifies
the financial statement classification of tax-related penalties
and interest and sets forth new disclosures regarding
unrecognized tax benefits. The implementation of this
interpretation had no impact on the financial statements.
In May 2009, the FASB issued ASC 855, Subsequent
Events. ASC 855 provides authoritative accounting
literature and disclosure requirements for material events
occurring subsequent to the balance sheet date and prior to the
issuance of the financial statements. We adopted this guidance
as of December 31, 2009. The implementation of this
statement had no effect on our financial position or results of
operations.
In October 2009, the FASB ratified ASU
No. 2009-13
guidance related to revenue recognition that amends the previous
guidance on arrangements with multiple deliverables, within
ASC 605-25,
Revenue Recognition Multiple Element
Arrangements. This guidance provides principles and
application guidance on whether multiple deliverables exist, how
the arrangements should be separated, and how the consideration
should be allocated. It also clarifies the method to allocate
revenue in an arrangement using the estimated selling price.
This guidance is effective for us as of January 1, 2011,
and is not expected to be material to our financial position or
results of operations.
In April 2010, the FASB ratified ASU
No. 2010-17
guidance related to the milestone method of revenue recognition.
The ASU provides guidance on defining a milestone under
ASC 605. This guidance states that an entity can make an
accounting policy election to recognize a payment that is
contingent upon the achievement of a substantive milestone in
its entirety in the period in which the milestone is achieved.
This guidance is effective for us as of January 1, 2011,
and is not expected to be material to our financial position or
results of operations.
64
Quantitative
and Qualitative Disclosures About Market Risks
We are exposed to market risk related to changes in interest
rates. As of December 31, 2009 and September 30, 2010,
we had cash, cash equivalents and short-term investments of
$23.9 million and $8.1 million, respectively,
consisting of money market funds, U.S. Treasuries,
Certificates of Deposit and cash equivalents. Our primary
exposure to market risk is interest rate sensitivity, which is
affected by changes in the general level of U.S. interest
rates, particularly because our investments are in short-term
marketable securities. Our short-term investments are subject to
interest rate risk and will fall in value if market interest
rates increase. Due to the short-term duration of our investment
portfolio and the low risk profile of our investments, an
immediate 10 percent change in interest rates would not
have a material effect on the fair market value of our
portfolio. We have the ability to hold our short-investments
until maturity, and therefore we would not expect our operations
results or cash flows to be affected by any significant degree
by the effect of a change in market interest rates on our
investments. We carry our investments based on publicly
available information. We do not currently have any hard to
value investment securities or securities for which a market is
not readily available or active.
We are not subject to significant credit risk as this risk does
not have the potential to materially impact the value of assets
and liabilities.
We contract with contract research organizations and
investigational sites globally. We may be subject to
fluctuations in foreign currency rates in connection with these
agreements. A 10 percent fluctuation in foreign currency
rates would not have a material impact on our financial
statements. We do not hedge our foreign currency exchange rate
risk.
Our credit facility with Mid-Cap and SVB, provides for interest
at fixed rates. As a result, we have limited exposure to
changes in interest rates.
65
BUSINESS
Overview
We are a biopharmaceutical company developing targeted therapies
for the treatment of cancer and inflammatory diseases. We use
our proprietary technology to create novel small molecule drug
conjugates, or SMDCs, and companion imaging diagnostics. Our
SMDCs actively target receptors that are over-expressed on
diseased cells, relative to healthy cells. This targeted
approach is designed to enable the treatment of patients with
highly active drugs at greater doses, delivered more frequently,
and over longer periods of time than would be possible with the
untargeted drug alone. We are also developing companion imaging
diagnostics for each of our SMDCs that are designed to identify
the patients whose disease over-expresses the target of the
therapy and who are therefore more likely to benefit from
treatment. This combination of an SMDC with its companion
imaging diagnostic is designed to personalize the treatment of
patients by delivering effective therapy, selectively to
diseased cells, in the patients most likely to benefit.
Our lead SMDC, EC145, targets the folate receptor, which is
frequently over-expressed on cancer cells. We have chosen
platinum-resistant ovarian cancer, or PROC, a highly
treatment-resistant disease, as our lead indication for
development of EC145 because of the high unmet need in treating
this patient population and the high percentage of ovarian
cancer patients whose tumors over-express the targeted folate
receptor. In the final progression free survival, or PFS,
analysis of PRECEDENT, our randomized phase 2 clinical trial in
women with PROC, EC145 increased PFS from a median of
11.7 weeks to a median of 21.7 weeks, representing an
85 percent improvement over standard therapy (p=0.031). We
studied a subset of patients in which 100 percent of their
target lesions over-expressed the folate receptor as determined
by an EC20 scan, patients which we refer to as EC20(++). We
treated these EC20(++) patients with a combination of EC145 and
PLD and observed a median PFS of 24.0 weeks compared to a
median of 6.6 weeks for patients receiving PLD alone, an
improvement of over 260 percent. The hazard ratio was 0.381
(p=0.018), or a reduction in the risk of progression of
61.9 percent. We anticipate beginning enrollment in
PROCEED, our phase 3 registration trial for EC145, in the first
half of 2011.
Our imaging studies with our lead companion imaging diagnostic,
EC20, and the analysis of tumor biopsies, have shown that the
folate receptor is also over-expressed in a broad range of other
solid tumors, including non-small cell lung, breast, colorectal,
kidney, endometrial and other cancers. In our phase 2 single-arm
clinical trial in heavily pre-treated non-small cell lung cancer
patients, we observed a disease control rate, or DCR, of
57 percent at the eight week assessment in patients whose
target tumors were all identified as over-expressing the folate
receptor. This compares to historical DCR for approved therapies
of 21 to 30 percent reported in studies of less heavily
pre-treated patients. In a subset of patients who had received
three or fewer prior therapies and whose target tumors were all
positive for the folate receptor, the DCR was 70 percent. We are
using companion imaging diagnostics that target the folate
receptor and other target receptors, including prostate-specific
membrane antigen, or PSMA, to guide future development of our
SMDCs in other oncology indications and inflammatory diseases.
We currently have no commercial products and we have not
received regulatory approval for, nor have we generated
commercial revenue from, any of our product candidates. Our net
loss for the years ended December 31, 2007, 2008, and 2009,
and for the nine months ended September 30, 2009 and 2010
was $13.7 million, $18.5 million, $17.0 million,
$11.4 million and $16.7 million, respectively. As of
September 30, 2010, we had a retained deficit of
$94.7 million.
66
Our
Technology Platform
Our technology platform has enabled us to develop multiple new
SMDCs for a range of disease indications. Each SMDC is comprised
of three modules: a targeting ligand, a linker and a drug
payload. Our companion imaging diagnostics employ the same
modular structure as our SMDCs replacing the drug payload with
an imaging agent.
Targeting Ligand. Our technology is founded
on our
high-affinity
small molecule ligands that bind to over-expressed receptors on
target cells, while largely avoiding healthy cells. We are
developing a number of targeting ligands to address a broad
range of cancers and inflammatory diseases.
Linker System. Our linker system attaches the
targeting ligand to the drug payload or imaging agent. It is
designed to be stable in the bloodstream, and to release the
active drug from the targeting ligand when the SMDC is taken up
by the diseased cell. The linker system can be customized for
each SMDC and each companion imaging diagnostic to improve its
pharmacologic properties.
Drug Payload. This module is the biologically
active component of our SMDCs. The majority of our drug payloads
are highly active molecules that are too toxic to be
administered in their untargeted forms at therapeutic dose
levels. We are using drug payloads in our SMDCs that were shown
in our in vitro preclinical studies to be between 10,000 and
100,000 times more potent than traditional cancer cell-killing
drugs such as cisplatin.
With our modular approach, we use a variety of different
targeting ligands, linker systems and drug payloads to create a
pipeline of novel SMDC candidates for clinical development. For
example, our PSMA targeting technology uses a targeting ligand
that specifically binds to a receptor over-expressed on the
surface of prostate cancer cells. We have developed alternative
linker systems that modulate the pharmacologic and
biodistribution properties of our SMDCs. In addition, we have
developed a linker system that allows us to conjugate multiple
drug payloads to a single targeting ligand, thus offering the
potential to simultaneously disrupt multiple pathways within
cancer cells, forming a novel strategy for addressing drug
resistance. We can also attach a wide variety of different drug
payloads to our targeting ligands to address different disease
indications. For example, we have SMDCs in preclinical
development which incorporate proven anti-cancer and
anti-inflammatory drug classes, such as microtubule
destabilizers, DNA alkylators, proteasome inhibitors and mTOR
inhibitors.
We own or have rights to 64 issued patents and 177 patent
applications worldwide covering our core technology, SMDCs and
companion imaging diagnostics. Our U.S. patent covering our
core technology and our lead SMDC, EC145, expires in 2026, and
our U.S. patents covering the EC145 companion imaging
diagnostic, EC20, expire in 2024.
Companion
Imaging Diagnostics
Our technology allows us to create companion imaging diagnostics
intended for use with each of our SMDCs. To create our companion
imaging diagnostics, we replace the drug payload of the SMDC
with an imaging agent that is easily seen with widely available
nuclear imaging equipment. Because the
67
targeting ligand found on the companion imaging diagnostic is
identical to that found on the therapeutic SMDC, our companion
imaging diagnostics allow us to obtain full-body real-time
images of tumors that over-express the target for that
particular SMDC. This is accomplished without requiring an
invasive tissue biopsy or reliance on archived tissue samples.
The information provided by our companion imaging diagnostics is
used throughout the development of every new SMDC. In both
preclinical and clinical trials, a companion imaging diagnostic
is used to validate targeting of our SMDC to specific tissues
and cells. These companion imaging diagnostics also allow for
the screening of large patient populations to select diseases
where a high percentage of the patient population have tumors or
diseased cells that over-express the molecular target. These
companion imaging diagnostics may also enable us to expand the
use of our SMDCs to cancer indications where the percentage of
patients who over-express a given receptor target of interest
may be relatively low. Upon regulatory approval, we believe
companion imaging diagnostics, such as EC20, will help to
identify patients who will most likely benefit from treatment
with our SMDCs. As a result, use of our companion imaging
diagnostics may broaden the commercial use of our SMDCs. In our
phase 2 single-arm and phase 2 randomized PRECEDENT
clinical trials with EC145, we have seen correlations between
favorable therapeutic outcomes and uptake of our companion
imaging diagnostic, which we believe supports this approach.
Lead
SMDC Candidate (EC145) and Advanced Clinical
Trials
Our lead SMDC candidate, EC145, consists of a highly cytotoxic
anti-cancer drug, DAVLBH, joined by a linker system to the
targeting ligand, folate. DAVLBH is a member of a class of
proven anti-cancer drugs that destabilize microtubules within
the cell, leading to cell death. As folate is required for cell
division, many rapidly dividing cancer cell types have been
found to over-express high-affinity folate receptors. In
clinical trials using our companion imaging diagnostic, EC20, we
found that ovarian,
non-small
cell lung, breast, colorectal, kidney, endometrial and other
cancers over-express folate receptors. EC145 binds to these
folate receptors on cancer cells with
high-affinity
and is internalized through a process known as endocytosis. Once
EC145 is inside the cell, the linker system is cleaved,
releasing the active drug payload within the cancer cell.
We have completed final PFS analysis for PRECEDENT, our
randomized phase 2 clinical trial of 149 women with PROC.
PRECEDENT is a randomized, controlled clinical trial in which
patients received EC145 in combination with pegylated liposomal
doxorubicin, or PLD, versus PLD alone. PLD is a current standard
of care for PROC and is marketed in the United States under the
brand name Doxil. The primary endpoint of the trial is
progression free survival, or PFS, which refers to the period of
time that begins when a patient enters the clinical trial and
ends when either the patient dies, or the patients cancer
has grown by a RECIST-specified percentage or has spread to a
new location in the body. RECIST refers to the response
evaluation criteria in solid tumors, a set of published rules
that define when the patients disease shrinks, remains
stable, or progresses. Historically, PROC has proven difficult
to treat, and no approved therapy has extended either PFS or
overall survival, or OS, in a randomized clinical trial. OS
refers to the period of time that begins when a patient enters
the clinical trial and ends when the patient dies.
At PRECEDENTs final PFS analysis of 149 patients and
95 PFS events, combination therapy with EC145 and PLD increased
median PFS by 85 percent over therapy with PLD alone. PFS
increased from a median of 11.7 weeks in the PLD control
arm to a median of 21.7 weeks in the EC145 and PLD
combination therapy arm (p=0.031). The hazard ratio was 0.626,
meaning patients receiving EC145 were
68
37.4 percent less likely to have died or have their cancer
progress compared to patients receiving only PLD.
Kaplan-Meier
curve for PFS in PRECEDENT
This observed improvement in PFS was provided in the context of
low additional toxicity over that seen in patients receiving PLD
alone. There was no statistically significant difference in
adverse events in the combination arm of the PRECEDENT trial
compared with the control arm (p=0.210). In addition, although
PRECEDENT is not powered to demonstrate an improvement in OS,
the analysis at the time of final PFS data suggests an early
positive trend in OS with 81 percent of patients treated with
EC145 and PLD alive at six months versus 72 percent of patients
alive at six months when treated with PLD alone. The OS data set
has a 66 percent censoring rate, includes only 50 events and is
not considered mature. We currently expect that we will receive
final OS data from the PRECEDENT trial by the first quarter of
2012.
The predictive power of our EC20 companion imaging diagnostic
was also evaluated in the PRECEDENT trial. In an analysis of
EC20(++) patients, an increased improvement in PFS was observed.
In this subgroup of 38 patients, PFS improved from a median of
6.6 weeks for patients receiving PLD alone to a median of 24.0
weeks for patients receiving the combination of EC145 and PLD,
an improvement of over 260 percent. The hazard ratio was 0.381
(p=0.018), or a reduction in the risk of progression of 61.9
percent.
We are planning to commence enrollment of our PROCEED phase 3
registration trial of EC145 for the treatment of women with PROC
in the first half of 2011. PROCEED shares the same fundamental
design characteristics of the PRECEDENT trial, except that it is
a double-blinded trial, it measures PFS based on radiological
progression alone without including clinical progression, and it
will be powered for an OS analysis with planned enrollment of
512 patients. The primary endpoint, 2 to 1 randomization,
dose and schedule are the same as those used in the PRECEDENT
trial. In contrast to PRECEDENT, the PLD control arm in PROCEED
will include a placebo in order to blind the study, which will
be dosed on the same schedule as EC145. As was the case with the
PRECEDENT trial, PROCEEDs primary endpoint is PFS.
Patients in the PROCEED trial will be imaged with EC20 prior to
treatment. In our clinical trials that incorporated EC20 to
date, we saw that approximately 80 percent of ovarian
cancer patients over-express the folate receptor. In contrast to
our phase 2 PRECEDENT trial, which enrolled both EC20(-),
EC20(+) and EC20(++) patients, we expect the phase 3 PROCEED
trial to exclude EC20(-) patients, a subset of
69
patients who received no benefit from EC145 in PRECEDENT.
PROCEED also includes co-primary PFS endpoints that give the
trial two opportunities for a positive result. The first
co-primary endpoint is for the full study population defined as
patients with at least one EC20 positive lesion, which includes
both EC20(+) and EC20(++) patients. The second co-primary
endpoint is based on the EC20(++) subgroup alone, patients who
have 100 percent positive lesions based on an EC20 scan.
PROCEED is powered to demonstrate a minimum 43 percent
improvement in median PFS and a hazard ratio of 0.70 in the
EC20(+) and EC20(++) patient population, which compares to a 225
percent improvement in median PFS and a hazard ratio 0.547
observed in PRECEDENT. PROCEED is also powered to demonstrate a
minimum 38 percent improvement in the secondary endpoint of
median OS.
The table below compares the design characteristics of the
PROCEED and PRECEDENT trials.
|
|
|
|
|
|
|
|
PRECEDENT
|
|
|
PROCEED
|
Number of Patients
|
|
149
|
|
|
512
|
|
|
|
|
|
|
Clinical Sites
|
|
65
|
|
|
120 to 150
|
|
|
|
|
|
|
Patient Population
|
|
Platinum-resistant ovarian cancer
|
|
|
|
|
|
|
Blinding
|
|
Open-label
|
|
|
Double-blinded
|
|
|
|
|
|
|
Treatment Arm
|
|
EC145 and PLD
|
|
|
|
|
|
|
Control Arm
|
|
PLD
|
|
|
PLD and Placebo
|
|
|
|
|
|
|
Primary Endpoint
|
|
PFS (radiologic and clinical)
|
|
|
PFS (radiologic only)
|
|
|
|
|
|
|
Powered for OS
|
|
No
|
|
|
Yes
|
|
|
|
|
|
|
EC145 Dose
|
|
2.5 mg intravenous, 3 times per week in weeks 1 and 3, on a
28 day cycle
|
|
|
|
|
|
|
PLD Dose
|
|
50 mg/m2
intravenous on day 1, on a 28 day cycle
|
|
|
|
|
|
|
EC20(++) and EC20(+) Hazard Ratio
|
|
0.547 (actual)
|
|
|
0.700
|
|
|
|
|
|
|
EC20(++) Hazard Ratio
|
|
0.381 (actual)
|
|
|
0.560
|
|
|
|
|
|
|
Cross-Over
|
|
Not allowed
|
|
|
|
|
|
|
EC20 Scan
|
|
Enrolled regardless of scan results
|
|
|
EC20(-) excluded
|
|
|
|
|
|
|
If PROCEED meets either primary endpoint with limited additional
toxicity over the PLD control arm, we intend to file a new drug
application, or NDA, for EC145 with the U.S. Food and Drug
Administration, or FDA, and to also seek approvals outside the
United States for use of EC145 in combination with PLD in
EC20(+) and EC20(++) patients with PROC or in EC20(++) patients
with PROC. The FDA has stated that PROCEED must provide evidence
of persuasive and robust statistically significant clinical
benefit. If we fail to demonstrate a benefit of this magnitude,
we would expect that the FDA would require us to conduct a
second phase 3 clinical trial in order to file an NDA and
receive marketing approval of EC145 for the treatment of PROC.
In addition, the results of PROCEED may not yield safety and
efficacy results sufficient to be approved by the FDA for
commercial sale.
Our second indication with EC145 is non-small cell lung cancer,
or NSCLC. Lung cancer is the leading cause of cancer-related
death worldwide and an area of high unmet medical need. Although
several therapies are commercially available for the treatment
of first and second line NSCLC, ultimately, in most patients the
therapy fails and their cancer grows. In our clinical trials
that incorporated EC20, approximately 80 percent of NSCLC
patients over-express the folate receptor. As a result, we
believe NSCLC is also an attractive indication for EC145
development. In a phase 2 single-arm trial in NSCLC patients who
had at least one tumor that over-expressed the folate receptor,
EC145 met the primary endpoint by demonstrating clinical
benefit. At the eight week assessment of the patients, the DCR
was 57 percent in the patients whose target tumors were all
identified as over-expressing the folate receptor. This compares
to historical DCRs ranging from 21 to 30 percent
reported in other trials of approved therapies in less heavily
pre-treated patients. In a subset of patients who had received
three or fewer prior therapies and whose target tumors were all
positive for the folate receptor, the DCR was 70 percent.
DCR is the percentage of patients with complete response,
partial response or stable disease, which has been shown to
correlate with OS in NSCLC.
70
We also evaluated OS in EC20(++) patients (n=14) compared to
patients in which at least one of the target lesions, but not
all, over-expressed the folate receptor, such patients we refer
to as EC20(+) (n=14). Median OS improved from 14.9 weeks
for EC20(+) patients to 47.2 weeks for EC20(++) patients.
The hazard ratio was 0.539, meaning EC20(++) patients were
46.1 percent less likely to die when compared to EC20(+)
patients when receiving EC145 (p=0.101). We plan to define the
development strategy for NSCLC in 2011 and will execute a trial
or trials as funding becomes available.
Inflammatory
Diseases
Beyond cancer, we have discovered that activated macrophages, a
type of white blood cell found at sites of acute and chronic
inflammation, also over-express the folate receptor. Activated
macrophages release a variety of mediators of inflammation that
contribute to a broad range of diseases, such as rheumatoid
arthritis, osteoarthritis, inflammatory bowel disease and
psoriasis. We have a number of SMDCs in preclinical development
for autoimmune diseases that are designed to inhibit the
production of pro-inflammatory cytokines by activated
macrophages.
Our
Strategy
Our strategy is to develop and commercialize SMDCs to treat
patients who suffer from a variety of cancers and inflammatory
diseases that are not well addressed by currently available
therapies. The critical components of our business strategy are
to:
|
|
|
|
|
Obtain marketing approval of our phase 3-ready SMDC,
EC145, for use in women with platinum-resistant ovarian
cancer. We plan to initiate a randomized,
controlled, double-blinded phase 3 registration trial, PROCEED,
in the first half of 2011 for the use of EC145 to treat women
with PROC. If successful, we plan to submit the results of the
PROCEED trial, supported by the results of our randomized phase
2 clinical trial, PRECEDENT, to the FDA as the basis for our
application for marketing approval.
|
|
|
|
|
|
Expand use of EC145 to other indications. We
would consider conducting additional trials to explore the
broader utility of EC145 for treating patients with other
ovarian cancer indications, such as front-line therapy in
combination with platinum-based and taxane-based therapies. We
are also developing EC145 for the treatment of NSCLC patients.
Folate receptors are over-expressed on a wide variety of tumors,
including in breast, colorectal, kidney, endometrial and other
cancers. We estimate, based on worldwide cancer incidence rates,
our own imaging studies and analysis of tumor biopsies that
there are over one million newly diagnosed cancer patients per
year in the United States, Europe and Japan whose tumors
over-express the folate receptor. We intend to use EC20 to
identify additional cancer indications for EC145 and to identify
individual patients within each cancer indication who may be
most suitable for treatment.
|
|
|
|
Build a pipeline of SMDCs by leveraging our technology
platform. We believe that the modular approach of
our technology platform will allow us to quickly and efficiently
expand our pipeline of SMDC candidates featuring various
combinations of our targeting ligands, linker systems and drug
payloads. We currently have four SMDCs and two companion imaging
diagnostics in clinical development.
|
|
|
|
Develop companion imaging diagnostics for each of our
therapies. We believe there is a significant
opportunity to create targeted therapies where individual
patients are selected based upon the use of non-invasive imaging
diagnostic tools. Our companion imaging diagnostics may lower
the risk of development of our SMDCs by allowing us to select
for our clinical trials only those patients whose disease
over-expresses the receptor targeted by our SMDCs. This benefit
|
71
|
|
|
|
|
may, upon regulatory approval, extend to clinical practice by
giving physicians the information they need to prescribe our
SMDCs to patients who are most likely to respond to our therapy.
|
|
|
|
|
|
Build commercial capabilities and partner to maximize the
value of our SMDCs. To date, we have retained all
worldwide commercial rights to our SMDCs. We intend to
commercialize our oncology SMDCs in the United States through
our own focused sales force that we would build in connection
with such commercialization efforts, or by co-promoting these
SMDCs in collaboration with one or more larger pharmaceutical
companies that have established capabilities in commercializing
cancer therapies. Outside of the United States, we currently
intend to partner with established international pharmaceutical
companies to maximize the value of our pipeline without the
substantial investment required to develop an independent sales
force in those geographies. In the large inflammatory disease
markets, we currently expect to out-license our SMDCs in order
to mitigate their higher costs of development and
commercialization.
|
Our Small
Molecule Drug Conjugate (SMDC) Technology
Traditional cytotoxic cancer chemotherapies kill rapidly
dividing cancer and normal cells in an indiscriminate manner,
leading to significant toxicity in patients. The need for
patients to recover from this toxicity can limit the ability to
deliver effectively-dosed cancer therapy. In addition, cancer
therapies for a given tumor type are generally selected based on
observations of efficacy and toxicity in that patient population
and not, in most cases, based on an understanding of the
differences between tumors on a molecular level. In response to
these limitations, a number of targeted therapies were developed
to be more selective, including monoclonal antibody-based
therapies. Due to their selectivity against certain cancers,
antibody therapies have achieved tremendous therapeutic and
financial success in recent years. According to Roche
Groups publicly available information, the three largest
cancer drugs in the world, Avastin, Herceptin and Rituxan, are
monoclonal antibodies, with collective U.S. sales of
$7.3 billion in 2009.
For certain cancers, antibodies alone are not sufficiently
effective to achieve meaningful clinical benefit. This
limitation has led to the development of a new class of agents
called antibody drug conjugates, or ADCs. ADCs are comprised of
a monoclonal antibody, which is used to target the specific
cancer, attached via a linker system to a cell-killing drug. In
clinical trials ADCs have enabled the targeted delivery of
highly active anti-cancer drugs, improving response rates in
several cancer indications, with generally less toxicity than
standard chemotherapy. However, ADCs also have limitations.
First, larger molecules, like ADCs, do not penetrate dense solid
tumors as efficiently as small molecules, and as a result, ADC
efficacy may be compromised due to limited accessibility to the
target cells. Second, the slow clearance of antibodies from a
patients bloodstream may lead to increased toxicity. The
longer half-life of ADCs has also limited the development of
antibody-based imaging diagnostics due to the poor image quality
associated with the high background noise caused by ADCs
remaining in a patients bloodstream. Third, ADCs are
biologic molecules that are costly and often complex to
manufacture.
We believe our SMDC platform represents a novel approach,
comparable to ADCs in its ability to deliver highly active drug
payloads in a targeted manner, but also with a number of
potential advantages:
|
|
|
|
|
Small size to better penetrate solid
tumors. We believe a key characteristic of our
SMDCs is their ability to penetrate deeply into dense solid
tumors. The targeting ligands for our SMDCs are approximately
300 times smaller in molecular weight than a typical antibody
incorporated in ADCs. This may result in greater uptake and
higher concentrations of these molecules within solid tumors.
|
|
|
|
Rapid clearance for reduced toxicity. The
circulating half-life of ADCs currently in development generally
range from several hours to several days. In contrast, our SMDCs
are engineered to
|
72
|
|
|
|
|
provide rapid uptake in targeted cells and rapid clearance from
the bloodstream with a half-life of approximately 20 minutes. As
a result of this shorter half-life, we believe there is reduced
risk that our SMDCs will release the unconjugated drug payload
into the blood stream. In our phase 1 trial of EC145, only four
of 410, or less than one percent, of the blood samples analyzed
had quantifiable levels of the unconjugated drug payload, and
all four of these positive samples had concentrations near the
lowest level of detection, and at a level where no significant
toxicity was found.
|
|
|
|
|
|
Companion imaging diagnostics for targeted
therapy. A companion imaging diagnostic can be
created for each of our SMDCs. Because of the modular nature of
our SMDC technology, the drug payload can be replaced with a
radioisotope imaging agent, such as technetium-99m, or
Tc-99m, that
we employ in EC20, to create a companion imaging diagnostic
designed to target the same diseased cells as the SMDC. The
companion imaging diagnostic is intended to allow for real-time,
full-body assessment of the receptor target without requiring an
invasive tissue biopsy. Using
full-body
imaging, the receptor expression can be measured in every tumor
and monitored throughout treatment. In our clinical trials that
combined EC145 with EC20, we have seen correlations between
favorable therapeutic outcomes and increased uptake of EC20.
|
|
|
|
Cost-effective and simple to
manufacture. Given the increasing pressure on drug
pricing posed by payors, costs of development and manufacturing
are increasingly important. Our SMDCs are relatively simple to
manufacture and do not have the complexity and expense of
biological molecules, like antibodies and ADCs.
|
SMDC
Pipeline
We have a pipeline of multiple SMDCs and companion imaging
diagnostics that are in varying stages of clinical and
preclinical development, all of which use our platform SMDC
targeting technology. A summary of our most advanced development
pipeline SMDCs and companion imaging diagnostics are as follows:
EC145:
Folate Receptor Targeted Therapy
EC145 is designed to deliver a highly cytotoxic drug payload
directly to folate receptors that are over-expressed on cancer
cells, with low toxicity to healthy cells. EC145 consists of a
targeting ligand,
73
folate, conjugated via a linker system to an anti-cancer drug
payload, DAVLBH. DAVLBH is derived from a proven class of
anti-cancer drugs and is a potent destabilizer of microtubules.
Since microtubules are critical for the separation of
chromosomes during cell division, disruption of this microtubule
system with DAVLBH promotes cell death.
Folate
Receptors in Cancer Cells
Folate is a nutrient required by all living cells, and it is
essential for cellular division. As depicted in the image below,
folate enters human cells via two distinct transport systems,
the reduced folate carrier pathway, or RFC, which has low
affinity for folate and the folate receptor pathway, which has
high-affinity for folate. The RFC is the predominant route by
which normal cells access folate circulating in the body. The
RFC is a transport protein that is expressed on virtually all
cells in the body. In contrast, rapidly dividing cancer cells
over-express the high-affinity folate receptor. The folate
receptor captures folate from outside the cell and transports it
inside by engulfing it within a vesicle called an endosome. Once
internalized, the folate receptor releases the folate and is
then recycled back to the cell surface where it resumes its
function of capturing circulating folates.
Cellular
Uptake of Folate
The folate receptor is not significantly expressed on most
normal tissues. Lung, brain, small intestine, kidney and
activated macrophages are the normal tissues known to express
the folate receptor. In the lung, brain and small intestine, the
folate receptor does not face the bloodstream, thus these folate
receptors are not accessible to our folate-targeted SMDCs. In
the kidney, the folate receptor functions as a salvage receptor
that captures folates and transports them back into the blood
stream to prevent folate deficiency. Although our SMDCs are also
shuttled from the urine back into the blood using this folate
receptor-based system, the linker system remains stable during
this re-absorptive process to prevent release of the drug
payload within the kidney. As a result, we have not observed any
SMDC-related
74
kidney toxicities throughout our preclinical or clinical trials.
Activated macrophages also express the folate receptor. SMDCs
like EC145 target folate receptor-expressing activated
macrophages; however, these types of cells are not rapidly
dividing, and as a result, anti-cancer drug payloads that
disrupt cellular division processes are inactive against this
cell type.
Elevated expression of the folate receptor occurs in several
cancer types, and may be associated with the more aggressive
growth characteristics of cancer cells as compared to normal
cells. We believe that cancer cells over-express the folate
receptor as a mechanism to capture additional folate to support
rapid cell growth. The graph below shows the percentage of
patients with different cancer types that are known to
over-express the folate receptor. We estimate, based on
worldwide cancer incidences combined with our own imaging
studies that there are over one million newly diagnosed cancer
patients per year in the United States, Europe and Japan whose
tumors over-express the folate receptor.
Folate Receptor Positive Cancers by Cancer Type
|
|
|
|
Source:
|
American Cancer Society and Endocyte estimates based upon
imaging studies and tissue biopsies.
|
EC145 takes advantage of the natural process of enhanced uptake
of folate by cancer cells via the folate receptor by linking an
active drug to a folate targeting ligand to create a
tumor-targeted SMDC. Following transit through the bloodstream
and entry into tumor tissue, EC145 binds to the
externally-oriented
folate receptor with high-affinity. Endocytosis of EC145 entraps
it within a vesicle. As shown in the image on the previous page,
drug payload release occurs within that vesicular compartment.
The other pathway for folate to be taken up into cells, the RFC,
is highly specific to folate but will not readily take up EC145
into the cell due to its molecular structure. As a result, EC145
is highly specific to cancer cells that over-express the folate
receptor compared with normal cells which express the RFC.
When tested preclinically as a single agent, EC145 therapy has
been observed to eliminate human tumors in mice across multiple
folate receptor positive tumor models, using regimens that
caused little to no observable toxicity. In the same models,
treatment at the maximum tolerated dose, or MTD, with the free
drug, DAVLBH, generated only modest or temporary tumor
responses, and always in association with substantial toxicity.
In addition, EC145 therapy caused no anti-tumor responses in
preclinical tumor models that did not express the folate
receptor, thus confirming the SMDCs specificity to the
target receptor.
75
EC145 has also been evaluated in preclinical models for activity
in combination with several approved chemotherapeutic agents.
For example, EC145 has shown significant anti-tumor responses in
animals when dosed in combination with approved drugs, such as
PLD, cisplatin, topotecan, bevacizumab and docetaxel. The
toxicity profile of EC145, particularly its lack of hematologic
toxicity, makes this SMDC a good potential candidate for
combination therapies.
If we are successful in obtaining regulatory approval for EC145
in second or third line therapies, we intend to explore
combinations with other drugs, several of which are frequently
used as first line therapies in a variety of tumors that
over-express the folate receptor. First line therapy refers to
initial cancer treatments, while second or third line therapies
refer to subsequent treatments following disease progression.
Ovarian
Cancer
Market
Opportunity
Ovarian cancer is a significant cause of patient morbidity, and
is the leading cause of gynecologic cancer mortality in the
United States. According to the American Cancer Society,
approximately 21,500 new cases of ovarian cancer were reported
in the United States in 2009. Of those ovarian cancer cases,
approximately 50 percent of patients will eventually
develop PROC. Mortality rates remain high, with nearly 15,000
deaths from ovarian cancer each year in the United States alone.
While the treatment of ovarian cancer depends on the stage of
the disease, the initial therapy almost always involves surgical
removal of the cancer from as many sites as possible followed by
platinum-based chemotherapy. For women with advanced ovarian
cancer who respond to initial platinum-based chemotherapy, most
will eventually experience recurrence or progression of their
cancer. Patients whose cancer recurs or progresses after
initially responding to surgery and primary chemotherapy can be
placed into one of two groups based on the time from completion
of platinum therapy to disease recurrence or progression,
referred to as the platinum-free interval:
|
|
|
|
|
Platinum-sensitive. Women with
platinum-sensitive ovarian cancer have a platinum-free interval
of greater than six months. Upon disease recurrence or
progression, these patients are believed to benefit from
additional exposure to platinum-based chemotherapy.
|
|
|
|
Platinum-resistant. Women with
platinum-resistant ovarian cancer have a platinum-free interval
of six months or less. These patients are much more resistant to
standard chemotherapy and will typically receive PLD or
topotecan or participate in a clinical trial. Overall response
rate measured by RECIST, or ORR, for these subsequent therapies
is in the range of 10 to 20 percent with median OS of
approximately 11 to 12 months.
|
There are currently only two approved therapies for women with
PROC, PLD and topotecan. In clinical trials, neither of these
drugs has demonstrated a statistically significant increase in
PFS or OS in this indication. The last drug approved in this
patient population was PLD, which was granted accelerated
approval in 1999 based on an ORR of 13.8 percent (n = 145).
The n represents the total patient population
utilized in the reported data. ORR refers to the sum of complete
and partial tumor responses seen, divided by the total number of
evaluated patients. More recently, phase 3 trials of
gemcitabine, trabectedin, patupilone and phenoxodiol have shown
no statistically significant benefit over PLD in terms of either
PFS or OS in women with PROC.
We have chosen PROC as our lead indication for EC145 because of
the large unmet need in treating this patient population, the
high levels of over-expression of the folate receptor in this
tumor type, the enhanced therapeutic effect EC145 had with PLD
in preclinical studies, and the acceptable clinical safety
profile seen to date with EC145, which may avoid increasing the
toxicities seen with PLD. We chose to
76
develop EC145 in conjunction with PLD because it is commonly
used as a second line therapy and has a better safety profile
than topotecan, the other approved second line therapy.
Phase 1
Clinical Trial
We completed a phase 1 safety and dose-finding trial in
32 patients designed to determine the MTD of EC145 in
patients with a variety of different solid tumors. In the trial,
we established a dose regimen of three times per week, every
other week, at 2.5 mg per day, which was the MTD. This dose
regimen showed preliminary signs of efficacy as a monotherapy in
heavily pre-treated late-stage cancer patients with a variety of
tumor types, including a partial tumor response and long-term
disease stabilization in ovarian cancer (n=2) and long-term
stabilization in other cancer types. This dose regimen was well
tolerated. Toxicities most commonly seen in the trial were
constipation, fatigue, nausea, vomiting, abdominal pain and
anemia, many of which are observed in late-stage cancer
patients. The primary dose-limiting toxicity for EC145 was a
significant but spontaneously reversible constipation/ileus
observed at doses above the MTD.
Phase 2
Single-Arm Clinical Trial
We have completed a phase 2 single-arm clinical trial designed
to evaluate the safety and efficacy of EC145 in women with
advanced epithelial ovarian, fallopian tube or primary
peritoneal cancer. The primary objectives were to collect data
on the clinical benefit of EC145 therapy, defined as the number
of patients who received six or more cycles of therapy, to
explore the safety of EC145 in this
drug-resistant
patient population, and to assess the degree to which patients
who had at least one tumor that over-expressed the targeted
folate receptor responded to therapy, thereby enabling us to
better identify a target population in which to conduct a
randomized clinical trial of EC145 in the future.
Prior to treatment with EC145, patients were scanned with EC20
to determine whether their tumors over-expressed the folate
receptor. In addition to standard eligibility criteria, patients
were required to have PROC or refractory ovarian cancer, meaning
disease that did not respond or progressed during the most
recent platinum-based chemotherapy, and at least a single
RECIST-measurable tumor. EC145 was administered as a bolus dose
three days per week, on weeks one and three of a four-week
cycle. Forty-nine women, with a median age of 62 years,
were enrolled into the trial. Participants had been heavily
pre-treated prior to participation in the trial, having received
a median of four prior chemotherapeutic regimens. All of these
patients had advanced disease and most had a heavy tumor burden.
Although the trial did not achieve the threshold for efficacy,
the effectiveness of EC145 was also evaluated based on DCR and
ORR. These analyses indicated that a subset of patients
exhibited evidence of anti-tumor effect such as tumor shrinkage
and disease stabilization, with low toxicity.
In the final analysis of the trial data the DCR for the
45 eligible patients was 42.2 percent with two women
achieving a partial response, and the ORR for the eligible
patients was 5 percent. An additional analysis established
that EC145 was more active in patients previously treated with
less than four therapies resulting in a DCR of 60.0 percent
and an ORR of 13.3 percent. Safety data indicated that
EC145 was very well tolerated, with no Grade 4
drug-related
toxicities. The most frequent Grade 3 drug-related toxicities
were fatigue in 8.2 percent of the patients and
constipation in 8.2 percent of the patients. In addition,
the safety data indicated that EC145 did not produce overlapping
toxicity with the existing second-line therapeutic agents used,
such as topotecan and PLD.
Each patient who was scanned with EC20 was given a score,
computed by dividing the number of positive tumors by the total
number of target tumors. For example, a patient with a total of
four target
77
tumors, two of which over-expressed the folate receptor, would
have a patient score of 50 percent. Patients were divided
into three groups based on their EC20 scores as follows:
|
|
|
|
|
the EC20(++) group was characterized as having 100 percent
of their tumors tested positive for the folate receptor;
|
|
|
|
the EC20(+) group score was 1 to 99 percent
positive or at least one, but not all of their tumors tested
positive for the folate receptor; and
|
|
|
|
the EC20(-) group score was 0 percent positive because none
of their tumors tested positive for the folate receptor.
|
Separate analyses were performed to assess the degree to which
EC20(++) and EC20(+) patients responded to therapy with EC145.
Of the 145 evaluable tumors, only tumors in EC20(++) and EC20(+)
patients treated with EC145 showed tumor shrinkage of greater
than 20 percent. No tumors of EC20(-) patients showed a
decrease of greater than 20 percent. These results were
statistically significant, indicating that EC20 uptake by tumors
correlates with response to EC145 treatment (p=0.0022).
The ORR and DCR were calculated for each of the three groups.
EC20(++) patients had the highest DCR, 57 percent, followed
by EC20(+) at 36 percent and EC20(-) patients at
33 percent. In a subgroup analysis of less heavily
pre-treated patients, those treated with three or fewer prior
regimens, the DCR for the EC20(++) group was 86 percent
versus 50 percent and zero percent in the EC20(+) and
EC20(-) groups, respectively. Similarly, the ORR in the EC20(++)
subgroup was the highest at 14 percent, while the ORR for
the EC20(+) subgroup and for the EC20(-) subgroup was
13 percent and zero percent, respectively. Results from
this trial indicate a potential correlation between EC20 binding
levels and anti-tumor response at the level of the individual
patient and the individual tumor.
Platinum
REsistant Ovarian Cancer Evaluation of
Doxil and EC145 CombiNation Therapy
(PRECEDENT): Randomized Phase 2 Clinical Trial in PROC
PRECEDENT is a multicenter, open-label, randomized phase 2
clinical trial of 149 patients comparing EC145 and PLD in
combination, versus PLD alone, in women with PROC. The trial
completed enrollment in June 2010 and final PFS analysis of the
data has been conducted.
We chose PFS as the primary endpoint of the trial as PFS is a
clinically meaningful endpoint in this patient population and
allows for a more rapid assessment of results than OS. PFS was
measured based upon investigator assessment using both
radiological measurements based on RECIST, as well as assessment
of clinical progression. Secondary endpoints include OS, ORR and
safety and tolerability of EC145 in combination with PLD. To
minimize the potential for bias and to ensure the integrity of
the OS measurement, cross-over was not allowed. In addition, the
trial explored the correlation between therapeutic response and
EC20 imaging results.
Eligible patients were randomized in a 2 to 1 ratio to either
the EC145 and PLD arm or to the PLD alone arm. PLD was selected
as the comparator because it is approved and widely used in PROC
and EC145 in combination with PLD was more effective than PLD
alone in our preclinical studies. Patients are dosed with EC145
three times per week every other week and PLD is administered
once every 28 days in both population arms, consistent with
the standard of care. All patients enrolled at clinical centers
with nuclear imaging capabilities were scanned with our
EC20 companion imaging diagnostic within 28 days prior
to the initiation of treatment (113 patients).
PRECEDENT is a multicenter trial involving 65 sites in the
United States, Canada and Poland. Patients were stratified based
upon their geographic location, primary versus secondary
platinum resistance and level of the tumor marker (CA-125). Most
of the demographics and disease characteristics were
well-balanced between the arms. There were two characteristics
slightly imbalanced in the arms of
78
the trial, both of which should have contributed to a poorer
prognosis for patients receiving the combination of EC145 and
PLD versus patients receiving PLD alone. Specifically, the
number of patients with hepatic and pulmonary metastases at
enrollment were greater in the combination arm
(38.0 percent) compared to the PLD alone arm
(22.4 percent). Also, the median cumulative length of tumor
at enrollment in the combination arm was 9.3 cm compared to 5.6
cm in the PLD alone arm.
A Data Safety Monitoring Board, or DSMB, monitored the trial and
conducted multiple safety reviews and a pre-specified interim
analysis. This interim analysis was prepared by an independent
biostatistician and reviewed by the DSMB on February 26,
2010. The DSMB recommendation was to continue the trial to full
accrual with no protocol modifications.
At PRECEDENTs final PFS analysis of 149 patients and
95 PFS events, we reported an 85 percent increase of median
PFS from 11.7 weeks in the PLD arm to 21.7 weeks in
the EC145 and PLD treatment arm (p=0.031). The hazard ratio was
0.626, meaning patients receiving EC145 were 37.4 percent
less likely to have died or have their cancer progress compared
to patients receiving only PLD. The median PFS seen in the
control arm was consistent with historical data in this disease
setting. This benefit in PFS was provided in the context of low
additional toxicity over the current standard of care. We
believe that EC145 and PLD is the first combination to show a
meaningful improvement in PFS over standard therapy for the
treatment of PROC.
Kaplan-Meier
curve for PFS in PRECEDENT
EC145s companion imaging diagnostic, EC20, was used to
correlate folate receptor over-expression with EC145 efficacy in
PROC. Patients in the PRECEDENT trial were imaged with EC20
prior to enrollment and target lesions were read to determine
whether patients where EC20(++), EC20(+) or EC20(-). In the
EC20(++) subgroup of 38 patients, patients whose target
lesions all over-expressed the folate receptor, PFS improved
from a median of 6.6 weeks for patients receiving PLD alone to a
median of 24.0 weeks for patients receiving the combination of
EC145 and PLD, an improvement of over 260 percent. The
hazard ratio was 0.381 (p=0.018) or a reduction in the risk of
progression of 61.9 percent. In addition, the data also
showed an early positive trend in OS, with 81 percent of
patients receiving the combination of EC145 and PLD alive at 6
months versus 72 percent of patients receiving PLD alone.
The OS data set has a 66 percent censoring rate, includes
only 50 events and is not considered mature. Final OS data for
PRECEDENT is expected by the first quarter of 2012.
79
Kaplan-Meier
curve for OS in PRECEDENT
We also examined other secondary endpoints, including ORR. The
ORR at the initial scan was 28.0 percent in the treatment
arm as compared to 16.3 percent in the control arm.
Consistent with RECIST, the protocol required
follow-up
scans at least four weeks later to confirm responses. The ORR at
the confirmatory scan was 18.0 percent in the treatment arm
as compared to 12.2 percent in the control arm.
At the final PFS analysis, the combination therapy was generally
well tolerated. The EC145 and PLD combination arm received a
62 percent greater cumulative dose of PLD because these
patients remained in the trial for a longer duration due to
improved PFS. Despite this higher cumulative dose of PLD in the
combination arm, total drug-related adverse events and serious
adverse events were similar between arms. Review of toxicity
data indicate that the number of patients reporting at least one
treatment-emergent drug-related serious adverse event resulting
in discontinuation from the trial was 2.8 percent (n=3) for
the EC145 and PLD combination arm vs. 4.0 percent (n=2) for
the PLD
single-agent
arm of the trial. No patient in either arm was known to have
died from drug-related adverse events while receiving treatment
or within 30 days of receiving treatment. Toxicity levels
in the combination arm are similar to historical levels of
toxicity experienced in patients receiving PLD as a single agent.
PRECEDENT
Trial Grade 3-4 Toxicities(1)
(At final PFS Analysis)
|
|
|
|
|
|
|
|
|
|
|
EC145 and PLD
|
|
|
PLD
|
|
Hematological
Toxicities
|
|
(n=107)
|
|
|
(n=50)
|
|
Neutropenia <
1,000/mm3
|
|
|
12.1
|
% (13)
|
|
|
4.0
|
% (2)
|
Febrile neutropenia
|
|
|
0.9
|
% (1)
|
|
|
2.0
|
% (1)
|
Anemia < 8 g/dL
|
|
|
6.5
|
% (7)
|
|
|
4.0
|
% (2)
|
Thrombocytopenia <
50,000/mm3
|
|
|
1.9
|
% (2)
|
|
|
2.0
|
% (1)
|
Leukopenia <
2,000/mm3
|
|
|
16.8
|
% (18)
|
|
|
4.0
|
% (2)
|
Lymphopenia <
500/mm3
|
|
|
17.8
|
% (19)
|
|
|
18.0
|
% (9)
|
80
|
|
|
|
|
|
|
|
|
|
|
EC145 and PLD
|
|
|
PLD
|
|
Non-Hematological
Toxicities
|
|
(n=107)
|
|
|
(n=50)
|
|
Stomatitis
|
|
|
5.6
|
% (6)
|
|
|
4.0
|
% (2)
|
PPE syndrome
|
|
|
11.2
|
% (12)
|
|
|
2.0
|
% (1)
|
|
|
|
(1) |
|
Hematological toxicities are based on lab values regardless of
causality. Non-hematological toxicities were drug-related
toxicities occurring in five percent or more of patients in at
least one arm of the trial. |
Trial for
Women With Platinum Resistant Ovarian
Cancer Evaluating EC145 in Combination with
Doxil (PROCEED): Phase 3 Clinical Trial for Approval of
EC145 in PROC
The PROCEED trial is designed to support the approval of EC145
in combination with PLD for the treatment of women with PROC.
PROCEED is a double-blinded, multicenter, international,
randomized phase 3 clinical trial in 512 patients at more
than 100 sites comparing EC145 and PLD to placebo and PLD in
women with PROC. We intend to initiate enrollment of the PROCEED
trial in the first half of 2011.
We designed our phase 3 registration trial following our end of
phase 2 meeting with the FDA held on May 24, 2010.
Fundamental design characteristics of the PROCEED trial closely
match those of the PRECEDENT trial. The primary endpoint, dose
and schedule, 2 to 1 randomization and no option for cross-over,
are the same as those used in the PRECEDENT trial. The only
significant design changes are that the phase 3 trial will
utilize a placebo in order to double-blind the investigators and
patients to which treatment arm they are on, the PFS endpoint
will be based only on radiologic assessments with no clinical
progression allowed, EC20(-) patients will be excluded, and the
trial is powered for OS as a secondary endpoint. In addition, we
expect to add additional countries to those used in the
PRECEDENT trial, which included the United States, Canada and
Poland.
In the PRECEDENT trial, the EC20(++) subgroup received the most
benefit from EC145 therapy, with a hazard ratio of 0.381
(p=0.018). Because this data indicates a strong correlation
between EC20(++) scans and EC145 efficacy, the phase 3 PROCEED
clinical trial will include co-primary PFS endpoints. The first
primary PFS analysis will be based on all patients enrolled in
the study, EC20(+) and EC20(++) patients, and if met would
support approval for EC145 in PROC for patients who have at
least one lesion that over-expresses the folate receptor or
based on EC20 scan results. The second primary PFS endpoint, or
co-primary endpoint, is based on the subset of patients that are
EC20(++) and would support approval of EC145 and EC20 in PROC
patients who are EC20(++). The co-primary design could allow for
approval on either endpoint. We believe this design provides the
greatest probability for approval and is consistent with the
FDAs critical path initiative to develop personalized
therapies. We intend to modify the PROCEED trial protocol to
incorporate this co-primary endpoint.
The final primary PFS analysis will be conducted after 334 PFS
events in the combined EC20(+) and EC20(++) patient population
and 167 PFS events in the EC20(++) patient population, which we
expect to occur by mid-2013, although the exact date will depend
on a number of factors, including the rate of enrollment. It is
estimated that 334 events will provide approximately
85 percent power to detect a 0.70 or lower hazard ratio in
the EC20(+) and EC20(++) patient population or approximately a
43 percent improvement in median PFS.
The PROCEED trial is powered for OS analysis as a secondary
endpoint. We believe that, in addition to the primary PFS
analysis, the interim OS results will be part of the FDA review
of our NDA for EC145 in women with PROC. We currently expect to
have final OS data in late 2015 or early 2016. At the time of
the final PFS analysis, PROCEED planned enrollment is
512 patients, which we estimate
81
will provide 85 percent power to detect a hazard ratio of
0.72 or lower or approximately a 38 percent improvement in
median OS.
The PROCEED trial is designed to meet the key elements that we
believe, based on our end of phase 2 meeting, will be
required by the FDA for approval of new drugs based on PFS in
this patient population:
|
|
|
|
|
Clinically meaningful improvement in PFS. The
trial is designed to show approximately a 43 percent
improvement in median PFS, which we believe is clinically
meaningful in this patient population, where there is a high
unmet medical need and no approved drug has demonstrated a
statistically significant improvement in median PFS or OS. Our
PRECEDENT randomized phase 2 clinical trial showed a
statistically significant PFS benefit that corresponds to
approximately an 85 percent improvement in median PFS.
|
|
|
|
|
|
Powered to evaluate OS. The trial is powered
to detect a 38 percent improvement in median OS. To ensure
the integrity of the OS measurement, we do not allow cross-over
between the trial arms.
|
|
|
|
|
|
Blinded radiologic assessment of PFS. The
trial will be double-blinded to minimize any occurrence of bias,
and the PFS analysis will be based only on radiologic
assessment. The trial will include a supportive PFS analysis
based on a centralized blinded independent review confirmed by a
centralized blinded independent review.
|
|
|
|
Favorable risk/benefit analysis. The final
results of the phase 2 trial indicated a significant and
clinically meaningful benefit in PFS, this was in the context of
manageable toxicity. There was no statistically significant
safety differences were seen between EC145 and PLD versus PLD
alone either in overall adverse events or serious adverse
events. We believe that in this area of high unmet medical need,
this is a favorable risk/benefit assessment, which we believe
can be repeated in PROCEED.
|
Non-Small
Cell Lung Cancer
Market
Opportunity
Lung cancer is the number one cause of cancer deaths worldwide.
According to the Surveillance Epidemiology and End Results
Program of the National Cancer Institute, in 2010, approximately
178,000 patients in the United States were diagnosed with
NSCLC and approximately 126,000 died of the disease. Although
numerous drugs are available for the treatment of NSCLC
patients, according to a study published in Lung Cancer in 2003,
the disease of more than 75 percent of patients progresses
in less than eight weeks following second line or third line
therapy. These findings underscore the need for continued
development of new therapeutics, especially for refractory and
progressive disease. In our clinical trials that incorporated
EC20 in approximately 60 patients, the tumors in
approximately 80 percent of advanced NSCLC patients
over-expressed the folate receptor. As a result, we have
investigated the use of EC145 for the treatment of NSCLC
patients in our phase 2 single-arm trial in this indication.
Clinical
Trials in NSCLC: Phase 2 Single-Arm Clinical Trial
We conducted a phase 2 single-arm trial of EC145 in
43 patients with NSCLC. Prior to treatment with EC145,
patients were scanned with EC20 to determine whether their
tumors over-expressed the folate receptor. Only EC20(++) and
EC20(+) patients were eligible for the trial. In addition to
standard eligibility criteria, patients were required to have a
diagnosis of adenocarcinoma of the lung and to have at least a
single RECIST-measurable tumor. There were no limits to the
maximum number of prior therapies allowed in this patient
population. EC145 was administered as a bolus dose of 1 mg
per day five days per week, every other week during induction,
followed by 2.5 mg per day, three days per week every other
week thereafter as maintenance. CT scans were performed every
eight weeks and adverse events were assessed using standard
criteria.
82
The trial gathered data on efficacy, including DCR and ORR, to
characterize the toxicity profile of EC145 in the target
population. The trial was also designed to assess whether EC20
tumor scans that were positive for the over-expression of the
folate receptor correlated with anti-tumor response. All
participants in the trial were EC20(++) and EC20(+). The trial
was conducted in a heavily pre-treated patient population, with
a median age of 62 and a median of three prior chemotherapeutic
regimens with a range of two to nine treatments. Additional
analysis confirmed that the group had large-volume disease with
a median cumulative tumor length of 7.9 cm. The trial met the
primary endpoint of clinical benefit, which was defined as more
than 20.0 percent of the patients completing four months of
therapy. Safety data for all 43 participants indicated that
EC145 was well tolerated, with no Grade 4 drug-related
toxicities. The most frequently observed drug-related Grade 3
toxicity was fatigue (4.7 percent).
At the eight week patient assessment, the disease control rate,
or DCR, was 57 percent in the patients who had all of their
target tumors identified as over-expressing the folate receptor.
This compares to DCRs for approved therapies of 21 to
30 percent reported in trials of less heavily
pre-treated
patients. In a subset of only EC20(++) patients who had received
three or fewer prior therapies, the DCR was 70 percent. DCR has
been shown to correlate with OS in NSCLC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Patients
|
|
|
EC20(++)
|
|
|
EC20(+)
|
|
|
EC145 (all patients)
|
|
|
34.5%
|
|
|
|
57.1
|
%
|
|
|
14.3
|
%
|
EC145 (three or fewer prior therapies)
|
|
|
42.9%
|
|
|
|
70.0
|
%
|
|
|
20.0
|
%
|
Historical benchmark (two or three prior therapies)
|
|
|
21% to 30%
|
|
|
|
|
|
|
|
|
|
We also evaluated OS in EC20(++) patients (n=14) compared to
EC20(+) patients (n=14). Median OS improved from 14.9 weeks
for EC20(+) patients to 47.2 weeks for EC20(++) patients. The
hazard ratio was 0.539, meaning EC20(++) patients were 46.1
percent less likely to die when compared to EC20(+) patients
when receiving EC145 (p=0.101).
NSCLC
Development Plan
Based on these results in the single-arm trial, we intend to
define the development strategy for NSCLC in 2011 and will
execute a trial or trials as funding becomes available. There
are a number of options for developing EC145 within the NSCLC
patient population, including single-agent therapy for the
treatment of refractory disease or in combination with current
therapies in first or second line. We have seen favorable
preclinical results with EC145 in combination with other NSCLC
therapies, such as docetaxel, a member of the taxane family, and
cisplatin. This planned phase 2 clinical trial will help guide
our future development efforts for EC145 in NSCLC.
EC20:
Lead Companion Imaging Diagnostic for Folate-Targeted
Therapies
We believe the future of medicine includes not only safer and
more effective drugs, but also the ability to identify the
appropriate therapy for a particular patient. We are committed
to this approach, which is commonly referred to as personalized
medicine or predictive medicine.
Because of the modular nature of our SMDC technology, the drug
payload can be replaced with a radioisotope imaging agent, such
as Tc-99m, which we employ in EC20, to create a companion
imaging diagnostic designed to target the same diseased cells as
the SMDC. The companion imaging diagnostic allows for real-time,
full-body assessment of the receptor target without requiring an
invasive tissue biopsy. Using full-body imaging, the receptor
expression can be measured in every tumor and monitored
throughout treatment. As described earlier, our PROC and NSCLC
clinical trials combining EC145 with its companion imaging
diagnostic have shown correlations between favorable therapeutic
outcomes and increased uptake of EC20.
83
EC20 is the companion imaging diagnostic for all of our SMDCs
that target the folate receptor. EC20 is a conjugate of the
targeting ligand folate and the radioisotope imaging agent
Tc-99m. Following intravenous administration, EC20 rapidly binds
to tumors that over-express the folate receptor, allowing the
treating physician to distinguish between patients who are
EC20(++), EC20(+) or EC20(-). EC20 enables high quality
diagnostic scans one to two hours following its administration
as a result of the quick clearance from the blood of EC20 not
taken up by cells which over-express the folate receptor.
Potential key advantages of EC20 over tissue-based samples
include:
|
|
|
|
|
minimally invasive (not requiring biopsy);
|
|
|
|
real-time assessment of tumor receptor expression (as opposed to
analysis based on archived tissue);
|
|
|
|
greater sensitivity because EC20 binds to all forms of the
folate receptor (tissue sample analysis may understate folate
receptor expression by not recognizing all forms of the folate
receptor);
|
|
|
|
greater specificity because EC20 distinguishes between those
receptors accessible to folate in the blood and those not
accessible (tissue sample analysis may overstate folate receptor
expression); and
|
|
|
|
full-body evaluation (as opposed to samples of tumor which may
or may not be indicative of all areas of disease).
|
EC20
Development Plan
EC20 is being developed under the FDAs published guidance
regarding usage of imaging agents for therapeutic management of
patients. Consistent with this guidance, our development
strategy for EC20 will be to show that the presence of EC20
uptake in tumors is predictive of improved therapeutic outcomes
resulting from treatment with EC145.
With an estimated incidence of over one million newly diagnosed
cancer patients in the United States, Europe and Japan who have
tumors that over-express the folate receptor, EC20 could, if
approved, represent a substantial commercial opportunity for us
as a screening diagnostic. Companion imaging diagnostics are an
important part of our development and commercial plan, which may
allow us not only to provide a targeted therapy, but also a
truly personalized and more effective therapy. This could
benefit patients, doctors and payors by allowing doctors to
select only patients who are likely to benefit from our
therapies.
We plan to file an NDA with the FDA for the separate approval of
EC20 for use in women with PROC. We intend to use the data
obtained from PROCEED for the basis of the filing of this NDA.
However, there can be no assurance the FDA will not require
additional clinical trials of EC20 prior to approval. We expect
to meet with the FDAs Division of Medical Imaging in early
2011 to discuss in detail our plans for EC20s approval
path.
Other
Pipeline Programs
Folate
Receptor Targeted Programs
EC0489 is a conjugate that utilizes the same targeting ligand,
folate, and the same drug payload, DAVLBH, as EC145, but it
includes an alternative linker system. This alternative linker
system yields a different biodistribution of the drug compared
to EC145, which may allow for higher dosage of drug payload.
EC0489 is currently in a phase 1 dose escalation trial
evaluating the safety of the drug in patients with solid cancer
tumors. To date, 31 patients have been treated with EC0489.
This trial will also allow us to evaluate the utility of our
alternative linker system technology and its potential for use
in the
84
construction of future SMDCs. Following the conclusion of the
phase 1 trial, we will evaluate future development options for
EC0489.
EC0225 is a conjugate of folate and two distinct and highly
active drugs, DAVLBH and
mitomycin-C.
DAVLBH is a microtubule destabilizer and mitomycin-C is a DNA
alkylator. These two drugs are attached to a single targeting
ligand and are brought into the targeted cancer cell via
endocytosis, at which point both drugs are concurrently
released. The anticipated advantage of using two drugs is that
the payload is doubled, which may increase the overall
anti-cancer activity of the SMDC. Attaching drugs with different
mechanisms of action may allow them to overcome drug resistance.
The drug payloads within EC0225 utilize distinct mechanisms of
action to kill target cancer cells, thus making this SMDC a
targeted combination therapy within a single drug. EC0225 is
currently being evaluated in an open-label phase 1 dose
escalation trial to assess its safety in patients with solid
tumors, and to determine the dose for future trials. To date,
66 patients have been treated with EC0225. Enrollment has
closed, and we expect final results by early 2011. Following the
conclusion of the phase 1 trial, we will evaluate future
development options for EC0225.
EC17 is a conjugate of folate and a hapten molecule. This SMDC
also utilizes our folate targeting ligand, but instead of
DAVLBH, EC17 incorporates hapten as the drug payload, and
delivers this drug payload to the tumor surface. When bound to
cancer cells, EC17 is designed to elicit an immunologic response
from the host immune system in order to facilitate tumor-cell
killing. We completed a phase 1 trial with EC17 during which the
drug was administered safely with a confirmed anti-hapten
antibody response and evidence of anti-tumor activity. We are
currently evaluating future development options for EC17.
EC0531 is a conjugate of folate and a drug payload of tubulysin,
a microtubule destabilizer that, in our in vitro models, showed
approximately 100,000 times more potency than cisplatin.
Tubulysin alone is too toxic to be used in patients rendering it
impractical for therapeutic use. In contrast, our folate
receptor-targeted tubulysin SMDC, EC0531, is curative in
multiple xenograft models under conditions that produce no
observable toxicities. Following the conclusion of our
preclinical studies we will evaluate future development options
for EC0531.
Prostate
Specific Membrane Antigen Targeting Programs
Leveraging our ligand and linker system expertise that we have
obtained from our folate SMDC programs, we recently introduced
into clinical trials EC0652, a companion imaging diagnostic for
a new class of SMDCs whose targeting ligand binds to PSMA. PSMA
is a receptor target that is predominantly over-expressed on
prostate cancer cells.
EC0652 is a conjugate of a proprietary PSMA targeting ligand and
the imaging agent Tc-99m. EC0652 is used to support SMDCs that
target PSMA. In preclinical studies, EC0652 was found to
specifically bind to PSMA-expressing tumor cells and it allowed
for the non-invasive, real-time assessment of functionally
active and drug-accessible PSMA-expressing tumor cells. EC0652
is currently in early clinical trials to validate specificity
and biodistribution of the targeting ligand. In addition, we are
currently evaluating EC1069, an SMDC for prostate cancer therapy
based on the PSMA targeting ligand.
Inflammatory
Disease Programs
During the clinical development of EC20, it was discovered that
patients with active inflammatory conditions, such as arthritic
knees, displayed areas of EC20 uptake in non-cancerous regions
of the body. Based on this observation, we began to test
preclinical models of rheumatoid arthritis and discovered that
activated, but not resting, macrophages present within the
inflamed joints over-expressed the folate
85
receptor. Activated macrophages are a type of white blood cell
involved in a variety of inflammatory diseases, and they are
responsible for the release of pro-inflammatory molecules, such
as tumor necrosis factor alpha, or TNF-alpha as well as other
cytokines, into the body. Commercially available drugs such as
etanercept and adalimumab, both designed to neutralize TNF-alpha
biological activity, have proven to be effective for the
treatment of a variety of inflammatory diseases. In 2009, these
products generated $9.0 billion in annual sales according
to Amgens and Abbott Laboratories publicly available
filings. Although effective in some patients, other patients may
fail to respond to these costly biological products because the
activated macrophages secrete a variety of pro-inflammatory
agents, in addition to TNF-alpha, into the systemic circulation,
which results in continuing inflammation, causing a decreased
therapeutic effect.
Our strategy for treating chronic inflammatory disorders differs
from these available drugs that neutralize specific secreted
factors such as TNF-alpha because our technology targets the
folate receptor over-expressed on activated macrophages, which
we believe are the source of pro-inflammatory agents, like
TNF-alpha. We are developing a new class of SMDCs designed to
neutralize, or de-activate, the activated macrophage itself.
Preclinical data suggests that our SMDC candidates may suppress
the secretion of all mediators of inflammation. Our oncology
class of SMDCs, such as EC145, will target folate
receptor-expressing activated macrophages; however, these types
of cells are not rapidly dividing, and as a result, anti-cancer
drug payloads that would otherwise disrupt cellular division
processes are inactive against this cell type.
Utilizing an identical strategy to that we applied in the
development of our oncology programs, SMDCs designed for
treating inflammation may be constructed with more potent forms
of known, active drugs, and then used along with companion
imaging diagnostics to provide personalized therapy. Using our
folate receptor-targeted EC20 companion imaging diagnostic
in both preclinical and clinical trials, we have identified a
number of diseases involving activated macrophages that
over-express the folate receptor, including rheumatoid
arthritis, osteoarthritis, inflammatory bowel disease and
psoriasis.
In our preclinical models of rheumatoid arthritis, SMDCs
targeted to activated macrophages result in significant
reduction in inflammation and prevention of bone destruction
that often accompanies these diseases. For example, EC0746 is an
SMDC constructed with the targeting ligand, folate, and an
inhibitor of cellular metabolism, called aminopterin. We
observed in preclinical models that EC0746 was safe and reduced
inflammation more than the most commonly prescribed
anti-inflammatory agent, methotrexate, and the anti-TNF-alpha
agent, etanercept.
Competition
The biotechnology and pharmaceutical industries are highly
competitive. There are many pharmaceutical companies,
biotechnology companies, public and private universities and
research organizations actively engaged in the research and
development of products that may be similar to our SMDCs. A
number of multinational pharmaceutical companies and large
biotechnology companies are pursuing the development of or are
currently marketing pharmaceuticals that target ovarian cancer
and NSCLC, or other oncology pathways on which we are focusing.
It is possible that the number of companies seeking to develop
products and therapies for the treatment of unmet needs in
oncology will increase.
Many of our competitors, either alone or with their strategic
partners, have substantially greater financial, technical and
human resources than we do and significantly greater experience
in the discovery and development of drugs, obtaining FDA and
other regulatory approvals of products and the commercialization
of those products. Accordingly, our competitors may be more
successful than we may be in obtaining approval for drugs and
achieving widespread market acceptance. Our competitors
drugs may be more effective, or more effectively marketed and
sold, than any drug we may commercialize and may render our
product candidates obsolete or non-competitive before we can
recover the expenses of
86
developing and commercializing any of our product candidates. We
anticipate that we will face intense and increasing competition
as new drugs enter the market and advanced technologies become
available.
Recent successes with targeted therapies in solid tumors, such
as those found in colon, breast and lung cancers, have led to a
marked increase in research and development in targeted
treatments for cancer, including cancer of the ovary. We are
aware of a number of companies that have ongoing programs to
develop both small molecules and biologics to treat patients
with ovarian cancer. Roche Holdings is currently testing
bevacizumab in women with ovarian cancer, including a phase 3
clinical trial in women with PROC. Eisai Company is conducting
advanced stage clinical trials of farletuzumab, a folate
receptor targeted antibody, in women with PROC and
platinum-sensitive disease. Nektar Therapeutics, using its
conjugate technology, is developing NKTR-102 for use in patients
with solid tumor malignancies, including PROC, colorectal,
breast and cervical cancers. Sunesis Pharmaceuticals is
conducting a phase 2 single-arm trial of voreloxin, an
anti-cancer quinolone derivative, in a number of patient
populations, including PROC. Sanofi-Aventis is conducting a
phase 2 single-arm trial of their drug BSI-201, a PARP inhibitor
currently in a number of patient populations, including ovarian
cancer. Eli Lilly is conducting a phase 2 single-arm trial of
their drug LY573636.
We believe that our ability to successfully compete will depend
on, among other things:
|
|
|
|
|
our ability to design and successfully execute appropriate
clinical trials;
|
|
|
|
our ability to recruit and enroll patients for our clinical
trials;
|
|
|
|
the results of our clinical trials and the efficacy and safety
of our SMDCs and companion imaging diagnostics;
|
|
|
|
the cost of treatment in relation to alternative therapies;
|
|
|
|
the speed at which we develop our SMDCs and companion imaging
diagnostics;
|
|
|
|
achieving and maintaining compliance with regulatory
requirements applicable to our business;
|
|
|
|
the timing and scope of regulatory approvals, including labeling;
|
|
|
|
adequate levels of reimbursement under private and governmental
health insurance plans, including Medicare;
|
|
|
|
our ability to protect intellectual property rights related to
our SMDCs and companion imaging diagnostics;
|
|
|
|
our ability to commercialize and market any of our products that
may receive regulatory approval;
|
|
|
|
our ability to have our partners manufacture and sell commercial
quantities of any approved SMDCs and companion imaging
diagnostics to the market; and
|
|
|
|
acceptance of SMDCs and companion imaging diagnostics by
physicians, other healthcare providers and patients.
|
In addition, the biopharmaceutical industry is characterized by
rapid technological change. Our future will depend in large part
on our ability to maintain a competitive position with respect
to these technologies. Our competitors may render our
technologies obsolete by advances in existing technological
approaches or the development of new or different approaches,
potentially eliminating the advantages in our drug discovery
process that we believe we derive from our research approach and
proprietary technologies. Also, because our research approach
integrates many technologies, it may be difficult for us to stay
abreast of the rapid changes in each technology. If we fail to
stay at the forefront of technological change, we may be unable
to compete effectively. Technological advances or products
developed by our competitors may render our SMDCs or companion
imaging diagnostics obsolete or less competitive.
87
Manufacturing
To date, our SMDCs and companion imaging diagnostics have been
manufactured in small quantities for preclinical studies and
clinical trials by third-party manufacturers and we intend to
continue do so in the future. We do not own or operate
manufacturing facilities for the production of clinical or
commercial quantities of our SMDC candidates. We currently have
no plans to build our own clinical or commercial scale
manufacturing capabilities. To meet our projected needs for
commercial manufacturing, third parties with whom we currently
work will need to increase their scale of production or we will
need to secure alternate suppliers. While individual contract
manufacturers have demonstrated the capability to produce
quantities of our SMDCs sufficient to support our ongoing
clinical trials for EC145 and other SMDCs, we continue to engage
alternative suppliers to provide supply in the event of a
failure to meet demand on the part of a single contract
manufacturer. In addition, the linker system for EC145 is
currently obtained from a single source supplier, AmbioPharm,
and should that source be interrupted, we may be delayed in
obtaining alternative supply and as a result, our manufacturing
of EC145 could be disrupted. Otherwise, we believe that we
currently have, or can access, sufficient supplies of all of the
key components of EC145 and to manufacture EC145 to conduct and
complete our planned phase 3 clinical trial for EC145. There are
several manufacturers we are aware of that have the capacity to
manufacture EC145 in the quantities that our development and
future commercialization efforts, if any, may require. We have
utilized two such suppliers to date. We expect to continue to
depend on third-party contract manufacturers for the foreseeable
future.
Our SMDCs and companion imaging diagnostics require precise,
high quality manufacturing. Failure by our contract
manufacturers to achieve and maintain high manufacturing
standards could result in patient injury or death, product
recalls or withdrawals, delays or failures in testing or
delivery, cost overruns, or other problems that could seriously
harm our business.
As a result of the potency of our compounds, we do not expect
the quantities required at full commercial scale to present a
challenge to our third-party manufacturing partners. Although we
rely on contract manufacturers, we have personnel with extensive
manufacturing experience to oversee the relationships with our
contract manufacturers.
Sales and
Marketing
Our operations to date have been limited to organizing and
staffing our company, acquiring, developing and securing our
technology, undertaking preclinical testing and studies of our
SMDCs and companion imaging diagnostics and engaging in research
and development under collaboration agreements. We have not yet
demonstrated an ability to obtain regulatory approval, formulate
and manufacture commercial-scale products, or conduct sales and
marketing activities necessary for successful product
commercialization. Consequently, it is difficult to predict our
future success and the viability of any commercial programs that
we may choose to take forward.
Subject to successful completion of our PROCEED clinical trial
for EC145 and FDA approval of EC145 for women with PROC, it is
our objective to establish EC145 in combination with PLD as the
therapy of choice for PROC patients. If EC145 is approved by the
FDA, we intend to build the commercial infrastructure sufficient
to market and sell EC145 and EC20 in the United States. This
infrastructure is expected to include a specialty sales force of
approximately 50 to 75 representatives, sales management, sales
and distribution support staff and internal marketing staff.
Following approval, but in advance of distribution, we expect to
make a significant investment in marketing efforts to support
the successful launch of EC145.
Outside of the United States, we may choose to utilize strategic
partners or contract sales organizations to support the sales,
marketing and distribution of EC145 and other approved SMDCs.
88
Facilities
Our offices are located in two primary leased facilities, a
14,000 square foot facility in West Lafayette, Indiana in
the Purdue University Research Park and a 4,400 square foot
corporate office space in Indianapolis, Indiana. The West
Lafayette facility includes both administrative and research
laboratory space. We believe we will be able to renew the lease
on the West Lafayette facility upon the expiration of the
current lease agreement in March 2011. The Indianapolis offices
are used exclusively for corporate and administrative functions.
The lease for this facility expires in November 2015. We also
occupy space of less than 1,000 square feet in a second
location in West Lafayette utilized primarily for research and
development. We believe we will be able to renew the leases on
this space or secure an alternative suitable facility upon the
expiration of the current lease agreements for this facility in
April 2011 for a portion of the space and October 2011 for the
balance of the space. We believe the existing facilities are
sufficient to meet our current and near-term needs.
Employees
As of September 30, 2010, we had a total of
54 full-time employees, of whom 47 were engaged in research
and development activities. None of our employees is represented
by a labor union or subject to a collective bargaining
agreement. We have not experienced a work stoppage and consider
our relations with our employees to be good.
Government
Regulation
Government authorities in the United States (including federal,
state and local authorities) and in other countries, extensively
regulate, among other things, the manufacturing, research and
clinical development, marketing, labeling and packaging,
distribution, post-approval monitoring and reporting,
advertising and promotion, and export and import of
pharmaceutical products, such as those we are developing. The
process of obtaining regulatory approvals and the subsequent
compliance with appropriate federal, state, local and foreign
statutes and regulations require the expenditure of substantial
time and financial resources.
United
States Government Regulation
In the United States, the FDA regulates drugs under the Federal
Food, Drug, and Cosmetic Act, or FDCA, and related regulations.
Drugs are also subject to other federal, state and local
statutes and regulations. Failure to comply with the applicable
U.S. regulatory requirements at any time during the product
development process, approval process or after approval may
subject an applicant to administrative or judicial sanctions.
These sanctions could include the imposition by the FDA or an
Institutional Review Board, or IRB, of a clinical hold on
trials, the FDAs refusal to approve pending applications
or supplements, withdrawal of an approval, warning letters,
product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, civil
penalties or criminal prosecution. Any agency or judicial
enforcement action could have a material adverse effect on us.
The
Investigational New Drug Process
An Investigational New Drug application, or an IND, is a request
for authorization from the FDA to administer an investigational
drug to humans. Such authorization must be secured before
commencing clinical trials of any new drug candidate in humans.
The central focus of the initial IND submission is on the
general investigational plan and the protocol(s) for human
studies. The IND also includes results of animal studies or
other human studies, as appropriate, as well as manufacturing
information, analytical data and any available clinical data or
89
literature to support the use of the investigational new drug.
An IND must become effective before human clinical trials may
begin. An IND will automatically become effective 30 days
after receipt by the FDA, unless before that time the FDA raises
concerns or questions related to the proposed clinical trials as
outlined in the IND. In such a case, the IND may be placed on
clinical hold until any outstanding concerns or questions are
resolved.
Clinical trials involve the administration of the
investigational drug to patients under the supervision of
qualified investigators in accordance with Good Clinical
Practices, or GCPs. Clinical trials are conducted under
protocols detailing, among other things, the objectives of the
trial, the parameters to be used in monitoring safety and the
efficacy criteria to be evaluated. A protocol for each clinical
trial and any subsequent protocol amendments must be submitted
to the FDA as part of the IND. Additionally, approval must also
be obtained from each clinical sites IRB before the trials
may be initiated. All participants in clinical trials must
provide their informed consent in writing prior to their
enrollment in the trial.
The clinical investigation of an investigational drug is
generally divided into three phases. Although the phases are
usually conducted sequentially, they may overlap or be combined.
The three phases of an investigation are as follows:
|
|
|
|
|
Phase 1. Phase 1 involves the initial
introduction of an investigational new drug into humans. Phase 1
clinical trials are typically closely monitored and may be
conducted in patients with the target disease or condition or
healthy volunteers. These studies are designed to evaluate the
safety, dosage tolerance, metabolism and pharmacologic actions
of the investigational drug in humans, the side effects
associated with increasing doses, and if possible, to gain early
evidence on effectiveness. During phase 1 clinical trials,
sufficient information about the investigational drugs
pharmacokinetics and pharmacologic effects may be obtained to
permit the design of
well-controlled
and scientifically valid phase 2 clinical trials. The total
number of participants included in phase 1 clinical trials
varies, but generally ranges from 20 to 80.
|
|
|
|
Phase 2. Phase 2 includes the controlled
clinical trials conducted to preliminarily or further evaluate
the effectiveness of the investigational drug for a particular
indication in patients with the disease or condition under
study, to determine dosage tolerance and optimal dosage, and to
identify possible adverse side effects and safety risks
associated with the drug. Phase 2 clinical trials are typically
well controlled, closely monitored and conducted in a limited
patient population, usually involving no more than several
hundred participants.
|
|
|
|
Phase 3. Phase 3 clinical trials are
generally controlled clinical trials conducted in an expanded
patient population generally at geographically dispersed
clinical trial sites. They are performed after preliminary
evidence suggesting effectiveness of the drug has been obtained,
and are intended to further evaluate dosage, effectiveness and
safety, to establish the overall benefit-risk relationship of
the investigational drug, and to provide an adequate basis for
product approval by the FDA. Phase 3 clinical trials usually
involve several hundred to several thousand participants.
|
The decision to terminate development of an investigational drug
may be made by either a health authority body such as the FDA,
or by us for various reasons. Additionally, some trials are
overseen by an independent group of qualified experts organized
by the trial sponsor, known as a data safety monitoring board or
committee. This group provides a recommendation of whether or
not a trial may move forward at pre-specified check points based
on access that only the group maintains to available data from
the trial. Suspension or termination of development during any
phase of clinical trials can occur if it is determined that the
participants or patients are being exposed to an unacceptable
health risk. We may decide to suspend or terminate development
based on evolving business objectives
and/or
competitive climate.
90
In addition, there are requirements and industry guidelines to
require the posting of ongoing clinical trials on public
registries and the disclosure of designated clinical trial
results and related payments to healthcare professionals.
Assuming successful completion of all required testing in
accordance with all applicable regulatory requirements, detailed
investigational drug information is submitted to the FDA in the
form of a New Drug Application, or NDA, except under limited
circumstances, requesting approval to market the product for one
or more indications.
The NDA
Approval Process
In order to obtain approval to market a drug in the United
States, a marketing application must be submitted to the FDA
that provides data establishing the safety and effectiveness of
the investigational drug for the proposed indication to the
FDAs satisfaction. The application includes all relevant
data available from pertinent preclinical and clinical trials,
including negative or ambiguous results as well as positive
findings, together with detailed information relating to the
products chemistry, manufacturing, controls and proposed
labeling, among other things. Data can come from
company-sponsored clinical trials intended to test the safety
and effectiveness of a use of a product, or from a number of
alternative sources, including studies initiated by
investigators.
The FDA will initially review the NDA for completeness before it
accepts the NDA for filing. The FDA has 60 days from its
receipt of an NDA to determine whether the application will be
accepted for filing based on the agencys threshold
determination that it is sufficiently complete to permit
substantive review. After the NDA submission is accepted for
filing, the FDA reviews the NDA to determine, among other
things, whether the proposed product is safe and effective for
its intended use, and whether the product is being manufactured
in accordance with cGMP to assure and preserve the
products identity, strength, quality and purity. The FDA
may refer applications for novel drug products or drug products
which present difficult questions of safety or efficacy to an
advisory committee, typically a panel that includes clinicians
and other experts, for review, evaluation and a recommendation
as to whether the application should be approved and under what
conditions. The FDA is not bound by the recommendations of an
advisory committee, but it considers such recommendations
carefully when making decisions.
Based on phase 3 clinical trial results submitted in an NDA,
upon the request of an applicant a priority review designation
may be granted to a product by the FDA, which sets the target
date for FDA action on the application at six months.
Priority review is given where preliminary estimates indicate
that a product, if approved, has the potential to provide a safe
and effective therapy where no satisfactory alternative therapy
exists, or a significant improvement compared to marketed
products is possible. If criteria are not met for priority
review, the standard FDA review period is ten months.
Priority review designation does not change the
scientific/medical standard for approval or the quality of
evidence necessary to support approval.
Before approving an NDA, the FDA will inspect the facilities at
which the product is manufactured. The FDA will not approve the
product unless it determines that the manufacturing processes
and facilities are in compliance with cGMP requirements and
adequate to assure consistent production of the product within
required specifications. Additionally, before approving an NDA,
the FDA will typically inspect one or more clinical sites to
assure compliance with GCP. If the FDA determines the
application, manufacturing process or manufacturing facilities
are not acceptable, it will outline the deficiencies in the
submission and often will request additional testing or
information. Notwithstanding the submission of any requested
additional information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for
approval.
91
The testing and approval process for a drug requires substantial
time, effort and financial resources and this process may take
several years to complete. Data obtained from clinical
activities are not always conclusive and may be susceptible to
varying interpretations, which could delay, limit or prevent
regulatory approval. The FDA may not grant approval on a timely
basis, or at all. We may encounter difficulties or unanticipated
costs in our efforts to develop our SMDCs or companion imaging
diagnostics and secure necessary governmental approvals, which
could delay or preclude us from marketing our products. Even if
the FDA approves an SMDC or companion imaging diagnostic, it may
limit the approved indications for use or place other conditions
on approval that could restrict commercial application, such as
a requirement that we implement special risk management measures
through a Risk Evaluation and Mitigation Strategy. After
approval, some types of changes to the approved product, such as
adding new indications, manufacturing changes and additional
labeling claims, are subject to further testing requirements and
FDA review and approval.
Post-Approval
Regulation
After regulatory approval of a drug product is obtained, we are
required to comply with a number of post-approval requirements.
For example, as a condition of approval of an NDA, the FDA may
require post-marketing testing, including phase 4 clinical
trials, and surveillance to further assess and monitor the
products safety and effectiveness after commercialization.
Regulatory approval of oncology products often requires that
patients in clinical trials be followed for long periods to
determine the OS benefit of the drug. The FDA has indicated to
us that if we receive approval of EC145 for treatment of PROC
based on PFS data from the PROCEED trial, we will be required to
continue to follow patients in that trial to determine the OS
benefit of the drug. In addition, as a holder of an approved
NDA, we would be required to report, among other things, certain
adverse reactions and production problems to the FDA, to provide
updated safety and efficacy information, and to comply with
requirements concerning advertising and promotional labeling for
any of our products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval to
assure and preserve the long-term stability of the drug product.
The FDA periodically inspects manufacturing facilities to assess
compliance with cGMP, which imposes extensive procedural,
substantive and record-keeping requirements. In addition,
changes to the manufacturing process are strictly regulated,
and, depending on the significance of the change, may require
FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP
and impose reporting and documentation requirements upon us and
any third-party manufacturers that we may decide to use.
Accordingly, manufacturers must continue to expend time, money
and effort in the area of production and quality control to
maintain compliance with cGMP and other aspects of regulatory
compliance.
We rely, and expect to continue to rely, on third parties for
the production of clinical and commercial quantities of our
SMDCs. Future FDA and state inspections may identify compliance
issues at our facilities or at the facilities of our contract
manufacturers that may disrupt production or distribution, or
require substantial resources to correct. In addition, discovery
of previously unknown problems with a product or the failure to
comply with applicable requirements may result in restrictions
on a product, manufacturer or holder of an approved NDA,
including withdrawal or recall of the product from the market or
other voluntary, FDA-initiated or judicial action that could
delay or prohibit further marketing. Newly discovered or
developed safety or effectiveness data may require changes to a
products approved labeling, including the addition of new
warnings and contraindications, and also may require the
implementation of other risk management measures. Also, new
government requirements, including those resulting from new
legislation, may be established, or the FDAs policies may
change, which could delay or prevent regulatory approval of our
products under development.
92
Europe/Rest
of World Government Regulation
In addition to regulations in the United States, we will be
subject, either directly or through our distribution partners,
to a variety of regulations in other jurisdictions governing,
among other things, clinical trials and any commercial sales and
distribution of our products.
Whether or not we obtain FDA approval for a product, we must
obtain the requisite approvals from regulatory authorities in
foreign countries prior to the commencement of clinical trials
or marketing of the product in those countries. Certain
countries outside of the United States have a process that
requires the submission of a clinical trial application much
like the IND prior to the commencement of human clinical trials.
In Europe, for example, a clinical trial application, or CTA,
must be submitted to each countrys national health
authority and an independent ethics committee, much like the FDA
and IRB, respectively. Once the CTA is approved in accordance
with a countrys requirements, clinical trial development
may proceed.
The requirements and process governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary from
country to country. In all cases, the clinical trials are
conducted in accordance with GCP and other applicable regulatory
requirements.
To obtain regulatory approval of an investigational drug under
European Union regulatory systems, we must submit a marketing
authorization application. This application is similar to the
NDA in the United States, with the exception of, among other
things, country-specific document requirements. Medicines can be
authorized in the European Union by using either the centralized
authorization procedure or national authorization procedures,
and our SMDCs and companion imaging diagnostics would fall under
the centralized authorization procedure.
The European Medicines Agency, or EMA, implemented the
centralized procedure for the approval of human medicines to
facilitate marketing authorizations that are valid throughout
the European Union. This procedure results in a single marketing
authorization issued by the EMA that is valid across the
European Union, as well as Iceland, Liechtenstein and Norway.
The centralized procedure is compulsory for human medicines that
are: derived from biotechnology processes, such as genetic
engineering; contain a new active substance indicated for the
treatment of certain diseases, such as HIV/AIDS, cancer,
diabetes, neurodegenerative disorders or autoimmune diseases and
other immune dysfunctions; and officially designated orphan
medicines.
Under the Centralized Procedure in the European Union, the
maximum timeframe for the evaluation of a marketing
authorization application is 210 days (excluding clock
stops, when additional written or oral information is to be
provided by the applicant in response to questions asked by the
Committee for Medicinal Products for Human Use, or CHMP).
Accelerated evaluation might be granted by the CHMP in
exceptional cases, when a medicinal product is expected to be of
a major public health interest, defined by three cumulative
criteria: the seriousness of the disease to be treated; the
absence or insufficiency of an appropriate alternative
therapeutic approach; and anticipation of high therapeutic
benefit. In this circumstance, EMA ensures that the opinion of
the CHMP is given within 150 days.
For other countries outside of the European Union, such as
countries in Eastern Europe, Latin America or Asia, the
requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary from country to
country. In all cases, again, the clinical trials are conducted
in accordance with GCP and the other applicable regulatory
requirements.
If we fail to comply with applicable foreign regulatory
requirements, we may be subject to, among other things, fines,
suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and
criminal prosecution.
93
Compliance
During all phases of development (pre- and post-marketing),
failure to comply with the applicable regulatory requirements
may result in administrative or judicial sanctions. These
sanctions could include the following actions by the FDA or
other regulatory authorities: imposition of a clinical hold on
trials; refusal to approve pending applications; withdrawal of
an approval; warning letters; product recalls; product seizures;
total or partial suspension of production or distribution;
product detention or refusal to permit the import or export of
products; injunctions, fines, civil penalties or criminal
prosecution. Any agency or judicial enforcement action could
have a material adverse effect on us.
Pharmaceutical
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and
reimbursement status of any drug products for which we obtain
regulatory approval. In the United States and markets in other
countries, sales of any products for which we receive regulatory
approval for commercial sale will depend in part on the
availability of reimbursement from third-party payors.
Third-party payors include government health administrative
authorities, managed care providers, private health insurers and
other organizations. The process for determining whether a payor
will provide coverage for a drug product may be separate from
the process for setting the price or reimbursement rate that the
payor will pay for the drug product. Third-party payors may
limit coverage to specific drug products on an approved list, or
formulary, which might not include all of the FDA-approved drugs
for a particular indication. Third-party payors are increasingly
challenging the price and examining the medical necessity and
cost-effectiveness of medical products and services, in addition
to their safety and efficacy. We may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical
necessity and cost-effectiveness of our products, in addition to
the costs required to obtain FDA approvals. Our SMDCs may not be
considered medically necessary or cost-effective. A payors
decision to provide coverage for a drug product does not imply
that an adequate reimbursement rate will be approved. Adequate
third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate
return on our investment in product development.
In 2003, the United States government enacted legislation
providing a partial prescription drug benefit for Medicare
recipients, which became effective at the beginning of 2006.
Government payment for some of the costs of prescription drugs
may increase demand for any products for which we receive
marketing approval. However, to obtain payments under this
program, we would be required to sell products to Medicare
recipients through prescription drug plans operating pursuant to
this legislation. These plans will likely negotiate discounted
prices for our products. Federal, state and local governments in
the United States continue to consider legislation to limit the
growth of healthcare costs, including the cost of prescription
drugs. Future legislation could limit payments for
pharmaceuticals such as the drug candidates that we are
developing.
Different pricing and reimbursement schemes exist in other
countries. In the European Community, governments influence the
price of pharmaceutical products through their pricing and
reimbursement rules and control of national healthcare systems
that fund a large part of the cost of those products to
consumers. Some jurisdictions operate positive and negative list
systems under which products may only be marketed once a
reimbursement price has been agreed. To obtain reimbursement or
pricing approval, some of these countries may require the
completion of clinical trials that compare the
cost-effectiveness of a particular SMDC to currently available
therapies. Other member states allow companies to fix their own
prices for medicines, but monitor and control company profits.
The downward pressure on healthcare 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. In addition, in some countries,
cross-border imports from low-priced markets exert a commercial
pressure on pricing within a country.
94
The marketability of any products for which we receive
regulatory approval for commercial sale may suffer if the
government and third-party payors fail to provide adequate
coverage and reimbursement. In addition, an increasing emphasis
on managed care in the United States has increased and we expect
will continue to increase the pressure on pharmaceutical
pricing. Coverage policies and third-party reimbursement rates
may change at any time. Even if favorable coverage and
reimbursement status is attained for one or more products for
which we receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the
future.
Other
Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to
regulation by various federal, state and local authorities in
addition to the FDA, including the Centers for Medicare and
Medicaid Services (formerly the Health Care Financing
Administration), other divisions of the U.S. Department of
Health and Human Services (e.g., the Office of Inspector
General), the U.S. Department of Justice and individual
U.S. Attorney offices within the Department of Justice, and
state and local governments. For example, sales, marketing and
scientific/educational grant programs must comply with the
anti-fraud and abuse provisions of the Social Security Act, the
False Claims Act, the privacy provisions of the Health Insurance
Portability and Accountability Act, or HIPAA, and similar state
laws, each as amended. Pricing and rebate programs must comply
with the Medicaid rebate requirements of the Omnibus Budget
Reconciliation Act of 1990 and the Veterans Health Care Act of
1992, each as amended. If products are made available to
authorized users of the Federal Supply Schedule of the General
Services Administration, additional laws and requirements apply.
Under the Veterans Health Care Act, or VHCA, drug companies are
required to offer certain drugs at a reduced price to a number
of federal agencies including U.S. Department of Veterans
Affairs and U.S. Department of Defense, the Public Health
Service and certain private Public Health Service designated
entities in order to participate in other federal funding
programs including Medicare and Medicaid. Recent legislative
changes purport to require that discounted prices be offered for
certain U.S. Department of Defense purchases for its
TRICARE program via a rebate system. Participation under the
VHCA requires submission of pricing data and calculation of
discounts and rebates pursuant to complex statutory formulas, as
well as the entry into government procurement contracts governed
by the Federal Acquisition Regulations.
In order to distribute products commercially, we must comply
with state laws that require the registration of manufacturers
and wholesale distributors of pharmaceutical products in a
state, including, in certain states, manufacturers and
distributors who ship products into the state even if such
manufacturers or distributors have no place of business within
the state. Some states also impose requirements on manufacturers
and distributors to establish the pedigree of product in the
chain of distribution, including some states that require
manufacturers and others to adopt new technology capable of
tracking and tracing product as it moves through the
distribution chain. Several states have enacted legislation
requiring pharmaceutical companies to establish marketing
compliance programs, file periodic reports with the state, make
periodic public disclosures on sales, marketing, pricing,
clinical trials and other activities or register their sales
representatives, as well as prohibiting pharmacies and other
healthcare entities from providing certain physician prescribing
data to pharmaceutical companies for use in sales and marketing,
and prohibiting certain other sales and marketing practices. All
of our activities are potentially subject to federal and state
consumer protection and unfair competition laws.
Legal
Proceedings
We are not currently a party to any material legal proceedings.
95
Patents
and Proprietary Rights
Because of the length of time and expense associated with
bringing new products to market, biopharmaceutical companies
have traditionally placed considerable importance on obtaining
and maintaining patent protection for significant new
technologies, products and processes.
Our success depends in part on our ability to protect the
proprietary nature of our SMDC candidates, technology, and
know-how, to operate without infringing on the proprietary
rights of others, and to prevent others from infringing our
proprietary rights. As a matter of policy, we seek to protect
our proprietary position by, among other methods, filing United
States and foreign patent applications related to our
proprietary technology, inventions and improvements that are
important to the development of our business. We also rely on
trade secrets, know-how, continuing technological innovation,
and in-licensing opportunities to develop and maintain our
proprietary position.
We have applied, and are applying, for patents directed to our
three main areas of focus: anti-tumor therapeutics and
diagnostics, anti-inflammation therapeutics and diagnostics and
immunotherapy therapeutics and diagnostics, both in the United
States and, when appropriate, in other countries. We own or have
rights to 64 issued patents and 177 applications worldwide
covering our core technology, SMDCs and companion imaging
diagnostics.
Currently, we own three issued U.S. patents, patent number
7,601,332, or the 332 patent, entitled Vitamin
Receptor Binding Drug Delivery Conjugates, patent number
7,128,893, or the 893 patent, entitled
Vitamin-Targeted Imaging Agents and patent number
7,862,798, or the 798 patent, also entitled
Vitamin-Targeted Imaging Agents. The 332
patent issued on October 13, 2009 in the United States and
is scheduled to expire in 2026. The 332 patent includes
claims covering EC145, among other compounds. Additionally, we
have filed continuation patent applications to the 332
patent and prosecution is ongoing. With respect to EC145
coverage, we have patents issued in the United States, China,
India, New Zealand with continuations filed in the United
States and China, and pending patent applications in Canada,
Europe, Japan, Australia, Israel, Taiwan, Argentina, Venezuela
and South Africa, and the patents also claim related chemical
structures, pharmaceutical compositions, and methods for linking
vitamins to drugs through our linker system. We also have filed
several patent applications related to EC145 specifically, such
as using EC20 to predict patients response to EC145 and
the combination of EC145 with PLD.
The 893 patent and 798 patent issued on
October 31, 2006 and on January 4, 2011, respectively,
in the United States and are both scheduled to expire in
2024. The 893 patent and 798 patent include claims
covering EC20, among other compounds. Additionally, we have
filed continuation patent applications to the 893 patent
and prosecution is ongoing. The 798 patent was one such
continuation application issued as a patent. Notably, the
893 patent has foreign patent counterparts and to date,
the 893 patent equivalent has been issued in several
countries worldwide. In Europe, drug product claims covering
some EC20 formulations have been issued. We are currently
developing a strategy to increase the breadth of EC20 coverage
in Europe.
We have filed additional patent applications worldwide to
protect our innovations such as multidrug ligand conjugates
including EC0225, spacer conjugates including EC0489, tubulysin
conjugates including EC0531 and conjugates directed to the PSMA,
including EC0651. EC0651 is owned by the Purdue Research
Foundation, a non-profit organization, which manages the
intellectual property of Purdue University, and exclusively
licensed to us.
We entered into two exclusive, worldwide licenses for a number
of patents and patent applications, owned by the Purdue Research
Foundation, for select folate-targeted technology and for select
technology related to PSMA. The folate-technology license was
originally entered into on July 17, 1998 with an
96
effective date as of December 21, 1995, and was restated on
October 21, 1998. The PSMA license was entered into on
March 1, 2010.
Under the two Purdue Research Foundation licenses, there are 33
issued and 79 pending patent applications worldwide which have
yet to issue or grant. Most of our licensed intellectual
property is under the folate-targeted license. In the United
States, we license six issued patents under the
folate-targeted
license and none under the PSMA license. Each of the
folate-targeted license and PSMA license expire on the
expiration date of the last to expire of the patents licensed
thereunder, respectively, including those that are issued on
patents currently pending and on matters not yet filed. As a
result, the final termination date of the Purdue Research
Foundation licenses is indeterminable until the last such
patents issue and results of potential patent extensions are
known. We may terminate the Purdue Research Foundation licenses
without cause with 60 days notice. Purdue Research
Foundation may terminate the licenses for material default by us
which is not cured within 90 days notice by Purdue Research
Foundation or upon 60 days notice in the event we fail to
meet public demand for approved products covered by the licensed
patents after a six month cure period following commercial
introduction. The Purdue Research Foundation licenses also
contain standard provisions allowing Purdue Research Foundation
to terminate upon our bankruptcy. We have royalty obligations to
Purdue Research Foundation based on sales of products that are
designed, developed or tested using the licensed technology as
well as annual minimum royalty obligations. Pursuant to our
exclusive license agreement with Purdue Research Foundation
relating to folate, we are obligated to pay an annual minimum
royalty of $12,500 until commercial sales commence, following
which time the payment of single digit royalty rates will
commence. Pursuant to our exclusive license agreement with
Purdue Research Foundation relating to PSMA, we are obligated to
make annual minimum payments of $15,000 until commercial sales
commence, following which time the payment of single digit
royalty rates will commence, along with an annual milestone
payment of $100,000. In addition, certain clinical and
regulatory milestone payments of $500,000 along with sales-based
milestones related to third-party sales are also payable. We are
also subject to penalties totaling $300,000 if certain diligence
milestones are not met. Future milestone payments in excess of
$500,000 may be waived by Purdue Research Foundation.
Most of our portfolio consists of intellectual property we
exclusively license from Purdue Research Foundation or which we
own ourselves. Generally, the intellectual property licensed
from Purdue Research Foundation is early stage and relates to
methods that were invented in the laboratory of Professor Philip
Low. Internally, we typically develop these methods further and
refine them to determine the commercial applicability.
Additionally, these early-stage patents often provide us
protection from competitors while we evaluate commercial
possibilities of a specific program. For example, some of the
very early patents we licensed from Purdue Research Foundation
covered methods of delivering folate attached to targeting
ligand across a cell membrane. We were able to use the patent
protection afforded by such early patents to develop folate
conjugates, including the invention and clinical development,
and in the future, the commercialization of our linker system
incorporated in EC145.
Due to the use of federal funds in the development of some of
the folate-related technology at Purdue Research Foundation, the
U.S. government has the irrevocable, royalty-free,
paid-up
right to practice and have practiced certain patents throughout
the world, should it choose to exercise such rights, namely to
three early-stage United States patents issued to Purdue
Research Foundation and to two pending jointly owned Purdue
Research Foundation patent applications.
Our development strategy also employs lifecycle management
positions. For example, the interim results of our PRECEDENT
trial indicated a benefit of PLD and EC145 over PLD alone. As
noted above, we filed a patent application directed to this
combination. In evaluating our current plans for development, it
is likely that we will apply for regulatory approval for this
combination. If we are able to obtain patent approval for this
indication, then it will provide several years of additional
coverage above and beyond the
97
expiration of certain patents relating to EC145 alone. As a
result, our general guiding strategy is to obtain patent
coverage for innovations that show a clinical benefit to
patients and an economic opportunity for us.
Pursuant to a license agreement with BMS, we co-own several
patent applications directed to epothilone with BMS. BMS
notified us of their intent to terminate our license agreement
in June 2010 and in July 2010 also notified us of their intent
to abandon certain of the patent applications subject to the
license related to folate conjugates with epothilone.
The term of individual patents depends upon the legal term of
the patents in the countries in which they are obtained. In most
countries in which we file, the patent term is 20 years
from the earliest date of filing a non-provisional patent
application. In the United States, a patents term may be
lengthened by patent term adjustment, which compensates a
patentee for administrative delays by the USPTO in granting a
patent, or may be shortened if a patent is terminally disclaimed
over another patent.
The patent term of a patent that covers an FDA-approved drug may
also be eligible for patent term extension, which permits patent
term restoration as compensation for the patent term lost during
the FDA regulatory review process. The Drug Price Competition
and Patent Term Restoration Act of 1984, or the Hatch-Waxman
Act, permits a patent term extension of up to five years beyond
the expiration of the patent. The length of the patent term
extension is related to the length of time the drug is under
regulatory review. Patent extension cannot extend the remaining
term of a patent beyond a total of 14 years from the date
of product approval and only one patent applicable to an
approved drug may be extended. Similar provisions are available
in Europe and other non-U.S. jurisdictions to extend the term of
a patent that covers an approved drug. In the future, if and
when our pharmaceutical products receive FDA approval, we expect
to apply for patent term extensions on patents covering those
products.
While we pursue patent protection and enforcement of our SMDC
candidates and aspects of our technologies when appropriate, we
also rely on trade secrets, know-how and continuing
technological advancement to develop and maintain our
competitive position. To protect this competitive position, we
regularly enter into confidentiality and proprietary information
agreements with third parties, including employees, independent
contractors, suppliers and collaborators. Our employment policy
requires each new employee to enter into an agreement containing
provisions generally prohibiting the disclosure of confidential
information to anyone outside of us and providing that any
invention conceived by an employee within the scope of his or
her employment duties is our exclusive property. We have a
similar policy with respect to independent contractors,
generally requiring independent contractors to enter into an
agreement containing provisions generally prohibiting the
disclosure of confidential information to anyone outside of us
and providing that any invention conceived by an independent
contractor within the scope of his or her services is our
exclusive property with the exception of contracts with
universities and colleges that may be unable to make such
assignments. Furthermore, our know-how that is accessed by third
parties through collaborations and research and development
contracts and through our relationships with scientific
consultants is generally protected through confidentiality
agreements with the appropriate parties. We cannot, however,
assure you that these protective arrangements will be honored by
third parties, including employees, independent contractors,
suppliers and collaborators, or that these arrangements will
effectively protect our rights relating to unpatented
proprietary information, trade secrets and know-how. In
addition, we cannot assure you that other parties will not
independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our
proprietary information and technologies.
Additionally, there can be no assurance that our patents will
provide significant protection, competitive advantage or
commercial benefit. The validity and enforceability of patents
issued to biopharmaceutical companies has proven highly
uncertain. For example, legal considerations surrounding the
validity of patents in the fields of biopharmaceuticals are in
transition, and we cannot assure you that the historical legal
standards surrounding questions of validity will continue to be
applied or that current
98
defenses relating to issued patents in these fields will be
sufficient in the future. In addition, we cannot assure you as
to the degree and range of protections any of our patents, if
issued, may afford us or whether patents will be issued. For
example, patents which may issue to us may be subjected to
further governmental review that may ultimately result in the
reduction of their scope of protection, and pending patent
applications may have their requested breadth of protection
significantly limited before being issued, if issued at all.
Further, since publication of discoveries in scientific or
patent literature often lags behind actual discoveries, we
cannot assure you that we were the first creator of inventions
covered by our pending patent applications, or that we were the
first to file patent applications for these inventions.
Many biopharmaceutical companies and university and research
institutions have filed patent applications or have received
patents in our areas of product development. Many of these
entities applications, patents and other intellectual
property rights could prevent us from obtaining patents or could
call into question the validity of any of our patents, if
issued, or could otherwise adversely affect the ability to
develop, manufacture or commercialize SMDC candidates. In
addition, certain parts of our technology originated from
third-party
sources. These
third-party
sources include academic, government and other research
laboratories, as well as the public domain. If use of technology
incorporated into or used to produce our SMDCs is challenged, or
if a conflicting patent issued to others is upheld in the courts
or if a conflicting patent application filed by others is issued
as a patent and is upheld, we may be unable to market one or
more of our SMDCs, or we may be required to obtain a license to
market those SMDCs. To contend with these possibilities, we may
have to enter into license agreements in the future with third
parties for technologies that may be useful or necessary for the
manufacture or commercialization of some of our SMDCs. In
addition, we are routinely in discussions with academic and
commercial entities that hold patents on technology or processes
that we may find necessary in order to engage in some of our
activities. However, we cannot assure you that these licenses,
or any others that we may be required to obtain to market our
SMDCs, will be available on commercially reasonable terms, if at
all, or that we will be able to develop alternative technologies
if we cannot obtain required licenses.
To protect our rights to any of our issued patents and
proprietary information, we may need to litigate against
infringing third parties, or avail ourselves of the courts or
participate in hearings to determine the scope and validity of
those patents or other proprietary rights. These types of
proceedings are often costly and could be very time-consuming to
us, and we cannot assure you that the deciding authorities will
rule in our favor. An unfavorable decision could allow third
parties to use our technology without being required to pay us
licensing fees or may compel us to license needed technologies
to avoid infringing third-party patent and proprietary rights;
or even could result in the invalidation or a limitation in the
scope of our patents or forfeiture of the rights associated with
our patents or pending patent applications. Although we believe
that we would have valid defenses to allegations that our
current SMDCs, production methods and other activities infringe
the valid and enforceable intellectual property rights of any
third parties, we cannot be certain that a third party will not
challenge our position in the future. Even if some of these
activities were found to infringe a third partys patent
rights, we may be found to be exempt from infringement under
35 U.S.C. § 271(e) to the extent that these are
found to be pre-commercialization activities related to our
seeking regulatory approval for a SMDC. However, the scope of
protection under 35 U.S.C. § 271(e) is uncertain
and we cannot assure you that any defense under 35 U.S.C.
§ 271(e) would be successful. Further, the defense
under 35 U.S.C. § 271(e) is only available for
pre-commercialization activities, and could not be used as a
defense for sale and marketing of any of our SMDCs. There has
been, and we believe that there will continue to be, significant
litigation in the biopharmaceutical and pharmaceutical
industries regarding patent and other intellectual property
rights.
99
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information concerning
our executive officers and directors as of September 30,
2010:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
P. Ron Ellis
|
|
|
49
|
|
|
President, Chief Executive Officer and Director
|
Michael A. Sherman
|
|
|
44
|
|
|
Chief Financial Officer
|
Philip S. Low, Ph.D.(1)
|
|
|
63
|
|
|
Chief Science Officer and Director
|
Christopher P. Leamon, Ph.D.
|
|
|
44
|
|
|
Vice President of Research
|
Chandra D. Lovejoy
|
|
|
39
|
|
|
Vice President of Regulatory Affairs
|
Richard A. Messmann, M.D.
|
|
|
54
|
|
|
Vice President of Medical Affairs
|
Allen R. Ritter, Ph.D.
|
|
|
49
|
|
|
Vice President of Manufacturing and Chemistry Manufacturing
Control
|
John G. Clawson(2)
|
|
|
82
|
|
|
Chairman of our Board of Directors
|
John C. Aplin, Ph.D.(3)
|
|
|
65
|
|
|
Director
|
Douglas G. Bailey(2)
|
|
|
60
|
|
|
Director
|
Keith E. Brauer(3)
|
|
|
62
|
|
|
Director
|
Ann F. Hanham, Ph.D.(3)
|
|
|
57
|
|
|
Director
|
Fred A. Middleton(2)
|
|
|
61
|
|
|
Director
|
James S. Shannon, M.D., MRCP(1)
|
|
|
54
|
|
|
Director
|
|
|
|
(1) |
|
Member of the nominating and corporate governance committee. |
|
(2) |
|
Member of the compensation committee. |
|
|
|
(3)
|
|
Member of the audit committee.
|
P. Ron Ellis is one of our founders and has served
as our President and Chief Executive Officer since January 1996
and as a member of our Board of Directors since December 1995.
From May 1987 to December 1995, Mr. Ellis served in various
positions at Hill-Rom Company, but most recently as Vice
President of Strategy and Corporate Development of the specialty
care division. Mr. Ellis holds a B.S. in computer science
and an M.B.A. from Brigham Young University and a certification
in regulatory affairs from Purdue University. We believe that
Mr. Ellis possesses specific attributes that qualify him to
serve as a member of our Board of Directors, including the
perspective and experience he brings as our President and Chief
Executive Officer and as one of our co-founders, which brings
historic knowledge, operational expertise and continuity to our
Board of Directors.
Michael A. Sherman has served as our Chief
Financial Officer since October 2006. From December 1994 to
October 2006, Mr. Sherman served in various executive
roles, but most recently as Vice President of Finance and
Strategic Planning from May 2004 to October 2006, of Guidant
Corporation, or Guidant, a cardiovascular device manufacturer
acquired by Boston Scientific Corporation, a medical device
company, in April 2006. Mr. Sherman holds a B.A. in
economics from DePauw University and an M.B.A. from the Amos
Tuck School, Dartmouth College.
Philip S. Low, Ph.D. is one of our
founders and has served as our Chief Science Officer since April
1998 and as a member of our Board of Directors since December
1995. Dr. Low has served on the
100
faculty at Purdue University since August 1976, where he is
currently the Ralph C. Corley Distinguished Professor of
Chemistry. Dr. Low holds a B.S. in chemistry from Brigham
Young University and a Ph.D. in biochemistry from the University
of California, San Diego. We believe that Dr. Low
possesses specific attributes that qualify him to serve as a
member of our Board of Directors, including the perspective and
experience he brings as our Chief Science Officer and as one of
our co-founders, which brings historic knowledge, scientific
expertise and continuity to our Board of Directors.
Christopher P. Leamon, Ph.D. has served
as our Vice President of Research since April 2000. From
February 1999 to April 2000, Dr. Leamon served as our
Director of Biology and Biochemistry. Prior to joining us, Dr.
Leamon was employed in the pharmaceutical industry where he
conducted discovery research in the field of peptide,
oligonucleotide, liposome and DNA drug delivery for
GlaxoWellcome, a healthcare company, in December 2000, and Isis
Pharmaceuticals, a biomedical pharmaceutical company.
Dr. Leamon holds a B.S. in chemistry from Baldwin Wallace
College and a Ph.D. in biochemistry from Purdue University.
Chandra D. Lovejoy has served as our Vice
President of Regulatory Affairs since May 2010. From December
2007 to May 2010, Ms. Lovejoy served as our Director of
Regulatory Affairs. Ms. Lovejoy served in various positions
at Genentech, a biotechnology company and an indirectly wholly
owned subsidiary of Roche Holdings, a healthcare company,
including Manager of Regulatory Affairs from October 2006 to
November 2007 and as a Senior Associate of Regulatory Affairs
from April 2005 to October 2006. Ms. Lovejoy holds a B.S.
in organizational behavior from the University of
San Francisco and a certification in regulatory affairs
from San Diego State University.
Richard A. Messmann, M.D. has served as
our Vice President of Medical Affairs since July 2005. From July
2003 to July 2005, Dr. Messmann served as Director of
Cancer Research for the Great Lakes Cancer Institute, a joint
venture between Michigan State University and McLaren Health
Care. Dr. Messmann holds a B.S. in electrical and computer
engineering from Oakland University, an M.H.S. in clinical
research from Duke University, and an M.S. in biochemistry and
an M.D. from Wayne State University.
Allen R. Ritter, Ph.D. has served as our
Vice President of Manufacturing and Chemistry Manufacturing
Control, or CMC, since December 2005. From May 2004 to December
2005, Dr. Ritter served as our Director of Development, CMC
and Manufacturing. Dr. Ritter holds a B.S. in chemistry
from St. Olaf College, an M.S. in organic chemistry from the
University of Pittsburgh, and a Ph.D. in synthetic organic
chemistry from the University of Notre Dame.
John G. Clawson has served as a member of our
Board of Directors since December 1995 and as Chairman of our
Board of Directors since August 2001. Mr. Clawson served as
Chief Executive Officer of Hill-Rom, Inc., a wholly owned
subsidiary of Hill-Rom Holdings, Inc., a medical device and
equipment company, and a former subsidiary of Hillenbrand
Industries, a healthcare and funeral services company, from 1975
to 1993. From May 2002 to November 2008, Mr. Clawson served
as a director of Non-Invasive Monitoring Systems, a medical
appliance and equipment company. Mr. Clawson holds a B.A.
in social sciences from Brigham Young University and an M.B.A.
from the Harvard Business School. We believe that
Mr. Clawson possesses specific attributes that qualify him
to serve as a member of our Board of Directors, including his
general management and operational experience, gained through
his service as chief executive officer of several companies.
John C. Aplin, Ph.D. has served as a member
of our Board of Directors since May 2003. Since November 1990,
Dr. Aplin has served as General Partner and Managing
Director of CID Capital, a venture capital firm he joined after
previously serving as President and Chief Executive Officer of
The Fuller Brush Company, a supplier of consumer products.
Dr. Aplin holds a B.S. in business administration from
Drake University, and an M.A. in industrial and labor relations
and a Ph.D. in
101
business administration from the University of Iowa.
Dr. Aplin is also a Certified Management Consultant. We
believe that Dr. Aplin possesses specific attributes that
qualify him to serve as a member of our Board of Directors,
including his experience in the venture capital industry, his
years of business and leadership experience and his financial
sophistication and expertise.
Douglas G. Bailey has served as a member of our
Board of Directors since July 2001. Mr. Bailey is the
founder of American Bailey Corporation, a private equity firm
for which he has served as President since October 1984 and as
Chief Executive Officer since 1996. Mr. Bailey has served
as the President and Chief Executive Officer since April 2010,
Chairman of the board of directors since January 2010, Deputy
Chairman from 2002 through 2009, and a director since April 1998
of Fuel Tech, a fuel technology company. Mr. Bailey holds a
B.S., an M.S. and Engineers degree, all in mechanical
engineering from Massachusetts Institute of Technology, and an
M.B.A. from the Harvard Business School. We believe that
Mr. Bailey possesses specific attributes that qualify him
to serve as a member of our Board of Directors, including his
experience in the private equity industry and his years of
business and leadership experience.
Keith E. Brauer has served as a member of our
Board of Directors since August 2006. Since August 1999,
Mr. Brauer has served in various roles at the Community
Hospitals of Indianapolis, or CHI, including roles with
CHIs affiliate, Indiana Heart Hospital, or IHH.
Mr. Brauer since August 1999 has served as a member of
CHIs finance committee, since April 2006 as a member
of IHHs board of directors and since July 2009 as
Chairman of IHHs board of directors. Mr. Brauer was
also a member of CHIs board of directors from
October 2000 to December 2009 and as Chairman of
CHIs board of directors from August 2003 to
August 2005. He has also served on the board of directors
since June 2006 and chairman of the audit committee since
September 2006 of NanoInk, Inc., a nanometer-scale manufacturing
and applications development company. He has also served on the
board of directors since August 2008 and chairman of the audit
committee since October 2008 of NICO Corporation, a neurosurgery
company. From 1988 to 1994, Mr. Brauer served in various
executive roles at Eli Lilly and Company, a healthcare company,
most recently as Executive Director and Chief Accounting
Officer. From July 1994 to April 2006, Mr. Brauer served as
Vice President, Finance and Chief Financial Officer of Guidant,
which was acquired by Boston Scientific Corporation, a medical
device company, in April 2006. Mr. Brauer retired with full
benefits after the acquisition of Guidant and has not sought
full time employment since that time. Mr. Brauer holds a
B.S. in management from Indiana University and an M.B.A. from
the University of Michigan. We believe that Mr. Brauer
possesses specific attributes that qualify him to serve as a
member of our Board of Directors, including his financial,
general operational and management experience.
Ann F. Hanham, Ph.D. has served as a member
of our Board of Directors since November 2004. Dr. Hanham
joined Burrill & Company, a venture capital and
merchant banking firm, in February 2000 and has served as a
Managing Director there since January 2002. Dr. Hanham
served on the board of directors of BioMimetic Therapeutics,
Inc., a biopharmaceutical company, from May 2001 to September
2006; Biotie Therapies, a drug discovery and development
company, from March 2009 to April 2010; and Targacept, a
biopharmaceutical company, from September 2005 to August 2006.
Dr. Hanham holds a B.Sc. from the University of Toronto, a
M.Sc. from Simon Fraser University and a Ph.D. from the
University of British Columbia. We believe that Dr. Hanham
possesses specific attributes that qualify her to serve as a
member of our Board of Directors, including experience in the
venture capital industry and her years of financial, business
and leadership experience in the biomedical industry.
Fred A. Middleton has served as a member of our
Board of Directors since July 2001. Since 1987,
Mr. Middleton has been a General Partner and Managing
Director of Sanderling Ventures, a biomedical venture capital
firm. During the last 20 years, Mr. Middleton has
served in a number of management roles and as a member of the
board of directors for over 20 biomedical companies.
Mr. Middleton
102
currently serves as Chairman of the board of directors of
Stereotaxis, a medical device company, and as a member of board
of directors of CardioNet, a cardiac rhythm services company.
Mr. Middleton also serves on the board of directors of five
other privately-held biomedical and biotechnology companies. He
holds a B.S. in chemistry from the Massachusetts Institute of
Technology and an M.B.A. from the Harvard Business School. We
believe that Mr. Middleton possesses specific attributes
that qualify him to serve as a member of the Board of Directors,
including his experience in the venture capital industry and his
general operational and management experience working with
early-stage biomedical companies.
James S. Shannon, M.D., MRCP (UK) has served
as a member of our Board of Directors since February 2010.
Dr. Shannon served as the President and Chief Executive
Officer of Cerimon Pharmaceuticals, a biopharmaceutical company,
from January 2009 to April 2010 and has served as a
director since October 2008. Dr. Shannon served in various
executive roles at Novartis AG, a healthcare products company
from December 1994 to September 2008, serving as Global Head of
Pharma Development from November 2005 to September 2008. From
October 2008 to December 2008 Mr. Shannon was between jobs.
He has served on the board of directors of MannKind Corporation,
a biopharmaceutical company, since February 2010, Crucell, a
biopharmaceutical company, since June 2010, Biotie Therapies, a
biopharmaceutical company, since April 2010 and several other
private companies. Dr. Shannon holds a B.Sc., an M.B., a
B.Ch., a B.A.O. and an M.D. in medicine from Queens
University of Belfast and is a Member of the Royal College of
Physicians (UK). We believe that Dr. Shannon possesses
specific attributes that qualify him to serve as a member of our
Board of Directors, including his general operational and
management experience in the biomedical industry, his experience
managing product development programs and his experience in
international markets.
Board
Composition
Our Board of Directors is currently composed of nine members.
Seven of our directors are independent within the meaning of the
independent director guidelines of The NASDAQ Stock Market LLC.
Immediately prior to this offering, our Board of Directors will
be divided into three staggered classes of directors. At each
annual meeting of stockholders beginning in 2011, a class of
directors will be elected for a three-year term to succeed the
same class whose terms are then expiring. The terms of the
directors will expire upon the election and qualification of
successor directors at the Annual Meeting of Stockholders to be
held during the years 2011 for the Class I directors, 2012
for the Class II directors and 2013 for the Class III
directors.
|
|
|
|
|
Our Class I directors will be Philip S. Low, John C. Aplin
and Douglas G. Bailey.
|
|
|
|
Our Class II directors will be John G. Clawson, Ann F.
Hanham and Keith E. Brauer.
|
|
|
|
Our Class III directors will be P. Ron Ellis, Fred A.
Middleton and James S. Shannon.
|
Our amended and restated certificate of incorporation and bylaws
provide that the number of our directors, which is currently
nine members, shall be fixed from time to time by a resolution
of the majority of our Board of Directors. Each officer serves
at the discretion of our Board of Directors and holds office
until his or her successor is duly elected and qualified or
until his or her earlier resignation or removal. There are no
family relationships among any of our directors or executive
officers.
The division of our Board of Directors into three classes with
staggered three-year terms may delay or prevent a change of our
management or a change in control. See Description of
Capital Stock Anti-Takeover Effects of Delaware Law
and Our Certificate of Incorporation and Bylaws for a
discussion of other anti-takeover provisions found in our
certificate of incorporation.
103
Director
Independence
Upon the closing of this offering, our common stock will be
listed on The NASDAQ Global Market. Under the rules of The
NASDAQ Stock Market LLC, independent directors must comprise a
majority of a listed companys board of directors within a
specified period following the closing of this offering. In
addition, the rules of The NASDAQ Stock Market LLC require that,
subject to specified exceptions, each member of a listed
companys audit, compensation and nominating and corporate
governance committees be independent. Audit committee members
must also satisfy the independence criteria set forth in
Rule 10A-3
under the Securities Exchange Act of 1934, as amended. Under the
rules of The NASDAQ Stock Market LLC, a director will only
qualify as an independent director if, in the
opinion of that companys board of directors, that person
does not have a relationship that would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director.
In order to be considered to be independent for purposes of
Rule 10A-3,
a member of an audit committee of a listed company may not,
other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee:
(1) accept, directly or indirectly, any consulting,
advisory, or other compensatory fee from the listed company or
any of its subsidiaries; or (2) be an affiliated person of
the listed company or any of its subsidiaries.
In August 2010, our Board of Directors undertook a review of its
composition, the composition of its committees and the
independence of each director. Based upon information requested
from and provided by each director concerning his or her
background, employment and affiliations, including family
relationships, our Board of Directors has determined that none
of Messrs. Brauer, Bailey, Clawson and Middleton and
Drs. Aplin, Hanham and Shannon, representing seven of our
nine directors, has a relationship that would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director and that each of these directors
is independent as that term is defined under the
rules of The NASDAQ Stock Market LLC. Our Board of Directors
also determined that Mr. Brauer and Drs. Aplin and
Hanham, who comprise our audit committee, Messrs. Bailey,
Clawson and Middleton, who comprise our compensation committee,
and Dr. Shannon, who partially comprises our nominating and
corporate governance committee, satisfy the independence
standards for those committees established by applicable
Securities and Exchange Commission, or SEC, rules and the rules
of The NASDAQ Stock Market LLC.
In making our determination of independent status, our Board of
Directors considered the relationships that each non-employee
director has with our company and all other facts and
circumstances our Board of Directors deemed relevant in
determining their independence, including the beneficial
ownership of our capital stock by each non-employee director.
Our Board of Directors has determined that Dr. Low does not
meet the independence eligibility requirements of The NASDAQ
Stock Market LLC or
Rule 10A-3.
Since Dr. Low does not satisfy the independence standards,
in conjunction with our plans to conduct a search for additional
qualified persons to be added to, or replace current members of,
our Board of Directors, we plan to either add additional
independent directors to our Board of Directors who could become
members of our nominating and corporate governance committee or
remove Dr. Low from this committee, such that this
committee has a majority of independent directors within
90 days after listing our common stock and is fully
independent within 12 months after listing our common stock.
Board
Committees
Our Board of Directors has an audit committee, a compensation
committee and a nominating and corporate governance committee,
each of which has the composition and the responsibilities
described below.
104
Audit Committee. The members of our audit
committee are Mr. Brauer and Drs. Aplin and Hanham
each of whom is a non-employee member of our Board of Directors.
Our audit committee chairman, Mr. Brauer, is our audit
committee financial expert, as that term is defined under the
SEC rules implementing Section 407 of the Sarbanes-Oxley
Act of 2002, and possesses financial sophistication, as defined
under the rules of The NASDAQ Stock Market LLC. Our audit
committee is responsible for, among other things:
|
|
|
|
|
reviewing and approving the selection of our independent
auditors, and approving the audit and non-audit services to be
performed by our independent auditors;
|
|
|
|
monitoring the integrity of our financial statements and our
compliance with legal and regulatory requirements as they relate
to financial statements or accounting matters;
|
|
|
|
reviewing the adequacy and effectiveness of our internal control
policies and procedures;
|
|
|
|
discussing the scope and results of the audit with the
independent auditors and reviewing with management and the
independent auditors our interim and year-end operating
results; and
|
|
|
|
preparing the audit committee report that the SEC requires in
our annual proxy statement.
|
Compensation Committee. The members of our
compensation committee are Messrs. Bailey, Clawson and
Middleton. Mr. Bailey is the chairman of our compensation
committee. The compensation committee is responsible for, among
other things:
|
|
|
|
|
overseeing our compensation policies, plans and benefit programs;
|
|
|
|
reviewing and approving for our executive officers: the annual
base salary, the annual incentive bonus, including the specific
goals and amount, equity compensation, employment agreements,
severance arrangements and change in control arrangements, and
any other benefits, compensations or arrangements;
|
|
|
|
preparing the compensation committee report that the SEC
requires to be included in our annual proxy statement; and
|
|
|
|
administering the issuance of stock options and other awards
under our stock plans.
|
Nominating and Corporate Governance
Committee. The members of our nominating and
corporate governance committee are Drs. Shannon and Low.
Dr. Shannon is the chairman of our nominating and corporate
governance committee. The nominating and corporate governance
committee is responsible for, among other things:
|
|
|
|
|
assisting our Board of Directors in identifying prospective
director nominees and recommending nominees for each annual
meeting of stockholders to our Board of Directors;
|
|
|
|
reviewing developments in corporate governance practices and
developing and recommending governance principles applicable to
our Board of Directors;
|
|
|
|
reviewing the succession planning for our executive officers;
|
|
|
|
overseeing the evaluation of our Board of Directors and
management; and
|
|
|
|
recommending members for each committee of our Board of
Directors.
|
Our Board of Directors may from time to time establish other
committees.
105
Director
Compensation
The following table sets forth information concerning
compensation paid or accrued for services rendered to us by
members of our Board of Directors for the years ended
December 31, 2009 and 2010. The table excludes
Mr. Ellis, our President and Chief Executive Officer, and
Dr. Low, our Chief Science Officer, who did not receive any
compensation from us in their roles as directors during the
years ended December 31, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
All Other
|
|
|
|
|
|
|
or Paid in
|
|
Stock Awards
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
Compensation
|
|
|
Name
|
|
Year
|
|
Cash ($)
|
|
($)(1)
|
|
Awards ($)(1)
|
|
Compensation ($)
|
|
Earnings ($)
|
|
($)
|
|
Total ($)
|
|
John C. Aplin, Ph.D.
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Douglas G. Bailey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith E. Brauer
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
8,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,910
|
|
|
|
|
2010
|
|
|
|
25,000
|
|
|
|
|
|
|
|
17,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,104
|
|
John G. Clawson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann F. Hanham, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred A. Middleton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James S. Shannon, M.D., MRCP
|
|
|
2010
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
(1)
|
The amount in this column represents the aggregate grant date
fair value of the option awards vested during 2009 and 2010,
computed in accordance with FASB Topic ASC 718. This amount
does not correspond to the actual value that will be recognized
by the director. The assumptions used in the valuation of this
award are consistent with the valuation methodologies specified
in the notes to our financial statements.
|
|
(2)
|
Award made in fiscal year 2009.
|
|
(3)
|
Award made in fiscal year 2010.
|
The aggregate number of shares subject to stock awards and stock
options outstanding at December 31, 2010 for each director
is as follows:
|
|
|
|
|
|
|
Aggregate Number of Stock Awards and Stock Options
|
Name
|
|
Outstanding as of
December 31, 2010
|
|
John C. Aplin, Ph.D.
|
|
|
|
|
Douglas G. Bailey
|
|
|
|
|
Keith E. Brauer
|
|
|
31,804
|
(1)
|
John G. Clawson
|
|
|
|
|
Ann F. Hanham, Ph.D.
|
|
|
|
|
Fred A. Middleton
|
|
|
|
|
James S. Shannon, M.D., MRCP
|
|
|
13,089
|
(2)
|
|
|
(1)
|
Of the 31,804 option shares, 21,333 shares vested
immediately upon grant, and 10,471 shares vest monthly over a
period of 48 months beginning on August 31, 2006.
|
|
(2)
|
50 percent of the option shares vest on February 11,
2012 and 272 shares vest monthly over a period of 24 months
beginning on February 28, 2012.
|
Before the year ended December 31, 2010, our directors did
not receive any cash compensation for their services as members
of our Board of Directors or any committee of our Board of
Directors. During
106
the year ended December 31, 2010, our non-investor and
non-employee members of our Board of Directors each received an
annual $25,000 payment as cash compensation for their service.
We refer to each of our
non-employee
directors as an outside director. Effective upon the closing of
this offering, each outside director will receive
$25,000 annually for his or her service on our Board of
Directors and our chair of the Board of Directors will receive
an additional $15,000 annually for his or her service as
our chair of the Board of Directors. Each outside director who
serves as a chair of our audit committee, compensation committee
or nominating and corporate governance committee will receive
respectively $15,000, $10,000 or $7,500 annually for
his or her service as chair on such committee, and other members
of our audit committee, compensation committee or nominating and
corporate governance committee will receive, respectively,
$7,500, $5,000 or $3,750 annually for his or her service on
such committee. Each of the payments to our outside directors
will be on a quarterly basis, in consideration for their
services in these respective roles.
On August 12, 2010, our Board of Directors authorized the
grant of an option to each of our outside directors who had not
previously received option grants from us, or initial option
grant, to purchase 15,706 shares of our common stock
effective upon the closing of this offering. In addition, at the
same meeting, our Board of Directors authorized the grant of an
option to each of Messrs. Brauer and Shannon to purchase
2,617 shares of our common stock effective upon the closing
of this offering. Such initial option grants will be exercisable
as to
1/3 of
the shares upon the business day before each annual stockholder
meeting following the closing of this offering, subject to such
directors continued service through each relevant vesting
date.
Our outside director equity compensation policy was adopted by
our Board of Directors on August 12, 2010 and will become
effective immediately upon the closing of this offering. The
policy is intended to formalize the granting of equity
compensation to our non-employee directors under the 2010 Equity
Incentive Plan, or EIP. Non-employee directors may receive all
types of awards under the EIP, except for incentive stock
options. The policy provides for automatic and nondiscretionary
grants of nonstatutory stock options subject to the terms and
conditions of the policy and the EIP.
Under the policy, each non-employee director who first becomes a
non-employee director following this offering will be
automatically granted a stock option to purchase
15,706 shares of our common stock on the date such person
first becomes a non-employee director. A director who is an
employee and who ceases to be an employee, but who remains a
director, will not receive such an initial award.
In addition, each non-employee director will be automatically
granted an annual stock option to purchase 7,853 shares of
our common stock on the date of each annual stockholder meeting
beginning on the date of the first annual meeting following this
offering.
The exercise price of all stock options granted pursuant to the
policy will be equal to the fair market value of our common
stock on the date of grant. The term of all stock options will
be ten years. Subject to the adjustment provisions of the
EIP, initial awards will vest as to
1/3
of the shares subject to such awards on the business day before
each date of each annual stockholder meeting following their
respective commencement of service, provided such non-employee
director continues to serve as a director through each such
date. The annual awards will vest as to 100 percent of the
shares on the business day prior to the next annual stockholder
meeting following the date of grant, provided such non-employee
director continues to serve as a director through such date.
The administrator of the EIP in its discretion may change or
otherwise revise the terms of awards granted under the outside
director equity compensation policy on a prospective basis.
In the event of a change in control, as defined in
our EIP, with respect to awards granted under the EIP to
non-employee directors, the non-employee director will fully
vest in and have the right to
107
exercise awards as to all shares underlying such awards and all
restrictions on awards will lapse, and all performance goals or
other vesting criteria will be deemed achieved at
100 percent of target level and all other terms and
conditions met if the
non-employee
director is terminated following the change in control other
than by voluntary resignation (unless such resignation is at the
request of the acquiror).
Code of
Business Conduct and Ethics
We have adopted a written code of business conduct and ethics
that applies to our directors, officers and employees, including
our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions. Following this offering, a current
copy of the code will be posted on the Corporate Governance
section of our website, www.endocyte.com.
Compensation
Committee Interlocks and Insider Participation
None of the members of our compensation committee is an officer
or employee of our company. None of our executive officers
currently serves, or in the past year has served, as a member of
our Board of Directors or compensation committee of any entity
that has one or more executive officers serving on our Board of
Directors or on the compensation committee.
108
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
Our executive compensation program seeks to attract and retain
our senior executives and to motivate them to pursue our
corporate objectives while encouraging the creation of long-term
value for our stockholders. Through our annual goal-setting
process, organizational objectives are established for our
company and employees, including those individuals who are
listed under the heading Executive
Compensation 2009 and 2010 Summary Compensation
Table, who are referred to as named executive officers, or
NEOs. We evaluate and reward our NEOs through compensation
intended to motivate them to identify and capitalize on the
opportunities that result in our growth and success.
The main elements of our NEO compensation program are:
|
|
|
|
|
base salary;
|
|
|
|
short-term incentives through our cash bonus program;
|
|
|
|
long-term incentives through equity award grants; and
|
|
|
|
broad-based employee benefits.
|
We believe these compensation components are necessary to help
us attract and retain the executive talent on which we depend.
These elements comprise a compensation package for our NEOs that
is intended to reward achievement of our business goals, link
individual performance to our corporate performance, provide
competitive pay and align the interests of our NEOs with those
of our stockholders.
Establishment
of Compensation Committee
Our Board of Directors established the compensation committee to
carry out certain of our Board of Directors
responsibilities as described under the heading
Management Board Committees
Compensation Committee. The compensation committee
operates under a written charter adopted by the compensation
committee and approved by our Board of Directors. The charter
will be available on our website.
Compensation
Decision Process
Role
of Our Board of Directors and Compensation
Committee
For 2009 and 2010, the compensation committee recommended the
compensation of our NEOs to our Board of Directors, and our
Board of Directors had the final decision-making authority with
respect to the compensation of our NEOs. Our Board of Directors,
at its discretion, may agree with or reject the compensation
committees recommendations, as well as require revisions
to such recommendations before it approves our NEOs
compensation. For 2009 and 2010, our Board of Directors agreed
with the compensation committees recommendations and
approved our NEOs compensation accordingly.
Role
of Management
The Chief Executive Officer, or CEO, typically attends all
meetings of the compensation committee, except for executive
sessions. At the request of the compensation committee, our CEO
provides his assessment of the performance of our NEOs, other
than himself. Our CEO also takes an active part in the
discussions of the compensation committee at which the
compensation of NEOs other than himself are discussed. The
compensation committee may agree with our CEOs
recommendations or may require revisions to the compensation of
such NEOs when making recommendations to our Board of Directors.
However, all decisions regarding our CEOs compensation are
recommended by the compensation
109
committee and reviewed and approved by our Board of Directors in
closed sessions outside of our CEOs presence.
Role
of Compensation Consultants
The compensation committee has the authority to engage its own
advisers to assist it in carrying out its responsibilities. The
compensation committee selected Radford, a subsidiary of Aon
Consulting, and J. Thelander Consulting, or Thelander, and each
reports to the compensation committee directly and interacts
with management, as necessary. For 2009 and 2010, Radford and
Thelander provided us with applicable survey benchmark data.
These consultants have not performed work for us other than
pursuant to an engagement by the compensation committee.
Comparator
Group Companies and Benchmarking
In determining compensation for our NEOs, the compensation
committee refers to executive compensation surveys provided by
Radford and Thelander. Specifically, for each of 2009 and 2010,
the compensation committee reviewed data from the Radford Global
Life Sciences Survey with respect to private companies with at
least $80 million of secured financing and the Thelander
Private Company Compensation Survey with respect to private
companies with at least $70 million of secured financing.
However, benchmarking is only one of many factors we consider in
setting NEO compensation. Accordingly, we view benchmark data as
a useful tool, but not as the sole parameter for determining
compensation. Generally, we consider data between the
25th and
75th
percentile with respect to each of base salary, cash bonuses and
equity awards for each NEOs applicable position to
validate and ensure that compensation falls within a competitive
range against industry norms.
The compensation committee retained Radford to determine a group
of similarly situated public peer companies, from which we will
benchmark competitive pay levels and compensation practices as
disclosed pursuant to such companies publicly filed
compensation data. The peer group was determined using the
following criteria:
|
|
|
|
|
U.S. companies operating in drug delivery systems or
biopharmaceutical industries that are similarly situated in
phase 3 clinical trials or after filing an NDA;
|
|
|
|
comparable companies in terms of stage of development and our
forecasted financial profile; and
|
|
|
|
sufficient room for growth without over-or under-extending the
breadth of our selected peer group.
|
The compensation committee approved the following peer group for
compensation purposes at its meeting held on August 2, 2010:
Alimera Sciences
Ardea Biosciences
ARIAD Pharmaceuticals
ArQule
AVEO Pharmaceuticals
BioCryst Pharmaceuticals
Cadence Pharmaceuticals
Cytokinetics
DURECT
Dynavax Technologies
MAP Pharmaceuticals
Medivation
Nabi Biopharmaceuticals
Novavax
Omeros
Optimer Pharmaceuticals
Orexigen Therapeutics
Pain Therapeutics
Pharmacyclics
Targacept
110
Performance-driven
Compensation
We emphasize performance in annually reviewing and setting our
NEOs base salary, bonuses and equity awards. This emphasis
on performance with respect to a substantial portion of
compensation is intended to motivate our NEOs to pursue our
business objectives, reward them for achievement of these
objectives and align their interests with those of our
stockholders.
Accordingly, on an annual basis and typically at the beginning
of each year, we determine a set of performance goals to be
achieved with respect to such year. Our performance as compared
to these goals and an individuals performance and
contributions primarily drive the recommendations that the
compensation committee makes with respect to each NEOs
base salary, cash bonus and equity compensation. Other factors,
such as larger macroeconomic conditions of the industry and
labor market in which we compete, as well as strategic business
decisions, also may influence compensation decisions. For
example, as discussed below, for 2009, in response to the
deteriorated economic and uncertain market conditions of late
2008 and in order to conserve our cash, our Board of Directors
and compensation committee determined that no salary increase or
cash bonus would be made in 2009, despite the achievement of the
applicable corporate performance goals for 2008. As another
example and as discussed below, for 2010, in determining equity
awards, our Board of Directors and compensation committee took
into consideration the equity ownership stakes of our NEOs to
guide us in ensuring that our NEOs compensation was
competitive and had sufficient retention value.
Typically, the performance goals for each year initially are
identified and developed by senior executives, and our CEO in
particular, during discussions of our strategic business
objectives that are particularly important in driving our
business, which after discussion with our Board of Directors are
approved. Upon completion of the year, our Board of Directors
reviews each performance goal and determines the extent to which
we achieved such goals, and our CEO assesses the achievement of
specific performance goals relating to other NEOs. Our Board of
Directors review of our CEOs compensation package
involves primarily the level of achievement of our performance
goals, while review of all other NEOs compensation
packages includes review of our performance goals and specific
performance goals that relate to each NEOs area of
responsibility.
Company
Performance Goals
The Board of Directors and compensation committee have
identified four key areas of Company performance that apply to
us generally:
|
|
|
|
(1)
|
discovery of new SMDC and obtaining patent protection;
|
|
|
(2)
|
meeting of clinical milestones (for example, protocol sign-off,
first patient in, last patient out, database lock, final
clinical study report, and similar items);
|
|
|
(3)
|
financing the company and meeting our spending targets; and
|
|
|
(4)
|
licensing and partnering, which include both in-licensing and
out-licensing objectives.
|
These are long-term strategic objectives that are broken down
into specific plans. The CEO reviews each area of performance
with the compensation committee at the applicable year-end and
the compensation committee will assign an overall company rating
on a scale of zero to 100 percent achievement. The rating takes
into account the difficulty as well as the achievement of the
objectives in the aggregate.
For 2009, the Board of Directors approved the following
performance goals:
|
|
|
|
(1)
|
select activated macrophage lead compound;
|
111
|
|
|
|
(2)
|
develop siRNA to reduce target by 50 percent;
|
|
|
(3)
|
obtain patent with respect to a new linker system;
|
|
|
(4)
|
complete enrollment of a clinical study;
|
|
|
(5)
|
complete private financing;
|
|
|
(6)
|
achieve regulatory clearance in Poland;
|
|
|
(7)
|
achieve clinical scale manufacturing of tubulysin API; and
|
|
|
(8)
|
achieve certain licensing committed funding.
|
For 2009, the compensation committee gave the company a 75
percent score based on the aggregate achievement of the
performance goals or Highly Successful Performance
rating, based on the full achievement of items (3), (4), (5),
and (6) out of the above list of performance goals.
For 2010, the Board of Directors approved the following
performance goals:
|
|
|
|
(1)
|
identify SMDCs using new mechanisms of cell killing;
|
|
|
(2)
|
achieve operational milestones related to our phase 2 clinical
trial for EC145;
|
|
|
(3)
|
complete design of our phase 3 clinical trial for EC145, which
we refer to as our PROCEED trial;
|
|
|
(4)
|
achieve manufacturing readiness for PROCEED; and
|
|
|
(5)
|
execute corporate financing plans to fund PROCEED.
|
For 2010, the compensation committee did not determine a
specific score related to the aggregate achievement of the
performance goals because no bonus pool was created for 2010.
Individual
Performance
The compensation committee reviews our CEOs performance
based on achievement of the corporate performance goals. Other
NEOs performance reviews also include a separate review of
any corporate performance goals applicable to the NEOs
area of responsibility. The compensation committee, with the
assistance of our CEO, determines the relative achievement of
the performance goals applicable to each NEO. Although no
formula is used with respect to setting any particular element
of compensation, each NEOs performance review generally is
weighted so that 50 percent relates to the achievement of
performance goals, 25 percent relates to performance of major
job responsibilities and 25 percent relates to overall
demonstration of teamwork, excellence and commitment.
Specifically, individual performance objectives for our NEOs for
2009 and 2010 are as follows:
Mr. Sherman. Mr. Shermans
performance
goals are to achieve key financial objectives, such as
implementing cost savings, managing spending and ensuring
adequate financing.
Dr. Leamon. Dr. Leamons performance
goals are to achieve key discovery objectives and issue of key
patents.
Dr. Messmann. Dr. Messmanns
performance goals are to achieve key clinical objectives related
to clinical research, including the design and execution of our
clinical programs.
Dr. Ritter. Dr. Ritters performance
goals are to achieve key manufacturing and quality objectives
related to insuring supply of drug product, managing
manufacturing and development costs and meeting certain
regulatory requirements.
112
Elements
of Executive Compensation
Base
Salary
We provide base salaries to our NEOs and other employees to
compensate them for services rendered on a
day-to-day
basis during the year. Generally, the base salary element of
compensation is used to recognize the experience, skills,
knowledge and responsibilities required of each NEO, and over
time reflects our NEOs overall sustained performance and
contributions to our business. The review of NEO base salary
levels by our CEO, except with respect to his own salary, the
compensation committee and our Board of Directors is subjective,
based on their general experience with respect to setting salary
levels and supplemented by survey data and assessments of the
performance of our NEOs. Survey data also is used to validate
that determinations fall within acceptable parameters relative
to the market.
The following table sets forth information regarding the base
salary for 2009 and 2010 for our NEOs:
|
|
|
|
|
|
|
|
|
Named Executive
Officer
|
|
2009 Base Salary
|
|
2010 Base Salary
|
|
P. Ron Ellis
|
|
$
|
278,250
|
|
|
$
|
306,000
|
|
Michael A. Sherman
|
|
$
|
212,000
|
|
|
$
|
225,000
|
|
Christopher P. Leamon, Ph.D.
|
|
$
|
215,000
|
|
|
$
|
225,000
|
|
Richard A. Messmann, M.D.
|
|
$
|
253,000
|
|
|
$
|
260,600
|
|
Allen R. Ritter, Ph.D.
|
|
$
|
186,700
|
|
|
$
|
193,000
|
|
For 2009, base salaries remained unchanged from 2008 levels due
to our strategic decision to conserve cash during uncertain
economic conditions beginning in late 2008.
For 2010, base salaries were adjusted in early 2010, based on
2009 corporate and individual performance and taking into
consideration the survey data provided by Radford and Thelander.
The increase in 2010 base salaries over 2009 was made in
consideration of our successful achievement of most of the
corporate performance goals for 2009, achievement of other
performance goals as they related to each NEO and the subjective
assessment of each NEOs performance of major job
responsibilities and demonstration of teamwork, excellence and
commitment. Each of the base salary increases was reviewed in
light of the Radford and Thelander survey data to validate that
they were within acceptable ranges. The compensation committee
considered that Mr. Ellis salary was below the
25th
percentile of the competitive salary data prior to the increase.
As a result, the amount of Mr. Ellis salary increase
was intended to bring his base salary more in line with CEO
salaries across the companies in the survey data and resulted in
a base salary for Mr. Ellis at slightly above the
25th
percentile. Other NEOs base salaries fell between the
25th and
75th
percentiles.
Short-Term
Incentives (Cash Bonuses)
To focus NEOs on the importance of achieving our goals, they are
eligible to earn short-term cash incentive pay that is tied to
achievement of those goals. Bonuses are discretionary and the
compensation committee and Board of Directors may determine
bonuses based on achievement of performance goals and other
factors they deem relevant, including a determination not to
award any bonus. No specific formula is used to derive the
actual amount of bonus for each NEO and any amounts actually
paid are determined based on subjective review by our Board of
Directors, the compensation committee and, with respect to NEOs
other than himself, our CEO.
After each year, the compensation committee recommends to our
Board of Directors bonus pools to be set based on achievement of
corporate performance goals in the preceding year. Upon our
Board of Directors approval of the bonus pools, the
bonuses with respect to our NEOs are determined as a portion of
the applicable bonus pool, based on each such NEOs
individual performance in such preceding year and in
113
relation to each such NEOs targeted bonus amount as a
percentage of base salary. For 2009 and 2010, target bonuses
were 25 percent of base salary for Mr. Ellis and 20 percent
of base salary for all other NEOs.
The bonus payouts were awarded based on company and individual
performance. Performance goals are defined at the beginning of
each fiscal year. Goals are set at a company level and also at
an individual level for all employees (aligning with company
goals). Other factors that influence the bonus payout include
the health of financial markets or status of active fundraising
efforts impacting the prospects to raise additional capital and
the resulting need for us to conserve cash. These other factors
also impact the total size of the option pool, but the
allocation of that pool to individuals is determined solely by
their performance relative to key result areas.
In early 2009, the compensation committee recommended, and our
Board of Directors approved, that no annual cash bonus would be
paid to our NEOs for 2008, without regard to performance. The
difficult macroeconomic conditions across the industry and our
strategic focus on cash conservation led the compensation
committee and Board of Directors to eliminate cash bonuses and
instead to provide performance-based compensation in the form of
equity awards during 2009. These equity awards are discussed in
more detail below.
Following the completion of 2009, the compensation committee
recommended, and our Board of Directors approved, cash bonuses
to be paid to our NEOs. The following table sets forth the 2009
bonuses paid in the first quarter of 2010 to each of our NEOs:
|
|
|
|
|
|
|
|
|
|
|
2009 Bonus as a
|
|
|
Named Executive
Officer
|
|
Percentage of Base
Salary
|
|
2009 Bonus
|
|
P. Ron Ellis
|
|
|
22.6
|
%
|
|
$
|
63,000
|
|
Michael A. Sherman
|
|
|
18.9
|
%
|
|
$
|
40,000
|
|
Christopher P. Leamon, Ph.D.
|
|
|
18.6
|
%
|
|
$
|
40,000
|
|
Richard A. Messmann, M.D.
|
|
|
15.0
|
%
|
|
$
|
38,000
|
|
Allen R. Ritter, Ph.D.
|
|
|
18.7
|
%
|
|
$
|
35,000
|
|
In determining the bonus pool for the bonus payouts for 2009,
the compensation committee considered that we achieved a
Highly Successful Performance rating (see Company
Performance Goals). This bonus pool was based on a
recommendation by our Chief Executive Officer of an aggregate
pool for the NEOs, other than our CEO, equal to their aggregate
base salaries multiplied by approximately 18 percent, which
was based on approximately 90 percent of the target
20 percent, which was considered and recommended to our
Board of Directors by the compensation committee. The individual
percentages allocated to each NEO reflect the assessment of
their individual performance based on the achievement of the
individual goals outlined above. Our Board of Directors approved
a bonus pool of $153,000 to be allocated among our NEOs, other
than Mr. Ellis. The compensation committee applied the same
90 percent proportion to Mr. Ellis target
25 percent bonus opportunity. For Christopher P. Leamon,
the compensation committee determined that his performance was
above target in certain areas for which he is responsible,
including activated macrophage development, patent milestones
and manufacturing process development for tubulysin, which was
partially offset where performance was at or below target
performance, including certain oncology discovery objectives.
For Michael A. Sherman, the compensation committee
determined that his performance was above target in certain
areas for which he is responsible, including financing
milestones and PRECEDENT trial enrollment, which was partially
offset where performance was at or below target performance,
including operational targets in human resources, IT and expense
management. For Allen R. Ritter the compensation committee
determined that his performance was above target in certain
areas for which he is responsible, including clinical product
supply, tubulysin process development and manufacturing cost
reduction, which was partially offset where performance was at
or below target performance, including phase 1 clinical product
supply and product formulation. For Richard A. Messmann,
the compensation
114
committee determined that his performance was above target in
certain areas for which he is responsible, including PRECEDENT
trial enrollment and clinical trial support, which was offset
where performance was at or below target performance, including
phase 1 enrollment and data management milestones. In addition,
P. Ron Ellis bonus is based on a percentage of the
aggregate officer bonuses because his bonus is entirely linked
to the company-level performance goals discussed above.
Regardless of the achievement of the 2010 corporate performance
goals, management recommended and the compensation committee
concurred that no bonus pool shall be created for 2010 in order
to preserve near-term cash resources. And as a result, since no
bonus pool would be available for 2010 distribution to NEOs,
relative individual performance was not assessed in connection
with any distributions.
Long-Term
Incentives (Equity Awards)
We believe that strong long-term corporate performance is
achieved with a corporate culture that encourages a long-term
focus by our NEOs through the use of equity awards, the value of
which depends on our stock performance. We have established
equity incentive plans to provide certain of our employees,
including our NEOs, with incentives to help align those
employees interests with the interests of our stockholders
and to enable them to participate in the long-term appreciation
of our stockholder value. Additionally, equity awards provide an
important retention tool for key employees, as the awards
generally are subject to vesting over an extended period of time
based on to continued service with us.
Typically, equity awards are granted annually at the beginning
of each year based primarily on corporate performance as a whole
during the preceding year. In addition, we may grant equity
awards upon the occurrence of certain events during the year,
for example, upon an employees hire or achievement of a
significant business objective.
No formula is used in setting equity award grants and the
determination of whether to grant equity awards, as well as the
size of such equity awards, to our NEOs, but involves subjective
assessments by our Board of Directors, compensation committee
and, with respect to NEOs other than himself, our CEO.
Generally, annual equity awards are driven by our performance
during the applicable year. We may consider individual
performance and contributions during such preceding year to the
extent our Board of Directors and compensation committee believe
such factors are relevant. As with base salary and cash bonuses,
our Board of Directors and compensation committee also consider
the survey data in determining equity award grants to our NEOs.
Our Board of Directors and compensation committee refer to the
25th and
75th
percentiles of the survey data generally to substantiate that
the size of equity award grants to NEOs are appropriate.
However, based on our emphasis on performance-driven
compensation, and in offsetting the slightly lower base salaries
as compared to survey data that we provide to our NEOs, equity
awards tend to fall between the
50th and
75th
percentiles of the survey data used.
2009 Annual Equity Awards.
We did not provide base salary increases or cash bonuses to our
NEOs for 2008 performance due to our strategic business decision
to conserve cash. In lieu of such cash compensation, in March
2009 our Board of Directors approved stock option grants to be
made to our NEOs to reward them for corporate and individual
performance in 2008. The number of shares subject to each stock
option granted to our NEOs was for each NEO, as stated above,
based on company performance relative to established goals,
individual performance relative to established goals and
individual benchmarked equity ownership levels. The compensation
committee has broad discretion to allocate the respective
weightings among the established goals.
115
The following table sets forth the stock options granted to our
NEOs in March 2009:
|
|
|
|
|
|
|
March 2009 Option Grants
|
Named Executive
Officer
|
|
(Number of Shares)
|
|
P. Ron Ellis
|
|
|
108,438
|
|
Michael A. Sherman
|
|
|
6,732
|
|
Christopher P. Leamon, Ph.D.
|
|
|
37,366
|
|
Richard A. Messmann, M.D.
|
|
|
15,295
|
|
Allen R. Ritter, Ph.D.
|
|
|
12,533
|
|
2009 and 2010 Milestone Equity Awards.
Further, in March 2009 and in February 2010, concurrent with its
decision not to provide base salary increases or cash bonuses to
our NEOs and in order to continue to drive performance, our
Board of Directors set certain key milestones for us to be
achieved during 2009 and 2010, upon which our Board of Directors
were to grant additional stock options to our NEOs. The
following table describes the applicable milestones and stock
options granted upon achievement of such milestones, with
respect to each NEO:
|
|
|
|
|
|
|
|
|
Milestone
|
|
|
|
|
Option Grants
|
|
|
Named Executive
Officer
|
|
(Number of Shares)
|
|
Milestones
|
|
P. Ron Ellis
|
|
|
52,356
|
|
|
Leadership to meet company objectives
|
Michael A. Sherman
|
|
|
10,471
|
|
|
Completion of successful financing
|
Christopher P. Leamon, Ph.D.
|
|
|
10,471
|
|
|
Completion of key discovery goals
|
Richard A. Messmann, M.D.
|
|
|
1,570
|
|
|
Completion of certain clinical studies and presentations
|
Allen R. Ritter, Ph.D.
|
|
|
7,852
|
|
|
Achievement of key manufacturing and quality objectives
|
2010 Annual Equity Awards.
In early 2010, based on our Highly Successful
Performance rating in 2009 and the individual NEOs
contributions as described above, our Board of Directors
approved the equity awards set forth in the following table:
|
|
|
|
|
|
|
February 2010 Option Grants
|
Named Executive
Officer
|
|
(Number of Shares)(1)
|
|
P. Ron Ellis
|
|
|
91,623
|
|
Michael A. Sherman
|
|
|
15,706
|
|
Christopher P. Leamon, Ph.D.
|
|
|
15,706
|
|
Richard A. Messmann, M.D.
|
|
|
15,706
|
|
Allen R. Ritter, Ph.D.
|
|
|
15,706
|
|
|
|
(1) |
The option grants vest on a monthly basis over a period of
48 months beginning February 28 2010, subject to
continued service with us through each relevant date.
|
For 2010, our Board of Directors and compensation committee took
into account the equity holdings of each of our NEOs and engaged
in benchmarking ownership levels of individual NEOs as compared
with our peer group. As a result of previous recommendations
from Radford regarding increasing equity ownership to the extent
deemed essential in ensuring NEOs have sufficient incentive and
retention value, our Board of Directors and compensation
committee continued to monitor our NEOs equity ownership
level, including total equity ownership and unvested equity
stakes. Particularly, our Board of Directors and compensation
committee believed that Mr. Ellis equity ownership
was low in comparison to survey data, below the
25th
percentile with respect to both founder and non-founder survey
data. As a result, immediately following the option grants made
in early 2010, Mr. Ellis equity ownership increased
to
116
slightly above the
25th
percentile with respect to founder survey data, although still
below the
25th
percentile with respect to non-founder survey data.
In addition, with respect to Mr. Ellis and Dr. Leamon,
our Board of Directors and compensation committee also
considered that certain previously granted equity awards held by
these NEOs were set to expire. Accordingly, the grant of the new
equity awards in 2010 was intended both to reward performance in
2009 as well as to address potential retention concerns related
to the reduction in outstanding equity awards and diminishing
outstanding equity awards that remain unvested.
In addition to the award granted to Mr. Ritter in
February 2010, Mr. Ritter was awarded an additional option
grant of 5,235 shares in November 2010 related to the
successful execution of activities in preparation for PROCEED.
The stock option grants referenced above brought our NEOs to
appropriate ownership percentiles compared to survey data:
ranging from the
25th percentile
to the
80th percentile.
Based on Radford benchmarking and what the compensation
committee determined appropriate for Mr. Ellis, the
compensation committee determined that the foregoing ownership
levels, when compared to the survey data, was fair and at
reasonable levels for incentive and retention purposes.
Broad-based
Employee Benefits
Our NEOs are eligible to participate in the same group insurance
and employee benefit plans as our other salaried employees. We
provide employee benefits to all eligible employees, including
our NEOs, which our Board of Directors and compensation
committee believe are reasonable and consistent with its overall
compensation objective to better enable us to attract and retain
employees. These benefits include medical, dental, vision, and
disability benefits and life insurance.
Until 2009, we provided NEOs with healthcare coverage for which
all premiums were paid by us. The benefit was provided because
we believed that it was necessary as an additional incentive to
attract and recruit key talent in a highly competitive labor
market. At this time, we do not provide special plans or
programs for our NEOs.
We sponsor a 401(k) tax-qualified retirement savings plan
pursuant to which employees are entitled to participate.
Employees can make contributions to the plan on a before-tax
basis to the maximum amount prescribed by the U.S. Internal
Revenue Service. We do not provide any matching to these
contributions. Other than this plan, we do not maintain any
other deferred savings plans in which our NEOs participate. We
do not maintain or provide any defined benefit plans for our
employees.
We are establishing the 2010 Employee Stock Purchase Plan, or
the ESPP, which our Board of Directors has adopted and our
stockholders will approve, in connection with this offering.
Although approved, we have chosen to delay commencing the ESPP
until such date in the future, if ever, following this offering
that our compensation committee determines in its sole
discretion that it is in our best interest to do so. The plan
administrator will determine who is eligible, which may include
our executive officers and other employees should we ever decide
to commence offerings under it.
Change in
Control and Severance Benefits
The compensation committee considers maintaining a stable and
effective management team to be essential to protecting and
enhancing the best interests of us and our stockholders. In
August 2010, we established change in control and severance
arrangements with certain key executives including our NEOs to
provide assurances of specified severance benefits to such
executives whose employment is subject to involuntary
termination other than for death, disability, or cause or
voluntary termination for good reason. We believe that it is
imperative to provide such individuals with severance benefits
upon certain terminations of employment, which we recognize can
be triggered at any time, to (i) secure their continued
dedication to their work, notwithstanding the possibility of a
termination by us, and (ii) provide such individuals with
an
117
incentive to continue employment with us. We believe that the
severance benefits are competitive relative to the severance
protection provided to similarly situated individuals at
companies in our peer group and appropriate given that the
benefits are subject to the participants entry into a
release of claims in favor of us.
We also recognize that the possibility of a change in control
may exist from time to time, and that this possibility, and the
uncertainty and questions it may raise among management, may
result in the departure or distraction of management to our and
our stockholders detriment. Accordingly, the compensation
committee and Board of Directors decided to take appropriate
steps to encourage the continued attention, dedication and
continuity of members of our management to their assigned duties
without the distraction that may arise from the possibility or
occurrence of a change in control. As a result, we entered into
agreements with each of our NEOs and certain other senior
executives that provide additional benefits in the event of a
change in control. For more detail, see Potential Payments
Upon Termination or Change in Control.
Mr. Ellis is a party to an employment agreement under which
he would become entitled to receive certain benefits upon a
termination without cause or a change in control, which was
superseded by a change of control agreement that was approved by
our Board of Directors. For more detail, see Potential
Payments Upon Termination or Change in Control.
Tax and
Accounting Considerations
We have not provided any executive officer or director with a
gross-up or
other reimbursement for tax amounts the executive officer or
director might pay pursuant to Section 280G or
Section 409A of the Code. Section 280G and related
Code sections provide that executive officers, directors who
hold significant stockholder interests and certain other service
providers could be subject to significant additional taxes if
they receive payments or benefits in connection with a change in
control of our company that exceeds certain limits, and that we
or our successor could lose a deduction on the amounts subject
to the additional tax. Section 409A also imposes additional
significant taxes on the individual in the event that an
executive officer, director or service provider receives
deferred compensation that does not meet the
requirements of Section 409A.
Due to the limitations of Section 162(m) of the U.S.
Internal Revenue Code Section, or Code, we generally receive a
federal income tax deduction for compensation paid to our chief
executive officer and to certain other highly compensated
officers only if the compensation is less than $1,000,000 per
person during any year or is performance-based under
Code Section 162(m). In addition to salary and bonus
compensation, upon the exercise of stock options that are not
treated as incentive stock options, the excess of the current
market price over the option price, or option spread, is treated
as compensation and accordingly, in any year, such exercise may
cause an officers total compensation to exceed $1,000,000.
Option spread compensation from options that meet certain
requirements will not be subject to the $1,000,000 cap on
deductibility, and in the past we have granted options that we
believe met those requirements. Additionally, under a special
Code Section 162(m) exception, any compensation paid
pursuant to a compensation plan in existence before the
effective date of this public offering will not be subject to
the $1,000,000 limitation until the earliest of: (i) the
expiration of the compensation plan, (ii) a material
modification of the compensation plan as determined under Code
Section 162(m), (iii) the issuance of all the employer
stock and other compensation allocated under the compensation
plan, or (iv) the first meeting of stockholders at which
directors are elected after the close of the third calendar year
following the year in which the public offering occurs. Although
the compensation committee cannot predict how the deductibility
limit may impact our compensation program in future years, the
compensation committee intends to maintain an approach to
executive compensation that strongly links pay to performance.
In addition, although the compensation committee has not adopted
a formal policy regarding tax deductibility of compensation paid
to our NEOs, the compensation committee intends to consider tax
deductibility under Code Section 162(m) as a factor in
compensation decisions.
118
EXECUTIVE
COMPENSATION
2009 and
2010 Summary Compensation Table
The following table provides information regarding the
compensation of our principal executive officer, principal
financial officer and each of the next three most highly
compensated executive officers during our years ended
December 31, 2009 and 2010. We refer to these persons as
our Named Executive Officers elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
Name and
|
|
|
|
Salary
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
($)
|
|
P. Ron Ellis
|
|
|
2009
|
|
|
$
|
288,952
|
|
|
$
|
99,230
|
|
|
$
|
63,000
|
|
|
$
|
3,271
|
|
|
$
|
454,453
|
|
President and Chief
|
|
|
2010
|
|
|
|
302,798
|
|
|
|
131,537
|
|
|
|
|
|
|
|
1,005
|
|
|
|
435,340
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Sherman
|
|
|
2009
|
|
|
|
220,154
|
|
|
|
15,519
|
|
|
|
40,000
|
|
|
|
5,267
|
|
|
|
280,940
|
|
Chief Financial Officer
|
|
|
2010
|
|
|
|
223,500
|
|
|
|
45,717
|
|
|
|
|
|
|
|
6,005
|
|
|
|
275,222
|
|
Christopher P. Leamon, Ph.D.
|
|
|
2009
|
|
|
|
223,269
|
|
|
|
34,193
|
|
|
|
40,000
|
|
|
|
3,271
|
|
|
|
300,733
|
|
Vice President of
|
|
|
2010
|
|
|
|
223,846
|
|
|
|
38,513
|
|
|
|
|
|
|
|
6,005
|
|
|
|
268,364
|
|
Research
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Messmann, M.D.
|
|
|
2009
|
|
|
|
262,731
|
|
|
|
13,670
|
|
|
|
38,000
|
|
|
|
8,713
|
|
|
|
323,114
|
|
Vice President of
|
|
|
2010
|
|
|
|
259,723
|
|
|
|
27,871
|
|
|
|
|
|
|
|
13,471
|
|
|
|
301,065
|
|
Medical Affairs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen R. Ritter, Ph.D.
|
|
|
2009
|
|
|
|
193,881
|
|
|
|
11,469
|
|
|
|
35,000
|
|
|
|
3,271
|
|
|
|
243,621
|
|
Vice President of
|
|
|
2010
|
|
|
|
192,273
|
|
|
|
28,548
|
|
|
|
|
|
|
|
6,005
|
|
|
|
226,826
|
|
Manufacturing and CMC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This represents the actual salary amounts paid in 2009, which
includes an extra pay check at the end of December 2009 due
to timing of holidays and our policy of making payroll early
when a payday falls on a holiday.
|
|
(2)
|
The amounts in this column represent the aggregate grant date
fair value of the option awards vested and computed in
accordance with FASB Topic ASC 718. See Note 10 of Notes to
Financial Statements for a discussion of assumptions made in
determining the grant date fair value and compensation expense
of our stock options.
|
|
(3)
|
See Compensation Discussion and Analysis
Elements of Executive Compensation Short-Term
Incentives (Cash Bonuses) for a discussion of our bonus
program.
|
119
Grants of
Plan-Based Awards
The following table presents information concerning grants of
plan-based awards to each NEO during the years ended
December 31, 2009 and 2010.
GRANTS OF
PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
Estimated Future Payouts Under
|
|
Number
|
|
Securities
|
|
Base Price
|
|
Fair Value of
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
Equity Incentive Plan Awards(2)
|
|
of Shares
|
|
Underlying
|
|
of Option
|
|
Stock and
|
|
|
|
|
Name of
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
of Stock or Units
|
|
Options
|
|
Awards
|
|
Option
|
Name
|
|
Grant Date
|
|
Plan
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($/Sh)
|
|
Awards(3)
|
|
P. Ron Ellis
|
|
|
03/05/2009
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,438
|
(6)
|
|
$
|
2.54
|
|
|
$
|
99,230
|
|
|
|
|
02/11/2010
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,356
|
(5)
|
|
|
|
|
|
|
|
|
|
|
91,623
|
(5)
|
|
|
3.82
|
|
|
|
286,248
|
|
|
|
|
|
|
|
Bonus
Program
|
|
|
|
|
|
$
|
76,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Sherman
|
|
|
03/05/2009
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,732
|
(6)
|
|
|
2.54
|
|
|
|
6,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/12/2009
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,471
|
(4)
|
|
|
|
|
|
|
|
|
|
|
15,706
|
(5)
|
|
|
2.54
|
|
|
|
9,358
|
|
|
|
|
02/11/2010
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.82
|
|
|
|
31,227
|
|
|
|
|
|
|
|
Bonus
Program
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher P. Leamon, Ph.D.
|
|
|
03/05/2009
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,366
|
(6)
|
|
|
2.54
|
|
|
|
34,193
|
|
|
|
|
02/11/2010
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,471
|
(5)
|
|
|
|
|
|
|
|
|
|
|
15,706
|
(5)
|
|
|
3.82
|
|
|
|
52,045
|
|
|
|
|
|
|
|
Bonus
Program
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Messmann, M.D.
|
|
|
03/05/2009
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,295
|
(6)
|
|
|
2.54
|
|
|
|
13,997
|
|
|
|
|
02/11/2010
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,570
|
(5)
|
|
|
|
|
|
|
|
|
|
|
15,706
|
(5)
|
|
|
3.82
|
|
|
|
34,350
|
|
|
|
|
|
|
|
Bonus
Program
|
|
|
|
|
|
|
52,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen R. Ritter, Ph.D.
|
|
|
03/05/2009
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,533
|
(6)
|
|
|
2.54
|
|
|
|
11,469
|
|
|
|
|
02/11/2010
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,617
|
(5)
|
|
|
|
|
|
|
|
|
|
|
15,706
|
(5)
|
|
|
3.82
|
|
|
|
36,432
|
|
|
|
|
|
|
|
Bonus
Program
|
|
|
|
|
|
|
38,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/10/2010
|
|
|
2007 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,235
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.26
|
|
|
|
29,382
|
|
|
|
|
(1)
|
|
Amounts represent amounts payable
under our bonus program. The target column assumes the full
achievement of performance goals and other factors deemed
relevant by our Board of Directors and compensation committee.
No specific formula is used under the bonus program to derive
the actual amount of bonus for each of the NEOs. Actual amounts
paid are set forth under the heading Executive
Compensation 2009 Summary Compensation Table.
|
|
(2)
|
|
Amounts represent 2009 and 2010
Milestone Equity Awards. The target column assumes the full
achievement of the milestones identified in the table under the
heading Compensation Discussion and Analysis
Elements of Executive Compensation 2009 and 2010
Milestone Equity Awards. No specific formula is used to
determine the actual amount of shares issued to each of the NEOs
as a 2009 and 2010 Milestone Equity Award. Actual amounts issued
are set forth in the table under the heading Compensation
Discussion and Analysis Elements of Executive
Compensation 2009 and 2010 Milestone Equity
Awards.
|
|
(3)
|
|
Reflects the grant date fair value
of each award computed in accordance with FASB Topic
ASC 718. These amounts do not correspond to the actual
value that will be recognized by the NEOs. The assumptions used
in the valuation of these awards are consistent with the
valuation methodologies specified in the notes to our financial
statements.
|
|
(4)
|
|
Shares subject to the option vest
monthly over a period of 48 months beginning on
November 30, 2009.
|
|
(5)
|
|
Shares subject to the option vest
monthly over a period of 48 months beginning on
February 28, 2010.
|
|
(6)
|
|
Shares subject to the option vest
monthly over a period of 48 months beginning on
March 31, 2009.
|
|
(7)
|
|
Shares subject to the option vest
monthly over a period of 48 months beginning on
November 30, 2010.
|
120
Outstanding
Equity Awards at Year-End
The following table presents certain information concerning
equity awards held by the Named Executive Officers at the end of
the year ended December 31, 2010. We have not granted any
stock awards prior to the end of year ended December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Shares or
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Units of Stock
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
Options (#)
|
|
|
That Have
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Not Vested (#)
|
|
|
Options (#)
|
|
|
Price ($)
|
|
|
Date
|
|
|
P. Ron Ellis
|
|
|
14
|
(1)
|
|
|
|
|
|
|
|
|
|
$
|
0.19
|
|
|
|
8/8/2011
|
|
|
|
|
6,998
|
(1)
|
|
|
|
|
|
|
|
|
|
|
0.19
|
|
|
|
2/7/2012
|
|
|
|
|
13,089
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/10/2015
|
|
|
|
|
26,178
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/17/2016
|
|
|
|
|
77,793
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
8/31/2016
|
|
|
|
|
51,265
|
(2)
|
|
|
1,090
|
|
|
|
|
|
|
|
2.10
|
|
|
|
5/31/2017
|
|
|
|
|
47,719
|
(3)
|
|
|
17,725
|
|
|
|
|
|
|
|
3.06
|
|
|
|
2/12/2018
|
|
|
|
|
49,701
|
(4)
|
|
|
58,737
|
|
|
|
|
|
|
|
2.54
|
|
|
|
3/5/2019
|
|
|
|
|
32,993
|
(8)
|
|
|
110,984
|
|
|
|
|
|
|
|
3.82
|
|
|
|
2/11/2020
|
|
Michael A. Sherman
|
|
|
13,089
|
(1)
|
|
|
|
|
|
|
|
|
|
$
|
1.91
|
|
|
|
11/1/2016
|
|
|
|
|
7,689
|
(1)
|
|
|
163
|
|
|
|
|
|
|
|
2.10
|
|
|
|
2/1/2017
|
|
|
|
|
47,992
|
(6)
|
|
|
4,363
|
|
|
|
|
|
|
|
2.10
|
|
|
|
5/31/2017
|
|
|
|
|
7,635
|
(3)
|
|
|
2,836
|
|
|
|
|
|
|
|
3.06
|
|
|
|
2/12/2018
|
|
|
|
|
3,085
|
(4)
|
|
|
3,647
|
|
|
|
|
|
|
|
2.54
|
|
|
|
3/5/2019
|
|
|
|
|
3,053
|
(7)
|
|
|
7,417
|
|
|
|
|
|
|
|
2.54
|
|
|
|
11/12/2019
|
|
|
|
|
3,599
|
(8)
|
|
|
12,107
|
|
|
|
|
|
|
|
3.82
|
|
|
|
2/11/2020
|
|
Christopher P. Leamon, Ph.D.
|
|
|
13,089
|
(1)
|
|
|
|
|
|
|
|
|
|
$
|
7.64
|
|
|
|
1/1/2011
|
|
|
|
|
9,027
|
(1)
|
|
|
|
|
|
|
|
|
|
|
0.19
|
|
|
|
8/8/2011
|
|
|
|
|
6,544
|
(1)
|
|
|
|
|
|
|
|
|
|
|
0.19
|
|
|
|
2/2/2012
|
|
|
|
|
4,502
|
(1)
|
|
|
|
|
|
|
|
|
|
|
0.57
|
|
|
|
2/20/2013
|
|
|
|
|
13,089
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/10/2015
|
|
|
|
|
13,089
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/17/2016
|
|
|
|
|
25,632
|
(5)
|
|
|
545
|
|
|
|
|
|
|
|
2.10
|
|
|
|
2/11/2017
|
|
|
|
|
19,087
|
(3)
|
|
|
7,090
|
|
|
|
|
|
|
|
3.05
|
|
|
|
2/12/2018
|
|
|
|
|
17,126
|
(4)
|
|
|
20,240
|
|
|
|
|
|
|
|
2.54
|
|
|
|
3/5/2019
|
|
|
|
|
5,998
|
(8)
|
|
|
20,178
|
|
|
|
|
|
|
|
3.82
|
|
|
|
2/11/2020
|
|
Richard A. Messmann, M.D.
|
|
|
26,178
|
(1)
|
|
|
|
|
|
|
|
|
|
$
|
1.91
|
|
|
|
7/1/2015
|
|
|
|
|
13,089
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/17/2016
|
|
|
|
|
20,505
|
(5)
|
|
|
436
|
|
|
|
|
|
|
|
2.10
|
|
|
|
2/1/2017
|
|
|
|
|
19,087
|
(3)
|
|
|
7,090
|
|
|
|
|
|
|
|
3.06
|
|
|
|
2/12/2018
|
|
|
|
|
7,010
|
(4)
|
|
|
8,285
|
|
|
|
|
|
|
|
2.54
|
|
|
|
3/5/2019
|
|
|
|
|
3,958
|
(8)
|
|
|
13,317
|
|
|
|
|
|
|
|
3.82
|
|
|
|
2/11/2020
|
|
Allen R. Ritter, Ph.D.
|
|
|
8,722
|
(1)
|
|
|
|
|
|
|
|
|
|
$
|
0.76
|
|
|
|
5/20/2014
|
|
|
|
|
5,261
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/10/2015
|
|
|
|
|
12,722
|
(1)
|
|
|
|
|
|
|
|
|
|
|
1.91
|
|
|
|
2/17/2016
|
|
|
|
|
23,069
|
(5)
|
|
|
491
|
|
|
|
|
|
|
|
2.10
|
|
|
|
2/1/2017
|
|
|
|
|
17,179
|
(3)
|
|
|
6,381
|
|
|
|
|
|
|
|
3.05
|
|
|
|
2/12/2018
|
|
|
|
|
5,744
|
(4)
|
|
|
6,789
|
|
|
|
|
|
|
|
2.54
|
|
|
|
3/5/2019
|
|
|
|
|
4,198
|
(8)
|
|
|
14,125
|
|
|
|
|
|
|
|
3.82
|
|
|
|
2/11/2020
|
|
|
|
|
217
|
(9)
|
|
|
5,017
|
|
|
|
|
|
|
|
7.26
|
|
|
|
11/10/2020
|
|
|
|
(1) |
The option is fully vested and immediately exercisable.
|
|
|
(2) |
Shares subject to the option vest as follows: 4,363 shares vest
on May 31, 2007; 1,090 shares vest on each of June 30, 2007 and
July 31, 2007; 5,453 shares vest on January 1, 2008 and the
remaining 40,357 shares vest monthly over a period of 48 months
beginning on January 31, 2008.
|
|
|
(3) |
Shares subject to the option vest monthly over a period of 48
months beginning on February 29, 2008.
|
121
|
|
(4)
|
Shares subject to the option vest monthly over a period of 48
months beginning on March 31, 2009.
|
|
(5)
|
Shares subject to the option vest monthly over a period of 48
months beginning on February 28, 2007.
|
|
(6)
|
Shares subject to the option vest monthly over a period of 48
months beginning on May 31, 2007.
|
|
(7)
|
Shares subject to the option vest monthly over a period of 48
months beginning on November 30, 2009.
|
|
(8)
|
Shares subject to the option vest monthly over a period of
48 months beginning on February 28, 2010.
|
|
|
(9) |
Shares subject to the option vest monthly over a period of
48 months beginning on November 30, 2010.
|
Option
Exercises and Stock Vested at Years-End 2009 and 2010
The following table sets forth information regarding options
exercised by our named executive officers during the fiscal
years ended December 31, 2009 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Value
|
|
|
|
Acquired on
|
|
|
Realized on
|
|
Name
|
|
Exercise (#)
|
|
|
Exercise ($)
|
|
|
P. Ron Ellis
|
|
|
|
|
|
|
|
|
Michael A. Sherman
|
|
|
52,356
|
|
|
$
|
280,105
|
(1)
|
Christopher P. Leamon
|
|
|
|
|
|
|
|
|
Richard A. Messmann
|
|
|
|
|
|
|
|
|
Allen R. Ritter
|
|
|
|
|
|
|
|
|
|
|
(1) |
The aggregate dollar amount realized upon the exercise of the
option represents the amount by which (x) the aggregate
market price of the shares of our common stock for which
Mr. Sherman exercised the option on December 15, 2010,
the date of exercise, as calculated using a per share fair
market value of $7.26, which is based on the most recent
independent appraisal completed prior to the date of exercise
exceeds (y) the aggregate exercise price of the option, as
calculated using a per share exercise price of $1.91.
|
Pensions
We did not maintain any plan providing for payments or other
benefits at, following, or in connection with retirement, during
the fiscal year ended December 31, 2010.
Nonqualified Deferred Compensation
There were no nonqualified defined contributions or other
deferred compensation plans for any Named Executive Officer for
the year ended December 31, 2010.
Employment
Agreements and Change in Control Arrangements
We entered into an employment agreement with our President and
Chief Executive Officer, P. Ron Ellis, which was superseded by a
change of control agreement that was approved by our Board of
Directors.
122
Potential
Payments Upon Termination in Change in Control
Change
in Control and Severance Agreements
On August 12, 2010, in connection with this offering, our
Board of Directors approved entering into Change in Control and
Severance Agreements with each of our NEOs. These agreements,
each of which were entered into on August 25, 2010, provide
for the following benefits:
If the NEOs employment is terminated without Cause, or if
he terminates his employment with us for Good Reason, prior to a
Change in Control or after 12 months following a Change in
Control, he will be entitled to:
|
|
|
|
|
a lump sum severance payment equal to nine months
(12 months for Mr. Ellis) of his then-current base
salary; and
|
|
|
|
nine months (12 months for Mr. Ellis) reimbursement of
premiums under the Consolidated Omnibus Budget Reconciliation
Act, or COBRA, for continued coverage under our medical, dental,
or vision plans for him
and/or his
eligible dependents.
|
If the NEO is terminated without Cause, or if he terminates his
employment with us for Good Reason, within one year following a
Change in Control, he will be entitled to:
|
|
|
|
|
a lump sum payment equal to 12 months of base salary, as in
effect immediately prior to the Change in Control or his
termination, whichever is greater;
|
|
|
|
a lump sum payment equal to his target bonus for the year of
termination or, if greater, for the year during which the Change
in Control occurs;
|
|
|
|
twelve months reimbursement of COBRA premiums for continued
coverage under our medical, dental,
and/or
vision plans for him
and/or his
eligible dependents; and
|
|
|
|
100 percent of his unvested equity awards will immediately
vest and become exercisable in full.
|
The foregoing severance benefits will be subject to the NEO
providing us with an executed release of claims.
Potential Payments in the Event of Termination Without
Cause or by Executive for Good Reason Prior to a Change in
Control or More than Twelve Months Following a Change in
Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic Value of
|
|
|
|
|
|
|
Accelerated Equity Awards
|
|
|
|
Cash Severance
|
|
|
Options
|
|
|
Restricted Stock
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
P. Ron Ellis
|
|
|
306,000
|
|
|
|
|
|
|
|
|
|
Michael A. Sherman
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
Christopher P. Leamon, Ph.D.
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
Richard A. Messmann, M.D.
|
|
|
260,600
|
|
|
|
|
|
|
|
|
|
Allen R. Ritter, Ph.D.
|
|
|
193,000
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The severance amount related to
base salary was determined based on base salaries in effect in
August 2010.
|
123
Potential Payments in the Event of a Termination Within
Twelve Months Following a Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic Value of
|
|
|
|
|
|
|
Accelerated Equity Awards(2)
|
|
|
|
Cash Severance
|
|
|
Options
|
|
|
Restricted Stock
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
P. Ron Ellis
|
|
|
382,500
|
|
|
|
739,093
|
|
|
|
|
|
Michael A. Sherman
|
|
|
270,000
|
|
|
|
129,136
|
|
|
|
|
|
Christopher P. Leamon, Ph.D.
|
|
|
270,000
|
|
|
|
197,606
|
|
|
|
|
|
Richard A. Messmann, M.D.
|
|
|
312,720
|
|
|
|
116,943
|
|
|
|
|
|
Allen R. Ritter, Ph.D.
|
|
|
231,600
|
|
|
|
110,032
|
|
|
|
|
|
|
|
|
(1)
|
|
The severance amount related to
base salary was determined based on base salaries in effect in
August 2010 and target bonuses for 2010.
|
|
|
|
(2)
|
|
Represents intrinsic value of all
unvested awards as of the assumed date of termination. All
calculations assume a $7.26 per share stock price in the date of
termination (our Board of Directors determined fair market value
of our common stock on September 30, 2010).
|
For the purposes of the above agreements, cause,
change in control, and good reason are
defined as follows:
Cause
(i) an act of personal dishonesty taken by the NEO in
connection with his or her responsibilities as an employee and
intended to result in the NEOs substantial personal
enrichment;
(ii) the NEO being convicted of, or pleading no contest or
guilty to, a felony or misdemeanor that the Company reasonably
believes has had or will have a material detrimental effect on
the Company;
(iii) a willful act by the NEO that constitutes gross
misconduct and that is injurious to the Company;
(iv) following delivery to the NEO of a written demand for
performance that describes the basis for the Companys
reasonable belief that the NEO has not substantially performed
his or her duties, the NEOs continued violations of his or
her obligations to the Company that are demonstrably willful and
deliberate on the NEOs part; and
(v) the NEOs material violation of any written
employment policy or standard of conduct of the Company.
Change in Control
(i) a change in the ownership of the Company which occurs
on the date that any one person, or more than one person acting
as a group (Person), acquires ownership of the stock
of the Company that, together with the stock held by such
Person, constitutes more than 50 percent of the total
voting power of the stock of the Company; provided, however,
that for purposes of this subsection (i), the acquisition of
additional stock by any one Person, who is considered to own
more than 50 percent of the total voting power of the stock
of the Company will not be considered a Change in
Control; or
(ii) a change in the effective control of the Company which
occurs on the date that a majority of members of the Board
(each, a Director) is replaced during any
12 month period by Directors whose appointment or election
is not endorsed by a majority of the members of the Board prior
to the date of the appointment or election. For purposes of this
subsection (ii), if any Person is
124
considered to be in effective control of the Company, the
acquisition of additional control of the Company by the same
Person will not be considered a Change in Control; or
(iii) a change in the ownership of a substantial portion of
the Companys assets which occurs on the date that any
Person acquires (or has acquired during the twelve month
period ending on the date of the most recent acquisition by such
person or persons) assets from the Company that have a total
gross fair market value equal to or more than 50 percent of
the total gross fair market value of all of the assets of the
Company immediately prior to such acquisition or acquisitions;
provided, however, that for purposes of this subsection (iii),
the following will not constitute a change in the ownership of a
substantial portion of the Companys assets: (A) a
transfer to an entity that is controlled by the Companys
stockholders immediately after the transfer, or (B) a
transfer of assets by the Company to: (1) a stockholder of
the Company (immediately before the asset transfer) in exchange
for or with respect to the Companys stock, (2) an
entity, 50 percent or more of the total value or voting
power of which is owned, directly or indirectly, by the Company,
(3) a Person, that owns, directly or indirectly,
50 percent or more of the total value or voting power of
all the outstanding stock of the Company, or (4) an entity,
at least 50 percent of the total value or voting power of
which is owned, directly or indirectly, by a Person described in
this subsection (iii)(B)(3). For purposes of this subsection
(iii), gross fair market value means the value of the assets of
the Company, or the value of the assets being disposed of,
determined without regard to any liabilities associated with
such assets.
For purposes of this definition of Change in Control, persons
will be considered to be acting as a group if they are owners of
a corporation that enters into a merger, consolidation, purchase
or acquisition of stock, or similar business transaction with
the Company.
Good Reason means the NEOs termination
of employment within 90 days following the expiration of
any cure period (discussed below) following the occurrence of
one or more of the following, without the NEOs express
written consent:
(i) a material reduction of the NEOs duties,
position, or responsibilities, relative to the NEOs
duties, position, or responsibilities in effect immediately
prior to such reduction, unless the NEO is provided with a
comparable position (i.e., a position of equal or greater
organizational level, duties, authority, compensation and
status), provided, however, that a reduction in duties,
position, or responsibilities solely by virtue of the Company
being acquired and made part of a larger entity (as, for
example, when the Chief Executive Officer of the Company remains
as such following a Change in Control but is not the Chief
Executive Officer of the acquiring corporation) will not
constitute Good Reason;
(ii) a material reduction by the Company in the NEOs
annualized base pay as in effect immediately prior to such
reduction;
(iii) the relocation of the NEOs principal place of
performing his or her duties as an employee of the Company by
more than fifty (50) miles; or
(iv) the failure of the Company to obtain the assumption of
the agreement by a successor.
In order for an event to qualify as Good Reason, the NEO must
not terminate employment with the Company without first
providing the Company with written notice of the acts or
omissions constituting the grounds for Good Reason
within ninety (90) days of the initial existence of the
grounds for Good Reason and a reasonable cure period
of not less than thirty (30) days following the date of
such notice.
125
Employee
Benefit Plans
2010
Equity Incentive Plan
Our Board of Directors has adopted and our stockholders will
approve the EIP. The EIP is effective upon its adoption by our
Board of Directors, but will not be utilized until after the
completion of this offering. The EIP permits the grant of
incentive stock options, within the meaning of Code
Section 422, to our employees and any of our parent and
subsidiary corporations employees, and the grant of
nonstatutory stock options, stock appreciation rights,
restricted stock, restricted stock units, performance units and
performance shares to our employees, directors and consultants
and our parent and subsidiary corporations employees and
consultants.
Authorized Shares
The maximum aggregate number of shares issuable under the EIP is
1,308,900 shares of our common stock, plus (i) any
shares that as of the completion of this offering, have been
reserved but not issued pursuant to any awards granted under the
1997 Stock Plan and the 2007 Stock Plan and are not subject to
any awards granted thereunder, and (ii) any shares subject
to stock options or similar awards granted under the 1997 Stock
Plan and the 2007 Stock Plan that expire or terminate without
having been exercised in full and unvested shares issued
pursuant to awards granted under the 1997 Stock Plan and the
2007 Stock Plan that are forfeited to or repurchased by us, with
the maximum number of shares to be added to the EIP from the
1997 Stock Plan and the 2007 Stock Plan equal to up to
2,486,910 shares. In addition, upon the approval of our
Board of Directors, our EIP provides for annual increases in the
number of shares available for issuance under the EIP on the
first day of each of year beginning with the 2012 year, by an
amount equal to least of:
|
|
|
|
|
2,094,240 shares;
|
|
|
|
four percent of the outstanding shares of our common stock
as of the last day of our immediately preceding year; or
|
|
|
|
such other amount, if any, as our Board of Directors may
determine.
|
Shares issued pursuant to awards under the EIP that we
repurchase or that expire or are forfeited, as well as shares
used to pay the exercise price of an award or to satisfy the tax
withholding obligations related to an award, will become
available for future grant under the EIP. In addition, to the
extent that an award is paid out in cash rather than shares,
such cash payment will not reduce the number of shares available
for issuance under the EIP.
Plan Administration.
The EIP will be administered by our Board of Directors which, at
its discretion or as legally required, may delegate such
administration to our compensation committee
and/or one
or more additional committees. In the case of awards intended to
qualify as performance-based compensation within the
meaning of Code Section 162(m), the committee will consist
of two or more outside directors within the meaning
of Code Section 162(m).
Subject to the provisions of the EIP, the administrator has the
power to determine the terms of awards, including the
recipients, the exercise price, if any, the number of shares
covering each award, the fair market value of a share of our
common stock, the vesting schedule applicable to the awards,
together with any vesting acceleration, the form of
consideration, if any, payable upon exercise of the award, and
the terms of the award agreement for use under the EIP. The
administrator also has the authority, subject to the terms of
the EIP, to amend existing awards to reduce or increase their
exercise price, to allow participants the opportunity to
transfer outstanding awards to a financial institution or other
person or entity selected by the administrator, to institute an
exchange program by which outstanding awards may
126
be surrendered in exchange for awards that may have different
exercise prices and terms, to prescribe rules and to construe
and interpret the EIP and awards granted under the EIP.
Stock Options.
The administrator may grant incentive
and/or
nonstatutory stock options under the EIP, provided that
incentive stock options are only granted to employees. The
exercise price of such options must equal at least the fair
market value of our common stock on the date of grant. The term
of an incentive stock option may not exceed ten years. Provided,
however, that an incentive stock option held by a participant
who owns more than ten percent of the total combined voting
power of all classes of our stock, or of certain of our parent
or subsidiary corporations, may not have a term in excess of
five years and must have an exercise price of at least
110 percent of the fair market value of our common stock on
the grant date. The administrator will determine the methods of
payment of the exercise price of an option, which may include
cash, shares or other property acceptable to the administrator.
Subject to the provisions of the EIP, the administrator
determines the remaining terms of the options (e.g., vesting).
After the termination of service of an employee, director or
consultant, the participant may exercise his or her option, to
the extent vested as of such date of termination, for the period
of time stated in his or her option agreement. However, in no
event may an option be exercised later than the expiration of
its term.
Stock Appreciation Rights.
Stock appreciation rights may be granted under the EIP. Stock
appreciation rights allow the recipient to receive the
appreciation in the fair market value of the common stock
between the exercise date and the date of grant. Subject to the
provisions of our EIP, the administrator determines the terms of
stock appreciation rights, including when such rights vest and
become exercisable and whether to settle such awards in cash or
with shares of our common stock, or a combination thereof,
except that the per share exercise price for the shares to be
issued pursuant to the exercise of a stock appreciation right
will be no less than 100 percent of the fair market value
per share on the date of grant. The specific terms will be set
forth in an award agreement.
Restricted Stock
Restricted stock may be granted under the EIP. Restricted stock
awards are grants of shares of our common stock that are subject
to various restrictions, including restrictions on
transferability and forfeiture provisions. Shares of restricted
stock will vest and the restrictions on such shares will lapse,
in accordance with terms and conditions established by the
administrator. Such terms may include, among other things,
vesting upon the achievement of specific performance goals
determined by the administrator
and/or
continued service to us. The administrator, in its sole
discretion, may accelerate the time at which any restrictions
will lapse or be removed. Recipients of restricted stock awards
generally will have voting and dividend rights with respect to
such shares upon grant without regard to vesting, unless the
administrator provides otherwise. Shares of restricted stock
that do not vest for any reason will be forfeited by the
recipient and will revert to us. The specific terms will be set
forth in an award agreement.
Restricted Stock Units
Restricted stock units may be granted under the EIP. Each
restricted stock unit granted is a bookkeeping entry
representing an amount equal to the fair market value of one
share of our common stock. The administrator determines the
terms and conditions of restricted stock units including the
vesting criteria, which may include achievement of specified
performance criteria or continued service to us, and the form
and timing of payment. The administrator, in its sole
discretion, may accelerate the time at which any restrictions
will lapse or be removed. The administrator determines in its
sole discretion
127
whether an award will be settled in stock, cash or a combination
of both. The specific terms will be set forth in an award
agreement.
Performance Units/Performance Shares
Performance units and performance shares may be granted under
the EIP. Performance units and performance shares are awards
that will result in a payment to a participant only if
performance goals established by the administrator are achieved
or the awards otherwise vest. The administrator will establish
organizational or individual performance goals in its
discretion, which, depending on the extent to which they are
met, will determine the number
and/or the
value of performance units and performance shares to be paid out
to participants. After the grant of a performance unit or
performance share, the administrator, in its sole discretion,
may reduce or waive any performance objectives or other vesting
provisions for such performance units or performance shares.
Performance units shall have an initial dollar value established
by the administrator prior to the grant date. Performance shares
will have an initial value equal to the fair market value of our
common stock on the grant date. The administrator, in its sole
discretion, may pay earned performance units or performance
shares in the form of cash, in shares or in some combination
thereof. The specific terms will be set forth in an award
agreement.
Transferability of Awards
Unless the administrator provides otherwise, the EIP generally
does not allow for the transfer of awards and only the recipient
of an option or stock appreciation right may exercise such an
award during his or her lifetime.
Certain Adjustments
In the event of certain changes in our capitalization, to
prevent diminution or enlargement of the benefits or potential
benefits available under the EIP, the administrator will make
adjustments to one or more of the number and class of shares
that may be delivered under the plan
and/or the
number, class and price of shares covered by each outstanding
award and the numerical share limits contained in the EIP. In
the event of our proposed liquidation or dissolution, the
administrator will notify participants as soon as practicable
and all awards will terminate immediately prior to the
consummation of such proposed transaction.
Merger or Change in Control
The EIP provides that in the event of a merger or change in
control, as defined under the EIP, each outstanding award will
be treated as the administrator determines, except that if a
successor corporation or its parent or subsidiary does not
assume or substitute an equivalent award for any outstanding
award, then such award will fully vest, all restrictions on such
award will lapse, all performance goals or other vesting
criteria applicable to such award will be deemed achieved at
100 percent of target levels and such award will become
fully exercisable, if applicable, for a specified period prior
to the transaction. The award will then terminate upon the
expiration of the specified period of time. If the service of an
outside director is terminated on or following a change in
control, other than pursuant to a voluntary resignation, his or
her awards will become fully vested and exercisable, and all
performance goals or other vesting requirements will be deemed
achieved at 100 percent of target levels.
Plan Amendment, Termination
Our Board of Directors has the authority to amend, suspend or
terminate the EIP provided such action does not impair the
existing rights of any participant. The EIP will automatically
terminate in 2020, unless we terminate it sooner.
128
2010
Employee Stock Purchase Plan
We are establishing the ESPP, which our Board of Directors has
adopted and our stockholders will approve, in connection with
this offering. Although approved, we have chosen to delay
commencing the ESPP until such date in the future, if ever,
following this offering that our Board of Directors determines
in its sole discretion that its in our best interest to do so.
The plan administrator will determine who is eligible to
participate in the ESPP, which may include our executive
officers, should we ever decide to commence offerings under it.
A total of 261,780 shares of our common stock will be made
available for sale under the ESPP. In addition, upon approval of
our Board of Directors, the ESPP provides for annual increases
in the number of shares available for issuance under the ESPP on
the first day of each year beginning with the 2012 year, equal
to the least of:
|
|
|
|
|
523,560 shares;
|
|
|
|
one percent of the outstanding shares of our common stock
on the first day of such year; or
|
|
|
|
such other amount, if any, as our Board of Directors may
determine.
|
Our Board of Directors or its committee has full and exclusive
authority to interpret the terms of the ESPP and determine
eligibility.
The plan administrator will determine who is eligible to
participate in the ESPP consistent with the requirements of the
ESPP and the requirements of the Code. However, an employee may
not be granted rights to purchase stock under the ESPP if such
employee:
|
|
|
|
|
immediately after the grant would own stock possessing
five percent or more of the total combined voting power or
value of all classes of our capital stock; or
|
|
|
|
holds rights to purchase stock under all of our employee stock
purchase plans that would accrue at a rate that exceeds $25,000
worth of our stock for each calendar year.
|
The ESPP is intended to qualify under Section 423 of the
Code. The offering periods will begin on such date as determined
by the administrator and expire on earlier of the completion of
the purchase of shares on the last exercise date of the options
that occurs within 27 months following the start of such
offering period or a shorter period established by the
administrator prior to the start of such offering period.
The ESPP permits participants to purchase common stock through
payroll deductions of up to an amount of their eligible
compensation determined by the administrator. Eligible
compensation includes a participants base straight time
gross earnings, commissions and payments for overtime and shift
premium, but excludes payments for incentive compensation,
bonuses and other similar compensation. A participant may
purchase a maximum of 2,617 shares of common stock on any
given exercise date of the options.
Amounts deducted and accumulated by the participant are used to
purchase shares of our common stock on each exercise date. The
purchase price of the shares will be determined by the
administrator, but will be no less than 85 percent of the
lower of the fair market value of our common stock on the first
trading day of the offering period or on the exercise date of
the options. Participants may end their participation at any
time during an offering period, and will be paid their accrued
payroll deductions that have not yet been used to purchase
shares of common stock. Participation ends automatically upon
termination of employment with us.
A participant may not transfer rights granted under the ESPP
other than by will, the laws of descent and distribution or as
otherwise provided under the ESPP.
129
In the event of our merger or change in control, as defined
under the ESPP, a successor corporation may assume or substitute
each outstanding purchase right. If the successor corporation
refuses to assume or substitute for the outstanding purchase
rights, the offering period then in progress will be shortened,
and a new exercise date will be set which will occur prior to
the proposed merger or change in control. The administrator will
notify each participant in writing that the exercise date has
been changed and that the participants option will be
exercised automatically on the new exercise date unless the
participant has already withdrawn from the offering period.
The ESPP will automatically terminate in 2030, unless we
terminate it sooner. In addition, our Board of Directors has the
authority to amend, suspend or terminate our ESPP, except that,
subject to certain exceptions described in the ESPP, no such
action may adversely affect any outstanding rights to purchase
stock under our ESPP.
2007
Stock Plan, As Amended
The 2007 Stock Plan was adopted by our Board of Directors in
February 2007 and approved by our stockholders in February 2007.
The 2007 Stock Plan was most recently amended in August 2010.
The 2007 Stock Plan provides for the grant of incentive stock
options, within the meaning of Section 422 of the Code, to
our employees and any parent and subsidiary corporations
employees, and for the grant of nonstatutory stock options to
our employees, directors and consultants and any parent and
subsidiary corporations employees and consultants. As of
the effective date of this offering, the 2007 Stock Plan will be
terminated and we will not grant any additional awards under the
2007 Stock Plan. However, the 2007 Stock Plan will continue to
govern the terms and conditions of outstanding awards granted
thereunder.
Authorized Shares
We have reserved a total of 1,730,385 shares of our common
stock for issuance pursuant to the 2007 Stock Plan. As of
December 31, 2010, there were 1,519,654 options to purchase
shares of common stock outstanding and 190,029 shares were
available for future grant under this plan. Shares subject to
options or stock purchase rights that expire or become
unexercisable without having been exercised in full will become
available for future grant under the Plan, or, following this
offering, under the EIP.
Plan Administration
Our Board of Directors or a committee appointed by our Board of
Directors administers the 2007 Stock Plan. Under the 2007 Stock
Plan, the administrator has the power to determine the terms of
the awards, including the recipients, the exercise price, if
any, the number of shares covering each award, the fair market
value of a share of our common stock, the vesting schedule
applicable to the awards, together with any vesting
acceleration, the form of consideration, if any, payable upon
exercise of the award, and the terms of the award agreement for
use under the EIP. The administrator also has the authority,
subject to the terms of the 2007 Stock Plan, to amend existing
awards to reduce or increase their exercise price, to allow
participants the opportunity to transfer outstanding awards to a
financial institution or other person or entity selected by the
administrator, to institute an exchange program by which
outstanding awards may be surrendered in exchange for awards
that may have different exercise prices and terms, to prescribe
rules and to construe and interpret the 2007 Stock Plan and
awards granted under the 2007 Stock Plan.
Stock Options
The 2007 Stock Plan permits the grant of incentive
and/or
nonstatutory stock options. With respect to all options, the
exercise price must at least be equal to 100 percent of the
fair market value of our common stock on the date of grant. The
term of an incentive stock option may not exceed ten years,
130
except that with respect to any participant who owns
ten percent of the voting power of all classes of our
outstanding stock as of the grant date, the term must not exceed
five years and the exercise price must equal at least
110 percent of the fair market value on the grant date,
with respect to incentive stock options.
After termination of service of an employee, director or
consultant, he or she may exercise his or her option, to the
extent vested as of such date of termination, for the period of
time stated in the award agreement (of at least 30 days) or
three months in the absence of a specified time in the option
agreement. Generally, if termination is due to disability, or in
the event of death, the option will remain exercisable for the
period of time stated in the option agreement or twelve months
in the absence of a specified time in the option agreement.
However, an option may not be exercised later than the
expiration of its term.
Stock Purchase Rights
Stock purchase rights may be granted alone, in addition to, or
in tandem with, other awards granted under the 2007 Stock Plan
and/or cash
awards made outside of the 2007 Stock Plan. Stock purchase
rights are grants of rights to purchase our common stock that
are subject to various restrictions, including restrictions on
transferability and forfeiture provisions. After the
administrator determines that it will offer stock purchase
rights, it will advise the purchaser of the terms, conditions
and restrictions related to the offer, including the number of
shares that the purchaser is entitled to purchase, the price to
be paid (which may be no less than 100 percent of the fair
market value of a share of our common stock on the date of
grant) and the time within which the purchaser must accept such
offer. A purchaser accepts the offer by execution of a
restricted stock purchase agreement in the form determined by
the administrator. Once the stock purchase right is exercised,
the purchaser will have rights equivalent to a stockholder.
Transferability of Awards
The 2007 Stock Plan generally does not allow for the transfer of
awards other than by will or the laws of descent and
distribution, unless the administrator otherwise determines for
nonstatutory stock options or stock purchase rights, and only
the recipient of an award may exercise an award during his or
her lifetime.
Certain Adjustments
In the event of certain changes in our capitalization, the
administrator will make adjustments to the number of shares and
exercise price of shares subject to outstanding awards and the
number of shares that may be delivered under the 2007 Stock
Plan. In the event of a proposed liquidation or dissolution, the
administrator will notify participants as soon as practicable
and all awards will terminate immediately prior to the
consummation of such proposed transaction. The administrator, in
its discretion, may provide participants the right to exercise
their options until 15 days prior to such transaction,
including shares subject to the options that otherwise would not
be exercisable.
Merger or Asset Sale
The 2007 Stock Plan provides that in the event of our merger
with or into another corporation, or a sale of substantially all
of our assets, the successor corporation or its parent or
subsidiary will assume or substitute an equivalent award or
right for each outstanding award. If there is no assumption or
substitution of outstanding awards, the awards will become fully
vested and exercisable. In addition, the administrator will
notify participants in writing that awards under the 2007 Stock
Plan will be exercisable for a period of 15 days from the
date of notice, and will terminate upon expiration of such
period. If a participants service terminates due to an
involuntary termination (as defined in the 2007 Stock Plan)
within 18 months following a merger or asset sale, all
options held by such participant automatically will accelerate
vesting and become fully exercisable upon such termination. Each
such option will remain
131
exercisable for a period of one year following such termination
of service (but in no event later than the expiration of the
options term).
Plan Amendment, Termination
Our Board of Directors has the authority to amend or terminate
the 2007 Stock Plan provided such action does not impair the
rights of any participant. Certain amendments require
stockholder approval.
1997
Stock Plan, As Amended
The 1997 Stock Plan was adopted by our Board of Directors in
December 1997 and approved by our stockholders in December 1997.
The 1997 Stock Plan was most recently amended in August 2010.
The 1997 Stock Plan expired in February 2007 upon the adoption
of the 2007 Stock Plan. However, the 1997 Stock Plan will
continue to govern the terms and conditions of the outstanding
awards previously granted thereunder. The 1997 Stock Plan
provided for the grant of incentive stock options, within the
meaning of Section 422 of the Code, to our employees and
any parent and subsidiary corporations employees, and for
the grant of nonstatutory stock options to our employees,
directors and consultants and any parent and subsidiary
corporations employees and consultants.
Authorized Shares
We had reserved a total of 1,047,120 shares of our common
stock for issuance pursuant to the 1997 Stock Plan. As of
December 31, 2010, there were 499,679 options to purchase
shares of common stock outstanding.
Plan Administration
Our Board of Directors or a committee appointed by our Board of
Directors administered the 1997 Stock Plan. Under the 1997 Stock
Plan, the administrator had the power to determine the terms of
the awards, including the recipients, the exercise price, if
any, the number of shares covering each award, the fair market
value of a share of our common stock, the vesting schedule
applicable to the awards, together with any vesting
acceleration, the form of consideration, if any, payable upon
exercise of the award, and the terms of the award agreement for
use under the EIP. The administrator may amend existing awards
to reduce or increase their exercise price, to allow
participants the opportunity to transfer outstanding awards to a
financial institution or other person or entity selected by the
administrator, to institute an exchange program by which
outstanding awards may be surrendered in exchange for awards
that may have different exercise prices and terms, prescribe
rules and construe and interpret the 1997 Stock Plan and awards
granted under the 1997 Stock Plan. The administrator also may
offer to buy out for a payment in cash or shares an option
previously granted.
Stock Options
The 1997 Stock Plan permitted the grant of incentive
and/or
nonstatutory stock options. With respect to incentive stock
options, the exercise price must at least be equal to
100 percent of the fair market value of our common stock on
the date of grant. The term of an option may not exceed ten
years, except that with respect to any participant who owns
ten percent of the voting power of all classes of our
outstanding stock as of the grant date, the term must not exceed
five years and the exercise price must equal at least
110 percent of the fair market value on the grant date,
with respect to incentive stock options.
After termination of service of an employee, director or
consultant, he or she may exercise his or her option, to the
extent vested as of such date of termination, for the period of
time stated in the award agreement (of at least 30 days) or
three months in the absence of a specified time in the option
agreement. Generally, if termination is due to disability, or in
the event of death, the option will remain
132
exercisable for the period of time stated in the option
agreement or twelve months in the absence of a specified time in
the option agreement. However, an option may not be exercised
later than the expiration of its term.
Stock Purchase Rights
The 1997 Stock Plan permitted the grant of stock purchase rights
alone, in addition to, or in tandem with, other awards granted
under the 1997 Stock Plan
and/or cash
awards made outside of the 1997 Stock Plan. After the
administrator determines that it will offer stock purchase
rights, it advises the purchaser of the terms, conditions and
restrictions related to the offer, including the number of
shares that the purchaser is entitled to purchase, the price to
be paid and the time within which the purchaser must accept such
offer. A purchaser accepts the offer by execution of a
restricted stock purchase agreement in the form determined by
the administrator. Once the stock purchase right is exercised,
the purchaser has rights equivalent to a stockholder.
Transferability of Awards
The 1997 Stock Plan generally does not allow for the transfer of
awards other than by will or the laws of descent and
distribution, unless the administrator otherwise determines, and
only the recipient of an award may exercise an award during his
or her lifetime.
Certain Adjustments
In the event of certain changes in our capitalization, the
administrator will make adjustments to the number of shares and
exercise price of shares subject to outstanding awards. In the
event of a proposed liquidation or dissolution, the
administrator will notify participants as soon as practicable
and all awards will terminate immediately prior to the
consummation of such proposed transaction. The administrator, in
its discretion, may provide participants the right to exercise
their options until 15 days prior to such transaction,
including shares subject to the options that otherwise would not
be exercisable.
Merger or Asset Sale
The 1997 Stock Plan provides that in the event of our merger
with or into another corporation, or a sale of substantially all
of our assets, the successor corporation or its parent or
subsidiary will assume or substitute an equivalent award or
right for each outstanding award. If there is no assumption or
substitution of outstanding awards, the awards will become fully
vested and exercisable. In addition, the administrator will
notify participants in writing that awards under the 1997 Stock
Plan will be exercisable for a period of 15 days from the
date of notice, and will terminate upon expiration of such
period. If a participants service terminates due to an
involuntary termination (as defined in the 1997 Stock Plan)
within 18 months following a merger or asset sale, all
options held by such participant automatically will accelerate
vesting and become fully exercisable upon such termination. Each
such option will remain exercisable for a period of one year
following such termination of service (but in no event later
than the expiration of the options term).
Plan Amendment, Termination
Our Board of Directors has the authority to amend the 1997 Stock
Plan provided such action does not impair the rights of any
participant. Certain amendments require stockholder approval.
The 1997 Stock Plan has terminated but continues to govern the
terms and conditions of outstanding awards previously granted
thereunder.
401(k)
Plan
We maintain a tax-qualified 401(k) retirement plan for all
employees who satisfy certain eligibility requirements,
including requirements relating to age and length of service.
Under our 401(k) plan,
133
employees may elect to defer a portion of their eligible
compensation, subject to applicable annual Code limits. We
currently do not match any contributions made by our employees,
including executives. We intend for the 401(k) plan to qualify
under Section 401(a) and 501(a) of the Code so that
contributions by employees to the 401(k) plan, and income earned
on those contributions, are not taxable to employees until
withdrawn from the 401(k) plan.
Limitation
on Liability and Indemnification Matters
Our amended and restated certificate of incorporation and bylaws
that will become effective upon the closing of this offering
contain provisions that limit the personal liability of our
directors for monetary damages to the fullest extent permitted
by Delaware law. Consequently, our directors will not be
personally liable to us or our stockholders for monetary damages
for any breach of fiduciary duties as directors, except
liability for:
|
|
|
|
|
any breach of the directors duty of loyalty to us or our
stockholders;
|
|
|
|
any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
|
|
|
|
unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
|
|
|
|
any transaction from which the director derived an improper
personal benefit.
|
Our amended and restated certificate of incorporation that will
become effective upon the closing of this offering, provides for
indemnification of our directors to the fullest extent permitted
by Delaware law. In addition, our amended and restated bylaws,
that will become effective upon the closing of this offering,
provide that we indemnify our directors and officers to the
fullest extent permitted by Delaware law. Our amended and
restated bylaws, that will become effective upon the closing of
this offering, also provide that we shall advance expenses
incurred by a director or officer in advance of the final
disposition of any action or proceeding, and permit us to secure
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in
that capacity, regardless of whether we would otherwise be
permitted to indemnify him or her under the provisions of
Delaware law. We expect to enter into agreements to indemnify
our directors, executive officers and other employees as
determined by our Board of Directors. With certain exceptions,
these agreements will provide for indemnification for related
expenses including, among others, attorneys fees,
judgments, fines and settlement amounts incurred by any of these
individuals in any action or proceeding. We believe that these
bylaw provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
We also maintain directors and officers liability
insurance.
The limitation of liability and indemnification provisions in
our amended and restated certificate of incorporation and
bylaws, that will become effective upon the closing of this
offering, may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty of
care. They may also reduce the likelihood of derivative
litigation against our directors and officers, even though an
action, if successful, might benefit us and other stockholders.
Further, a stockholders investment may be adversely
affected to the extent that we pay the costs of settlement and
damage awards against directors and officers. At present, there
is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is
sought, and we are not aware of any threatened litigation that
may result in claims for indemnification.
134
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the director and executive compensation
arrangements discussed above in Management, we have
been a party to the following transactions since January 1,
2007, in which the amount involved exceeded or will exceed
$120,000, and in which any director, executive officer or holder
of more than five percent of any class of our voting stock,
or any member of the immediate family of or entities affiliated
with any of them, had or will have a material interest.
Sales of
Subordinated Notes
In December 2010, we issued $8.1 million of Subordinated
Notes and in January 2011 we issued an additional
$3.7 million of Subordinated Notes. A $7.0 million
investment was made by the Pension Fund of the Christian Church
(Disciples of Christ), Inc., a $4.7 million investment from
three other current holders of our preferred stock and $100,000
from Mike Sherman, our Chief Financial Officer. The Subordinated
Notes accrue interest in kind at an annual rate of
10.0 percent and are not due until maturity. The conversion
price for the Subordinated Notes will be 85 percent of the
next equity financing price if it occurs on or before
June 30, 2011 or 80 percent of next equity financing
price if it occurs after June 30, 2011. The Subordinated
Notes and any accrued and unpaid interest convert into common
shares if, before one year from issuance, our initial public
offering occurs in which gross proceeds of at least
$50.0 million are raised. Alternatively, the Subordinated
Notes and any accrued and unpaid interest convert into a new
series of our preferred stock if, before one year from issuance,
a private preferred stock financing occurs in which gross
proceeds of at least $30.0 million is raised in a single or
series of transactions. If the Subordinated Notes have not
converted into equity by the one-year anniversary of their
issuance, then the outstanding principal amount and any accrued
and unpaid interest will automatically convert into shares of
the our
Series C-3
convertible preferred stock at a price equal of $8.12 per share.
Sales of
Series C-3
Convertible Preferred Stock
Between March 9, 2007 and October 13, 2009, we issued
and sold an aggregate of 5,135,965 shares of our
Series C-3
convertible preferred stock at a per share price of $8.12, for
aggregate consideration of approximately $41.7 million. We
believe that the terms obtained and consideration received in
connection with the
Series C-3
financing were comparable to terms available and the amounts we
would have received in an arms-length transaction.
The table below summarizes purchases of shares of our
Series C-3
convertible preferred stock by our directors, executive
officers, holders of more than five percent of any class of
our voting securities, or any member of the immediate family of
or any entities affiliated with any of the foregoing persons. In
connection with these sales, we granted the purchasers certain
registration rights with respect to their securities. See
Description of Capital Stock Registration
Rights. Each outstanding share of our
Series C-3
convertible preferred stock will be converted automatically into
one share of our common stock upon the closing of this offering.
135
|
|
|
|
|
|
|
|
|
|
|
Shares of Series
|
|
|
Aggregate
|
|
|
|
C-3 Convertible
|
|
|
Purchase
|
|
Purchasers
|
|
Preferred Stock
|
|
|
Price
|
|
|
ABV Holding Company 12 LLC(1)
|
|
|
366,490
|
|
|
$
|
2,975,000
|
|
Blue Chip IV Limited Partnership
|
|
|
493,724
|
|
|
$
|
4,007,810
|
|
Entities affiliated with Burrill & Company(2)
|
|
|
463,164
|
|
|
$
|
3,759,763
|
|
Entities affiliated with CID Equity Partners(3)
|
|
|
62,560
|
|
|
$
|
507,841
|
|
Cincinnati Financial Corporation
|
|
|
489,149
|
|
|
$
|
3,970,673
|
|
Douglas G. Bailey
|
|
|
17,451
|
|
|
$
|
141,665
|
|
Individuals immediately related to and entities affiliated with
John G. Clawson(4)
|
|
|
49,273
|
|
|
$
|
399,989
|
|
Pension Fund of the Christian Church (Disciples of Christ),
Inc.
|
|
|
1,272,821
|
|
|
$
|
10,332,128
|
|
Entities affiliated with Sanderling Venture Partners(5)
|
|
|
985,331
|
|
|
$
|
7,998,521
|
|
Triathlon Medical Ventures Fund, L.P.
|
|
|
376,452
|
|
|
$
|
3,055,856
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,576,415
|
|
|
$
|
37,149,246
|
|
|
|
(1) |
Douglas Bailey, a managing director of ABV Holding Company 12
LLC, is a member of our Board of Directors.
|
|
|
(2) |
Consists of (i) 427,601 shares held by Burrill Life
Sciences Capital Fund, L.P. and (ii) 35,563 shares
held by Burrill Indiana Life Sciences Capital Fund, L.P. Ann
Hanham, a managing director of Burrill & Company LLC,
is a member of our Board of Directors.
|
|
|
(3) |
Consists of (i) 41,855 shares held by CID Equity
Capital VIII, L.P. and (ii) 20,705 shares held by CID
Seed Fund, L.P. John Aplin is a Class A member of CID
Equity Partners VIII, LLC, which has the ultimate voting and
investment power over shares held of record by CID Equity
Capital VIII, L.P., and he may be deemed to have voting and
investment power over shares held of record by CID Equity
Capital VIII, L.P. John Aplin is a general partner of CID Seed
Fund Partners I which has the ultimate voting and investment
power over shares held of record by CID Seed Fund, L.P., and he
may be deemed to have voting and investment power over shares
held of record by CID Seed Fund, L.P.
|
|
|
(4) |
Consists of (i) 12,318 shares held by John G. Clawson;
(ii) 12,318 shares held by Curtis J. Clawson; and
(iii) 24,637 shares held by The Clawson Family
Revocable Trust U/A/D 04/24/1998. John G. Clawson, who is
an immediate family member of Curtis J. Clawson and a
beneficiary of The Clawson Family Revocable Trust U/A/D
04/24/1998, is a member of our Board of Directors.
|
|
|
(5) |
Consists of (i) 16,548 shares held by Sanderling V
Beteiligungs GmbH & Co. KG;
(ii) 113,746 shares held by Sanderling V Biomedical
Co-Investment Fund, L.P.; (iii) 55,565 shares held by
Sanderling V Biomedical, L.P.; (iv) 18,790 shares held
by Sanderling V Limited Partnership;
(v) 187,618 shares held by Sanderling Venture Partners
V Co-Investment Fund; (vi) 255,935 shares held by
Sanderling Venture Partners V, L.P.;
(vii) 289,103 shares held by Sanderling Venture
Partners VI Co-Investment Fund, L.P.;
(viii) 32,724 shares held by Sanderling Ventures
Management V; (ix) 3,043 shares held by Sanderling
Ventures Management VI; (x) 5,594 shares held by
Sanderling VI Beteiligungs GmbH and Co. KG; and
(xi) 6,665 shares held by Sanderling VI Limited
Partnership. Fred Middleton is a managing director of Middleton,
McNeil & Mills Associates V, LLC, which has the
ultimate voting and investment power over shares held of record
by Sanderling V Beteiligungs GmbH & Co. KG, Sanderling
V Biomedical Co-Investment Fund, L.P., Sanderling V Biomedical,
L.P., Sanderling V Limited Partnership, Sanderling Venture
Partners V, L.P., Sanderling Venture Partners VI
Co-Investment Fund, L.P., Sanderling VI
|
136
|
|
|
|
|
Beteiligungs GmbH and Co. KG and Sanderling VI Limited
Partnership and he may be deemed to have voting and investment
power over shares held of record by Sanderling V Beteiligungs
GmbH & Co. KG, Sanderling V Biomedical Co-Investment
Fund, L.P., Sanderling V Biomedical, L.P., Sanderling V Limited
Partnership, Sanderling Venture Partners V, L.P.,
Sanderling Venture Partners VI Co-Investment Fund, L.P.,
Sanderling VI Beteiligungs GmbH and Co. KG and Sanderling VI
Limited Partnership. Fred Middleton is the owner of Sanderling
Ventures Management V and Sanderling Ventures Management VI
Partnership and he may be deemed to have voting and investment
power over shares held of record by Sanderling Ventures
Management V and Sanderling Ventures Management VI Partnership.
|
Investor
Rights Agreement
Holders of our convertible preferred stock are entitled to
certain registration rights with respect to the common stock
issued or issuable upon conversion of the convertible preferred
stock. See Description of Capital Stock
Registration Rights for more information.
Voting
Agreement
We have entered into a voting agreement with our equity holders
that contains agreements with respect to the election of our
Board of Directors and its composition. The voting agreement
will terminate upon the closing of this offering.
Participation
in this Offering
Entities affiliated with Burrill & Company and
Sanderling Ventures, each of which is a current stockholder,
have indicated an interest in purchasing an aggregate of
approximately $8.0 million of shares of our common stock in
this offering. However, because indications of interest are not
binding agreements or commitments to purchase, the underwriters
may determine to sell more, less or no shares in this offering
to any of these entities, or any of these entities may determine
to purchase more, less or no shares in this offering.
Right of
First Refusal and Co-Sale Agreement
We have entered into a right of first refusal and co-sale
agreement with our holders of convertible preferred stock and
certain other stockholders. This agreement provides the holders
of convertible preferred stock a right of purchase and of
co-sale in respect of sales of securities by certain holders of
common stock. These rights of purchase and co-sale will
terminate upon the closing of this offering.
Transactions
with Our Founders and Entities Affiliated with Our
Founders
Dr. Philip S. Low, our Chief Science Officer and one of our
founders and directors, conducts research at Purdue Research
Foundation. We entered into an exclusive license agreement dated
October 21, 1998, as amended, and an exclusive license
agreement effective March 1, 2010 with Purdue Research
Foundation to license certain intellectual property and methods
that were invented in Dr. Lows laboratory.
Additionally, we entered into a lease dated March 1, 2010
with Purdue Research Foundation, and we issued and sold
10,884 shares of our Series C convertible preferred
stock to Purdue Research Foundation on August 4, 2003,
which was later converted into 12,318 shares of our
Series C-1
convertible preferred stock at a per share value of $8,12, for
aggregate value of $99,999. For additional information, see
Notes 12 and 13 of the notes to our financial statements.
Dr. Low is entitled to a total of $50,000 upon the
achievement of certain milestones pursuant to a patent
assignment agreement dated November 1, 2007 that we entered
into with Optical Therapeutic
137
Technologies, or OTT, Dr. Low and three other individuals,
pursuant to which each of the individuals assigned certain
patent applications to us and OTT released any rights to
conjugate patents of such patent applications. The patent
assignment agreement provided each of the individuals, but not
OTT, with the following payments:
|
|
|
|
|
$6,250 to each individual upon signing the patent assignment
agreement;
|
|
|
|
$12,500 to each individual upon the issuance of the first
conjugate patent by the USPTO; and
|
|
|
|
$37,500 to each individual upon the FDAs approval of the
first product comprising or containing any conjugate covered by
a valid claim of a conjugate patent.
|
To date, we have paid the first payment of $6,250 to each
individual upon execution of the patent assignment agreement,
totaling $25,000. Potential payments totaling $200,000 may be
paid to the individuals upon the achievement of the two
milestones described above. The patent assignment agreement does
not provide a term or termination provisions.
We employ Dr. Low, one of our two founders, as our Chief
Science Officer and have and continue to compensate him for his
services. In 2007, 2008 and 2009 we paid Dr. Low base
salary and bonus of $130,023, $83,538 and $147,231, respectively
and we issued him options in those same years to purchase
15,706, 65,445 and 22,759, respectively, shares of our common
stock.
Stock
Option Awards
Certain stock option grants to our directors and executive
officers and related option grant policies are described under
the heading Management.
Employment
Agreements
We have entered into an employment agreement and change in
control agreement with our other founder, P. Ron Ellis, as
described under the heading Executive
Compensation Employment Agreements and Offer
Letters.
Indemnification
of Officers and Directors
We will also enter into indemnification agreements with each of
our directors and executive officers. The indemnification
agreements and our certificate of incorporation and bylaws
require us to indemnify our directors and executive officers to
the fullest extent permitted by Delaware law. See
Executive Compensation Limitation on Liability
and Indemnification Matters.
Policies
and Procedures for Related Party Transactions
We have adopted a formal policy that our executive officers,
directors, holders of more than five percent of any class
of our voting securities, and any member of the immediate family
of and any entity affiliated with any of the foregoing persons,
are not permitted to enter into a related party transaction with
us in which the amount involved exceeds $50,000 without the
prior consent of our audit committee, or other independent
members of our Board of Directors in the case it is
inappropriate for our audit committee to review such transaction
due to a conflict of interest. In approving or rejecting any
such proposal, our audit committee is to consider the relevant
facts and circumstances available and deemed relevant to the
audit committee, including, but not limited to, whether the
transaction is on terms no less favorable than terms generally
available to an unaffiliated third party under the same or
similar circumstances and the extent of the related partys
interest in the transaction. All of the transactions described
above were entered into prior to the adoption of this policy.
138
PRINCIPAL
STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership of our common stock as of December 31, 2010 and
as adjusted to reflect the shares of common stock to be issued
and sold in the offering assuming no exercise of the
underwriters over-allotment option, by:
|
|
|
|
|
each person or group of affiliated persons known by us to be the
beneficial owner of more than five percent of our common stock;
|
|
|
|
each of our Named Executive Officers;
|
|
|
|
each of our directors; and
|
|
|
|
all executive officers and directors as a group.
|
We have determined beneficial ownership in accordance with SEC
rules. The information does not necessarily indicate beneficial
ownership for any other purpose. Under these rules, the number
of shares of common stock deemed outstanding includes shares
issuable upon exercise of options and warrants held by the
respective person or group which may be exercised or converted
within 60 days after December 31, 2010. For purposes
of calculating each persons or groups percentage
ownership, stock options and warrants exercisable within
60 days after December 31, 2010 are included for that
person or group but not the stock options or warrants of any
other person or group.
Applicable percentage ownership is based on
12,950,792 shares of common stock outstanding at
December 31, 2010, assuming the automatic conversion of all
outstanding shares of our convertible preferred stock on a
one-for-one
basis into 11,747,564 shares of common stock. For purposes
of the table below, we have assumed that 27,754,710 shares
of common stock will be outstanding upon closing of this
offering, based upon the sale of 12,500,000 shares of common
stock issued in the offering and the conversion of our
Subordinated Notes into shares of common stock at an assumed
initial public offering price of $6.00 per share.
Entities affiliated with Burrill & Company and Sanderling
Ventures, each of which is a current stockholder, have indicated
an interest in purchasing an aggregate of approximately
$8.0 million of shares of our common stock in this
offering. The information set forth in the table below does not
reflect the potential purchase of any shares in this offering by
these stockholders affiliates.
Unless otherwise indicated and subject to applicable community
property laws, to our knowledge, each stockholder named in the
following table possesses sole voting and investment power over
the shares listed. Unless otherwise noted below, the address of
each person listed on the table is
c/o Endocyte,
Inc., 3000 Kent Avenue,
Suite A1-100,
West Lafayette, Indiana 47906.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
|
Owned Prior to the
|
|
|
Shares Beneficially Owned
|
|
|
|
Offering
|
|
|
After the Offering
|
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
|
Percentage
|
|
|
Shares
|
|
|
Percentage
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities related to Sanderling Ventures(1)
|
|
|
2,496,453
|
|
|
|
19.28
|
%
|
|
|
2,496,453
|
|
|
|
8.48
|
%
|
Sanderling Ventures
400 S. El Camino Real, Suite 1200
San Mateo, CA 94402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund of the Christian Church
(Disciples of Christ), Inc.
|
|
|
1,888,773
|
(2)
|
|
|
14.58
|
%
|
|
|
3,261,322
|
|
|
|
11.07
|
%
|
Pension Fund of the Christian Church
130 East Washington Street
Indianapolis, IN
46204-3645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Financial Corporation(3)
|
|
|
1,491,610
|
|
|
|
11.52
|
%
|
|
|
1,491,610
|
|
|
|
5.06
|
%
|
6200 S. Gilmore Road
Fairfield, OH
45014-5141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
|
Owned Prior to the
|
|
|
Shares Beneficially Owned
|
|
|
|
Offering
|
|
|
After the Offering
|
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
|
Percentage
|
|
|
Shares
|
|
|
Percentage
|
|
|
Entities related to ABV Holding Company(3)
|
|
|
1,043,912
|
(19)
|
|
|
8.06
|
%
|
|
|
1,318,421
|
|
|
|
4.48
|
%
|
American Bailey Corporation
120 Long Ridge Road
Stamford, CT 06902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip IV Limited Partnership
|
|
|
863,295
|
|
|
|
6.67
|
%
|
|
|
863,295
|
|
|
|
2.93
|
%
|
Blue Chip Venture Company
1100 Chiquita Center
250 East 5th Street
Cincinnati, OH 45202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities related to Burrill & Company(4)
|
|
|
832,735
|
|
|
|
6.43
|
%
|
|
|
832,735
|
|
|
|
2.83
|
%
|
One Embarcadero Center, Suite 2700
San Francisco, CA
94111-3776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Triathlon Medical Ventures Fund, L.P.
|
|
|
746,023
|
|
|
|
5.76
|
%
|
|
|
746,023
|
|
|
|
2.53
|
%
|
Triathlon Medical Ventures
1100 Chiquita Center
250 East 5th Street
Cincinnati, OH 45202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P. Ron Ellis(5)
|
|
|
409,361
|
|
|
|
3.08
|
%
|
|
|
409,361
|
|
|
|
1.37
|
%
|
Michael A. Sherman(6)
|
|
|
142,652
|
(20)
|
|
|
1.09
|
%
|
|
|
162,259
|
|
|
|
|
*
|
Philip S. Low, Ph.D.(7)
|
|
|
546,485
|
|
|
|
4.18
|
%
|
|
|
546,485
|
|
|
|
1.85
|
%
|
Christopher P. Leamon, Ph.D.(8)
|
|
|
131,467
|
|
|
|
1.00
|
%
|
|
|
131,467
|
|
|
|
|
*
|
Chandra D. Lovejoy(9)
|
|
|
22,440
|
|
|
|
|
*
|
|
|
22,440
|
|
|
|
|
*
|
Richard A. Messmann(10)
|
|
|
92,712
|
|
|
|
|
*
|
|
|
92,712
|
|
|
|
|
*
|
Allen R. Ritter, Ph.D.(11)
|
|
|
80,088
|
|
|
|
|
*
|
|
|
80,088
|
|
|
|
|
*
|
John G. Clawson
|
|
|
14,721
|
|
|
|
|
*
|
|
|
14,721
|
|
|
|
|
*
|
John C. Aplin, Ph.D.(12)
|
|
|
432,130
|
|
|
|
3.34
|
%
|
|
|
432,130
|
|
|
|
1.47
|
%
|
Douglas G. Bailey(13)
|
|
|
1,117,209
|
|
|
|
8.63
|
%
|
|
|
1,391,718
|
|
|
|
4.72
|
%
|
Keith E. Brauer(14)
|
|
|
31,804
|
|
|
|
|
*
|
|
|
31,804
|
|
|
|
|
*
|
Ann F. Hanham, Ph.D.(15)
|
|
|
832,735
|
|
|
|
6.43
|
%
|
|
|
832,735
|
|
|
|
2.83
|
%
|
Fred A. Middleton(16)
|
|
|
2,496,453
|
|
|
|
19.28
|
%
|
|
|
2,496,453
|
|
|
|
8.48
|
%
|
James S. Shannon, M.D., MRCP
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
*
|
All directors and executive officers as a group
(14 people)(17)
|
|
|
5,466,475
|
|
|
|
45.90
|
%
|
|
|
6,644,373
|
|
|
|
21.90
|
%
|
|
|
(*)
|
Represents beneficial ownership of less than one percent.
|
|
(1)
|
Consists of (i) 100,828 shares held by Sanderling V
Beteiligungs GmbH & Co. KG;
(ii) 162,170 shares held by Sanderling V Biomedical
Co-Investment Fund, L.P.; (iii) 249,148 shares held by
Sanderling V Biomedical, L.P.; (iv) 113,315 shares
held by Sanderling V Limited Partnership;
(v) 267,491 shares held by Sanderling Venture Partners
V Co-Investment Fund; (vi) 1,017,304 shares held by
Sanderling Venture Partners V, L.P.;
(vii) 435,861 shares held by Sanderling Venture
Partners VI Co-Investment Fund, L.P.;
(viii) 101,087 shares held by Sanderling Ventures
Management V; (ix) 30,766 shares held by Sanderling
Ventures Management VI; (x) 8,434 shares held by
Sanderling VI Beteiligungs GmbH and Co. KG; and
(xi) 10,049 shares held by Sanderling VI Limited
Partnership. 72,502 shares held by Sanderling Venture
Partners V, L.P., 17,759 shares held by Sanderling V
Biomedical, L.P., 44,502 shares held by Sanderling Ventures
Management V, 7,185 shares held by Sanderling Venture
Partners V, L.P. and 6,393 shares held by Sanderling V
Beteiligungs GmbH & Co. KG are subject to repurchase based
on milestones set forth in the Restricted Stock Purchase
Agreement dated July 10, 2001 between the Company and each
of
|
140
|
|
|
Sanderling Venture Partners V, L.P., Sanderling V
Biomedical, L.P., ABV Holding Company 7 LLC, Douglas G. Bailey,
and Cincinnati Financial Corporation. Fred Middleton is a
managing director of Middleton, McNeil & Mills
Associates V, LLC which has the ultimate voting and
investment power over shares held of record by Sanderling V
Beteiligungs GmbH & Co. KG, Sanderling V Biomedical
Co-Investment Fund, L.P., Sanderling V Biomedical, L.P.,
Sanderling V Limited Partnership, Sanderling Venture
Partners V, L.P., Sanderling Venture Partners VI
Co-Investment Fund, L.P., Sanderling VI Beteiligungs GmbH and
Co. KG and Sanderling VI Limited Partnership and he may be
deemed to have voting and investment power over shares held of
record by Sanderling V Beteiligungs GmbH & Co. KG,
Sanderling V Biomedical Co-Investment Fund, L.P., Sanderling V
Biomedical, L.P., Sanderling V Limited Partnership, Sanderling
Venture Partners V, L.P., Sanderling Venture Partners VI
Co-Investment Fund, L.P., Sanderling VI Beteiligungs GmbH and
Co. KG and Sanderling VI Limited Partnership. Fred Middleton is
the owner of Sanderling Ventures Management V and Sanderling
Ventures Management VI Partnership and he may be deemed to have
voting and investment power over shares held of record by
Sanderling Ventures Management V and Sanderling Ventures
Management VI Partnership. Mr. Middleton disclaims
beneficial ownership of the shares directly held by the entities
affiliated with Sanderling except to the extent of his
individual pecuniary interest therein.
|
|
|
(2)
|
Excludes shares issuable upon the conversion of a
$7.0 million principal amount of Subordinated Note.
|
|
(3)
|
Consists of (i) 455,680 shares held by ABV Holding
Company 7 LLC; (ii) 137,973 shares held by ABV Holding
Company 9 LLC; (iii) 83,769 shares held by ABV Holding
Company 10 LLC; (iv) 366,490 shares held by ABV
Holding Company 12 LLC; 44,502 shares held by ABV Holding
Company 7 LLC are subject to repurchase based on milestones set
forth in the Restricted Stock Purchase Agreement dated
July 10, 2001 between the Company and each of Sanderling
Venture Partners V, L.P., Sanderling V Biomedical, L.P.,
ABV Holding Company 7 LLC, Douglas G. Bailey, and Cincinnati
Financial Corporation. Douglas Bailey, a managing member of ABV
Holding Company 12 LLC, is a member of our Board of Directors.
Mr. Bailey disclaims beneficial ownership of the shares
directly held by the entities affiliated with ABV Holding
Company except to the extent of his pecuniary interest therein.
|
|
(4)
|
Consists of (i) 768,795 shares held by Burrill Life
Sciences Capital Fund, L.P. and (ii) 63,940 shares
held by Burrill Indiana Life Sciences Capital Fund, L.P. Ann
Hanham is a managing member of Burrill & Company (Life
Science GP), LLC which has the ultimate voting and investment
power over shares held of record by Burrill Life Sciences
Capital Fund, L.P., and she may be deemed to have voting and
investment power over shares held of record by Burrill Life
Sciences Capital Fund, L.P. Ann Hanham is a managing member of
Burrill & Company (Indiana GP), LLC which has the
ultimate voting and investment power over shares held of record
by Burrill Indiana Life Sciences Capital Fund, L.P., and she may
be deemed to have voting and investment power over shares held
of record by Burrill Indiana Life Sciences Capital Fund, L.P.
Ms. Hanham disclaims beneficial ownership of the shares directly
held by the entities affiliated with Burrill & Company
except to the extent of her individual pecuniary interest
therein.
|
|
(5)
|
Consists of (i) 76,132 shares held by P. Ron Ellis and
Margaret Heard Ellis, JTWROS; (ii) 13,142 shares held
by P. Ron Ellis; and (iii) 320,087 shares held by P.
Ron Ellis issuable upon exercise of options exercisable within
60 days of December 31, 2010.
|
|
(6)
|
Includes 90,296 shares issuable upon exercise of options
exercisable within 60 days of December 31, 2010.
|
141
|
|
(7)
|
Consists of (i) 431,597 shares held by Philip S. Low
and Joan Low, JTWROS and (ii) 114,888 shares held by
Philip S. Low issuable upon exercise of options exercisable
within 60 days of December 31, 2010.
|
|
(8)
|
Consists of 131,467 shares issuable upon exercise of
options exercisable within 60 days of December 31,
2010.
|
|
(9)
|
Consists of 22,440 shares issuable upon exercise of options
exercisable within 60 days of December 31, 2010.
|
|
(10)
|
Consists of 92,712 shares issuable upon exercise of options
exercisable within 60 days of December 31, 2010.
|
|
(11)
|
Consists of 80,088 shares issuable upon exercise of options
exercisable within 60 days of December 31, 2010.
|
|
(12)
|
Consists of (i) 288,235 shares held by CID Equity
Capital VIII, L.P. and (ii) 143,895 shares held by CID
Seed Fund, L.P. John Aplin is a Class A member of CID
Equity Partners VIII, LLC, which has the ultimate voting and
investment power over shares held of record by CID Equity
Capital VIII, L.P., and he may be deemed to have voting and
investment power over shares held of record by CID Equity
Capital VIII, L.P. John Aplin is a general partner of CID Seed
Fund Partners I which has the ultimate voting and investment
power over shares held of record by CID Seed Fund, L.P., and he
may be deemed to have voting and investment power over shares
held of record by CID Seed Fund, L.P. Mr. Aplin disclaims
beneficial ownership of the shares directly held by the entities
affiliated with CID except to the extent of his individual
pecuniary interest therein.
|
|
(13)
|
Consists of (i) 1,043,912 shares held by entities
affiliated with ABV Holding Company and
(ii) 73,297 shares held by Douglas G. Bailey.
29,668 shares held by Douglas G. Bailey are subject to
repurchase based on milestones set forth in the Restricted Stock
Purchase Agreement dated July 10, 2001 between the Company
and each of Sanderling Venture Partners V, L.P., Sanderling
V Biomedical, L.P., ABV Holding Company 7 LLC, Douglas G.
Bailey, and Cincinnati Financial Corporation.
|
|
(14)
|
Consists of 31,804 shares issuable upon exercise of options
exercisable within 60 days of December 31, 2010.
|
|
(15)
|
All shares held by entities affiliated with Burrill &
Company.
|
|
(16)
|
All shares held by entities affiliated with Sanderling Ventures.
|
|
(17)
|
Consists of 883,782 shares issuable upon exercise of
options exercisable within 60 days of December 31,
2010.
|
|
(18)
|
Excludes shares issuable upon the conversion of a
$1.4 million principal amount of Subordinated Note.
|
|
(19)
|
Excludes shares issuable upon the conversion of a $100,000
principal amount of Subordinated Note.
|
142
DESCRIPTION
OF CAPITAL STOCK
The following information describes our common stock,
convertible preferred stock, options to purchase our common
stock and warrants to purchase our convertible preferred stock
and provisions of our amended and restated certificate of
incorporation and bylaws. This description is only a summary.
You should also refer to our amended and restated certificate of
incorporation and bylaws, which have been filed with the SEC as
exhibits to our registration statement, of which this prospectus
forms a part.
Upon the closing of this offering, we will be authorized to
issue up to 110,000,000 shares of capital stock, $0.001 par
value, to be divided into two classes designated common stock
and convertible preferred stock. Of such authorized shares,
100,000,000 shares will be designated as common stock and
10,000,000 shares will be designated as convertible
preferred stock.
Upon the closing of this offering, all the outstanding shares of
our convertible preferred stock will convert on a 1:1 basis into
a total of 11,747,564 shares of our common stock. In
addition, upon the closing of this offering and after giving
effect to the conversion of our convertible preferred stock into
common stock, warrants to purchase an aggregate of
133,968 shares of common stock will remain outstanding if
they are not exercised prior to closing of this offering.
Common
Stock
As of September 30, 2010, there were 12,898,436 shares
of common stock outstanding that were held of record by
71 stockholders (assuming the conversion of all shares of
our convertible preferred stock outstanding on a 1:1 basis into
11,747,564 shares of common stock). After giving effect to
the sale of common stock offered in this offering and the
conversion of the Subordinated Notes, there will be
27,702,357 shares of common stock outstanding assuming no
exercise of the underwriters over-allotment option.
As of September 30, 2010, there were outstanding options to
purchase a total of 560,259 shares of our common stock
under the 1997 Stock Plan.
As of September 30, 2010, there were outstanding options to
purchase a total of 1,516,697 shares of our common stock
under the 2007 Stock Plan.
The holders of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
stockholders. Our stockholders do not have cumulative voting
rights in the election of directors. Accordingly, holders of a
majority of the voting shares are able to elect all of the
directors. Subject to preferences that may be granted to any
then outstanding convertible preferred stock, holders of common
stock are entitled to receive ratably only those dividends as
may be declared by our Board of Directors out of funds legally
available therefore. For more information please see
Dividend Policy. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled
to share ratably in all of our assets remaining after we pay our
liabilities and distribute the liquidation preference of any
then outstanding convertible preferred stock. Holders of common
stock have no preemptive or other subscription or conversion
rights. There are no redemption or sinking fund provisions
applicable to the common stock.
Convertible
Preferred Stock
Upon the closing of this offering, our Board of Directors will
have the authority, without further action by the stockholders,
to issue up to 10,000,000 shares of convertible preferred
stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. These rights, preferences
and privileges could include dividend rights, conversion rights,
voting rights, redemption rights, liquidation preferences,
sinking fund terms and the number of shares constituting any
series or the designation of such
143
series, any or all of which may be greater than the rights of
common stock. The issuance of convertible preferred stock could
adversely affect the voting power of holders of common stock and
the likelihood that such holders will receive dividend payments
and payments upon liquidation. In addition, the issuance of
convertible preferred stock could have the effect of delaying,
deferring or preventing a change in our control or other
corporate action. Upon closing of this offering, no shares of
convertible preferred stock will be outstanding, and we have no
present plan to issue any shares of convertible preferred stock.
Warrants
As of September 30, 2010, there were outstanding warrants
to purchase 69,294 shares of our
Series C-3
convertible preferred stock at an exercise price of $8.12 per
share. In August 2010 and December 2010, additional
warrants were issued to Mid-Cap and SVB to purchase 64,674
aggregate shares of our Series C-3 convertible preferred
stock at a $8.12 per share exercise price, respectively. We
expect all of the outstanding warrants to purchase our
Series C-3
convertible preferred stock will convert into warrants to
purchase shares of our common stock upon the closing of this
offering.
Registration
Rights
Based on shares outstanding as of September 30, 2010, after
the closing of this offering, the holders of
11,881,532 shares of our common stock or common stock
issuable upon exercise of warrants or their transferees will be
entitled to certain rights with respect to the registration of
such shares under the Securities Act. In the event that we
propose to register any of our securities under the Securities
Act, either for our own account or for the account of other
security holders, these holders are entitled to notice of such
registration and are entitled to include their common stock in
such registration, subject to certain marketing and other
limitations. The holders of at least 50 percent of these
securities have the right to require us, on not more than two
occasions, to file a registration statement on
Form S-1
under the Securities Act in order to register the resale of
shares of their common stock. We may, in certain circumstances,
defer such registrations and the underwriters have the right,
subject to certain limitations, to limit the number of shares
included in such registrations. Further, these holders may
require us to register the resale of all or a portion of their
shares on a registration statement on
Form S-3,
subject to certain conditions and limitations. In addition,
these holders have certain piggyback registration rights. If we
propose to register any of our equity securities under the
Securities Act other than pursuant to the registration rights
noted above or specified excluded registrations, which include
the registration of the shares issued and issuable under our
equity incentive plans and shares sold in this offering, holders
may require us to include all or a portion of their registrable
securities in the registration and in any related underwritten
offering. In an underwritten offering, the managing underwriter,
if any, has the right, subject to specified conditions, to limit
the number of registrable securities such holders may include.
Additionally, piggyback registrations are subject to delay or
termination of the registration under certain circumstances.
Generally, we are required to bear all registration and related
expenses incurred in connection with the demand and piggyback
registrations described above. If we are required to file a
registration statement, we must use our best efforts to cause
the registration statement to become effective.
Indemnification
We are obligated to indemnify the selling stockholders and any
person who might be deemed to control them or any of their
subsidiaries in the event of material misstatements or omissions
in the registration statement or related violations of law
attributable to us. Each selling stockholder is severally and
not jointly, obligated to indemnify us, each underwriter, if
any, each person who controls us or any underwriter within the
meaning of Section 15 of the Securities Act, and each other
selling stockholder in the event of material misstatements or
omissions in the registration statement attributable to such
144
stockholder. The liability of such selling stockholder shall be
limited to an amount equal to the gross proceeds to each such
selling stockholder.
Anti-Takeover
Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws
Certain provisions of Delaware law and our restated certificate
of incorporation and bylaws that will become effective upon
closing of this offering contain provisions that could have the
effect of delaying, deferring or discouraging another party from
acquiring control of us. These provisions, which are summarized
below, are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids. These
provisions are also designed in part to encourage anyone seeking
to acquire control of us to first negotiate with our Board of
Directors. We believe that the advantages gained by protecting
our ability to negotiate with any unsolicited and potentially
unfriendly acquirer outweigh the disadvantages of discouraging
such proposals, including those priced above the then-current
market value of our common stock, because, among other reasons,
the negotiation of such proposals could improve their terms.
Certificate
of Incorporation and Bylaws
Our amended and restated certificate of incorporation and bylaws
to become effective upon closing of this offering include
provisions that:
|
|
|
|
|
authorize our Board of Directors to issue, without further
action by the stockholders, up to 10,000,000 shares of
undesignated convertible preferred stock;
|
|
|
|
require that any action to be taken by our stockholders be
effected at a duly called annual or special meeting and not by
written consent;
|
|
|
|
specify that special meetings of our stockholders can be called
only by our Board of Directors, the Chairman of our Board, the
Chief Executive Officer or the President;
|
|
|
|
establish an advance notice procedure for stockholder approvals
to be brought before an annual meeting of our stockholders,
including proposed nominations of persons for election to our
Board of Directors;
|
|
|
|
provide that directors may be removed only for cause;
|
|
|
|
provide that vacancies on our Board of Directors may be filled
only by a majority of directors then in office, even though less
than a quorum;
|
|
|
|
establish that our Board of Directors is divided into three
classes, Class I, Class II, and Class III, with each
class serving staggered three year terms; and
|
|
|
|
specify that no stockholder is permitted to cumulate votes at
any election of our Board of Directors.
|
Delaware
Anti-Takeover Statute
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law regulating corporate takeovers.
In general, Section 203 prohibits a publicly held Delaware
corporation from engaging, under certain circumstances, in a
business combination with an interested stockholder for a period
of three years following the date the person became an
interested stockholder unless:
|
|
|
|
|
prior to the date of the transaction, our Board of Directors of
the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;
|
145
|
|
|
|
|
upon closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owned at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock
outstanding, but not for determining the outstanding voting
stock owned by the interested stockholder, (1) shares owned
by persons who are directors and also officers, and
(2) shares owned by employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
|
|
|
|
at or subsequent to the date of the transaction, the business
combination is approved by our Board of Directors of the
corporation and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative
vote of at least
662/3 percent
of the outstanding voting stock which is not owned by the
interested stockholder.
|
Generally, a business combination includes a merger, asset or
stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. An interested stockholder
is a person who, together with affiliates and associates, owns
or, within three years prior to the determination of interested
stockholder status, did own 15 percent or more of a
corporations outstanding voting stock. We expect the
existence of this provision to have an anti-takeover effect with
respect to transactions our Board of Directors does not approve
in advance. We also anticipate that Section 203 may
discourage business combinations or other attempts that might
result in a premium over the market price for the shares of
common stock held by our stockholders.
The provisions of Delaware law and our restated certificate of
incorporation and bylaws to become effective upon closing of
this offering could have the effect of discouraging others from
attempting hostile takeovers and, as a consequence, they may
also inhibit temporary fluctuations in the market price of our
common stock that often result from actual or rumored hostile
takeover attempts. These provisions may also have the effect of
preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish
transactions that stockholders may otherwise deem to be in their
best interests.
Transfer
Agent and Registrar
Upon the closing of this offering, the transfer agent and
registrar for our common stock will be Computershare Trust
Company, N.A. Its address is 350 Indiana Street,
Suite 750, Golden, Colorado 80401, and its telephone
number is (303) 262-0600.
Listing
We have applied to list our common stock on The NASDAQ Global
Market under the trading symbol ECYT.
146
SHARES ELIGIBLE
FOR FUTURE SALE
Before this offering, there has not been a public market for
shares of our common stock. Future sales of substantial amounts
of shares of our common stock, including shares issued upon the
exercise of outstanding options, in the public market after this
offering, or the possibility of these sales occurring, could
cause the prevailing market price for our common stock to fall
or impair our ability to raise equity capital in the future.
Upon the closing of this offering, a total of
27,754,710 shares of common stock will be outstanding,
assuming conversion of the Subordinated Notes, no exercise of
the underwriters over-allotment option and no exercises of
options after December 31, 2010. Of these shares, all
12,500,000 shares of common stock sold in this offering by
us, plus any shares sold upon exercise of the underwriters
over-allotment option, will be freely tradable in the public
market without restriction or further registration under the
Securities Act, unless these shares are held by
affiliates, as that term is defined in Rule 144
under the Securities Act.
The remaining 15,254,710 shares of common stock will be
restricted securities, as that term is defined in
Rule 144 under the Securities Act. These restricted
securities are eligible for public sale only if they are
registered under the Securities Act or if they qualify for an
exemption from registration under Rules 144 or 701 under
the Securities Act, which are summarized below.
Subject to the lockup agreements described below and the
provisions of Rules 144 and 701 under the Securities Act,
these restricted securities will be available for sale in the
public market as follows:
|
|
|
|
|
|
|
|
Number of
|
|
|
Date
|
|
Shares
|
|
|
|
On the date of this prospectus
|
|
|
0
|
|
|
Between 90 and 180 days after the date of this prospectus
|
|
|
0
|
|
|
At various times beginning more than 180 days after the
date of this prospectus
|
|
|
15,254,710
|
|
|
In addition, of the 2,076,956 shares of our common stock
that were subject to stock options outstanding as of
September 30, 2010, options to purchase
1,238,968 shares of common stock were vested as of
September 30, 2010 and will be eligible for sale
180 days following the effective date of this offering.
Lockup
Agreements
We and all of our directors and officers, as well as the other
holders of substantially all shares of common stock and options
or warrants to purchase our common stock outstanding immediately
prior to this offering, have agreed that, subject to customary
exceptions, we and they will not, during the period ending
180 days after the date of this prospectus, and in specific
circumstances, up to an additional 34 days:
|
|
|
|
|
directly or indirectly, sell, offer, contract or grant any
option to sell, short sell, grant any option, right or warrant
to purchase, pledge, transfer, establish an open put
equivalent position, lend or otherwise dispose of any
shares of our common stock, options, rights or warrants to
acquire shares of our common stock, or securities exchangeable
or exercisable for or convertible into shares of our common
stock owned either of record or beneficially;
|
|
|
|
enter into any swap or other arrangement that transfers, in
whole or in part, the economic consequences of the ownership of
our common stock; or
|
|
|
|
publicly announce an intention to do any of the foregoing, in
each case, without the prior written consent of RBC Capital
Markets, LLC and Leerink Swann LLC on behalf of the underwriters.
|
Rule 144
In general, under Rule 144 as currently in effect, once we
have been subject to public company reporting requirements for
at least 90 days, a person who is not deemed to have been
one of our affiliates
147
for purposes of the Securities Act at any time during
90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least six months, including
the holding period of any prior owner other than our affiliates,
is entitled to sell such shares without complying with the
manner of sale, volume limitation or notice provisions of
Rule 144, subject to compliance with the public information
requirements of Rule 144. If such a person has beneficially
owned the shares proposed to be sold for at least one year,
including the holding period of any prior owner other than our
affiliates, then such person is entitled to sell such shares
without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our
affiliates or persons selling shares on behalf of our affiliates
are entitled to sell upon expiration of the lockup agreements
described above, within any three-month period beginning
90 days after the date of this prospectus, a number of
shares that does not exceed the greater of:
|
|
|
|
|
one percent of the number of shares of common stock then
outstanding, which will equal approximately 278,000 shares
immediately after this offering; or
|
|
|
|
|
|
the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale,
|
and will not be eligible for resale until expiration of the
lockup agreements to which they are subject.
Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased
shares of our common stock pursuant to a written compensatory
plan or contract and who is not deemed to have been an affiliate
of our company during the immediately preceding 90 days to
sell these shares in reliance upon Rule 144, but without
being required to comply with the public information, holding
period, volume limitation, or notice provisions of
Rule 144. Rule 701 also permits affiliates of our
company to sell their Rule 701 shares under
Rule 144 without complying with the holding period
requirements of Rule 144. All holders of
Rule 701 shares, however, are required to wait until
90 days after the date of this prospectus before selling
such shares pursuant to Rule 701 and will not be eligible
for resale until expiration of the lockup agreements to which
they are subject.
As of September 30, 2010, 88,172 shares of our
outstanding common stock had been issued in reliance on
Rule 701 as a result of exercises of stock options and
stock awards.
Stock
Options
We intend to file a registration statement on
Form S-8
under the Securities Act covering all of the shares of our
common stock subject to options outstanding or reserved for
issuance under our stock plans and shares of our common stock
issued upon the exercise of options by employees. We expect to
file this registration statement as soon as practicable after
this offering. We expect to file this registration statement as
soon as permitted under the Securities Act. However, the shares
registered on
Form S-8
will be subject to volume limitations, manner of sale, notice
and public information requirements of Rule 144 and will
not be eligible for resale until expiration of the lockup
agreements to which they are subject.
Registration
Rights
Upon closing of this offering, the holders of
11,881,532 shares of common stock or common stock issuable
upon exercise of warrants or their transferees will be entitled
to various rights with respect to the registration of these
shares under the Securities Act. Registration of these shares
under the Securities Act would result in these shares becoming
fully tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration, except
for shares purchased by affiliates. See Description of
Capital Stock Registration Rights for
additional information.
148
MATERIAL
U.S. FEDERAL INCOME TAX AND ESTATE TAX
CONSEQUENCES TO
NON-U.S.
HOLDERS
The following is a summary of the material U.S. federal
income tax and estate tax consequences of the ownership and
disposition of our common stock to
non-U.S. holders,
but does not purport to be a complete analysis of all the
potential tax considerations relating thereto. This summary is
based upon the provisions of the Code, Treasury regulations
promulgated thereunder, administrative rulings and judicial
decisions, all as of the date hereof. These authorities may be
changed, possibly retroactively, so as to result in
U.S. federal income or estate tax consequences different
from those set forth below.
This summary also does not address the tax considerations
arising under the laws of any
non-U.S.,
state or local jurisdiction or under U.S. federal gift and
estate tax laws, except to the limited extent below. In
addition, this discussion does not address tax considerations
applicable to an investors particular circumstances or to
investors that may be subject to special tax rules, including,
without limitation:
|
|
|
|
|
banks, insurance companies or other financial institutions;
|
|
|
|
persons subject to the alternative minimum tax;
|
|
|
|
tax-exempt organizations;
|
|
|
|
controlled foreign corporations, passive foreign investment
companies and corporations that accumulate earnings to avoid
United States federal income tax;
|
|
|
|
dealers in securities or currencies;
|
|
|
|
traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
|
|
|
|
persons that own, or are deemed to own, more than five percent
of our capital stock (except to the extent specifically set
forth below);
|
|
|
|
certain former citizens or long-term residents of the United
States;
|
|
|
|
persons who hold our common stock as a position in a hedging
transaction, straddle, conversion
transaction or other risk reduction transaction;
|
|
|
|
persons who do not hold our common stock as a capital asset
within the meaning of Section 1221 of the Code (generally,
for investment purposes); or
|
|
|
|
persons deemed to sell our common stock under the constructive
sale provisions of the Code.
|
In addition, if a partnership or entity classified as a
partnership for U.S. federal income tax purposes holds our
common stock, the tax treatment of a partner generally will
depend on the status of the partner and upon the activities of
the partnership. Accordingly, partnerships that hold our common
stock, and partners in such partnerships, should consult their
tax advisors.
You are urged to consult your tax advisor with respect to the
application of the United States federal income tax laws to your
particular situation, as well as any tax consequences of the
purchase, ownership and disposition of our common stock arising
under the United States federal estate or gift tax rules or
under the laws of any state, local,
non-U.S. or
other taxing jurisdiction or under any applicable tax treaty.
149
Non-U.S.
Holder Defined
For purposes of this discussion, you are a
non-U.S. holder
if you are any holder (other than a partnership or entity
classified as a partnership for U.S. federal income tax
purposes) that is not:
|
|
|
|
|
an individual citizen or resident of the United States;
|
|
|
|
a corporation or other entity taxable as a corporation created
or organized in the United States or under the laws of the
United States or any political subdivision thereof;
|
|
|
|
an estate whose income is subject to U.S. federal income
tax regardless of its source; or
|
|
|
|
a trust (x) whose administration is subject to the primary
supervision of a U.S. court and which has one or more
U.S. persons who have the authority to control all
substantial decisions of the trust or (y) which has made an
election to be treated as a U.S. person.
|
Distributions
We have not made any distributions on our common stock, and we
do not plan to make any distributions for the foreseeable
future. However, if we do make distributions on our common
stock, those payments will constitute dividends for
U.S. tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. To the extent those
distributions exceed both our current and our accumulated
earnings and profits, they will constitute a return of capital
and will first reduce your basis in our common stock, but not
below zero, and then will be treated as gain from the sale of
stock.
Any dividend paid to you generally will be subject to
U.S. withholding tax either at a rate of 30 percent of
the gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty. In order to
receive a reduced treaty rate, you must provide us with an IRS
Form W-8BEN
or other appropriate version of IRS
Form W-8
certifying qualification for the reduced rate. A
non-U.S. holder
of shares of our common stock eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may
obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS. If the
non-U.S. holder
holds the stock through a financial institution or other agent
acting on the
non-U.S. holders
behalf, the
non-U.S. holder
will be required to provide appropriate documentation to the
agent, which then will be required to provide certification to
us or our paying agent, either directly or through other
intermediaries.
Dividends received by you that are effectively connected with
your conduct of a U.S. trade or business (and, if an income
tax treaty applies, attributable to a permanent establishment
maintained by you in the United States) are exempt from such
withholding tax. In order to obtain this exemption, you must
provide us with an IRS
Form W-8ECI
or other applicable IRS
Form W-8
properly certifying such exemption. Such effectively connected
dividends, although not subject to withholding tax, are taxed at
the same graduated rates generally applicable to
U.S. persons, net of certain deductions and credits. In
addition, if you are a corporate
non-U.S. holder,
dividends you receive that are effectively connected with your
conduct of a U.S. trade or business may also be subject to
a branch profits tax at a rate of 30 percent or such lower
rate as may be specified by an applicable income tax treaty.
150
Gain on
Disposition of Common Stock
You generally will not be required to pay U.S. federal
income tax on any gain realized upon the sale or other
disposition of our common stock unless:
|
|
|
|
|
the gain is effectively connected with your conduct of a
U.S. trade or business (and, if an income tax treaty
applies, the gain is attributable to a permanent establishment
maintained by you in the United States);
|
|
|
|
you are an individual who is present in the United States for a
period or periods aggregating 183 days or more during the
calendar year in which the sale or disposition occurs and
certain other conditions are met; or
|
|
|
|
our common stock constitutes a U.S. real property interest
by reason of our status as a United States real
property holding corporation for U.S. federal income
tax purposes (an USRPHC) at any time within the
shorter of the five-year period preceding the disposition or
your holding period for our common stock.
|
We believe that we are not currently and will not become a
USRPHC. However, because the determination of whether we are a
USRPHC depends on the fair market value of our U.S. real
property relative to the fair market value of our other business
assets, there can be no assurance that we will not become a
USRPHC in the future. Even if we become a USRPHC, however, as
long as our common stock is regularly traded on an established
securities market, such common stock will be treated as
U.S. real property interests only if you actually or
constructively hold more than five percent of such regularly
traded common stock at any time during the applicable period
described above.
If you are a
non-U.S. holder
described in the first bullet above, you will generally be
required to pay tax on the gain derived from the sale (net of
certain deductions or credits) under regular graduated
U.S. federal income tax rates, and corporate
non-U.S. holders
described in the first bullet above may be subject to branch
profits tax at a 30 percent rate or such lower rate as may
be specified by an applicable income tax treaty. If you are an
individual
non-U.S. holder
described in the second bullet above, you will be required to
pay a flat 30 percent tax on the gain derived from the
sale, which tax may be offset by U.S. source capital losses
(even though you are not considered a resident of the United
States). You should consult any applicable income tax or other
treaties that may provide for different rules.
Federal
Estate Tax
Our common stock beneficially owned by an individual who is not
a citizen or resident of the United States (as defined for
United States federal estate tax purposes) at the time of death
will generally be includable in the decedents gross estate
for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
Backup
Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of
dividends paid to you, your name and address, and the amount of
tax withheld, if any. A similar report will be sent to you.
Pursuant to applicable income tax treaties or other agreements,
the IRS may make these reports available to tax authorities in
your country of residence.
Payments of dividends or of proceeds on the disposition of stock
made to you may be subject to additional information reporting
and backup withholding at a current rate of 28 percent
unless you establish an exemption, for example by properly
certifying your
non-U.S. status
on a
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
151
information reporting may apply if either we or our paying agent
has actual knowledge, or reason to know, that you are a
U.S. person.
Backup withholding is not an additional tax; rather, the
U.S. income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund or
credit may generally be obtained from the IRS, provided that the
required information is furnished to the IRS in a timely manner.
Recently Enacted Legislation Affecting Taxation of Our Common
Stock Held by or Through Foreign Entities
Recently enacted legislation generally will impose a
U.S. federal withholding tax of 30 percent on
dividends and the gross proceeds of a disposition of our common
stock paid after December 31, 2012 to a foreign
financial institution (as specially defined under these
rules) unless such institution enters into an agreement with the
U.S. government to withhold on certain payments and to
collect and provide to the U.S. tax authorities substantial
information regarding U.S. account holders of such
institution (which includes certain equity and debt holders of
such institution, as well as certain account holders that are
foreign entities with U.S. owners). The legislation also
will generally impose a U.S. federal withholding tax of
30 percent on dividends and the gross proceeds of a
disposition of our common stock paid after December 31,
2012 to a non-financial foreign entity unless such entity
provides the withholding agent with a certification identifying
the direct and indirect U.S. owners of the entity. Under
certain circumstances, a
non-U.S. holder
might be eligible for refunds or credits of such taxes.
Prospective investors are encouraged to consult with their own
tax advisors regarding the possible implications of this
legislation on their investment in our common stock.
The preceding discussion of United States federal tax
considerations is for general information only. It is not tax
advice. Each prospective investor should consult its own tax
advisor regarding the particular United States federal, state
and local and
non-U.S. tax
consequences of purchasing, holding and disposing of our common
stock, including the consequences of any proposed change in
applicable laws.
152
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2011, we have agreed to sell to the underwriters named below,
for whom RBC Capital Markets, LLC and Leerink Swann LLC are
acting as representatives, the following respective numbers of
shares of common stock:
|
|
|
|
|
|
|
Number of
|
|
Name
|
|
Shares
|
|
|
RBC Capital Markets, LLC
|
|
|
|
|
Leerink Swann LLC
|
|
|
|
|
Wedbush Securities Inc.
|
|
|
|
|
Robert W. Baird & Co.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,500,000
|
|
|
|
|
|
|
The underwriting agreement provides that the underwriters are
obligated, severally and not jointly, to purchase all the shares
of common stock offered by us. The underwriting agreement also
provides that if an underwriter defaults, the purchase
commitments of non-defaulting underwriters may be increased or
the offering may be terminated.
We have granted to the underwriters a
30-day
option to purchase on a pro rata basis up to 1,875,000
additional shares at the offering price less the underwriting
discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock
directly to the public at the offering price on the cover page
of this prospectus and to selling group members at that price
less a selling concession of $ per
share. After the offering, the representatives may change the
offering price and concession.
The following table summarizes the compensation we will pay:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
|
Without Over-
|
|
With Over-
|
|
Without Over-
|
|
With Over-
|
|
|
Allotment
|
|
Allotment
|
|
Allotment
|
|
Allotment
|
|
Underwriting discounts and commissions paid by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The expenses of the offering that are payable by us are
estimated to be $2.0 million, exclusive of underwriting
discounts and commissions.
We and all of our directors and officers, as well as the other
holders of substantially all shares of common stock and options
or warrants to purchase our common stock outstanding immediately
prior to this offering, have agreed that, without the prior
written consent of RBC Capital Markets, LLC and Leerink Swann
LLC on behalf of the underwriters, we and they will not, during
the period ending 180 days after the date of this
prospectus, and in specific circumstances, up to an additional
34 days (the lockup period):
|
|
|
|
|
directly or indirectly, sell, offer, contract or grant any
option to sell, short sell, grant any option, right or warrant
to purchase, pledge, transfer, establish an open put
equivalent position, lend or otherwise dispose of any
shares of our common stock, options, rights or warrants to
acquire shares of our common stock, or securities exchangeable
or exercisable for or convertible into shares of our common
stock owned either of record or beneficially;
|
|
|
|
enter into any swap or other arrangement that transfers, in
whole or in part, the economic consequences of the ownership of
our common stock; or
|
153
|
|
|
|
|
publicly announce an intention to do any of the foregoing.
|
These agreements are subject to certain exceptions, including:
in our case:
|
|
|
|
|
sales of common stock to the underwriters in this offering;
|
|
|
|
the award of options or other purchase rights or shares of our
common stock pursuant to our employee benefits plans;
|
|
|
|
|
|
issuances of shares of common stock or securities convertible
into or exercisable or exchangeable for shares of common stock
pursuant to the exercise of warrants, options or other
convertible or exchangeable securities, including shares of
convertible preferred stock, in each case which are outstanding
on the date hereof;
|
|
|
|
|
|
filing with the SEC a registration statement under the
Securities Act of
Form S-8
with respect to securities issued pursuant to an employee
benefit plans; and
|
|
|
|
|
|
the entry into an agreement providing for the issuance of shares
of common stock (including shares issuable in respect of
securities convertible into or exercisable for common stock) in
connection with acquisitions or joint ventures and the issuance
of any such securities pursuant to any such agreement, provided
that the number of shares issuable pursuant to this exception
shall not exceed an aggregate of 10% of our fully-diluted shares
of common stock outstanding as of the date this prospectus, plus
the shares sold in this offering; provided any securities
issuable under any such agreement are subject to similar lockup
restrictions;
|
in the case of our officers, directors and stockholders:
|
|
|
|
|
transactions relating to shares of common stock or other
securities acquired in open market transactions after the
completion of the offering;
|
154
|
|
|
|
|
transfers of shares of common stock or any security convertible
into common stock as a bona fide gift;
|
|
|
|
distributions of shares of common stock or any security
convertible into common stock to limited partners, general
partners or stockholders;
|
|
|
|
transfers of shares of common stock or any security convertible
into common stock to family members or a trust established for
the benefit of family members;
|
|
|
|
transfers of shares of common stock or any security convertible
into common stock to entities where the party to the lockup is
the beneficial owner of all shares of common stock or our other
securities held by the entity;
|
|
|
|
the receipt by the party of shares of common stock upon the
exercise of an option or warrant or in connection with the
vesting of restricted stock or restricted stock units;
|
|
|
|
the transfer of shares of common stock to the company in a
transaction exempt from Section 16(b) of the Exchange Act
solely in connection with the payment of taxes due in connection
with any such exercise or vesting; and
|
|
|
|
the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act for the transfer of shares of common
stock so long as no sales are made under the plan during the
lockup period;
|
provided that, except in the case of open market purchases
described above, any transferee agrees to be bound by the terms
of the lockup and that, in all cases, no filing under
Section 16(a) under the Exchange Act shall be required or
voluntarily made to the extent applicable.
We have also agreed not to file any registration statement with
respect to our common stock or other equity securities (other
than on Form
S-8 as
described above), and our directors, officers and other holders
of our equity securities have waived all registration rights
with respect to this offering.
We have agreed to indemnify the underwriters against liabilities
under the Securities Act, or contribute to payments that the
underwriters may be required to make in that respect.
We have applied to list our common stock on The NASDAQ Global
Market under the symbol ECYT.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
determined by negotiations between us and the representatives of
the underwriters. Among the factors to be considered in
determining the initial public offering price will be our
prospects and the prospects of our industry in general, the
status and results of our clinical programs, our financial
operating information in recent periods, an assessment of our
management, the general condition of the securities markets and
the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies. The estimated
initial public offering price range set forth on the cover page
of this preliminary prospectus is subject to change as a result
of market conditions and other factors.
In the ordinary course of business, certain of the underwriters
and their affiliates have provided and may in the future provide
financial advisory, investment banking and general financing and
banking services for us and our affiliates for customary fees.
In connection with the offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act, including:
|
|
|
|
|
stabilizing transactions that permit bids to purchase the
underlying security so long as the stabilizing bids do not
exceed a specified maximum;
|
155
|
|
|
|
|
over-allotment, which involves sales by the underwriters of
shares in excess of the number of shares the underwriters are
obligated to purchase, which creates a syndicate short position.
The short position may be either a covered short position or a
naked short position. In a covered short position, the number of
shares over-allotted by the underwriters is not greater than the
number of shares that they may purchase in the over-allotment
option. In a naked short position, the number of shares involved
is greater than the number of shares in the over-allotment
option. The underwriters may close out any covered short
position by exercising their over-allotment option
and/or
purchasing shares in the open market;
|
|
|
|
syndicate covering transactions, which involve purchases of the
common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering; and
|
|
|
|
penalty bids, which permit the representatives to reclaim a
selling concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
|
These stabilizing transactions, over-allotment transactions,
syndicate covering transactions and penalty bids may have the
effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price
of the common stock. As a result the price of our common stock
may be higher than the price that might otherwise exist in the
open market. These transactions may be effected on The NASDAQ
Global Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters or
selling group members, if any, participating in this offering.
The representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make Internet distributions on the same basis as other
allocations.
Notice to
Prospective Investors in the EEA
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, which we refer
to as a Relevant Member State, an offer to the public of any
shares of common stock that are the subject of the offering
contemplated by this prospectus may not be made in that Relevant
Member State, except that an offer to the public in that
Relevant Member State of any shares may be made at any time
under the following exemptions under the Prospectus Directive,
if they have been implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) by the underwriters to fewer than 100 natural or legal
persons (other than qualified investors as defined
in the Prospectus Directive) subject to obtaining the prior
consent of the representatives for any such offer; or
156
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive;
provided that no such offer of shares shall result in a
requirement for the publication by us or any representative of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
Any person making or intending to make any offer of shares
within the EEA should only do so in circumstances in which no
obligation arises for us or any of the underwriters to produce a
prospectus for such offer. Neither we nor the underwriters have
authorized, nor do they authorize, the making of any offer of
shares through any financial intermediary, other than offers
made by the underwriters which constitute the final offering of
shares contemplated in this prospectus.
For the purposes of this provision, and your representation
below, the expression an offer to the public in
relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any shares to be
offered so as to enable an investor to decide to purchase any
shares, as the same may be varied in that Relevant Member State
by any measure implementing the Prospectus Directive in that
Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State.
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any shares under,
the offer of shares contemplated by this prospectus will be
deemed to have represented, warranted and agreed to and with us
and each underwriter that:
(a) it is a qualified investor within the
meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive; and
(b) in the case of any shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (i) the shares acquired by it in the
offering have not been acquired on behalf of, nor have they been
acquired with a view to their offer or resale to, persons in any
Relevant Member State other than qualified investors
(as defined in the Prospectus Directive), or in circumstances in
which the prior consent of the representatives has been given to
the offer or resale; or (ii) where shares have been
acquired by it on behalf of persons in any Relevant Member State
other than qualified investors, the offer of those shares to it
is not treated under the Prospectus Directive as having been
made to such persons.
Notice to
Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within
Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005, as amended, which we
refer to as the Order,
and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
157
LEGAL
MATTERS
The validity of the shares of common stock offered hereby will
be passed upon for us by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. The
underwriters are being represented by Davis Polk & Wardwell
LLP, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our financial statements at
December 31, 2009 and 2008, and for each of the three years
in the period ended December 31, 2009, as set forth in
their report. We have included our financial statements in the
prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLPs report, given on
their authority as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of common
stock we are offering. The registration statement, including the
attached exhibits and schedules, contains additional relevant
information about us and our common stock. This prospectus does
not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. The rules and
regulations of the SEC allow us to omit from this prospectus
certain information included in the registration statement.
For further information about us and our common stock, you may
inspect a copy of the registration statement and the exhibits
and schedules to the registration statement without charge at
the offices of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain copies of all or any
part of the registration statement from the Public Reference
Section of the SEC, 100 F Street, N.E., Washington,
D.C. 20549 upon the payment of the prescribed fees.
You may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website at www.sec.gov that contains
reports, proxy and information statements and other information
regarding registrants like us that file electronically with the
SEC. You can also inspect our registration statement on this
website.
158
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of Endocyte, Inc.
We have audited the accompanying balance sheets of Endocyte,
Inc. as of December 31, 2009 and 2008, and the related
statements of operations, convertible preferred stock,
stockholders equity (deficit) and comprehensive loss, and
cash flows for each of the three years in the period ended
December 31, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys 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 Companys 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, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Endocyte, Inc. at December 31, 2009 and 2008, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 2009, in
conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
April 22, 2010
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010 Actual
|
|
|
2010 Pro Forma
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,878,554
|
|
|
$
|
8,699,372
|
|
|
$
|
8,067,168
|
|
|
$
|
24,817,168
|
|
Short-term investments
|
|
|
13,503,618
|
|
|
|
15,210,378
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
642,801
|
|
|
|
373,475
|
|
|
|
1,937,195
|
|
|
|
1,937,195
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
228,325
|
|
|
|
228,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,024,973
|
|
|
|
24,283,225
|
|
|
|
10,232,688
|
|
|
|
26,982,688
|
|
Property and equipment, net
|
|
|
1,003,088
|
|
|
|
923,051
|
|
|
|
927,695
|
|
|
|
927,695
|
|
Deferred financing costs
|
|
|
159,740
|
|
|
|
61,419
|
|
|
|
196,125
|
|
|
|
533,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,187,801
|
|
|
$
|
25,267,695
|
|
|
$
|
11,356,508
|
|
|
$
|
28,444,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Convertible Preferred Stock, and
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,296,271
|
|
|
$
|
1,789,534
|
|
|
$
|
2,927,311
|
|
|
$
|
2,927,311
|
|
Accrued wages and benefits
|
|
|
301,566
|
|
|
|
459,288
|
|
|
|
420,234
|
|
|
|
420,234
|
|
Accrued interest payable
|
|
|
126,619
|
|
|
|
78,856
|
|
|
|
94,792
|
|
|
|
94,792
|
|
Current portion of long-term debt
|
|
|
5,518,941
|
|
|
|
6,258,324
|
|
|
|
1,752,542
|
|
|
|
1,752,542
|
|
Preferred stock warrants
|
|
|
295,149
|
|
|
|
221,031
|
|
|
|
290,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,538,546
|
|
|
|
8,807,033
|
|
|
|
5,485,689
|
|
|
|
5,194,879
|
|
Long-term debt, net of current portion
|
|
|
8,864,578
|
|
|
|
2,718,742
|
|
|
|
8,138,465
|
|
|
|
26,881,994
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
637,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,403,124
|
|
|
|
11,525,775
|
|
|
|
13,924,154
|
|
|
|
32,714,373
|
|
Convertible preferred stock, $0.001 par value
14,310,992 shares authorized; 8,465,108, 11,747,564, and
11,747,564 shares issued and outstanding at
December 31, 2008, and 2009 and September 30, 2010
(actual), respectively and no shares at September 30,
2010 (pro forma)
|
|
|
63,197,046
|
|
|
|
89,799,483
|
|
|
|
89,799,483
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital: $0.001 par value,
100,000,000 shares authorized; 1,133,579, 1,133,579, and
1,150,872 shares issued and outstanding at
December 31, 2008, and 2009 and September 30, 2010
(actual), respectively and 12,898,436 shares at
September 30, 2010 (pro forma)
|
|
|
1,534,568
|
|
|
|
1,916,445
|
|
|
|
2,354,054
|
|
|
|
90,450,818
|
|
Accumulated other comprehensive income
|
|
|
23,563
|
|
|
|
2,177
|
|
|
|
|
|
|
|
|
|
Retained deficit
|
|
|
(60,970,500
|
)
|
|
|
(77,976,185
|
)
|
|
|
(94,721,183
|
)
|
|
|
(94,721,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(59,412,369
|
)
|
|
|
(76,057,563
|
)
|
|
|
(92,367,129
|
)
|
|
|
(4,270,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and stockholders deficit
|
|
$
|
20,187,801
|
|
|
$
|
25,267,695
|
|
|
$
|
11,356,508
|
|
|
$
|
28,444,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
ENDOCYTE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant revenue
|
|
$
|
81,829
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Collaboration revenue
|
|
|
1,000,000
|
|
|
|
500,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
1,081,829
|
|
|
|
500,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,304,677
|
|
|
|
13,323,318
|
|
|
|
14,803,741
|
|
|
|
10,680,471
|
|
|
|
11,270,878
|
|
General and administrative
|
|
|
4,400,871
|
|
|
|
4,785,466
|
|
|
|
3,934,259
|
|
|
|
2,676,611
|
|
|
|
4,722,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,705,548
|
|
|
|
18,108,784
|
|
|
|
18,738,000
|
|
|
|
13,357,082
|
|
|
|
15,993,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(14,623,719
|
)
|
|
|
(17,608,784
|
)
|
|
|
(15,738,000
|
)
|
|
|
(10,357,082
|
)
|
|
|
(15,993,443
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,297,130
|
|
|
|
682,433
|
|
|
|
49,315
|
|
|
|
43,289
|
|
|
|
3,333
|
|
Interest expense
|
|
|
(25,438
|
)
|
|
|
(1,579,297
|
)
|
|
|
(1,435,988
|
)
|
|
|
(1,141,899
|
)
|
|
|
(670,112
|
)
|
Other
|
|
|
(305,793
|
)
|
|
|
12,772
|
|
|
|
118,988
|
|
|
|
64,633
|
|
|
|
(84,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(13,657,820
|
)
|
|
|
(18,492,876
|
)
|
|
|
(17,005,685
|
)
|
|
|
(11,391,059
|
)
|
|
|
(16,744,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(15.76
|
)
|
|
$
|
(20.54
|
)
|
|
$
|
(18.67
|
)
|
|
$
|
(12.50
|
)
|
|
$
|
(18.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares used in net loss per
share calculation basic and diluted
|
|
|
866,530
|
|
|
|
900,141
|
|
|
|
911,081
|
|
|
|
911,081
|
|
|
|
917,799
|
|
Pro forma net loss per share basic and diluted
(unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
(1.34
|
)
|
|
|
|
|
|
$
|
(1.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing pro forma net loss per
share basic and diluted (unaudited)
|
|
|
|
|
|
|
|
|
|
|
12,658,710
|
|
|
|
|
|
|
|
12,665,428
|
|
See accompanying notes.
F-4
ENDOCYTE,
INC.
AND
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
Common Stock and
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Additional Paid-In Capital
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
Loss
|
|
|
Balances, December 31, 2006
|
|
|
6,611,599
|
|
|
$
|
48,199,292
|
|
|
|
1,076,985
|
|
|
$
|
785,962
|
|
|
$
|
(125,227
|
)
|
|
$
|
(28,819,804
|
)
|
|
$
|
(28,159,069
|
)
|
|
|
|
|
Issuance of
Series C-3
convertible preferred stock, net
|
|
|
1,853,509
|
|
|
|
14,997,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
13,142
|
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
2,510
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,028
|
|
|
|
|
|
|
|
|
|
|
|
136,028
|
|
|
|
|
|
Issuance of
Series C-3
preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306,955
|
|
|
|
|
|
|
|
|
|
|
|
306,955
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,657,820
|
)
|
|
|
(13,657,820
|
)
|
|
$
|
(13,657,820
|
)
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,588
|
|
|
|
|
|
|
|
53,588
|
|
|
|
53,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
8,465,108
|
|
|
|
63,197,046
|
|
|
|
1,090,127
|
|
|
|
1,231,455
|
|
|
|
(71,639
|
)
|
|
|
(42,477,624
|
)
|
|
|
(41,317,808
|
)
|
|
$
|
(13,604,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
43,452
|
|
|
|
45,950
|
|
|
|
|
|
|
|
|
|
|
|
45,950
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,163
|
|
|
|
|
|
|
|
|
|
|
|
257,163
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,492,876
|
)
|
|
|
(18,492,876
|
)
|
|
$
|
(18,492,876
|
)
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,202
|
|
|
|
|
|
|
|
95,202
|
|
|
|
95,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
8,465,108
|
|
|
|
63,197,046
|
|
|
|
1,133,579
|
|
|
|
1,534,568
|
|
|
|
23,563
|
|
|
|
(60,970,500
|
)
|
|
|
(59,412,369
|
)
|
|
$
|
(18,397,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
Series C-3
convertible preferred stock, net
|
|
|
3,282,456
|
|
|
|
26,602,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381,877
|
|
|
|
|
|
|
|
|
|
|
|
381,877
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,005,685
|
)
|
|
|
(17,005,685
|
)
|
|
$
|
(17,005,685
|
)
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,386
|
)
|
|
|
|
|
|
|
(21,386
|
)
|
|
|
(21,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
11,747,564
|
|
|
$
|
89,799,483
|
|
|
|
1,133,579
|
|
|
$
|
1,916,445
|
|
|
$
|
2,177
|
|
|
$
|
(77,976,185
|
)
|
|
$
|
(76,057,563
|
)
|
|
$
|
(17,027,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
17,293
|
|
|
|
47,288
|
|
|
|
|
|
|
|
|
|
|
|
47,288
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,321
|
|
|
|
|
|
|
|
|
|
|
|
390,321
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,744,998
|
)
|
|
|
(16,744,998
|
)
|
|
$
|
(16,744,998
|
)
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,177
|
)
|
|
|
|
|
|
|
(2,177
|
)
|
|
|
(2,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2010 (unaudited)
|
|
|
11,747,564
|
|
|
|
89,799,483
|
|
|
|
1,150,872
|
|
|
|
2,354,054
|
|
|
|
|
|
|
|
(94,721,183
|
)
|
|
|
(92,367,129
|
)
|
|
$
|
(16,747,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible preferred stock into common stock
|
|
|
(11,747,564
|
)
|
|
|
(89,799,483
|
)
|
|
|
11,747,564
|
|
|
|
89,799,483
|
|
|
|
|
|
|
|
|
|
|
|
89,799,483
|
|
|
|
|
|
Reclassification of preferred stock warrants from current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290,810
|
|
|
|
|
|
|
|
|
|
|
|
290,810
|
|
|
|
|
|
Fair value adjustment of the subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,073,529
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,073,529
|
)
|
|
|
|
|
Issuance of preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma balances, September 30, 2010 (unaudited)
|
|
|
|
|
|
$
|
|
|
|
|
12,898,436
|
|
|
$
|
90,450,818
|
|
|
$
|
|
|
|
$
|
(94,721,183
|
)
|
|
$
|
(4,270,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
ENDOCYTE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,657,820
|
)
|
|
$
|
(18,492,876
|
)
|
|
$
|
(17,005,685
|
)
|
|
$
|
(11,391,059
|
)
|
|
$
|
(16,744,998
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
256,881
|
|
|
|
346,361
|
|
|
|
231,890
|
|
|
|
175,589
|
|
|
|
195,885
|
|
Stock-based expense
|
|
|
136,028
|
|
|
|
257,163
|
|
|
|
381,877
|
|
|
|
246,495
|
|
|
|
390,321
|
|
Gain on disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
3,588
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,284
|
|
Accretion of bond discount
|
|
|
(430,091
|
)
|
|
|
(26,877
|
)
|
|
|
(17,250
|
)
|
|
|
(15,769
|
)
|
|
|
(3,075
|
)
|
Non cash interest expense
|
|
|
|
|
|
|
250,004
|
|
|
|
210,809
|
|
|
|
165,881
|
|
|
|
107,084
|
|
Increase (decrease) in fair value on preferred stock warrants
|
|
|
307,061
|
|
|
|
(11,912
|
)
|
|
|
(74,118
|
)
|
|
|
(58,235
|
)
|
|
|
(52,160
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and accrued interest receivable
|
|
|
(561,097
|
)
|
|
|
1,074,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(332,149
|
)
|
|
|
(192,358
|
)
|
|
|
269,326
|
|
|
|
283,221
|
|
|
|
(1,563,720
|
)
|
Accounts payable
|
|
|
1,194,642
|
|
|
|
(366,944
|
)
|
|
|
493,263
|
|
|
|
159,483
|
|
|
|
1,137,777
|
|
Accrued interest, wages, and benefits
|
|
|
113,508
|
|
|
|
(123,977
|
)
|
|
|
109,959
|
|
|
|
51,822
|
|
|
|
(23,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(12,973,037
|
)
|
|
|
(17,286,754
|
)
|
|
|
(15,396,341
|
)
|
|
|
(10,382,572
|
)
|
|
|
(16,411,720
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(659,241
|
)
|
|
|
(459,770
|
)
|
|
|
(155,441
|
)
|
|
|
(48,001
|
)
|
|
|
(200,529
|
)
|
Purchases of investments
|
|
|
(20,662,933
|
)
|
|
|
(19,457,362
|
)
|
|
|
(35,496,785
|
)
|
|
|
(25,197,816
|
)
|
|
|
(12,295,754
|
)
|
Proceeds from sale of investments
|
|
|
28,053,672
|
|
|
|
15,489,229
|
|
|
|
33,785,889
|
|
|
|
18,189,664
|
|
|
|
27,507,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
6,731,498
|
|
|
|
(4,427,903
|
)
|
|
|
(1,866,337
|
)
|
|
|
(7,056,153
|
)
|
|
|
15,010,747
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible preferred stock, net of
issuance costs
|
|
|
14,997,754
|
|
|
|
|
|
|
|
26,602,437
|
|
|
|
18,878,602
|
|
|
|
|
|
Proceeds from borrowings, net of issuance costs
|
|
|
9,796,401
|
|
|
|
4,930,697
|
|
|
|
|
|
|
|
|
|
|
|
9,852,442
|
|
Principal payments on borrowings
|
|
|
(120,231
|
)
|
|
|
(705,327
|
)
|
|
|
(5,518,941
|
)
|
|
|
(4,050,254
|
)
|
|
|
(9,028,897
|
)
|
Extinguishment of debt payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,064
|
)
|
Proceeds from the exercise of stock options
|
|
|
2,510
|
|
|
|
45,950
|
|
|
|
|
|
|
|
|
|
|
|
47,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
24,676,434
|
|
|
|
4,271,320
|
|
|
|
21,083,496
|
|
|
|
14,828,348
|
|
|
|
768,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
18,434,895
|
|
|
|
(17,443,337
|
)
|
|
|
3,820,818
|
|
|
|
(2,610,377
|
)
|
|
|
(632,204
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
3,886,996
|
|
|
|
22,321,891
|
|
|
|
4,878,554
|
|
|
|
4,878,554
|
|
|
|
8,699,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
22,321,891
|
|
|
$
|
4,878,554
|
|
|
$
|
8,699,372
|
|
|
$
|
2,268,177
|
|
|
$
|
8,067,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
ENDOCYTE,
INC.
(INFORMATION AS OF
SEPTEMBER 30, 2010 AND
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2010
AND 2009 IS UNAUDITED)
|
|
1.
|
Nature of
Business and Organization
|
Endocyte, Inc. (the Company) was incorporated on
December 6, 1995. The Company is a biopharmaceutical
company developing targeted therapies for the treatment of
cancer and inflammatory diseases. The Company uses its
proprietary technology to create novel small molecule drug
conjugates, or SMDCs, and companion imaging diagnostics. The
SMDCs actively target receptors that are over-expressed on
diseased cells, relative to healthy cells. This targeted
approach is designed to enable the treatment of patients with a
highly active drug at greater doses, delivered more frequently,
and over longer periods of time than would be possible with the
untargeted drug alone. The Company is also developing companion
imaging diagnostics for each of its SMDCs that are designed to
identify the patients whose disease over-expresses the target of
the therapy and who are therefore more likely to benefit from
treatment.
|
|
2.
|
Significant
Accounting Policies
|
Unaudited
Interim Financial Data
The accompanying unaudited September 30, 2010 balance
sheet, the statements of operations, and cash flows for the nine
months ended September 30, 2009 and 2010, and the
statements of convertible preferred stock and stockholders
deficit for the nine months ended September 30, 2010 and
the related interim information contained within the notes to
the financial statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange
Commission (SEC) for interim financial information.
Accordingly, they do not include all of the information and the
notes required by accounting principles generally accepted in
the United States for complete financial statements. In the
opinion of management, the unaudited interim financial
statements reflect all adjustments, consisting of normal and
recurring adjustments, necessary for the fair presentation of
the Companys financial position at September 30, 2010
and results of its operations and its cash flows for the nine
months ended September 30, 2009 and 2010. The results for
the nine months ended September 30, 2010 are not
necessarily indicative of future results.
Unaudited
Pro Forma Balance Sheet and Pro Forma Loss per Common
Share
In August 2010, the Companys Board of Directors (the
Board) authorized management of the Company to file
a registration statement with the SEC permitting the Company to
sell shares of its common stock to the public. The unaudited pro
forma balance sheet as of September 30, 2010 and statement
of stockholders deficit for the nine months ended
September 30, 2010 reflects the conversion of all
Series A-1,
Series A-2,
Series B,
Series C-1,
Series C-2
and
Series C-3
convertible preferred stock outstanding as of that date into
11,747,564 shares of common stock, each event to occur
immediately prior to the closing of the Companys proposed
initial public offering. The Pro Forma Balance Sheet reflects
the issuance of $11.8 million of Subordinated Notes and the
borrowing of the remaining tranche of $5.0 million under
the term loan with
Mid-Cap
Financial (Mid-Cap) and Silicon Valley Bank
(SVB), along with the increase in the number of
shares exercisable pursuant to the preferred stock warrants
issued to these lenders, which were completed in December 2010.
See Note 16 to these financial statements, Subsequent
Events, for further discussion of the Subordinated Notes.
In addition, the unaudited pro forma balance sheet as of
September 30, 2010 reflects the impact of the
reclassification of the preferred stock warrant liability into
additional paid-in capital as a result of the conversion of
warrants to purchase
F-7
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
convertible preferred stock into warrants to purchase common
stock immediately prior to the closing of the Companys
proposed initial public offering.
Unaudited pro forma net loss per share is computed using the
weighted-average number of common shares outstanding after
giving effect to the pro forma effect of the conversion of all
convertible preferred stock during the year ended
December 31, 2009 and the nine months ended
September 30, 2010 into shares of the Companys
common stock as if such conversion had occurred at the beginning
of the period presented, or the date of original issuance, if
later.
Stock
Split
On January 10, 2011, the Company effected a 1.00 for 1.91
reverse stock split. All historical common stock and per share
informed has been changed to affect the stock split.
Basis of
Presentation
The financial statements are prepared in conformity with
U.S. generally accepted accounting principles
(GAAP). The Company has made estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. Subsequent events have been evaluated
through April 22, 2010, the date of these financial
statements, and through the timing of the filing of the
registration statement with the SEC for the Companys
initial public offering.
Cash and
Cash Equivalents
The Company considers cash and all highly liquid investments
with an original maturity of three months or less at the date of
purchase to be cash equivalents, except for those funds managed
by the Companys investment manager, which are classified
as short-term investments. Cash equivalents consist primarily of
money market instruments.
Short-Term
Investments
Short-term investments consist primarily of investments with
original maturities greater than three months and less than one
year when purchased. Management determines the appropriate
classification of marketable securities at the time of purchase
and reevaluates such designation as of each balance sheet date.
All securities held at December 31, 2008 and 2009, were
classified as
available-for-sale
as defined by the Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) Topic 320, Investments Debt and
Equity Securities (ASC 320).
Available-for-sale
securities are carried at fair value, with the unrealized gains
and losses reported in other comprehensive income. Realized
gains and losses and declines in value judged to be
other-than-temporary
on
available-for-sale
securities are included in other income. The Company considers
and accounts for
other-than-temporary
impairments according to ASC 320. The cost of securities
sold is based on the specific-identification method. Discounts
and premiums on debt securities are amortized to interest income
and expense over the term of the security.
Property
and Equipment
Property and equipment are stated at cost and are being
depreciated using the straight-line method over estimated useful
lives, which range from three to seven years.
F-8
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
Licenses
and Patents
Licenses and patent costs are expensed as incurred as the
Company does not believe there is an alternate future use for
the costs. Licenses are classified as research and development
and patents are classified as general and administrative
expenses in the statements of operations.
Long-Lived
Assets
The Company reviews long-lived assets, including property and
equipment, for impairment when events or changes in business
conditions indicate that their full carrying value may not be
fully recoverable.
Preferred
Stock Warrants
The Company accounts for its preferred stock warrants under ASC
Topic 480, Distinguishing Liabilities from Equity. The
preferred stock warrants are recorded at fair value and any
changes to fair value are recorded as other income (expense).
Revenue
Recognition
The Company recognizes revenues from license agreements when
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the fee is fixed or
determinable, and there is reasonable assurance that the related
amounts are collectible in accordance with ASC Topic 605,
Revenue Recognition (ASC 605).
The Company has generated revenues as a result of an out-license
agreement. The Company immediately recognizes the full amount of
milestone payments due upon the achievement of the milestone
event if the event is substantive, objectively determinable, and
represents an important point in the development life cycle of
the product. Milestone payments earned are recorded in
collaboration revenue.
Research
and Development Expenses
Research and development expenses represent costs associated
with the ongoing development of SMDCs and companion imaging
diagnostics and include salaries, supplies, and expenses for
clinical trials. The Company records accruals for clinical trial
expenses based on the estimated amount of work completed. The
Company monitors patient enrollment levels and related
activities to the extent possible through internal reviews,
correspondence, and discussions with research organizations.
Upfront payments made in connection with business collaborations
and research and development arrangements are evaluated under
ASC Subtopic
730-20,
Research and Development Arrangements. Upfront payments
made in connection with business development collaborations are
expensed as research and development costs, as the assets
acquired do not have alternative future use. Amounts related to
future research and development are capitalized as prepaid
research and development and are expensed over the service
period based upon the level of services provided. To date, no
significant amounts have been capitalized.
F-9
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation
The Company accounts for all options granted subsequent to
January 1, 2006, pursuant to ASC Topic 718,
Compensation Stock Compensation
(ASC 718), which requires the recognition of
the fair value or calculated value for nonpublic entities, of
stock-based compensation in net income. Stock-based compensation
consists of stock options, which are granted to employees at
exercise prices at or above the fair market value of the
Companys common stock on the dates of grant. The Company
uses the calculated value to measure its stock-based
compensation.
Prior to January 1, 2006, in accordance with ASC 718,
the Company used the intrinsic value method to account for stock
options. The Company issued its stock options at exercise prices
at or above the estimated fair market value of the
Companys common stock on the dates of grant. Accordingly,
no compensation expense was recognized for options granted to
employees in the prior periods.
The Company elected the prospective transition method for the
adoption of ASC 718, which requires that nonpublic
companies that had previously measured compensation cost using
the minimum value method continue to account for equity awards
outstanding at the date of adoption in the same manner as they
had been accounted for prior to adoption. For all awards
granted, modified, or settled after the date of adoption, the
Company recognizes compensation cost based on the grant-date
value estimated in accordance with the provisions of
ASC 718.
Net Loss
Per Share
The Company calculates basic net loss per share based on the
weighted-average number of outstanding common shares. The
Company calculates diluted net loss per share based on the
weighted-average number of outstanding common shares plus the
effect of dilutive securities.
Income
Taxes
The Company accounts for income taxes under the liability method
in accordance with the provision of ASC Topic 740, Income
Taxes (ASC 740). ASC 740 requires
recognition of deferred taxes to provide for temporary
differences between financial reporting and tax basis of assets
and liabilities. Deferred taxes are measured using enacted tax
rates expected to be in effect in a year in which the basis
difference is expected to reverse. The Company continues to
record a valuation allowance for the full amount of deferred tax
assets, which would otherwise be recorded for tax benefits
relating to operating loss and tax credit carryforwards, as
realization of such deferred tax assets cannot be determined to
be more likely than not.
In June 2006, the FASB issued authoritative guidance on
accounting for uncertainty in income taxes, amended by
Accounting Standards Update No. (ASU)
2009-06 in
September 2009 on accounting for uncertain tax positions, which
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements. This
guidance prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return and provides guidance on derecognition of tax
benefits, classification on the balance sheet, interest and
penalties, accounting in interim periods, disclosure, and
transition.
The Company adopted the provisions set forth in ASC 740,
including ASU
No. 2009-06
on accounting for uncertain tax positions effective
January 1, 2009. At the date of adoption and during the
year ended December 31, 2009, the Company had no
unrecognized tax benefits and expects no
F-10
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
significant changes in unrecognized tax benefits in the next
12 months. If incurred, the Company will classify any
interest and penalties as a component of tax expense. To date,
there have been no interest or penalties charged to the Company
in relation to the underpayment of income taxes. The Company
files its tax returns as prescribed.
Segment
Information
Operating segments are defined as components of an enterprise
engaging in business activities for which discrete financial
information is available and regularly reviewed by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance. The Company views its operations
and manages its business in one operating segment and the
Company operates in only one geographic segment.
|
|
3.
|
New
Accounting Pronouncements
|
Recently
Adopted Accounting Standards
Effective January 1, 2009, the Company adopted
ASC 808, Collaborative Arrangements. This guidance
defines collaborative arrangements and establishes reporting
requirements for transactions between participants in a
collaborative arrangement and between participants in the
arrangement and third parties. This guidance has been applied
retrospectively to all prior periods presented for significant
collaborative arrangements existing as of the effective date.
The adoption did not impact the financial statements.
Effective January 1, 2009, the Company adopted clarifying
guidance issued by the FASB on
other-than-temporary
impairments on debt securities, codified within
ASC 320-10,
Investments Debt and Equity Securities, on
January 1, 2009. This guidance amends the
other-than-temporary
recognition guidance for debt securities and requires additional
annual disclosures of
other-than-temporary
impairments on debt and equity securities. Pursuant to the new
guidance, an
other-than-temporary
impairment has occurred if a company does not expect to recover
the entire amortized cost basis of the security. In this
situation, if the company does not intend to sell the impaired
security, and it is not more likely than not it will be required
to sell the security before the recovery of its amortized cost
basis, the amount of the
other-than-temporary
impairment recognized in earnings is limited to the portion
attributed to the credit loss. The remaining portion of the
other-than-temporary
impairment is then recorded in other comprehensive income
(loss). This guidance has been applied to existing and new
securities as of January 1, 2009. The applicable
disclosures are included in Note 4. The implementation of
this guidance was not material to the Companys financial
position or results of operations, and there was no cumulative
effect adjustment.
Effective January 1, 2009, the Company adopted FASB
authoritative guidance relating to accounting for uncertainty in
income taxes, under ASC 740, amended by ASU
2009-06.
This guidance requires that realization of an uncertain income
tax position be more likely than not (i.e., greater than 50
percent likelihood of receiving a benefit) before it can be
recognized in the financial statements. Furthermore, this
guidance prescribes the benefit to be recorded in the financial
statements as the amount most likely to be realized assuming a
review by tax authorities having all relevant information and
applying current conventions. This interpretation also clarifies
the financial statement classification of tax-related penalties
and interest and sets forth new disclosures regarding
unrecognized tax benefits. The implementation of this
interpretation had no impact on the financial statements.
F-11
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
In May 2009, the FASB issued ASC 855, Subsequent
Events. ASC 855 provides authoritative accounting
literature and disclosure requirements for material events
occurring subsequent to the balance sheet date and prior to the
issuance of the financial statements. The Company adopted this
guidance as of December 31, 2009. The implementation of
this statement had no effect on the Companys financial
position or results of operations.
Recently
Issued Accounting Standards
In October 2009, the FASB ratified ASU
No. 2009-13
guidance related to revenue recognition that amends the previous
guidance on arrangements with multiple deliverables, within
ASC 605-25,
Revenue Recognition Multiple Element
Arrangements. This guidance provides principles and
application guidance on whether multiple deliverables exist, how
the arrangements should be separated, and how the consideration
should be allocated. It also clarifies the method to allocate
revenue in an arrangement using the estimated selling price.
This guidance is effective for the Company as of January 1,
2011, and is not expected to be material to the Companys
financial position or results of operations.
In April 2010, the FASB ratified ASU
No. 2010-17
guidance related to the milestone method of revenue recognition.
The ASU provides guidance on defining a milestone under ASC 605.
This guidance states that an entity can make an accounting
policy election to recognize a payment that is contingent upon
the achievement of a substantive milestone in its entirety in
the period in which the milestone is achieved. This guidance is
effective for the Company as of January 1, 2011, and is not
expected to be material to the Companys financial position
or results of operations.
|
|
4.
|
Short-Term
Investments
|
Effective January 1, 2008, the Company adopted ASC Topic
820, Fair Value Measurements and Disclosures
(ASC 820). ASC 820, which defines fair
value, establishes a framework for measuring fair value in GAAP,
and expands disclosures about fair value measurements.
ASC 820 establishes a three-level valuation hierarchy for fair
value measurements. These valuation techniques are based upon
the transparency of inputs (observable and unobservable) to the
valuation of an asset or liability as of the measurement date.
Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Companys
market assumptions. These two types of inputs create the
following fair value hierarchy:
Level 1 Valuation is based on quoted prices for
identical assets or liabilities in active markets.
Level 2 Valuation is based on quoted prices for
similar assets or liabilities in active markets, or other inputs
that are observable for the asset or liability, either directly
or indirectly, for the full term of the financial instrument.
Level 3 Valuation is based upon other
unobservable inputs that are significant to the fair value
measurement.
The fair value of the Companys fixed income securities is
based on a market approach using quoted market values.
F-12
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
The following tables summarize the fair value of short-term
investments as of December 31, 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Description
|
|
Cost
|
|
|
Level 1
|
|
|
(Carrying Value)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit
|
|
$
|
504,918
|
|
|
$
|
504,918
|
|
|
$
|
504,918
|
|
U.S. government agency obligations
|
|
|
12,975,137
|
|
|
|
12,998,700
|
|
|
|
12,998,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,480,055
|
|
|
$
|
13,503,618
|
|
|
$
|
13,503,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
U.S. government agency obligations
|
|
|
14,708,200
|
|
|
|
14,710,378
|
|
|
|
14,710,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,208,200
|
|
|
$
|
15,210,378
|
|
|
$
|
15,210,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gross gains were $23,563, $2,177, and $0 for
the year ended December 31, 2008 and 2009, and the
nine-month period ended September 30, 2010 respectively.
There were no unrealized gross losses for the year ended
December 31, 2008 and 2009 and the nine-month periods ended
September 30, 2009 and September 30, 2010. The Company
does not have any securities in an unrealized loss position and,
therefore, there are no
other-than-temporary
impairments. The Company had no investment securities as of
September 30, 2010.
|
|
5.
|
Property
and Equipment
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
Useful Lives
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Laboratory equipment
|
|
|
7
|
|
|
$
|
2,219,187
|
|
|
$
|
2,349,175
|
|
|
$
|
2,453,787
|
|
Office equipment and software
|
|
|
3-5
|
|
|
|
503,011
|
|
|
|
513,394
|
|
|
|
584,220
|
|
Leasehold improvements
|
|
|
7
|
|
|
|
109,486
|
|
|
|
115,009
|
|
|
|
140,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,831,684
|
|
|
|
2,977,578
|
|
|
|
3,178,108
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(1,828,596
|
)
|
|
|
(2,054,527
|
)
|
|
|
(2,250,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,003,088
|
|
|
$
|
923,051
|
|
|
$
|
927,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total amount of depreciation expense for the year ended
December 31, 2007, 2008 and 2009, and nine-month periods
ended September 30, 2009 and September 30, 2010 were
$256,881, $346,361, $231,890, $175,589 and $195,885,
respectively.
F-13
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Note payable to bank, with interest rate of prime, monthly
payments through April 2009
|
|
$
|
14,437
|
|
|
$
|
|
|
|
$
|
|
|
Note payable to bank, with interest rate of 0.5% below prime
(2.75% at December 31, 2009), monthly payments through
October 2010
|
|
|
127,044
|
|
|
|
58,965
|
|
|
|
6,651
|
|
Notes payable to GECC and Oxford, with fixed interest rate of
7.24% above three-year Treasury rate (10.56% at
December 31, 2009), monthly payments through March 2011
|
|
|
9,412,149
|
|
|
|
5,659,771
|
|
|
|
0
|
|
Notes payable to GECC and Oxford, with fixed interest rate of
7.24% above three-year Treasury rate (10.51% at
December 31, 2009), monthly payments through July 1
2011
|
|
|
5,000,000
|
|
|
|
3,316,812
|
|
|
|
0
|
|
Notes payable to
Mid-Cap and
SVB, with fixed interest rate of 9.75%, monthly payments through
September 1, 2013
|
|
|
0
|
|
|
|
0
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,553,630
|
|
|
|
9,035,548
|
|
|
|
10,006,651
|
|
Less unamortized discount
|
|
|
(170,111
|
)
|
|
|
(58,482
|
)
|
|
|
(115,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,383,519
|
|
|
|
8,977,066
|
|
|
|
9,891,007
|
|
Less current portion
|
|
|
(5,518,941
|
)
|
|
|
(6,258,324
|
)
|
|
|
(1,752,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,864,578
|
|
|
$
|
2,718,742
|
|
|
$
|
8,138,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, the Company obtained a $15.0 million loan
commitment from General Electric Capital Corporation
(GECC) and Oxford Finance Corporation
(Oxford). The loan is collateralized by a security
interest in all of the Companys assets, excluding
intellectual property. The loan includes customary covenants,
including those that require prior written consent of the
lenders before the Company can incur or prepay indebtedness,
create additional liens, sell, or transfer any material portion
of its assets. The loan agreement also contains customary events
of default, and also includes a material adverse effect clause.
In connection with this loan, the Company issued warrants to the
lenders to purchase an aggregate of 69,294 shares of Series
C-3
convertible preferred stock. The fair value of the preferred
stock warrants issued was based on observable inputs using
quoted market values and the income approach as derived by the
Black-Scholes model. The terms of these preferred stock warrants
and the fair value assumptions and inputs are consistent with
Note 7.
In August, 2010 the Company obtained a $15.0 million loan
commitment from Mid-Cap and SVB to pay-off the existing loan
commitment from GECC and Oxford that was set to mature in March
and July 2011, and to fund research and development and
corporate purposes. Upon execution of the agreement, the Company
drew $10.0 million in principal and an additional
$5.0 million under a second tranche. The loan is
collateralized by a security interest in all of the
Companys assets, excluding
F-14
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
intellectual property. The loan includes customary covenants,
including those that require prior written consent of the
lenders before the Company can incur or prepay indebtedness,
create additional liens, sell, or transfer any material portion
of its assets. The loan agreement also contains customary events
of defaults, and also includes a material adverse effect clause.
In connection with the loan, the Company issued warrants to
lenders to purchase either
Series C-3
preferred stock or preferred stock offered in a subsequent
offering. The number of preferred stock warrants issued and the
exercise price is based on a weighted average price determined
upon issuance of a subsequent equity round prior to
December 31, 2010. If additional equity is not issued prior
to December 31, 2010, the type, number and exercise price
of the preferred stock warrants will be based on the
Series C-3
convertible preferred stock and a $8.12 per share exercise
price. The fair value of the preferred stock warrants issued was
$121,939 on the date of issuance and was based on observable
inputs using quoted market values and the income approach as
derived by the Black-Scholes model. The terms of these preferred
stock warrants and the fair value assumptions and inputs are
detailed in Note 7.
The notes payable to bank are collateralized by certain property
and equipment of the Company. Interest paid was $23,438,
$1,202,674, $1,272,942, $1,011,036 and $547,092 for the year
ended December 31, 2007, 2008, 2009, and nine-month periods
ended September 30, 2009 and 2010, respectively.
Aggregate maturities of debt due after December 31, 2009,
are as follows:
|
|
|
|
|
2010
|
|
$
|
6,258,324
|
|
2011
|
|
|
2,777,224
|
|
|
|
|
|
|
|
|
|
9,035,548
|
|
Less unamortized discount
|
|
|
(58,482
|
)
|
|
|
|
|
|
|
|
$
|
8,977,066
|
|
|
|
|
|
|
During 2010, the Company has paid $9,028,897 in principal
payments. As of September 30, 2010, there is $10,006,651 in
aggregate maturities of debt payable the due date, of which
$1,814,750 is due over the next year and $3,894,492 and
$4,297,409 maturing during 2012 and 2013, respectively.
|
|
7.
|
Preferred
Stock Warrants
|
In 2007, the Company issued warrants as consideration in
connection with its loan commitment from GECC and Oxford to
purchase 69,294 of
Series C-3
convertible preferred stock, maturing in 2017. These preferred
stock warrants were exercisable upon issuance, and no contingent
conversion feature exists. Any
Series C-3
convertible preferred stock issued upon exercise would maintain
the rights and conversion features set forth in Note 9.
In August 2010, the Company issued warrants as consideration in
connection with its loan commitment from Mid-Cap and SVB to
purchase either
Series C-3
preferred stock or preferred stock offered in a subsequent
offering. The number of preferred stock warrants issued and the
exercise price is based on a weighted average price determined
upon issuance of a subsequent equity round prior to
December 31, 2010. If additional equity is not issued prior
to December 31, 2010, the type, number and exercise price
of the preferred stock warrants will be based on the
Series C-3
convertible preferred stock and a $8.12 per share exercise
price. The preferred stock warrants will mature in 2020, are
exercisable upon issuance and do not contain contingent
conversion features. If the warrants are
Series C-3
preferred
F-15
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
stock, upon exercise thereof, the underlying shares would
maintain the rights and conversion features set forth in
Note 9 for the
Series C-3
convertible preferred stock.
The liability is measured at fair value, and any changes to fair
value are recorded in the statement of operations as other
income (expense). The fair value of the GECC and Oxford
preferred stock warrants was determined using the Black-Scholes
valuation model as of December 31, 2008 and 2009, and
September 30, 2009 and 2010 based upon the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
September 30,
|
|
September 30,
|
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
|
|
|
|
(Unaudited)
|
|
Exercise price
|
|
$
|
8.12
|
|
|
$
|
8.12
|
|
|
$
|
8.12
|
|
|
$
|
8.12
|
|
Convertible preferred stock price
|
|
$
|
8.12
|
|
|
$
|
8.12
|
|
|
$
|
8.12
|
|
|
$
|
8.12
|
|
Risk-free interest rate
|
|
|
4.37
|
%
|
|
|
3.12
|
%
|
|
|
3.43
|
%
|
|
|
1.98-2.71
|
%
|
Expected life
|
|
|
9 years
|
|
|
|
8 years
|
|
|
|
8.25 years
|
|
|
|
7.25-9.92 years
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
35.76
|
%
|
|
|
27.69
|
%
|
|
|
28.84
|
%
|
|
|
23.34-30.69
|
%
|
The fair value of the preferred stock warrants is based upon
observable inputs using quoted market values and the income
approach as derived by the Black-Scholes model. Volatility is
derived from the historical volatility of the NASDAQ
Biotechnology Index over the remaining expected life of the
warrant. The warrants contain anti-dilution and change in
control provisions that can impact conversion.
The carrying and fair values of the preferred stock warrants are
$295,149, $221,031 and $290,810 as of December 31, 2008 and
2009 and September 30, 2010 respectively. The preferred
stock warrants are classified as Level 2 within the
ASC 820 fair value hierarchy. The Company recorded $307,061
of expense for the year ended December 31, 2007 and
$11,912, $74,118, $58,235 and $52,160 of other income for the
year ended December 31, 2008 and 2009, and the nine-month
period ended September 30, 2009 and 2010, respectively, due
to the change in fair value on the warrants.
Future minimum lease payments for noncancellable operating
leases as of December 31, 2009, are:
|
|
|
|
|
2010
|
|
$
|
362,260
|
|
2011
|
|
|
37,176
|
|
2012
|
|
|
2,182
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
401,618
|
|
|
|
|
|
|
Rent expense for operating leases was $303,714, $336,311,
$355,601, $265,481, and $275,159 for the year ended
December 31, 2007, 2008 and 2009 and the nine-month periods
ended September 30, 2009 and September 30, 2010,
respectively. In 2010, the Company entered into a noncancelable
operating lease, with minimum lease payments that total $406,009
and are payable through 2015.
|
|
9.
|
Convertible
Preferred Stock
|
On July 29, 2009, the Company increased the number of
Series C-3
convertible preferred stock authorized for issuance to
5,235,602 shares. On October 8, 2009, the Company
increased the number of
Series C-3
convertible preferred stock authorized for issuance to
5,549,738 shares. Between August 3,
F-16
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
2009 and October 13, 2009, the Company sold
3,282,456 shares of
Series C-3
convertible preferred stock for $8.12 per share for proceeds
totaling $26,645,524, net of offering costs of $43,097.
The Companys total outstanding convertible preferred
stock, with a par value of $0.001 per share, consisted of the
following as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proceeds
|
|
Convertible
|
|
Shares
|
|
|
Shares
|
|
|
Price per
|
|
|
(Net of Offering
|
|
Preferred Stock
|
|
Authorized
|
|
|
Issued
|
|
|
Share
|
|
|
Costs)
|
|
|
Series A-1
|
|
|
750,261
|
|
|
|
750,167
|
|
|
$
|
1.91
|
|
|
$
|
1,470,370
|
|
Series A-2
|
|
|
241,884
|
|
|
|
241,634
|
|
|
|
5.73
|
|
|
|
1,430,749
|
|
Series B
|
|
|
936,649
|
|
|
|
936,241
|
|
|
|
8.12
|
|
|
|
7,530,180
|
|
Series C-1
|
|
|
1,937,172
|
|
|
|
1,895,765
|
|
|
|
8.12
|
|
|
|
15,320,640
|
|
Series C-2
|
|
|
2,801,047
|
|
|
|
2,787,792
|
|
|
|
8.12
|
|
|
|
22,447,353
|
|
Series C-3
|
|
|
5,549,738
|
|
|
|
5,135,965
|
|
|
|
8.12
|
|
|
|
41,600,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,799,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys total proceeds, net of offering costs, for
its outstanding convertible preferred stock, with a par value of
$0.001 per share, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
Convertible Preferred
Stock
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Series A-1
|
|
$
|
1,470,370
|
|
|
$
|
1,470,370
|
|
|
$
|
1,470,370
|
|
Series A-2
|
|
|
1,430,749
|
|
|
|
1,430,749
|
|
|
|
1,430,749
|
|
Series B
|
|
|
7,530,180
|
|
|
|
7,530,180
|
|
|
|
7,530,180
|
|
Series C-1
|
|
|
15,320,640
|
|
|
|
15,320,640
|
|
|
|
15,320,640
|
|
Series C-2
|
|
|
22,447,353
|
|
|
|
22,447,353
|
|
|
|
22,447,353
|
|
Series C-3
|
|
|
14,997,754
|
|
|
|
41,600,191
|
|
|
|
41,600,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,197,046
|
|
|
$
|
89,799,483
|
|
|
$
|
89,799,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a description of the conversion, dividends,
liquidation, and voting characteristics of the Companys
convertible preferred stock.
Conversion. Each share of the Companys
convertible preferred stock may be converted at any time into
shares of common stock at its conversion price at the option of
the stockholder. The conversion price, which is $1.91 for the
Series A-1,
$5.73 for the
Series A-2
and $8.12 per share for the Series B, C-1, C-2 and C-3
convertible preferred stock at December 31, 2009, adjusts
proportionally for stock splits, stock dividends, and
recapitalizations. If the Company issues or is deemed to have
issued additional shares of common stock at a purchase price
less than the applicable conversion price, exclusive of common
stock options and certain other excluded issuances, the
conversion price will be adjusted based on a weighted-average
formula. The weighted-average formula is based upon the initial
conversion price and common stock outstanding prior to issuance
of additional shares of common stock. The conversion price is
adjusted by multiplying it by a fraction, the numerator of which
is the common stock outstanding prior to the issuance of
additional shares of common stock plus the number of additional
shares that would be purchased based upon the consideration
received through the issuance and the conversion price, if any,
and the denominator of which is the number
F-17
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
of shares of common stock outstanding prior to the issuance of
additional shares of common stock plus the number of additional
shares of common stock issued or deemed issued.
The convertible preferred stock converts to common stock
automatically at the applicable conversion price upon approval
of holders of at least 50 percent of the outstanding shares
of the respective series of convertible preferred stock. All
shares of convertible preferred stock will convert into common
stock on a
one-for-one
basis upon the closing of this offering. At December 31,
2009, December 31, 2008 and September 30, 2010,
11,747,564, 8,465,108, and 11,747,564 shares of common
stock were reserved for issuance upon conversion of convertible
preferred stock.
Dividends. The holders of the convertible preferred
stock are entitled to receive dividends when and if declared by
the Board from legally available earnings at the rate of $0.15
per share for the
Series A-1,
$0.46 per share for the
Series A-2
and $0.65 per share for the Series B, C-1, C-2 and C-3
convertible preferred stock. The full declared but unpaid
dividend on convertible preferred stock must be paid prior to
any dividend on the common stock. No dividends had been declared
through December 31, 2009.
Liquidation. The holders of the
Series A-1
and A-2
convertible preferred stock are entitled to receive $1.91 and
$5.73 per share, respectively, plus any declared but unpaid
dividends in the event of liquidation of the Company. The
holders of the Series B, C-1, C-2, and C-3 convertible
preferred stock are entitled to receive $8.12 per share plus any
declared but unpaid dividends in the event of liquidation of the
Company. The holders of Series B, C-1, C-2, and C-3
convertible preferred stock receive preference over the holders
of
Series A-1
and A-2
convertible preferred stock. A liquidation is defined as
(i) a sale of all or substantially all of the assets of the
Company or a merger or consolidation which will result in the
Companys stockholders immediately prior to such
transaction holding less than 51 percent of the voting
power of the surviving, continuing or purchasing entity; and
(ii) the sale, assignment, transfer or termination in any
manner of (A) the amended and restated license agreement
between the Company and Purdue Research Foundation dated October
1998, as amended from time to time, or (B) the patents,
pending patents or patent rights described in such license
agreement, except in the event that a transaction so effecting
such license agreement or intellectual property shall not be
deemed a liquidation if it has been unanimously approved by the
Board.
Voting. Both holders of convertible preferred stock
and common stock have voting rights. Each share of convertible
preferred stock and common stock is entitled to one vote.
Convertible preferred stock and common stock maintain the same
voting rights, except for the election of the Board of Directors
under which separate classes, based upon common stock and series
of preferred stock, vote to elect a pre-determined number of
directors.
10. Stockholders
Equity (Deficit)
Common
Stock
In conjunction with the issuance of Series B convertible
preferred stock, the Company issued common stock to several
Series B investors. Under the terms of the agreement, the
Company has the right, but not the obligation, to repurchase the
common stock, if certain conditions are not met by the holders.
At December 31, 2009 and September 30, 2010,
222,511 shares remain subject to certain conditions.
F-18
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
Stock
Options
The Company has an employee stock option plan for which
1,570,680 shares of common stock are authorized and
reserved at December 31, 2008 and 1,963,350 at
December 31, 2009 and 2,486,910 at September 30, 2010.
The plan is available to all employees, directors and certain
contractors as determined by the Board. Employees are granted
incentive stock options, while directors and contractors are
issued non-qualified options. The plan allows the holder of the
option to purchase common stock at the exercise price, which was
at or above the fair value of the Companys common stock on
the date of grant.
Generally, options fully vest four years from the grant date and
have a term of ten years. Options granted in connection with an
employees commencement of employment generally vest over a
four-year period with half of the shares subject to the grant
vesting after two years of employment and remaining options
vesting monthly over the remainder of the four-year period.
Options granted for performance or promotions vest monthly over
a four-year period. Unexercised stock options terminate on the
tenth anniversary date after the date of grant. The Company
recognizes the stock-based compensation expense over the
requisite service period of the individual grantees, which
generally equals the vesting period. In connection with the
adoption of ASC 718, the Company reassessed the valuation
methodology for stock options and the related input assumptions.
As a result, beginning with the 2006 stock option grant, the
Company utilizes a Black-Scholes option-pricing model to
estimate the value of stock options. The Black-Scholes model
allows the use of a range of assumptions related to volatility,
risk-free interest rate, and employee exercise behavior.
Expected volatility is derived from the historical volatility of
the NASDAQ Biotechnology Index, which the Company has determined
is a proxy for its volatility. The risk-free interest rate is
derived from the weighted-average yield of a Treasury security
with the same term as the expected life of the options. The
expected life of the options was based on the weighted-average
life of the Companys historical option grants, and the
dividend yield is based on historical experience and the
Companys estimate of future dividend yields. Since the
Company has elected to use an index to determine the value of
its stock options, it is applying the calculated value approach
for a private company instead of using fair value.
The weighted-average value of the individual options granted
during 2008, 2009 and 2010 were determined using the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year Ended December 31,
|
|
Ended September 30,
|
|
|
2008
|
|
2009
|
|
2010
|
|
|
|
|
|
|
(Unaudited)
|
|
Weighted-average volatility
|
|
|
34.87
|
%
|
|
|
35.59
|
%
|
|
|
33.77
|
%
|
Risk-free interest rate
|
|
|
4.04
|
%
|
|
|
3.67
|
%
|
|
|
3.76
|
%
|
Weighted-average expected life
|
|
|
10.0 years
|
|
|
|
10.0 years
|
|
|
|
10.0 years
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The resulting value of options granted was $536,057, $343,119,
and $1,092,884 for the year ended December 31, 2008 and
2009 and the nine months ended September 30, 2010,
respectively, which will be amortized into income over the
remaining requisite service period. The Company recognized
stock-based compensation cost, net of forfeitures, in the amount
of $136,028, $257,163, $381,877, $246,495, and $390,321 for the
year ended December 31, 2007, 2008 and 2009 and the
nine-month periods ended
F-19
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
September 30, 2009 and September 30, 2010,
respectively. The Companys stock option activity and
related information are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
|
Value
|
|
|
Outstanding at January 1, 2008
|
|
|
1,057,806
|
|
|
$
|
2.54
|
|
|
|
|
|
|
|
|
|
Granted during year
|
|
|
357,240
|
|
|
|
3.05
|
|
|
|
|
|
|
|
|
|
Exercised during year
|
|
|
(43,452
|
)
|
|
|
1.05
|
|
|
|
|
|
|
|
|
|
Expired during year
|
|
|
(1,570
|
)
|
|
|
5.87
|
|
|
|
|
|
|
|
|
|
Forfeited during year
|
|
|
(15,703
|
)
|
|
|
2.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,354,321
|
|
|
$
|
2.72
|
|
|
|
7.00
|
|
|
$
|
(987,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
799,986
|
|
|
|
2.81
|
|
|
|
5.89
|
|
|
|
(660,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2009
|
|
|
1,354,321
|
|
|
|
2.72
|
|
|
|
|
|
|
|
|
|
Granted during year
|
|
|
374,227
|
|
|
|
2.54
|
|
|
|
|
|
|
|
|
|
Exercised during year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired during year
|
|
|
(119,607
|
)
|
|
|
6.58
|
|
|
|
|
|
|
|
|
|
Forfeited during year
|
|
|
(20,732
|
)
|
|
|
2.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,588,209
|
|
|
$
|
2.39
|
|
|
|
7.23
|
|
|
$
|
1,113,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
980,812
|
|
|
|
2.23
|
|
|
|
6.44
|
|
|
|
442,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2010 (unaudited)
|
|
|
1,588,209
|
|
|
|
2.39
|
|
|
|
|
|
|
|
|
|
Granted during year (unaudited)
|
|
|
526,852
|
|
|
|
4.05
|
|
|
|
|
|
|
|
|
|
Exercised during year (unaudited)
|
|
|
(17,293
|
)
|
|
|
2.74
|
|
|
|
|
|
|
|
|
|
Expired during year (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited during year (unaudited)
|
|
|
(20,812
|
)
|
|
|
3.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 (unaudited)
|
|
|
2,076,956
|
|
|
$
|
2.80
|
|
|
|
7.08
|
|
|
$
|
9,179,496
|
|
Exercisable at September 30, 2010 (unaudited)
|
|
|
1,255,090
|
|
|
|
2.39
|
|
|
|
6.17
|
|
|
$
|
5,986,030
|
|
F-20
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
The following is a rollforward of the Companys nonvested
stock options from December 31, 2007 to September 30,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Options
|
|
|
Value
|
|
|
Nonvested stock options at January 1, 2008
|
|
|
481,709
|
|
|
$
|
0.63
|
|
Granted during year
|
|
|
357,240
|
|
|
|
1.51
|
|
Vested during year
|
|
|
(267,341
|
)
|
|
|
1.05
|
|
Expired during year
|
|
|
(1,570
|
)
|
|
|
0.44
|
|
Forfeited during year
|
|
|
(15,703
|
)
|
|
|
1.20
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
554,335
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options at January 1, 2009
|
|
|
554,335
|
|
|
$
|
1.05
|
|
Granted during year
|
|
|
374,227
|
|
|
|
0.92
|
|
Vested during year
|
|
|
(180,826
|
)
|
|
|
1.15
|
|
Expired during year
|
|
|
(119,607
|
)
|
|
|
6.59
|
|
Forfeited during year
|
|
|
(20,732
|
)
|
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
607,397
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options at January 1, 2010 (unaudited)
|
|
|
607,397
|
|
|
$
|
1.01
|
|
Granted during year (unaudited)
|
|
|
526,852
|
|
|
|
2.06
|
|
Vested during year (unaudited)
|
|
|
(291,571
|
)
|
|
|
1.39
|
|
Expired during year (unaudited)
|
|
|
|
|
|
|
|
|
Forfeited during year (unaudited)
|
|
|
(20,812
|
)
|
|
|
1.03
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2010 (unaudited)
|
|
|
821,866
|
|
|
$
|
1.43
|
|
The total grant date value of options vested during 2008, 2009
and 2010 was $271,116, $351,664 and $405,632, respectively. As
of December 31, 2009 and September 30, 2010, the total
remaining unrecognized compensation cost related to nonvested
stock options granted subsequent to the adoption of ASC 718
on January 1, 2006, was $614,959 and $1,170,864,
respectively, which will be amortized over the remaining
requisite service period. The intrinsic value of options
exercised was $0 and $24,160 for the year ended
December 31, 2009 and the nine months ended
September 30, 2010, respectively.
F-21
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes
A reconciliation of the expected income tax benefit (expense)
computed using the federal statutory income tax rate to the
Companys effective income tax rate is as follows for year
ended December 31, 2007, 2008, and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Income tax computed at federal statutory tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefits
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
Research and development credits
|
|
|
5.8
|
%
|
|
|
5.1
|
%
|
|
|
5.7
|
%
|
Permanent differences
|
|
|
(3.9
|
)%
|
|
|
(3.4
|
)%
|
|
|
(3.6
|
)%
|
Other
|
|
|
0.6
|
%
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
Change in valuation allowance
|
|
|
(45.0
|
)%
|
|
|
(44.5
|
)%
|
|
|
(44.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Company has net operating loss
carryforwards totaling $73,928,076 that may be used to offset
future taxable income. If not used, the carryforwards will begin
expiring in the year 2022. As of December 31, 2009 and
September 30, 2010, the Company has not experienced a
change in ownership, as defined under Section 382 of the
U.S. Internal Revenue Code (the Code). The
Company recognizes future tax benefits, such as net operating
losses, to the extent those benefits are expected to be realized
in future periods. Due to uncertainty surrounding the
realization of its deferred tax assets, the Company has recorded
an equal and offsetting valuation allowance against its net
deferred tax assets.
Net deferred tax assets and liabilities are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Net operating loss carryforwards
|
|
$
|
22,823,000
|
|
|
$
|
29,571,000
|
|
Research and development credit carryforwards
|
|
|
3,341,900
|
|
|
|
4,285,000
|
|
Accrued vacation
|
|
|
34,000
|
|
|
|
40,000
|
|
Other
|
|
|
23,000
|
|
|
|
(16,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
26,221,900
|
|
|
|
33,880,000
|
|
Less valuation allowance
|
|
|
(26,221,900
|
)
|
|
|
(33,880,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
12. Collaborative
Arrangements
In December 2005, the Company entered into a collaborative
agreement with Bristol-Myers Squibb (BMS) granting
BMS an exclusive worldwide license to its proprietary patent
rights and know-how related to methods and compositions useful
in making folate conjugates to develop and commercialize folate
conjugates of epothilone compounds. To date, the Company
received upfront payments, milestone payments, and maintenance
payments totaling $8.1 million from BMS. As all payments
are not contingent on specific performance or ongoing
responsibilities of the Company, the Company recognized the
upfront revenue upon contract signing, milestone revenue when
milestones were achieved, and annual
F-22
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
maintenance fees when they were due. BMS terminated this
agreement during 2010. As a result, the Company does not expect
to receive additional milestones or royalties associated with
this program. No material payments were expected to be received
during 2011 and 2012 and, therefore, this termination does not
have a material financial impact on the Company.
In October 2007, the Company entered into an exclusive worldwide
license with R&D Biopharmaceuticals to research, develop,
and commercialize products containing conjugates of folate
receptor targeting compounds and tubulysin compounds. The
Company paid an upfront fee of $300,000 as research and
development and has since paid $50,000 in annual maintenance
fees. The Company could pay $6,300,000 in additional contingent
payments upon the achievement of specific scientific, clinical,
and regulatory milestones, in addition to royalties upon
commercial sales. All payments have been expensed as research
and development as incurred, as there is no alternate future use
for this technology.
In December 1995, as amended in October 1998, the Company
entered into an exclusive license agreement with Purdue Research
Foundation, which licenses the right under certain patents to
the Company. The Company is obligated to pay an annual minimum
royalty of $12,500 until commercial sales commence, following
which time the payment of single digit royalty rates will
commence. All payments have been expensed as incurred, as the
Company does not believe there is an alternate future use for
this technology.
In December 2009, the Company entered into a financial term
sheet to be incorporated into a written license agreement with
Purdue Research Foundation for a patent related to prostate
cancer. The agreement was signed and became effective on
March 1, 2010. Pursuant to the exclusive license agreement,
the Company is subject to annual payments of $15,000, payable
until first commercial sale, following which time the payment of
single digit royalty rates will commence. In addition, certain
clinical and regulatory milestone payments of $500,000 along
with sales-based milestones related to third-party sales are
also payable. The Company is also subject to penalties totaling
$300,000 if certain diligence milestones are not met. Subsequent
to the first commercial sales, the annual milestone is $100,000.
Future milestone payments in excess of $500,000 may be waived by
Purdue Research Foundation.
13. Related-Party
Transactions
The Company funds research at the employer of one of its
founders and current Chief Science Officer. Amounts included in
research and development expenses were $499,979, $394,474,
$352,165, $263,944 and $293,494, for the year ended
December 31, 2007, 2008 and 2009 and the nine months ended
September 30, 2009 and 2010, respectively.
14. Retirement
Plans
The Company maintains a 401(k) retirement savings plan to
provide retirement benefits for substantially all of its
employees. Participants in the plan may elect to contribute a
portion of their annual compensation to the plan, limited to the
maximum allowed by the Code. The Company does not currently
match 401(k) contributions.
F-23
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
15. Net
Loss Per Share
Basic net loss per share is calculated by dividing the net loss
attributable to common stockholders by the weighted-average
number of common shares outstanding during the period, without
consideration for common stock equivalents. Diluted net loss per
share is computed by dividing the net loss attributable to
common stockholders by the weighted-average number of common
share equivalents outstanding for the period determined using
the treasury-stock method and the if-converted method. For
purposes of this calculation, convertible preferred stock, stock
options and warrants are considered to be common stock
equivalents and are only included in the calculation of diluted
net loss per share when their effect is dilutive.
The following tables and discussion provide a reconciliation of
the numerator and denominator of the basic and diluted net loss
per share computations. The calculation below provides net loss,
weighted-average
common shares outstanding, and the resultant net loss per share
on both a basic and diluted basis for the year ended
December 31, 2007, 2008 and 2009 and nine months ended
September 30, 2009 and 2010.
Historical
net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,657,820
|
)
|
|
$
|
(18,492,876
|
)
|
|
$
|
(17,005,685
|
)
|
|
$
|
(11,391,059
|
)
|
|
$
|
(16,744,998
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
866,530
|
|
|
|
900,141
|
|
|
|
911,081
|
|
|
|
911,081
|
|
|
|
917,799
|
|
Basic and diluted net loss per share
|
|
$
|
(15.76
|
)
|
|
$
|
(20.54
|
)
|
|
$
|
(18.67
|
)
|
|
$
|
(12.50
|
)
|
|
|
(18.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, 2008, and 2009 and
September 30, 2009 and 2010, the following number of
potential common stock equivalents were outstanding:
Common
stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Outstanding common stock options
|
|
|
1,057,806
|
|
|
|
1,354,321
|
|
|
|
1,588,209
|
|
|
|
1,623,143
|
|
|
|
2,076,956
|
|
Outstanding restricted stock
|
|
|
222,511
|
|
|
|
222,511
|
|
|
|
222,511
|
|
|
|
222,511
|
|
|
|
222,511
|
|
Shares issuable upon conversion of preferred shares
|
|
|
8,465,108
|
|
|
|
8,465,108
|
|
|
|
11,747,564
|
|
|
|
10,793,960
|
|
|
|
11,747,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,745,425
|
|
|
|
10,041,940
|
|
|
|
13,558,284
|
|
|
|
12,639,614
|
|
|
|
14,047,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
ENDOCYTE,
INC.
NOTES TO FINANCIAL
STATEMENTS (Continued)
These common stock equivalents were excluded from the
determination of diluted net loss per share due to their
anti-dilutive effect on earnings.
16. Subsequent
Events (Unaudited)
In August 2010, the Board authorized management of the Company
to file a registration statement with the SEC permitting the
Company to sell shares of its common stock to the public.
Additionally, the Board approved the 2010 equity incentive plan
and employee stock purchase plan.
On October 29, 2010, the Company was notified that it had
been awarded a total of $1.5 million under section 48D
of the Code for Qualifying Therapeutic Discovery Projects. In
November 2010, the Company received $1.4 million of this
award. The remaining $100,000 is payable to the Company in
January 2011. This will be accounted for as other income.
In December 2010, the Company issued $8.1 million of
Subordinated Convertible Promissory Notes (the
Subordinated Notes) and in January 2011 the Company
issued an additional $3.7 million of Subordinated Notes.
The Subordinated Notes accrue interest in kind at an annual rate
of 10.0 percent and are not due until maturity. The
conversion price for the Subordinated Notes will be 85 percent
of the next equity financing price, including the price of the
common stock offered pursuant to this prospectus, if it occurs
on or before June 30, 2011 or 80 percent of next
equity financing price if it occurs after June 30, 2011.
The fair value of the Subordinated Notes at issuance was
approximately $13.8 million. The Subordinated Notes and any
accrued and unpaid interest convert into common shares if,
before one year from issuance, we complete an initial public
offering with gross proceeds of at least $50.0 million.
Alternatively, the Subordinated Notes and any accrued and unpaid
interest convert into a new series of our preferred stock if,
before one year from issuance, a private preferred stock
financing occurs in which gross proceeds of at least
$30.0 million is raised in a single or series of
transactions. If the Subordinated Notes have not converted into
equity by the
one-year
anniversary of their issuance, then the outstanding principal
amount and any accrued and unpaid interest will convert into
Series C-3
convertible preferred stock at a price equal of $8.12 per share.
In December 2010, the Company amended their term loan
arrangement with Mid-Cap and SVB in order to access the
remaining tranche of $5.0 million and increased the number
of shares of
Series C-3
preferred stock or other convertible preferred stock that may be
issued prior to the earlier of the completion of this offering
and December 31, 2010 exercisable under the warrant issued
to these lenders, in consideration of the loan amount and
interest rate.
F-25
12,500,000 Shares
Common Stock
|
|
RBC
Capital Markets |
Leerink Swann |
|
|
Wedbush
PacGrow Life Sciences |
Baird |
PROSPECTUS
,
2011
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
ITEM 13.
|
Other
Expenses of Issuance and Distribution
|
The following table sets forth all expenses to be paid by the
registrant, other than estimated underwriting discounts and
commissions, in connection with this offering. All amounts shown
are estimates except for the Securities and Exchange Commission
registration fee, the Financial Industry Regulatory Authority,
or FINRA, filing fee and the exchange listing fee:
|
|
|
|
|
|
|
Amount
|
|
|
|
to be Paid
|
|
|
Securities and Exchange Commission registration fee
|
|
$
|
10,014
|
|
FINRA filing fee
|
|
|
9,125
|
|
NASDAQ Global Market listing fee
|
|
|
125,000
|
|
Blue Sky fees and expenses
|
|
|
15,000
|
|
Printing and engraving expenses
|
|
|
325,000
|
|
Legal fees and expenses
|
|
|
1,000,000
|
|
Accounting fees and expenses
|
|
|
512,361
|
|
Transfer agent and registrar fees
|
|
|
3,500
|
|
|
|
|
|
|
Total
|
|
$
|
2,000,000
|
|
|
|
|
|
|
|
|
ITEM 14.
|
Indemnification
of Directors and Officers
|
Section 145(a) of the Delaware General Corporation Law
provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was
unlawful.
Section 145(b) of the Delaware General Corporation Law
provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including
attorneys fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such
action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 Section 102(b)(7) of the Delaware General
Corporation Law further provides that: (i) to the extent
that a former or present director or officer of a corporation
has been successful in the defense of
II-1
any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys fees) actually and
reasonably incurred by him or her in connection therewith;
(ii) indemnification provided for by Section 145 shall
not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and (iii) the
corporation may purchase and maintain insurance on behalf of any
present or former director, officer, employee or agent of the
corporation or any person who at the request of the corporation
was serving in such capacity for another entity against any
liability asserted against such person and incurred by him or
her in any such capacity or arising out of his or her status as
such, whether or not the corporation would have the power to
indemnify him or her against such liabilities under
Section 145.
In addition, the proposed form of Underwriting Agreement, to be
filed by amendment, is expected to provide for indemnification
of our directors and officers by the underwriters against
certain liabilities.
Article IX of our amended and restated certificate of
incorporation that will be effective upon the closing of this
offering authorizes us to provide for the indemnification of
directors to the fullest extent permissible under Delaware law.
We have entered into indemnification agreements with our
directors, executive officers and others, in addition to
indemnification provided for in our bylaws, and intend to enter
into indemnification agreements with any new directors and
executive officers in the future.
We have purchased and intend to maintain insurance on behalf of
any person who is or was a director or officer against any loss
arising from any claim asserted against him or her and incurred
by him or her in any such capacity, subject to certain
exclusions.
See also the undertakings set out in response to Item 17
herein.
|
|
ITEM 15.
|
Recent
Sales of Unregistered Securities
|
In the past three years, we have issued and sold the following
securities:
Set forth below is information regarding shares of common stock
and convertible preferred stock issued, options granted and
warrants issued by us within the past three years that were not
registered under the Securities Act. Also included is the
consideration, if any, received by us for such shares, options
and warrants and information relating to the section of the
Securities Act, or rule of the SEC, under which exemption from
registration was claimed.
(a) Issuances of Capital Stock
(1) Between March 9, 2007 and October 13, 2009,
we issued and sold an aggregate of 5,135,965 shares of our
Series C-3
convertible preferred stock at a per share price of $8.12 to
accredited investors, some of which were affiliated with certain
of our directors, for aggregate consideration of $41,691,484.
(2) From January 1, 2007 through December 31,
2010, we issued an aggregate of 105,689 shares of our
common stock at prices ranging from $0.19 to $7.64 per share to
certain of our employees, consultants and directors pursuant to
the exercise of stock options under the 1997 Stock Plan for an
aggregate purchase price of $142,118.
(3) From January 1, 2007 through December 31,
2010, we issued an aggregate of 20,554 shares of our common
stock at prices ranging from $2.10 to $3.05 per share to certain
of our employees, consultants and directors pursuant to the
exercise of stock options under the 2007 Stock Plan for an
aggregate purchase price of $53,615.
II-2
(b) Stock Option Grants and Warrant Issuances
(1) From January 1, 2007 through December 31,
2010, we granted stock options to purchase an aggregate of
1,681,695 shares of our common stock with exercise prices
ranging from $2.10 to $7.25 per share, to certain of our
employees, consultants and directors under the 2007 Stock Plan
in connection with services provided by such parties to us.
(2) On December 31, 2007, we issued warrants to
accredited investors, in connection with debt financings
completed with such accredited investors, to purchase up to an
aggregate of 69,294 shares of our
Series C-3
convertible preferred stock, each at an exercise price of $8.12
per share.
(3) On August 27, 2010, we issued warrants to
accredited investors, in connection with debt financings
completed with such accredited investors, to purchase up to an
aggregate of 43,116 shares of our
Series C-3
convertible preferred stock, each at an exercise price of $8.12
per share. On December 14, 2010, we amended our
arrangements with the holders of these warrants, which resulted
in an adjustment to the warrants such that an additional
21,558 shares of our
Series C-3
convertible preferred stock become exercisable under the
warrants. The number and type of shares subject to these
warrants are subject to adjustment.
(4) On December 14, 2010, we issued Subordinated
Convertible Promissory Notes to three of our current
stockholders in connection with a debt financing. The
Subordinated Convertible Promissory Notes are convertible into
shares of our common stock or preferred stock based on certain
contingencies contained in the Subordinated Notes. All of the
participants are accredited investors and one of whom is a
Qualified Institutional Buyer, one of whom is our Chief
Financial Officer, and one of whom has a long-standing
relationship with us.
(5) On January 7, 2011, we issued additional
Subordinated Convertible Promissory Notes to three of our
current stockholders in connection with a subsequent tranche of
our December 2010 debt financing. The Subordinated Convertible
Promissory Notes are convertible into shares of our common stock
or preferred stock based on certain contingencies contained in
the Subordinated Notes. All of the participants are accredited
investors: one of whom is a prior investor in the December 2010
initial tranche of the debt financing and has a long-standing
relationship with us, one of whom is a Qualified Institutional
Buyer and one of whom has a representative on our Board of
Directors.
No underwriters were involved in the foregoing issuances of
securities. The securities described in paragraph (a)(1) of this
Item 15 were issued to accredited investors in reliance
upon the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the
Securities Act, and, in certain cases, in reliance on
Regulation D promulgated thereunder, relative to
transactions by an issuer not involving any public offering, to
the extent an exemption from such registration was required. The
securities described in paragraphs (a)(2) and (a)(3) of this
Item 15 were issued pursuant to written compensatory plans
or arrangements with our employees, directors and consultants in
reliance on the exemption provided by Rule 701 promulgated
under Section 3(b) of the Securities Act, or pursuant to
Section 4(2) under the Securities Act, relative to
transactions by an issuer not involving any public offering, to
the extent an exemption from such registration was required. The
securities described in paragraph (b)(1) of this Item 15
were made pursuant to written compensatory plans or arrangements
with our employees, directors and consultants, in reliance on
the exemption provided by Rule 701 promulgated under
Section 3(b) of the Securities Act, or pursuant to
Section 4(2) under the Securities Act, relative to
transactions by an issuer not involving any public offering, to
the extent an exemption from such registration was required. The
securities described in paragraph (b)(2) of this Item 15
were issued to accredited investors in reliance upon the
exemption from the registration requirements of the
II-3
Securities Act, as set forth in Section 4(2) under the
Securities Act, relative to transactions by an issuer not
involving any public offering, to the extent an exemption from
such registration was required.
All of the purchasers of shares of our convertible preferred
stock described above, the purchaser of shares of our common
stock affiliated with a director and the parties to which
warrants were issued described above represented to us in
connection with their respective acquisitions described above
that they were accredited investors and that they were acquiring
the applicable securities for investment and not distribution
and to the effect that they could bear the risks of the
investment. Such parties received written disclosures that the
applicable securities had not been registered under the
Securities Act and that 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. The certificates
representing the issued shares of capital stock and the warrants
described in this Item 15 included appropriate legends
setting forth that the applicable securities have not been
registered and the applicable restrictions on transfer.
II-4
(a) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement.
|
|
3
|
.1**
|
|
Amended and Restated Certificate of Incorporation of the
Registrant, as amended, as currently in effect.
|
|
3
|
.2**
|
|
Amended and Restated Certificate of Incorporation of the
Registrant dated January 10, 2011.
|
|
3
|
.3**
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon closing of the offering.
|
|
3
|
.4**
|
|
Bylaws of the Registrant, as currently in effect.
|
|
3
|
.5**
|
|
Form of Amended and Restated Bylaws of the Registrant, to be
effective upon closing of the offering.
|
|
4
|
.1**
|
|
Specimen Common Stock Certificate of the Registrant.
|
|
4
|
.2**
|
|
Third Amended and Restated Investor Rights Agreement dated
March 9, 2007, as amended, among the Registrant and the
parties set forth therein.
|
|
4
|
.3**
|
|
Warrant to Purchase Shares of Series
C-3
Preferred Stock issued by the Registrant to General Electric
Capital Corporation on December 31, 2007.
|
|
4
|
.4**
|
|
Warrant to Purchase Shares of Series
C-3
Preferred Stock issued by the Registrant to Oxford Finance
Corporation on December 31, 2007.
|
|
4
|
.5**
|
|
Warrant to Purchase Stock issued by the Registrant to Silicon
Valley Bank on August 27, 2010.
|
|
4
|
.6**
|
|
Warrant to Purchase Stock issued by the Registrant to Midcap
Funding III, LLC on August 27, 2010.
|
|
4
|
.7**
|
|
Form of Subordinated Convertible Promissory Note between the
Registrant and the parties set forth in the Note Purchase
Agreement dated December 14, 2010.
|
|
5
|
.1**
|
|
Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
|
|
10
|
.1**
|
|
Form of Director and Executive Officer Indemnification Agreement.
|
|
10
|
.2**
|
|
1997 Stock Plan and forms of option agreements thereunder.
|
|
10
|
.3**
|
|
2007 Stock Plan and forms of option agreements thereunder.
|
|
10
|
.4**
|
|
2010 Equity Incentive Plan and forms of option agreements
thereunder to be in effect upon the closing of this offering.
|
|
10
|
.5**
|
|
2010 Employee Stock Purchase Plan and forms of option agreements
thereunder to be in effect upon the closing of this offering.
|
|
10
|
.6**
|
|
Lease dated May 1, 2008 between the Registrant and 2639
Executive Building LLC.
|
|
10
|
.7**
|
|
Lease dated May 30, 2008 between the Registrant and Zeller
Management Corporation, amended.
|
|
10
|
.8**
|
|
Lease dated November 1, 2008 between the Registrant and
2639 Executive Building LLC.
|
|
10
|
.9**
|
|
Lease dated March 1, 2010 between the Registrant and Purdue
Research Foundation.
|
|
10
|
.10**
|
|
Loan and Security Agreement dated December 31, 2007 among
the Registrant, Oxford Finance Corporation and General Electric
Capital Corporation, as amended.
|
|
10
|
.11**
|
|
Amended and Restated Exclusive License Agreement dated
October 21, 1998 between the Registrant and Purdue Research
Foundation, as amended.
|
|
10
|
.12**
|
|
Exclusive License Agreement effective March 1, 2010 between
the Registrant and Purdue Research Foundation.
|
II-5
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.13**
|
|
Form of Change in Control Agreements each dated August 25,
2010 between Registrant and certain of its named executive
officers.
|
|
10
|
.14**
|
|
Change in Control Agreement dated August 25, 2010 between
the Registrant and P. Ron Ellis.
|
|
10
|
.15**
|
|
Change in Control Agreement dated August 25, 2010 between
the Registrant and Michael A. Sherman.
|
|
10
|
.16**
|
|
Patent Assignment Agreement dated November 1, 2007 among
the Registrant and the parties set forth therein.
|
|
10
|
.17**
|
|
Loan and Security Agreement dated August 27, 2010 among the
Registrant, Midcap Funding III, LLC and Silicon Valley Bank, as
amended on December 14, 2010.
|
|
10
|
.18**
|
|
Note Purchase Agreement, dated December 14, 2010 among the
Registrant and the parties set forth therein.
|
|
10
|
.19**
|
|
Form of Subordination Agreement between Registrant and the
parties set forth in the Note Purchase Agreement dated
December 14, 2010.
|
|
23
|
.1
|
|
Consent of Ernst & Young, LLP, Independent Registered
Public Accounting Firm.
|
|
23
|
.2**
|
|
Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit 5.1).
|
|
|
**
|
Previously filed
|
|
|
Pursuant to a request for confidential treatment, portions of
this Exhibit have been redacted from the publicly filed document
and have been furnished separately to the SEC as required by
Rule 406 under the Securities Act.
|
II-6
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933, as amended, and will be governed by
the final adjudication of such issue.
We hereby undertake that:
(a) We will provide to the underwriters at the closing as
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) For purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from
a form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act of 1933, as amended, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(c) For the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Lafayette, State of Indiana, on
February 4, 2011.
ENDOCYTE, INC.
P. Ron Ellis
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities indicated below:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ P.
Ron Ellis
P.
Ron Ellis
|
|
Director, President and Chief Executive Officer
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Michael
A. Sherman
Michael
A. Sherman
|
|
Chief Financial Officer and Principal Accounting Officer
|
|
February 4, 2011
|
|
|
|
|
|
/s/ John
C. Aplin*
John
C. Aplin
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Philip
S. Low*
Philip
S. Low
|
|
Director and Chief Science Officer
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Douglas
G. Bailey*
Douglas
G. Bailey
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Keith
E. Brauer*
Keith
E. Brauer
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
/s/ John
G. Clawson*
John
G. Clawson
|
|
Chairman of the Board of Directors
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Ann
F. Hanham*
Ann
F. Hanham
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Fred
A. Middleton*
Fred
A. Middleton
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
/s/ James
S. Shannon*
James
S. Shannon
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
* /s/ Michael A.
Sherman
Michael A.
Sherman
Attorney-in-Fact
|
|
|
|
|
II-8
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement.
|
|
3
|
.1**
|
|
Amended and Restated Certificate of Incorporation of the
Registrant, as amended, as currently in effect.
|
|
3
|
.2**
|
|
Amended and Restated Certificate of Incorporation of the
Registrant dated January 10, 2011.
|
|
3
|
.3**
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon closing of the offering.
|
|
3
|
.4**
|
|
Bylaws of the Registrant, as currently in effect.
|
|
3
|
.5**
|
|
Form of Amended and Restated Bylaws of the Registrant, to be
effective upon closing of the offering.
|
|
4
|
.1**
|
|
Specimen Common Stock Certificate of the Registrant.
|
|
4
|
.2**
|
|
Third Amended and Restated Investor Rights Agreement dated
March 9, 2007, among the Registrant and the parties set
forth therein, as amended.
|
|
4
|
.3**
|
|
Warrant to Purchase Shares of Series
C-3
Preferred Stock issued by the Registrant to General Electric
Capital Corporation on December 31, 2007.
|
|
4
|
.4**
|
|
Warrant to Purchase Shares of Series
C-3
Preferred Stock issued by the Registrant to Oxford Finance
Corporation on December 31, 2007.
|
|
4
|
.5**
|
|
Warrant to Purchase Stock issued by the Registrant to Silicon
Valley Bank on August 27, 2010.
|
|
4
|
.6**
|
|
Warrant to Purchase Stock issued by the Registrant to Midcap
Funding III, LLC on August 27, 2010.
|
|
4
|
.7**
|
|
Form of Subordinated Convertible Promissory Note between the
Registrant and the parties set forth in the Note Purchase
Agreement dated December 14, 2010.
|
|
5
|
.1**
|
|
Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
|
|
10
|
.1**
|
|
Form of Director and Executive Officer Indemnification Agreement.
|
|
10
|
.2**
|
|
1997 Stock Plan and forms of option agreements thereunder.
|
|
10
|
.3**
|
|
2007 Stock Plan and forms of option agreements thereunder.
|
|
10
|
.4**
|
|
2010 Equity Incentive Plan and forms of option agreements
thereunder to be in effect upon the closing of this offering.
|
|
10
|
.5**
|
|
2010 Employee Stock Purchase Plan and forms of option agreements
thereunder to be in effect upon the closing of this offering.
|
|
10
|
.6**
|
|
Lease dated May 1, 2008 between the Registrant and 2639
Executive Building LLC.
|
|
10
|
.7**
|
|
Lease dated May 30, 2008 between the Registrant and Zeller
Management Corporation, amended.
|
|
10
|
.8**
|
|
Lease dated November 1, 2008 between the Registrant and
2639 Executive Building LLC.
|
|
10
|
.9**
|
|
Lease dated March 1, 2010 between the Registrant and Purdue
Research Foundation.
|
|
10
|
.10**
|
|
Loan and Security Agreement dated December 31, 2007 among
the Registrant, Oxford Finance Corporation and General Electric
Capital Corporation, as amended.
|
|
10
|
.11**
|
|
Amended and Restated Exclusive License Agreement dated
October 21, 1998 between the Registrant and Purdue Research
Foundation, as amended.
|
|
10
|
.12**
|
|
Exclusive License Agreement effective March 1, 2010 between
the Registrant and Purdue Research Foundation.
|
|
10
|
.13**
|
|
Form of Change in Control Agreements each dated August 25,
2010 between Registrant and certain of its named executive
officers.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.14**
|
|
Change in Control Agreement dated August 25, 2010 between
the Registrant and P. Ron Ellis.
|
|
10
|
.15**
|
|
Change in Control Agreement dated August 25, 2010 between
the Registrant and Michael A. Sherman.
|
|
10
|
.16**
|
|
Patent Assignment Agreement dated November 1, 2007 among
the Registrant and the parties set forth therein.
|
|
10
|
.17**
|
|
Loan and Security Agreement dated August 27, 2010 among the
Registrant, Midcap Funding III, LLC and Silicon Valley Bank, as
amended on December 14, 2010.
|
|
10
|
.18**
|
|
Note Purchase Agreement, dated December 14, 2010 among the
Registrant and the parties set forth therein.
|
|
10
|
.19**
|
|
Form of Subordination Agreement between Registrant and the
parties set forth in the Note Purchase Agreement dated
December 14, 2010.
|
|
23
|
.1
|
|
Consent of Ernst & Young, LLP, Independent Registered
Public Accounting Firm.
|
|
23
|
.2**
|
|
Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit 5.1).
|
|
|
**
|
Previously filed
|
|
|
Pursuant to a request for confidential treatment, portions of
this Exhibit have been redacted from the publicly filed document
and have been furnished separately to the SEC as required by
Rule 406 under the Securities Act.
|