UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2010
Commission File Number 000-30681
DENDREON
CORPORATION
(Exact name of registrant as
specified in its charter)
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DELAWARE
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22-3203193
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3005 FIRST AVENUE,
SEATTLE, WASHINGTON
(Address of principal
executive offices)
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98121
(Zip
Code)
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(206) 256-4545
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.001 Par Value Per Share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant based on the closing sale price
of the registrants common stock on June 30, 2010, as
reported by the NASDAQ Stock Market, was $4,524,926,424.
As of February 23, 2011, the registrant had outstanding
145,520,685 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Sections of the registrants definitive Proxy Statement,
which will be filed on or before April 30, 2011 with the
Securities and Exchange Commission in connection with the
registrants 2011 annual meeting of stockholders, are
incorporated by reference into Part III of this Report, as
noted therein.
PART I
OVERVIEW
Dendreon Corporation (Dendreon, the
Company, we, us, or
our), a Delaware corporation, is a biotechnology
company focused on the discovery, development and
commercialization of novel therapeutics that may significantly
improve cancer treatment options for patients. Our product
portfolio includes active cellular immunotherapy and small
molecule product candidates to treat a wide range of cancers.
On April 29, 2010, the U.S. Food and Drug
Administration (FDA) licensed
PROVENGE®
(sipuleucel-T), our first in class autologous cellular
immunotherapy for the treatment of asymptomatic or minimally
symptomatic, metastatic, castrate-resistant (hormone-refractory)
prostate cancer. Commercial sale of PROVENGE began in May 2010.
Prostate cancer is the most common non-skin cancer among men in
the United States, with over one million men currently diagnosed
with the disease, and the second leading cause of cancer deaths
in men in the United States. We own worldwide rights for
PROVENGE.
Other potential product candidates we have under development
include our investigational active cellular immunotherapy,
DN24-02, directed against HER2/neu for the treatment of patients
with bladder, breast, ovarian and other solid tumors expressing
HER2/neu. In December 2010 we filed an Investigational New Drug
application with the FDA for DN24-02 for the treatment of
invasive bladder cancer. Active cellular immunotherapies
directed at carbonic anhydrase 9 (CA-9), an antigen
highly expressed in renal cell carcinoma, and carcinoembryonic
antigen (CEA), an antigen expressed in colorectal
cancer, are in preclinical development. We are also developing
an orally-available small molecule targeting TRPM8 that could be
applicable to multiple types of cancer in advanced cancer
patients. We commenced our Phase 1 clinical trial to evaluate
TRPM8 in 2009 and the trial is ongoing.
Commercialization
of PROVENGE
In 2010, we achieved revenue from PROVENGE of
$48.0 million. During 2010, we supported commercial sale of
PROVENGE from the available capacity at our manufacturing
facility in Morris Plains, New Jersey (New Jersey
Facility). We anticipate our manufacturing capabilities
will significantly increase during 2011 with the licensure by
the FDA of additional capacity at our New Jersey Facility in the
first quarter of 2011, and licensure of our new facilities in
Orange County, California and Atlanta, Georgia anticipated
mid-year 2011. On February 28, 2011, we submitted our
request to the FDA for licensure of the Orange County facility
to manufacture PROVENGE. We expect to establish relationships
with and support approximately 450 infusion sites by the end of
2011.
Soon after PROVENGE was approved by the FDA, the National
Comprehensive Cancer Network (NCCN) listed PROVENGE
in the NCCN Clinical Practice Guidelines in Oncology for
Prostate Cancer and NCCN Drugs & Biologics Compendium
as a category 1 treatment recommendation for patients with
castrate-resistant prostate cancer. A category 1 recommendation
means that the recommendation is based on high level
evidence (e.g., randomized controlled trials) and there is
uniform NCCN consensus. With respect to reimbursement, all
of the regional Medicare Administrative Contractors
(MACs) have established coverage guidelines for
on-label use of PROVENGE or have stated that they will process
PROVENGE claims. In addition, a significant number of private
payers including Aetna, Emblem Health, Humana, Kaiser, CIGNA,
HealthNet, Regence of Washington, United Healthcare and
WellPoint established local or national coverage. On
June 30, 2010, the Centers for Medicare and Medicaid
Services (CMS) opened a national coverage analysis
for PROVENGE. The agency is expected to issue a proposed
decision memorandum by March 30, 2011 with an analysis
completion date of June 30, 2011. In the event CMS were to
impose restrictions or additional requirements on coverage of
PROVENGE by Medicare contractors it could have a significant
adverse impact on PROVENGE sales. CMS met in November 2010 to
consider and review commentary on the currently available
evidence regarding the impact of labeled and unlabeled use of
autologous cellular immunotherapy treatment on health outcomes
of patients with metastatic prostate cancer.
Data from the pivotal Phase 3 IMPACT study for PROVENGE was
published in the July 29, 2010 issue of the New England
Journal of Medicine, showing that PROVENGE demonstrated a
statistically significant improvement
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in overall survival compared to control in men with asymptomatic
or minimally symptomatic metastatic castration resistant
prostate cancer.
Following a number of pre-submission meetings with European
Union (E.U.) National Agencies, we expect that data
from our Phase 3 D9902B IMPACT (IMmunotherapy for Prostate
AdenoCarcinoma Treatment) study, supported by data from our
D9901 and D9902A studies, will be sufficient to seek regulatory
approval for PROVENGE in the E.U. We plan to use the clinical
data described in our U.S. Biologics License Application to
file our marketing authorization application (MAA)
to the European Medicines Agency (EMA) in late 2011
or early 2012. To accelerate the regulatory timeline, initially
PROVENGE will be manufactured through a contract manufacturing
organization while we concurrently build an immunotherapy
manufacturing facility in Europe. We anticipate a regulatory
decision from the E.U. in the first half of 2013.
Cancer
Immunotherapy
Cancer is characterized by abnormal cells that grow and
proliferate, forming masses called tumors. Under the right
circumstances, these proliferating cells can metastasize, or
spread, throughout the body and produce deposits of tumor cells
called metastases. As the tumors grow, they may cause tissue and
organ failure and, ultimately, death. Therapies such as surgery,
radiation, hormone treatments and chemotherapy, may not have the
desired therapeutic effect and may result in significant
detrimental side effects. Active cellular immunotherapies are
designed to stimulate the immune system, the bodys natural
mechanism for fighting disease, and may overcome some of the
limitations of current
standard-of-care
cancer therapies.
The
Immune System
The immune system is composed of a variety of specialized cells.
These cells recognize specific chemical structures called
antigens. Foreign antigens trigger an immune response that
typically results in the removal of disease-causing agents from
the body.
The immune system recognizes and generates a strong response to
hundreds of thousands of different foreign antigens. Tumors,
however, frequently display antigens that are also found on
normal cells. The immune system may not be able to distinguish
between tumors and normal cells and, thus, may be unable to
mount a strong anti-cancer response. Tumors may also prevent the
immune system from fully activating. We believe one key to
directing the immune system to fight cancers is to modify, or
engineer, tumor antigens so that they can be recognized by the
immune system and then to manipulate immune system cells to
stimulate a response to these engineered antigens.
An immune response is started by a specialized class of immune
system cells called antigen-presenting cells. Antigen-presenting
cells take up antigen from their surroundings and process the
antigen into fragments that are then displayed on the surface of
the antigen-presenting cell. Once on display, these antigens can
be recognized by specific classes of immune cells called
lymphocytes. One category of lymphocytes, T lymphocytes (T
cells), combat disease by killing antigen-bearing cells
directly. In this way, T cells may eliminate cancers and virally
infected tissue. T cell immunity is also known as cell-mediated
immunity and is commonly thought to be a key defense against
tumors and cells chronically infected by viruses. A second
category of lymphocytes, B lymphocytes (B cells),
produce specific antibodies when activated. Each antibody binds
to and attacks one particular type of antigen expressed on a
cell.
Our
Active Immunotherapy Approach
We combine our experience in processing antigen-presenting cells
and identifying and engineering antigens to produce active and
autologous cellular immunotherapy products, which are designed
to stimulate a tumor-directed immune response. We believe that
our proprietary technology is applicable to many antigens of
interest and, therefore, may be developed to target a variety of
solid tumor and blood-borne malignancies.
Our approach to active immunotherapy is to:
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identify or in-license antigens that are expressed on cancer
cells and are suitable targets for cancer therapy;
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create proprietary, genetically engineered antigens that will be
optimally processed by antigen-presenting cells; and
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isolate antigen-presenting cells using proprietary methods and
combine these antigen-presenting cells with the engineered
antigens ex vivo.
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Antigen Identification. Our internal antigen
discovery programs begin by identifying novel antigens expressed
in specific tissues or in malignant cells. We consider the
antigens that we find localized in diseased tissue as candidates
for antigen engineering. PROVENGE is designed to target the
prostate cancer antigen prostatic acid phosphatase
(PAP), an antigen that is expressed in more than 90%
of all prostate cancers. The antigen target for DN24-02, our
active cellular immunotherapy candidate in development for the
treatment of bladder, breast, ovarian and other solid tumors, is
HER2/neu. Through licenses, we have also acquired the
opportunity to work with the tumor antigens designated CEA and
CA-9. We discovered the tumor antigen TRPM8 and we are presently
utilizing this protein as a target for small molecule drug
development.
Antigen Engineering. We engineer antigens to
produce proprietary active cellular immunotherapies. Our antigen
engineering is designed to trigger and maximize cell-mediated
immunity by augmenting the uptake and processing of the target
antigen by antigen-presenting cells. We can affect the quality
and quantity of the immune response that is generated by adding,
deleting or modifying selected sequences of the antigen gene,
together with inserting the modified antigen into our
proprietary Antigen Delivery
Cassettetm
technology.
Our Antigen Delivery Cassette technology enhances antigen
binding and entry into antigen-presenting cells. The Antigen
Delivery Cassette targets each engineered antigen to a receptor
on antigen-presenting cells and provides a common key to unlock
the potential of these cells to process antigen. The
antigen-presenting cells process antigen along pathways that
stimulate cell-mediated immunity. We believe this process
results in a tumor-directed immune response. Our Antigen
Delivery Cassette technology also provides us with a foundation
on which to build new proprietary antigens.
Active Cellular Immunotherapy Production and
Delivery. Our manufacturing process involves two
key elements: the antigen in the Antigen Delivery Cassette
technology and antigen-presenting cells. To obtain
antigen-presenting cells, we acquire white blood cells removed
from a patient via a standard blood collection process called
leukapheresis. We transport the cells to the manufacturing
facility via professional courier service. The cells are further
processed using our proprietary cell separation technology. The
resulting antigen-presenting cells are then incubated with the
required concentration of the antigen under controlled
conditions. We subject each dose to quality control testing,
including identity, purity, potency, sterility and other safety
testing. Our process requires less than three days from cell
collection to the administration of the active immunotherapy
product candidate.
PROVENGE®
(sipuleucel-T)
Market
for PROVENGE
The American Cancer Society estimated that in 2010 approximately
217,730 new cases of prostate cancer would be diagnosed in the
United States, and approximately 32,050 men were expected to die
of prostate cancer. Castrate-resistant prostate cancer is an
advanced stage of prostate cancer in which the tumor growth is
no longer regulated by androgens, or male hormones; it is also
referred to as androgen-independent prostate cancer or
hormone-refractory prostate cancer.
Early-stage, localized prostate cancer may be cured with surgery
or radiation therapy. The disease will recur in approximately
20% to 30% of men, at which point hormone ablation therapy is
the most commonly used treatment approach. While most prostate
cancer initially responds to hormone ablation therapy, the vast
majority of these patients will experience disease progression
after 18 to 24 months, becoming refractory to hormone
treatment, or castrate-resistant. Prior to the approval of
PROVENGE, a chemotherapeutic was the only FDA-approved drug that
had been proven to prolong survival in men with metastatic,
castrate-resistant (hormone-refractory) prostate cancer. We
believe that PROVENGE addresses a significant unmet medical need
for patients with asymptomatic or minimally symptomatic
metastatic, castrate-resistant prostate cancer by prolonging
survival with the most common side effects being mild to
moderate and of short duration.
4
PROVENGE
Clinical Trials
The following table summarizes the survival results of the three
PROVENGE Phase 3 studies in men with asymptomatic or minimally
symptomatic, metastatic, castrate-resistant prostate cancer:
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Clinical Study
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D9901
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D9902A
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D9902B
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N = 127
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N = 98
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N = 512
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Median Survival in months:
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PROVENGE
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25.9
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19.0
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25.8
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Control
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21.4
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15.7
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21.7
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Median Survival Benefit:% (months)
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21% (4.5)
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21% (3.3)
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19% (4.1)
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Hazard Ratio
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0.586
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0.786
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0.775
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p-value
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p=.010
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p=.331
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p=.032
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In controlled clinical trials, the most common adverse events
(incidence
³15%)
reported in the PROVENGE group are chills, fatigue, fever, back
pain, nausea, joint ache, and headache. The majority of adverse
events were mild or moderate in severity (Grade 1 or 2). In
general, they occurred within 1 day of infusion and were
short in duration (resolved in
£2 days).
Serious adverse events reported in the PROVENGE group include
acute infusion reactions (occurring within 1 day of
infusion) and cerebrovascular events. Severe (Grade
3) acute infusion reactions were reported in 3.5% of
patients in the PROVENGE group. Reactions included chills,
fever, fatigue, asthenia, dyspnea, hypoxia, bronchospasm,
dizziness, headache, hypertension, muscle ache, nausea, and
vomiting. No Grade 4 or 5 acute infusion reactions were reported
in patients in the PROVENGE group. In Study D9902B, the
percentage of patients who discontinued treatment with PROVENGE
due to an adverse reaction was 1.5%. To fulfill a post-marketing
requirement, we are conducting a registry of approximately
1,500 patients to further evaluate a small potential safety
signal of cerebrovascular events observed in the Phase 3
clinical trials included in the safety data for the PROVENGE
label. In the four randomized clinical trials of PROVENGE in
prostate cancer patients included in the safety data,
cerebrovascular events were observed in 3.5% of patients in the
PROVENGE group compared with 2.6% of patients in the control
group.
PROVENGE
Clinical Trials in Advanced Stage Prostate Cancer
Clinical Trial D9901. In June
2001, we completed enrollment in our first Phase 3 clinical
trial of PROVENGE, D9901, which was a randomized double-blind
controlled study in 127 men with asymptomatic, metastatic,
castrate-resistant (hormone-refractory) prostate cancer. The
trial was designed to measure a delay in time to disease
progression. Time to the onset of disease related pain was a
secondary endpoint that was to be evaluated in concert with the
results from a second, identical companion trial, D9902. After
disease progression, control patients were given the option to
receive salvage therapy consisting of an autologous
immunotherapy made from cells cryopreserved at the time of
control product generation on a separate open label study. The
protocols for both trials required patients to be followed for
survival for three years after enrollment.
In 2002, an analysis of the primary endpoint in trial D9901
demonstrated a 31% reduction in the risk of disease progression
for patients who received PROVENGE compared to patients who
received control. At 6 months following randomization,
31.9% of patients receiving PROVENGE were progression free
compared to 13.3% of patients in the control arm. This analysis
closely approached but did not achieve statistical significance.
We completed the planned three year
follow-up
for survival on the D9901 patients and disclosed in
February 2005 that a significant survival advantage was seen in
those patients who had been randomized to the PROVENGE arm
compared to those who had been randomized to receive control.
According to the final three year
intent-to-treat
analysis, patients who received PROVENGE had a median survival
of 25.9 months compared to 21.4 months for patients in
the control arm, a 4.5 month or 21% improvement (p-value =
0.01, hazard ratio = .586). This hazard ratio implies that
patients who received PROVENGE have a 41% reduction in risk of
death than that of patients who were randomized to receive
control.
Clinical Trial D9902A. D9902, the
companion study to D9901, was stopped in 2002 after 98 of
120 patients were enrolled when the analysis of the
completed D9901 trial showed that no statistically significant
5
benefit in time to disease progression had been observed in the
overall group, but that a benefit was seen in the subgroup of
patients with Gleason scores of seven and less. We amended the
D9902 protocol to bifurcate the study into our completed
randomized D9902A Phase 3 trial consisting of the original
98 patients and the ongoing D9902B Phase 3 study, discussed
below, which was later amended to open the trial to men
regardless of Gleason score and to elevate survival to the
primary endpoint.
In October 2005, we disclosed final results from D9902A. Trial
D9902A also did not meet its primary endpoint of showing a
statistically significant delay in time to disease progression.
In the D9902A study, the three-year final survival analysis in
the
intent-to-treat
population of the double-blind, controlled study of treatment
with PROVENGE in 98 men with asymptomatic, metastatic,
castrate-resistant (hormone-refractory) prostate cancer showed
those patients who received PROVENGE had a median survival of
19.0 months compared to 15.7 months for patients in
the control arm, a 3.3 month or 21% reduction in the risk
of death (p-value = 0.331, hazard ratio = .786). A Cox
multivariate regression analysis of overall survival, which
adjusts for the same prognostic factors known to influence
survival utilized in D9901, met the criteria for statistical
significance (p-value = 0.023; adjusted hazard ratio = .522).
The hazard ratio observed in this analysis was similar to that
seen in our D9901 trial.
Clinical Trial D9902B. On
April 14, 2009, we announced that the IMPACT study had met
its primary endpoint of overall survival and exhibited a safety
profile consistent with prior Phase 3 studies. On April 28,
2009, at the American Urological Association annual meeting, we
presented detailed results of the IMPACT study. The IMPACT study
had a final enrollment of 512 patients with asymptomatic or
minimally symptomatic, metastatic, castrate-resistant prostate
cancer and was a multi-center, randomized, double-blind,
controlled study. Final results from the IMPACT study showed
that PROVENGE extended median survival by 4.1 months
compared to control (25.8 months versus 21.7 months).
The IMPACT study achieved a p-value of 0.032, exceeding the
pre-specified level of statistical significance defined by the
studys design (p-value less than 0.043), and PROVENGE
reduced the risk of death by 22.5% compared to control (hazard
ratio=0.775).
Clinical Trial P09-1. In 2009, we
initiated a Phase 2 open-label study of sipuleucel-T. The trial
allowed us to provide sipuleucel-T to men with metastatic
castrate-resistant prostate cancer while marketing approval for
PROVENGE was being pursued, obtain safety data, evaluate the
magnitude of immune responses to treatment with sipuleucel-T,
and to further characterize the cellular components of
sipuleucel-T. This trial was closed to new enrollment following
FDA approval of PROVENGE.
Clinical Trial P07-1. In August
2008, we initiated a Phase 2 trial of PROVENGE in men with
localized prostate cancer who are scheduled to undergo a radical
prostatectomy. The trial called NeoACT (NEOadjuvant Active
Cellular immunoTherapy), or P07-1, is anticipated to enroll
approximately 40 patients. The study will assess safety of
an immune response induced by sipuleucel-T in men with localized
prostate cancer.
Clinical Trial P07-2. In August
2008, we initiated a Phase 2 trial of PROVENGE called ProACT
(PROstate Active Cellular Therapy) or P07-2. The multicenter
trial is enrolling approximately 120 patients with
metastatic, castrate-resistant (hormone-refractory) prostate
cancer. All patients will receive active treatment but will be
randomized into one of three cohorts that will receive PROVENGE
manufactured with different concentrations of the prostate
antigen component. Patients will receive three infusions of
PROVENGE, each approximately two weeks apart. We are conducting
the trial to explore the effect of antigen concentration on CD54
upregulation, a measure of product potency, as well as on immune
response. Overall survival data will also be collected.
Other
PROVENGE Clinical Trials in Early-Stage Prostate
Cancer
Clinical Trial
P-11. In
November 2006, we disclosed preliminary results from our ongoing
PROTECT (PROVENGE Treatment and Early Cancer Treatment)
(P-11),
Phase 3 clinical trial in patients with androgen-dependent
(hormone sensitive) prostate cancer. The study was designed to
explore the biologic activity of PROVENGE in patients with
recurrent prostate cancer prior to the development of metastatic
disease. Among the preliminary findings, the study showed a
median time to biochemical failure (BF) of 18.0 months for
subjects in the PROVENGE group compared to 15.4 months for
subjects in the control group (HR=0.936; p = 0.737). When the
analysis was restricted to patients with confirmed BF, the HR
for BF was 0.797 in favor of PROVENGE (p = 0.278). In addition,
the study showed a 35% increase in PSA Doubling Time
(PSADT) for patients randomized to
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PROVENGE compared to control (125 vs 93 days; p = 0.046,
F-test) based on an analysis of PSADT calculated from
90 days following randomization to BF or the initiation of
systemic therapy. PSADT calculated after testosterone recovery
to baseline levels demonstrated a 48% increase in PSADT for the
PROVENGE arm (155 vs 105 days; p=0.038). PSADT is currently
considered to be one of the best predictors of clinical outcome
in patients with PSA recurrence following primary therapy. This
study is closed to enrollment, however, patients continue to be
followed for the clinical secondary endpoints of distant failure
and overall survival.
Clinical Trial
P-16. In
2005, an open label Phase 2 clinical trial,
P-16, was
completed, testing PROVENGE together with bevacizumab
(Avastin®)
to treat patients with androgen-dependent prostate cancer. The
trial was conducted at the University of California
San Francisco and was sponsored by the National Cancer
Institute. In February 2005 at the Multidisciplinary Prostate
Cancer Symposium, we announced that the combination of PROVENGE
and bevacizumab increased PSADT, in patients with prostate
cancer that had relapsed after prior surgical and radiation
therapy. The median pre-treatment PSADT for the 21 evaluable
patients was 6.7 months and the median on-treatment PSADT
was 12.7 months, an approximate 90% increase in PSADT (p =
0.004). In July 2006, results from this study were published in
the American Cancer Societys journal, Cancer. The
research showed the combination immunotherapy significantly
increased PSADT in patients with prostate cancer that had
relapsed after prior surgical and radiation therapy.
Clinical Trial D9905. In 2005, we
completed a Phase 2 clinical trial, D9905, evaluating men with
biochemical recurrence after prostatectomy. The median
pre-treatment PSADT, for the 19 evaluable patients in D9905, was
5.2 months and the median on-treatment PSADT was
7.9 months, approximately a 52% increase in PSADT.
Product
Candidates in Research and Development
Active
Cellular Immunotherapies and Immunotherapy Targets
DN24-02. DN24-02 is our investigational active
immunotherapy for the treatment of patients with bladder,
breast, ovarian and other solid tumors expressing HER2/neu.
Results from an earlier Phase 1 study targeting the HER2/neu
antigen showed that treatment stimulated significant immune
responses in patients with advanced, metastatic HER2/neu
positive breast cancer, which were shown to be enhanced
following booster infusions. Twenty-two percent of patients had
evidence of anti-cancer activity. This included one patient who
experienced a partial response lasting approximately
6 months and three patients who had stable disease for over
a year
(74.9-94.0 weeks)
without the addition of any other cancer therapy other than the
continuation of bisphosphonates. Two additional patients had
stable disease for up to 20 weeks. These results were
published in the August 20, 2007 issue of the Journal of
Clinical Oncology. In December 2010, we filed an
Investigational New Drug application with the FDA for DN24-02
for the treatment of invasive bladder cancer. The randomized
Phase 2 study will evaluate the safety and efficacy of DN24-02
in patients with HER2+ invasive transitional cell carcinoma of
the bladder following cystectomy. The primary endpoint is to
evaluate overall survival. Approximately 180 patients are
expected to be enrolled at clinical sites throughout the U.S.
We are currently using our Antigen Delivery Cassette technology
to develop active cellular immunotherapy product candidates
targeted to antigens other than PAP and HER2/neu.
Carbonic Anhydrase IX. We in-licensed the CA-9
antigen from Bayer Corporation, Business Group Diagnostics. Over
75% of primary and metastatic renal cell carcinomas highly
express the transmembrane protein CA-9, whereas expression of
CA-9 in normal kidney is low or undetectable. CA-9 is also
expressed in other cancers such as non-small cell lung and
breast tumors but not in the corresponding normal tissue. As
such, CA-9 represents an attractive antigen target for study as
a potential immunotherapy. In May 2006, preclinical data were
presented at the American Association of Immunology Conference
demonstrating that a genetically engineered active immunotherapy
product candidate targeted at CA-9 significantly prolonged
survival in animal tumor models. We are investigating the use of
active immunotherapy product candidates targeted at CA-9.
Carcinoembryonic Antigen. We in-licensed CEA
from Bayer Corporation, Business Group Diagnostics. CEA was
found to be present on 70% of lung cancers, virtually all cases
of colon cancers and approximately 65% of
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breast cancers. We are investigating the use of active cellular
immunotherapy product candidates targeted at CEA in breast, lung
and colon cancer.
Small
Molecules
TRPM8. Small molecules are a diverse group of
natural and synthetic substances that generally have a low
molecular weight. They are either isolated from natural sources
such as plants, fungi or microbes, or they are synthesized by
organic chemistry. Most conventional pharmaceuticals, such as
aspirin, penicillin and many chemotherapeutics, are small
molecules. The protein encoded by the gene first designated
trp-p8, is an ion channel. It was identified through our
internal antigen discovery program. As progress has been made in
the discovery of other ion channel members of the trp (Transient
Receptor Potential) family, trp-p8
(sub-family
M) has come to be more commonly referred to as TRPM8. A
patent on the gene encoding this ion channel was issued to us in
2001. In normal human tissues, it is expressed predominantly in
the prostate and is over-expressed in hyperplastic prostates. A
study found it to be present in 100% of prostate cancers and
approximately 71% of breast cancers, 93% of colon cancers and
80% of lung cancers. Ion channels like TRPM8 may be an
attractive target for manipulation by small molecule drug
therapy. Small molecule agonists have been synthesized that
activate the TRPM8 ion channel and induced cell death
(apoptosis). The small molecule agonists are orally bioavailable
and in December 2008 an Investigational New Drug application was
filed with the FDA for clinical evaluation of the product
candidate D3263 HCI in subjects with advanced cancer. In 2009,
we commenced our Phase 1 clinical trial to evaluate TRPM8 and
the trial is ongoing.
Manufacturing
and Commercial Infrastructure
To support our commercialization efforts, we have made
significant investments in manufacturing facilities and related
operations. In February 2007, we started to manufacture PROVENGE
for clinical use in our New Jersey Facility. Commercial
manufacture of PROVENGE began in May 2010. To date all
commercial product has been manufactured in the New Jersey
Facility.
As of December 31, 2010, approximately 25% of the capacity
at our New Jersey Facility had been approved by the FDA for
commercial manufacturing. We have completed validation
activities necessary to support FDA licensure of the additional
capacity. Subject to license by the FDA, we expect the
additional capacity to be available in the first quarter of 2011.
During July and August 2009, we entered into new facilities
leases in Atlanta, Georgia (the Atlanta Facility)
and Orange County, California (the Orange County
Facility) for an aggregate of approximately
340,000 square feet of space we intend to use for
commercial manufacturing. We commenced occupation of the Atlanta
Facility and Orange County Facility during the third quarter of
2010 and have commenced validation activities for these
facilities. These facilities will be available for commercial
manufacture of PROVENGE after review and license by the FDA,
which we anticipate to occur mid-year 2011. Upon FDA license of
the Orange County Facility and the Atlanta Facility, we
anticipate that U.S. commercial production will be divided
among our New Jersey Facility, Orange County Facility, and
Atlanta Facility.
In February 2011, we entered into a technology transfer and
manufacturing agreement with a third-party contract manufacturer
in Europe for the manufacture of PROVENGE for EU clinical
trials, and potentially commercial sale following our receipt of
marketing approval for the EU, in advance of our establishment
of our own manufacturing facility in Europe.
As of December 31, 2010, our manufacturing operations
employed approximately 750 individuals and our commercial team
included approximately 87 individuals employed in sales,
marketing, and government affairs. During the second half of
2010, our field based teams were primarily focused on training
infusion sites and customer education in addition to sales
activity for PROVENGE.
The manufacture of our active cellular immunotherapy candidates,
such as PROVENGE, begins with a standard cell collection process
called leukapheresis. The resulting cells are then transported
to a manufacturing facility, undergo the process to manufacture
PROVENGE and the final product is returned to a health care
provider for infusion into the patient. Our most significant
provider for leukapheresis procedures for the manufacture of
PROVENGE is the American Red Cross. We also have agreements
with, among others, Puget Sound Blood Center,
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New York Blood Center, Blood Group of America, and Hemacare as
providers of commercial leukapheresis services. We continue to
pursue commercial arrangements with other vendors in order to
have a network of commercial leukapheresis suppliers to meet the
geographical and volume requirements for PROVENGE.
We utilize two commercial couriers for transport of the
leukapheresis material and final product. We oversee
transportation of the leukapheresis material and the final
product through an integrated information technology tracking
system.
Supplies
and Raw Materials
We currently depend on specialized vendor relationships that are
not readily replaceable for some of the components for our
active immunotherapy candidates. We have a supply agreement with
Diosynth RTP, Inc. (Diosynth) covering the
commercial production of the recombinant antigen used in the
manufacture of PROVENGE. On May 12, 2010, we entered into a
Second Amendment to the supply agreement to extend the term of
the agreement through December 31, 2018, and unless
terminated, the agreement will renew automatically thereafter
for additional
5-year
terms. The agreement may be terminated upon written notice by us
or Diosynth at least 24 months before the end of the
initial term or a renewal term or by either party in the event
of an uncured material breach or default by the other party.
We currently have a commitment with Diosynth to purchase antigen
through 2011 for a total of $77.6 million related to two
orders. As of December 31, 2010, we have paid
$38.4 million toward the orders and have a remaining
obligation of approximately $39.2 million. We began
receiving shipments of the first order in the third quarter 2010
and expect delivery of the second order to commence in mid-2011.
In addition, in 2010 we entered into commitments with Diosynth
to purchase antigen in 2012 for a total of $41.5 million
and in 2013 for a total of $43.8 million. In February 2011,
we paid $9.9 million toward the 2012 order.
In September 2010, we entered into a development and supply
agreement with GlaxoSmithKline LLC. This agreement is intended
to provide a second source for the commercial production and
supply of the recombinant antigen used in the manufacture of
PROVENGE. The term of the agreement is through December 31,
2015, unless earlier terminated pursuant to the terms of the
agreement, and provides for one or more two-year extensions to
the then expiring term. At December 31, 2010, we have a
remaining payment obligation for the transfer of the antigen
production process aggregating $14.6 million payable
through September 2011. Upon execution of the agreement, we
placed an initial order for approximately $8.3 million,
with delivery of commercial orders to commence in 2012.
Any production shortfall that impairs the supply of the antigen
would have a material adverse effect on our business, financial
condition and results of operations. If we were unable to obtain
sufficient quantity of antigen, it is uncertain whether
alternative sources could be developed.
The cell separation devices and related media that isolate the
cells for our active immunotherapy product candidates from a
patients blood and other bodily fluids are manufactured by
third party contractors in compliance with cGMP. We use third
party contractors to produce commercial quantities of these
devices and media for PROVENGE.
Research
and Development
We devote significant resources to research and development
programs directed at discovering new products such as PROVENGE.
On December 31, 2010, we employed approximately 150
individuals in research and development functions. Our costs
associated with research and development expenses were
$75.9 million in 2010, $61.6 million in 2009 and
$50.1 million in 2008.
Intellectual
Property
As a matter of regular course, we have obtained and intend to
actively seek to obtain, when appropriate, protection for our
current and prospective products, and proprietary technology by
means of U.S. and foreign patents, trademarks, and
applications for each of the foregoing. In addition, we rely
upon trade secrets and contractual agreements to protect certain
of our proprietary technology and products. PROVENGE is a novel
biologic, and it is difficult to predict how competition could
develop and accordingly which aspects of our related
intellectual property may prove the most significant in the
future. We have three issued U.S. patents with claims
relating to immunostimulatory compositions, including PROVENGE,
and to methods of treating specific diseases,
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including prostate cancer, using the immunostimulatory
compositions. We also have four issued U.S. patents with
claims relating to the cell separation devices and related media
and certain aspects of the manufacturing process used to produce
PROVENGE. The scheduled expiration dates of our
U.S. patents related to PROVENGE are in 2014 through 2018.
Outside of the U.S., we have in certain territories
corresponding issued patents related to PROVENGE that are
scheduled to expire in 2015 through 2019. Patent expiration
dates may be subject to patent term extension depending on
certain factors. In addition, following expiration of a basic
product patent or loss of patent protection resulting from a
legal challenge it may be possible to continue to obtain
commercial benefits from other characteristics such as clinical
trial data; product manufacturing trade secrets; patents on uses
for products; and patents for special formulations of the
product or delivery mechanisms.
We also own or license issued patents or patent applications
that are directed to potential small molecule pharmaceutical
compounds that are modulators of ion channel and protease
activity, to methods of making the compounds and to methods for
treating specific diseases using the compounds.
We protect our technology through United States and foreign
patent filings, trademarks and trade secrets that we own or
license. We own or license issued patents or patent applications
that are directed to the media and devices by which cells can be
isolated and manipulated, our Antigen Delivery Cassette
technology, our antigen-presenting cell processing technology,
immunostimulatory compositions, methods of making the
immunostimulatory compositions, methods for treating specific
diseases using the immunostimulatory compositions, our small
molecule product candidates, and methods for treating certain
diseases using the product candidates. We have filed foreign
counterparts to these issued patents and patent applications in
a number of countries.
We intend to continue using our scientific experience to pursue
and patent new developments to enhance our position in the
cancer field. Patents, if issued, may be challenged,
invalidated, declared unenforceable, circumvented or may not
cover all applications we desire. Thus, any patent that we own
or license from third parties may not provide adequate
protection against competitors. Our pending patent applications,
those we may file in the future, or those we may license from
third parties may not result in issued patents. Also, patents
may not provide us with adequate proprietary protection or
advantages against competitors with, or who could develop,
similar or competing technologies, or who could design around
our patents. In addition, future legislation may impact our
competitive position in the event brand-name and follow-on
biologics do not receive adequate patent protection. From time
to time, we have received invitations to license third party
patents.
We also rely on trade secrets and know-how that we seek to
protect, in part, by using confidentiality agreements. Our
policy is to require our officers, employees, consultants,
contractors, manufacturers, outside scientific collaborators and
sponsored researchers and other advisors to execute
confidentiality agreements. These agreements provide that all
confidential information developed or made known to the
individual during the course of the individuals
relationship with us be kept confidential and not disclosed to
third parties except in specific limited circumstances. We also
require signed confidentiality agreements from companies that
receive our confidential data. For employees, consultants and
contractors, we require agreements providing that all inventions
conceived while rendering services to us shall be assigned to us
as our exclusive property.
Competition
The biotechnology and biopharmaceutical industries are
characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products.
Pharmaceutical and biotechnology companies, academic
institutions and other research organizations are actively
engaged in the discovery, research and development of products
designed to address prostate cancer and other indications. There
are products currently under development by other companies and
organizations that could compete with PROVENGE or other products
that we are developing. Products such as chemotherapeutics,
androgen metabolism or androgen receptor antagonists, endothelin
A receptor antagonists, antisense compounds, angiogenesis
inhibitors and gene therapies for cancer are also under
development by a number of companies and could potentially
compete with PROVENGE and our other product candidates. In
addition, many universities and private and public research
institutes may in the future become active in cancer research,
which may be in direct competition with us. Two
chemotherapeutics (docetaxel and cabazitaxel) have been approved
by the FDA for the therapeutic treatment of metastatic,
androgen-independent prostate cancer, and may compete with
PROVENGE as treatments for men who are asymptomatic or minimally
symptomatic.
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Our competitors include major pharmaceutical companies. These
companies have significantly greater financial resources and
expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing. In addition, smaller
competitors may collaborate with these large established
companies to obtain access to their resources.
Our ability to commercialize PROVENGE and our other potential
products and compete effectively will depend, in large part, on:
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the effectiveness of our sales and marketing efforts;
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the willingness of physicians to adopt a new treatment regimen
consisting of infusion of an immunotherapy;
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our ability to accurately forecast and meet demand for PROVENGE
and our product candidates if regulatory approvals are achieved;
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the perception by physicians and other members of the health
care community of the safety, efficacy and benefits of PROVENGE
or our other products compared to those of competing products or
therapies;
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our ability to manufacture PROVENGE and other products we may
develop on a commercial scale;
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reimbursement policies for PROVENGE or our other product
candidates, if developed and approved,
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the price of PROVENGE and that of other products we may develop
and commercialize relative to competing products;
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our ability to advance our other product candidates through
clinical trials and through the FDA approval process;
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our ability to recruit, train, retain, manage and motivate our
employees; and
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our ability to sustain our commercial scale infrastructure,
including our manufacturing facilities, development of a
distribution network, information technology infrastructure and
configure existing operational, manufacturing and financial
systems and other operational and financial systems necessary to
support our increased scale as we grow our commercial
organization.
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Competition among products approved for sale will be based upon,
among other things, efficacy, reliability, product safety,
price-value analysis, and patent position. Our competitiveness
will also depend on our ability to advance our product
candidates, license additional technology, maintain a
proprietary position in our technologies and products, obtain
required government and other approvals on a timely basis,
attract and retain key personnel and enter into corporate
relationships that enable us and our collaborators to develop
effective products that can be manufactured cost-effectively and
marketed successfully.
Regulatory
General
Governmental authorities in the United States and other
countries extensively regulate the preclinical and clinical
testing, manufacturing, labeling, storage, record-keeping,
advertising, promotion, export, marketing and distribution,
among other things, of biologic products. In the United States,
the FDA subjects pharmaceutical and biologic products to
rigorous review under the Federal Food, Drug, and Cosmetic Act,
the Public Health Service Act and other federal statutes and
regulations.
FDA
Approval Process
To obtain approval of our product candidates from the FDA, we
must, among other requirements, submit data supporting safety
and efficacy as well as detailed information on the manufacture
and composition of the product candidate. In most cases, this
entails extensive laboratory tests and preclinical and clinical
trials. The collection of these data, as well as the preparation
of applications for review by the FDA are costly in time and
effort, and may require significant capital investment. We may
encounter significant difficulties or costs in our efforts to
obtain FDA approvals that could delay or preclude us from
marketing any products we may develop.
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A company typically conducts human clinical trials in three
sequential phases, but the phases may overlap. Phase 1 trials
consist of testing of the product in a small number of patients
or healthy volunteers, primarily for safety at one or more
doses. Phase 1 trials in cancer are often conducted with
patients who are not healthy and who have end-stage or
metastatic cancer. Phase 2 trials, in addition to safety,
evaluate the efficacy of the product in a patient population
somewhat larger than Phase 1 trials. Phase 3 trials typically
involve additional testing for safety and clinical efficacy in
an expanded population at geographically dispersed test sites. A
company must submit to the FDA a clinical plan, or
protocol, which must also be approved by the
Institutional Review Boards at the institutions participating in
the trials, prior to commencement of each clinical trial. The
trials must be conducted in accordance with the FDAs good
clinical practices. The FDA may order the temporary or permanent
discontinuation of a clinical trial at any time.
To obtain marketing authorization, a company must submit to the
FDA the results of the preclinical and clinical testing,
together with, and among other things, detailed information on
the manufacture and composition of the product, in the form of a
new drug application or, in the case of a biologic, like
PROVENGE, a biologics license application.
We are also subject to a variety of regulations governing
clinical trials and sales of our products outside the United
States. Whether or not FDA approval has been obtained, approval
of a product by the comparable regulatory authorities of foreign
countries and regions must be obtained prior to the commencement
of marketing the product in those countries. The approval
process varies from one regulatory authority to another and the
time may be longer or shorter than that required for FDA
approval. In the European Union, Canada and Australia,
regulatory requirements and approval processes are similar, in
principle, to those in the United States.
Fast
Track Designation/Priority Review
Congress enacted the Food and Drug Administration Modernization
Act of 1997 (the Modernization Act) in part to
ensure the availability of safe and effective drugs, biologics
and medical devices by expediting the development and review for
certain new products. The Modernization Act establishes a
statutory program for the review of Fast Track products,
including biologics. A Fast Track product is defined as a new
drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to
address unmet medical needs for this condition. Under the Fast
Track program, the sponsor of a new drug or biologic may request
that the FDA designate the drug or biologic as a Fast Track
product at any time during the development of the product, prior
to a new drug application submission.
Post-Marketing
Obligations
The Food and Drug Administration Amendments Act of 2007 expanded
FDA authority over drug products after approval. All approved
drug products are subject to continuing regulation by the FDA,
including record-keeping requirements, reporting of adverse
experiences with the product, sampling and distribution
requirements, notifying the FDA and gaining its approval of
certain manufacturing or labeling changes, complying with
certain electronic records and signature requirements,
submitting periodic reports to the FDA, maintaining and
providing updated safety and efficacy information to the FDA,
and complying with FDA promotion and advertising requirements.
Failure to comply with the statutory and regulatory requirements
can subject a manufacturer to possible legal or regulatory
action, such as warning letters, suspension of manufacturing,
seizure of product, injunctive action, criminal prosecution, or
civil penalties.
The FDA may require post-marketing studies or clinical trials to
develop additional information regarding the safety of a
product. These studies or trials may involve continued testing
of a product and development of data, including clinical data,
about the products effects in various populations and any
side effects associated with long-term use. The FDA may require
post-marketing studies or trials to investigate known serious
risks or signals of serious risks or identify unexpected serious
risks and may require periodic status reports if new safety
information develops. Failure to conduct these studies in a
timely manner may result in substantial civil fines.
Drug and biologics manufacturers and their subcontractors are
required to register their establishments with the FDA and
certain state agencies, and to list their products with the FDA.
The FDA periodically inspects manufacturing facilities in the
United States and abroad in order to assure compliance with the
applicable current
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good manufacturing practices (cGMP) regulations and
other requirements. Facilities also are subject to inspections
by other federal, foreign, state or local agencies. In complying
with the cGMP regulations, manufacturers must continue to expend
time, money and effort in record-keeping and quality control to
assure that the product meets applicable specifications and
other post-marketing requirements. We must ensure that any
third-party manufacturers continue to expend time, money and
effort in the areas of production, quality control, record
keeping and reporting to ensure full compliance with those
requirements. Failure to comply with these requirements subjects
the manufacturer to possible legal or regulatory action, such as
suspension of manufacturing or recall or seizure of product.
Also, newly discovered or developed safety or efficacy data may
require changes to a products approved labeling, including
the addition of new warnings and contraindications, additional
preclinical or clinical studies, or even in some instances,
revocation or withdrawal of the approval. Violations of
regulatory requirements at any stage, including after approval,
may result in various adverse consequences, including the
FDAs withdrawal of an approved product from the market,
other voluntary or FDA-initiated action that could delay or
restrict further marketing, and the imposition of civil fines
and criminal penalties against the manufacturer and BLA holder.
In addition, later discovery of previously unknown problems may
result in restrictions on the product, manufacturer or BLA
holder, including withdrawal of the product from the market.
Furthermore, new government requirements may be established that
could delay or prevent regulatory approval of our products under
development, or affect the conditions under which approved
products are marketed.
Biosimilars
The Biologics Price Competition and Innovation Act
(BPCIA) was passed on March 23, 2010 as
Title VII to the Patient Protection and Affordable Care
Act. The law provides for an abbreviated approval pathway for
biological products that demonstrate biosimilarity to a
previously-approved biological product. The BPCIA provides
12 years of exclusivity for innovator biological products.
The BPCIA may be applied to our product in the future and could
be applied to allow approval of biosimilars to our products.
Federal
Anti-Kickback, False Claims Laws & The Prescription
Drug Marketing Act
In addition to FDA restrictions on marketing of pharmaceutical
products, several other types of state and federal laws are
relevant to certain marketing practices in the pharmaceutical
industry. These laws include anti-kickback statutes and false
claims statutes. The federal healthcare program anti-kickback
statute prohibits, among other things, knowingly and willfully
offering, paying, soliciting or receiving remuneration to induce
or in return for purchasing, leasing, ordering or arranging for
the purchase, lease or order of any healthcare item or service
reimbursable under Medicare, Medicaid or other federally
financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on
the one hand and prescribers, purchasers and formulary managers
on the other. Violations of the federal anti-kickback statute
are punishable by imprisonment, criminal fines, civil monetary
penalties and exclusion from participation in federal healthcare
programs. Although there are a number of statutory exemptions
and regulatory safe harbors protecting certain common activities
from prosecution or other regulatory sanctions, the exemptions
and safe harbors are drawn narrowly, and practices that involve
remuneration intended to induce prescribing, purchases or
recommendations may be subject to scrutiny if they do not
qualify for an exemption or safe harbor.
Federal false claims laws prohibit any person from knowingly
presenting, or causing to be presented, a false claim for
payment to the federal government, or knowingly making, or
causing to be made, a false statement to have a false claim
paid. Several pharmaceutical and other healthcare companies have
been prosecuted under these laws for allegedly inflating drug
prices they report to pricing services, which in turn were used
by the government to set Medicare and Medicaid reimbursement
rates, and for allegedly providing free product to customers
with the expectation that the customers would bill federal
programs for the product. In addition, certain marketing
practices, including off-label promotion, may also implicate
false claims laws. The majority of states also have statutes or
regulations similar to the federal anti-kickback law and false
claims laws, which apply to items and services, reimbursed under
Medicaid and other state programs. A number of states have
anti-kickback laws that apply regardless of the payor.
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State
Laws
Marketing Restrictions. A number of states
have requirements that restrict pharmaceutical marketing
activities that go beyond commitments made related to adhering
to the PhRMA Code for Interactions with Healthcare
Professionals. These state requirements limit the types of
interactions the Company may have with healthcare providers in
these jurisdictions.
Healthcare Reform. Certain states, such as
Massachusetts, are pursuing their own programs for health
reform. These programs may include cost containment measures
that could affect state healthcare benefits, particularly for
higher priced drugs.
Sale of Pharmaceutical Products. In addition,
many U.S. states have enacted their own laws and statutes
applicable to the sale of pharmaceutical products within the
state, with which we must comply with. We are also subject to
certain state privacy and data protection laws and regulations.
Medicare
Part B Coverage and Reimbursement of Drugs and
Biologicals
Medicare Part B provides limited coverage of outpatient
drugs and biologicals that are furnished incident to
a physicians services. Generally, incident to
drugs and biologicals are covered only if they satisfy certain
criteria, including that they are of the type that is not
usually self-administered by the patient and they are reasonable
and necessary for a medically accepted diagnosis or treatment.
PROVENGE currently is covered under Medicare Part B (as
well as other government healthcare programs).
Medicare Part B pays providers that administer PROVENGE
under a payment methodology using average sales price
(ASP) information. Manufacturers, including us, are
required to provide ASP information to CMS, an agency within the
U.S. Department of Health and Human Services, on a
quarterly basis. This information is used to compute Medicare
payment rates, updated quarterly based on this ASP information.
The Medicare Part B payment methodology for physicians is
ASP plus six percent and only can change through legislation.
For 2011, the reimbursement rate in the hospital outpatient
setting is ASP plus five percent, and CMS could change this in
future years. There is a mechanism for comparison of ASP of a
product to widely available market prices for the product, which
could cause further decreases in Medicare payment rates,
although this mechanism has yet to be utilized. If a
manufacturer is found to have made a misrepresentation in the
reporting of ASP, the statute provides for civil monetary
penalties of up to $10,000 for each misrepresentation for each
day in which the misrepresentation was applied.
Data
Privacy
Numerous U.S. federal and state laws govern the collection,
use and disclosure of personal information including state
security breach notification laws, state health information
privacy laws and federal and state consumer protection laws.
Other countries also have, or are developing, laws governing the
collection, use and transmission of personal information. In
addition, most health care providers who prescribe our product
and from whom we obtain patient health information are subject
to privacy and security requirements under the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). The
legislative and regulatory landscape for privacy and data
protection continues to evolve, and there has been an increasing
amount of focus on privacy and data protection issues with the
potential to affect our business, including recently enacted
laws in a majority of U.S. states requiring security breach
notification. These laws could create liability for us or
increase our cost of doing business.
Price
Controls
In many of the markets where we may do business in the future,
the prices of pharmaceutical products are subject to direct
price controls (by law) and to drug reimbursement programs with
varying price control mechanisms. In the United States, the
Medicare program is administered by CMS. Coverage and
reimbursement for products and services under Medicare are
determined in accordance with the Social Security Act and
pursuant to regulations promulgated by CMS as well as the
agencys subregulatory coverage and reimbursement
determinations. On June 30, 2010, CMS opened a national
coverage analysis for PROVENGE. The agency is expected to issue
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a proposed decision memorandum by March 30, 2011 and a
final national coverage decision (NCD) by
June 30, 2011. Restrictions on coverage of PROVENGE in the
NCD could have a material adverse effect on the coverage,
reimbursement and sales of PROVENGE.
Moreover, the methodology under which CMS makes coverage and
reimbursement determinations is subject to change, particularly
because of budgetary pressures facing the Medicare program. For
example, the Medicare Modernization Act of 2003 made changes in
reimbursement methodology that reduced the Medicare
reimbursement rates for many drugs, including oncology
therapeutics. Medicare regulations and interpretive
determinations also may determine who may be reimbursed for
certain services.
In the European Union, governments influence the price of
pharmaceutical products through their pricing and reimbursement
rules and control of national health care systems that fund a
large part of the cost of such products to consumers. The
approach taken varies from member state to member state. Some
jurisdictions operate positive
and/or
negative list systems under which products may only be marketed
once a reimbursement price has been agreed. Other member states
allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs,
has become very intense. As a result, increasingly high barriers
are being erected to the entry of new products, as exemplified
by the role of the National Institute for Health and Clinical
Excellence in the United Kingdom, which evaluates the data
supporting new medicines and passes reimbursement
recommendations to the government. In addition, in some
countries cross-border imports from low-priced markets (parallel
imports) exert commercial pressure on pricing within a country.
Environmental
and Safety Laws
We are subject to a variety of federal, state and local
regulations relating to the use, handling, storage and disposal
of hazardous materials, including chemicals and radioactive and
biological materials. Our operations produce such hazardous
waste products. Although we believe that our safety procedures
for handling and disposing of these materials complies with the
standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials
cannot be eliminated. We generally contract with third parties
for the disposal of such substances, and store our low level
radioactive waste at our facilities until the materials are no
longer considered radioactive. We are also subject to various
laws and regulations governing laboratory practices and the
experimental use of animals.
We are also subject to regulation by the Occupational Safety and
Health Administration (OSHA), and the Environmental
Protection Agency (the EPA), and to regulation under
the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations.
OSHA and/or
the EPA may promulgate regulations that may affect our research
and development programs.
EMPLOYEES
As of February 15, 2011, we had 1,497 employees. None
of our employees are subject to a collective bargaining
agreement or represented by a labor or trade union, and we
believe that our relations with our employees are good.
TRADEMARKS
AND TRADENAMES
Dendreon®,
the Dendreon logo, Dendreon Targeting Cancer, Transforming
Lives®,
PROVENGE®
and the Antigen Delivery
Cassettetm
are our trademarks. All other trademarks that may appear or be
incorporated by reference into this annual report are the
property of their respective owners.
AVAILABLE
INFORMATION
We make available, free of charge, through our investor
relations website our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports as soon as reasonably
practicable after they are filed with, or furnished to, the
Securities and Exchange Commission (the SEC). You
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may also read and copy any materials we file with the SEC at the
SECs Public Reference Room located at
100 F Street NE, Washington DC 20549. Information on
the operation of the Public Reference Room may be obtained by
calling the SEC at
1-800-SEC-0330.
The address for our web site is
http://www.dendreon.com
and the address for the investor relations page of our web
site is
http://investor.dendreon.com.
The information contained on our web site is not a part of
this report.
The risks described below may not be the only ones relating
to our company. Additional risks that we currently believe are
immaterial may also impair our business operations. Our
business, financial condition, and future prospects and the
trading price of our common stock could be harmed as a result of
any of these risks. Investors should also refer to the other
information contained or incorporated by reference in this
Annual Report on
Form 10-K
for the year ended December 31, 2010, including our
consolidated financial statements and related notes, and our
other filings from time to time with the Securities and Exchange
Commission, or SEC.
Risks
Relating to our Product Commercialization Pursuits
PROVENGE
is our only FDA-approved product. If we fail to achieve and
sustain commercial success for PROVENGE, our business will
suffer, our future prospects may be harmed and our stock price
would likely decline.
On April 29, 2010, the FDA licensed our autologous cellular
immunotherapy,
PROVENGE®
(sipuleucel-T), for the treatment of men with asymptomatic or
minimally symptomatic, metastatic, castrate-resistant
(hormone-refractory) prostate cancer. PROVENGE currently
generates substantially all of our revenue. Prior to the launch
of PROVENGE in May 2010, we had never sold or marketed a
pharmaceutical product. Unless we can successfully commercialize
another product candidate or acquire the right to market other
approved products, we will continue to rely on PROVENGE to
generate substantially all of our revenue and fund our
operations. Our ability to maintain or increase our revenues for
PROVENGE will depend on, and may be limited by, a number of
factors, including the following:
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acceptance of and ongoing satisfaction with PROVENGE as the
first in a new class of therapy in the United States and by
the medical community, patients receiving therapy and third
party payers and eventually in foreign markets if we receive
additional marketing approvals;
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our ability to develop and expand market share, both in the
United States and potentially in the rest of the world if we
receive marketing approvals outside of the U.S., in the midst of
numerous competing products for late stage prostate cancer, many
of which are in late stage clinical development;
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successfully expanding and sustaining our manufacturing capacity
to meet demand;
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whether physicians are willing to adopt PROVENGE as part of the
treatment paradigm for men with metastatic castrate-resistant
prostate cancer;
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whether data from clinical trials for additional indications are
positive and whether such data, if positive, will be sufficient
to achieve approval from the FDA and its foreign counterparts to
market and sell PROVENGE in such additional indications;
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adequate coverage or reimbursement for PROVENGE by government
healthcare programs and third-party payors, including private
health coverage insurers and health maintenance
organizations; and
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the ability of patients to afford any required co-payments for
PROVENGE.
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If for any reason we became unable to continue selling or
manufacturing PROVENGE, our business would be seriously harmed
and could fail.
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If
PROVENGE were to become the subject of problems related to its
efficacy, safety, or otherwise, our revenues from PROVENGE could
decrease.
PROVENGE, in addition to any other of our drug candidates that
may be approved by the FDA, will be subject to continual review
by the FDA, and we cannot assure you that newly discovered or
developed safety issues will not arise. With the use of any
newly marketed drug by a wider patient population, serious
adverse events may occur from time to time that initially do not
appear to relate to the drug itself. Any safety issues could
cause us to suspend or cease marketing of our approved products,
cause us to modify how we market our approved products, subject
us to substantial liabilities, and adversely affect our revenues
and financial condition. In the event of a withdrawal of
PROVENGE from the market, our revenues would decline
significantly and our business would be seriously harmed and
could fail.
Adoption
of PROVENGE for the treatment of patients with advanced prostate
cancer may be slow or limited for a variety of reasons including
competing therapies, perceived difficulties in the treatment
process and access to reimbursement. If PROVENGE is not
successful in broad acceptance as a treatment option for
advanced prostate cancer, our business would be
harmed.
The rate of adoption of PROVENGE for advanced prostate cancer
and the ultimate market size will be dependent on several
factors including educating treating physicians on the patient
treatment process with PROVENGE and immunotherapies generally.
As a first in class therapy, PROVENGE utilizes a unique
treatment approach, which can have associated challenges in
practice for treating physicians. A significant portion of the
prospective patient base for treatment with PROVENGE may be
under the care of urologists who are less experienced with
infusion treatments. Acceptance by urologists of PROVENGE as a
treatment option may be measurably slower than adoption by
oncologists of PROVENGE as a therapy and may require more
educational effort by us. In addition, the tight manufacturing
and infusion timelines required for treatment with PROVENGE will
require treating physicians to adjust practice mechanics, which
may result in delay in market adoption of PROVENGE as a
preferred therapy.
PROVENGE is presently only approved in the U.S. for the
treatment of metastatic asymptomatic or minimally symptomatic
castrate-resistant prostate cancer. Earlier diagnosis of
metastatic prostate cancer will be increasingly important, and
screening, diagnostic and treatment practices can vary
significantly by geographic region. In order to achieve global
success for PROVENGE as a treatment we will need to pursue
approvals by
non-U.S. regulatory
authorities, which may result in significant investment in
obtaining required data and manufacturing capability. Data from
our completed clinical trials of PROVENGE in the U.S. may
not be sufficient to support approval for commercialization by
regulatory agencies governing the sale of drugs outside the US.
This could require us to spend substantial sums to develop
sufficient clinical data for licensure by authorities outside
the U.S. Submissions for approval by
non-U.S. regulatory
authorities may not result in marketing approval by these
authorities for the requested indication. In addition, certain
countries require pricing to be established before reimbursement
for the specific indication may be obtained. We may not receive
or maintain marketing approvals at favorable pricing levels or
at all, which could harm our ability to market PROVENGE
globally. Prostate cancer is common in many regions where the
healthcare systems are limited and reimbursement for PROVENGE
may be limited or unavailable, which will likely limit or slow
adoption in these regions. If we are unable to successfully
achieve the full global market potential of PROVENGE due to
diagnosis practices or regulatory hurdles, our future prospects
would be harmed and our stock price could decline.
Products
we may potentially commercialize and market may be subject to
promotional limitations.
We may not be able to obtain the labeling claims necessary or
desirable for the promotion of our products. The FDA has the
authority to impose significant restrictions on an approved
product through the product label and allowed advertising,
promotional and distribution activities. The FDA also may
approve a product for fewer indications than are requested or
may condition approval on the performance of post-approval
clinical studies. We may also be required to undertake
post-marketing clinical trials. If the results of such
post-marketing studies are not satisfactory, the FDA may
withdraw marketing authorization or may condition continued
marketing on commitments from us that may be expensive
and/or time
consuming to fulfill. Even if we receive FDA and other
regulatory approvals, if we or others identify adverse side
effects after any of our products are on the market, or if
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manufacturing problems occur, regulatory approval may be
withdrawn and reformulation of our products, additional clinical
trials, changes in labeling of our products and additional
marketing applications may be required, any of which potential
concerns could harm our business and cause our stock price to
decline.
Risks
Relating to Manufacturing Activities
We are
rapidly expanding our operations to support commercial launch of
PROVENGE, and we may encounter unexpected costs or
difficulties.
We have and expect to continue to significantly increase our
investment in commercial infrastructure. We will need to
effectively manage the expansion of our operations and
facilities and continue to grow our infrastructure to
commercialize PROVENGE and pursue development of our other
product candidates. We must effectively manage our supply chain,
third-party vendors and distribution network, all of which
requires strict planning in order to meet production timelines
for PROVENGE. We continue to add manufacturing, quality control,
quality assurance, marketing and sales personnel, and personnel
in all other areas of our operations, including executive-level
personnel, to support commercialization and pursue
non-U.S. marketing
approvals, which strains our existing managerial, operational,
financial and other resources. In pursuing rapid expansion, we
must continue to monitor quality and effective controls, or we
risk possible delays in approval of the facilities by the FDA
for commercial manufacturing. Any delay in readiness of our
expanded New Jersey facility and new facilities in Orange
County, California and Atlanta could result in the loss of
revenue from potential sales of PROVENGE, and adversely impact
market acceptance for PROVENGE. If we fail to manage the growth
in our systems and personnel appropriately and successfully in
order to achieve our commercialization plans for PROVENGE our
revenues could suffer and our business could be harmed.
We are
presently not at capacity sufficient to manufacture PROVENGE in
quantities sufficient to fulfill patient demand.
We have experienced and may continue to experience in the near
future constraints in our ability to manufacture PROVENGE in
sufficient quantities to satisfy market demand. Until the
additional capacity from the expansion of our New Jersey
Facility is available, which is anticipated for the first
quarter of 2011, and at the new manufacturing facilities in
Atlanta, Georgia and Orange County, California, which is
anticipated for mid-year 2011, we expect to be constrained in
our ability to manufacture PROVENGE to supply the potential
market.
We and
our contract manufacturers are subject to significant regulation
with respect to manufacturing of our products.
All of those involved in the preparation of a therapeutic drug
for clinical trials or commercial sale, including our existing
supply contract manufacturers and clinical trial investigators,
are subject to extensive regulation by the FDA. Components of a
finished therapeutic product approved for commercial sale or
used in late-stage clinical trials must be manufactured in
accordance with Current Good Manufacturing Practices. These
regulations govern manufacturing processes and procedures and
the implementation and operation of quality systems to control
and assure the quality of investigational products and products
approved for sale. Our facilities and quality systems and the
facilities and quality systems of some or all of our third party
contractors must pass inspection for compliance with the
applicable regulations as a condition of FDA approval of our
products. In addition, the FDA may, at any time, audit or
inspect a manufacturing facility involved with the preparation
of PROVENGE or our other potential products or the associated
quality systems for compliance with the regulations applicable
to the activities being conducted. The FDA also may, at any time
following approval of a product for sale, audit our
manufacturing facilities or those of our third party
contractors. If any such inspection or audit identifies a
failure to comply with applicable regulations or if a violation
of our product specifications or applicable regulation occurs
independent of such an inspection or audit, we or the FDA may
require remedial measures that may be costly
and/or time
consuming for us or a third party to implement and that may
include the temporary or permanent suspension of a clinical
trial or commercial sales, recalls, market withdrawals, seizures
or the temporary or permanent closure of a facility. Any such
remedial measures imposed upon us or third parties with whom we
contract could materially harm our business.
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Manufacturing
difficulties, disruptions or delays could limit supply of our
products and limit our product sales.
Manufacturing biologic human therapeutic products is difficult,
complex and highly regulated. We currently manufacture PROVENGE
in the U.S. and plan to manufacture our product candidates.
We may need to contract with a third-party manufacturer in order
to commence clinical trials in the European Union prior to
establishment of our own facility to supply the European market.
Our ability to adequately and timely manufacture and supply our
products is dependent on the uninterrupted and efficient
operation of our facilities and those of our third-party
contract manufacturers, which may be impacted by:
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availability or contamination of raw materials and components
used in the manufacturing process, particularly those for which
we have no other source or supplier;
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capacity of our facilities and those of our contract
manufacturers;
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the performance of our information technology systems;
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compliance with regulatory requirements;
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inclement weather and natural disasters;
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changes in forecasts of future demand for product components;
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timing and actual number of production runs for product
components;
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potential facility contamination by microorganisms or viruses;
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updating of manufacturing specifications; and
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product quality success rates and yields.
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If the efficient manufacture and supply of our products is
interrupted, we may experience delayed shipments or supply
constraints. If we are at any time unable to provide an
uninterrupted supply of our products to patients, we may lose
patients and physicians may elect to prescribe competing
therapeutics instead of our products, which could materially and
adversely affect our product sales and results of operations.
Our manufacturing processes and those of our third-party
contract manufacturers must undergo a potentially lengthy FDA or
other regulatory approval process and are subject to continued
review by the FDA and other regulatory authorities. It is a
multi-year process to build and license a new manufacturing
facility and it can take significant time to qualify and license
a new contract manufacturer. In order to maintain supply,
mitigate risks and to satisfy anticipated demand for PROVENGE,
we must successfully implement manufacturing projects on
schedule.
If regulatory authorities determine that we or our third-party
contract manufacturers or certain of our third-party service
providers have violated regulations or if they restrict, suspend
or revoke our prior approvals, they could prohibit us from
manufacturing our products or conducting clinical trials or
selling our marketed products until we or the affected
third-party contract manufacturers or third-party service
providers comply, or indefinitely. Because our third-party
contract manufacturers and certain of our third-party service
providers are subject to FDA and foreign regulatory authorities,
alternative qualified third-party contract manufacturers and
third-party service providers may not be available on a timely
basis or at all. If we or our third-party contract manufacturers
or third-party service providers cease or interrupt production
or if our third-party contract manufacturers and third-party
service providers fail to supply materials, products or services
to us, we may experience delayed shipments, and supply
constraints for our products.
We
rely on complex scheduling and product tracking
systems.
We have developed a comprehensive, integrated IT system for the
intake of physician orders for PROVENGE, to track product
delivery, and to store patient-related data we obtain for
purposes of manufacturing PROVENGE. We rely on this system in
order to maintain the chain of identity for each
patient-specific dose of PROVENGE, and to ensure timely delivery
of product prior to expiration. In addition, this system stores
and protects the privacy of the required patient information for
the manufacture of PROVENGE. If our systems were to fail or be
disrupted for an
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extended period of time we could lose product sales and our
revenue and reputation would suffer. In the event our systems
were to be breached by an unauthorized third party, they could
potentially access confidential patient information we obtain in
manufacturing PROVENGE, which could cause us to suffer
reputational damage and loss of customer confidence. Any one of
these events could cause our business to be materially harmed
and our results of operations would be adversely impacted.
Risks
Relating to Our Clinical Trial and Product Development
Initiatives
Our
clinical and pre-clinical candidates in the pipeline for other
potential cancer immunotherapies and small molecule products may
never reach the commercial market for a number of
reasons.
In order to sustain our business, we focus substantial resources
on the search for new pharmaceutical products. These activities
include engaging in discovery research and product development,
conducting preclinical and clinical studies, and seeking
regulatory approval in the United States for product candidates
and abroad for PROVENGE and other products we may market in the
future. Our long term success depends on the discovery and
development of new drugs that we can commercialize. Our cancer
immunotherapy and small molecule program pipeline candidates are
still at a relatively early stage in the development process.
There can be no assurance that these product candidates or any
other potential therapies we may pursue will become a marketed
drug. In addition, we may find that certain products cannot be
manufactured on a commercial scale and, therefore, they may not
be economical to produce, or may be precluded from
commercialization by proprietary rights of third parties.
A significant portion of the research that we are conducting
involves new and unproven technologies. Research programs to
identify disease targets and product candidates require
substantial technical, financial and human resources, whether or
not we ultimately identify any candidates. Our research programs
may initially show promise in identifying potential product
candidates, yet fail to yield candidates for clinical
development for a number of reasons, including difficulties in
formulation which cannot be overcome, timing and competitive
concerns.
An IND must become effective before human clinical trials may
commence. The IND application is automatically effective
30 days after receipt by the FDA unless, before that time,
the FDA raises concerns or questions about the products
safety profile or the design of the trials as described in the
application. In the latter case, any outstanding concerns must
be resolved with the FDA before clinical trials can proceed.
Thus, the submission of an IND may not result in FDA
authorization to commence clinical trials in any given case.
After authorization is received, the FDA retains the authority
to place the IND, and clinical trials under that IND, on
clinical hold. If we are unable to commence clinical trials or
clinical trials are delayed indefinitely, we would be unable to
develop additional product candidates and our business could be
materially harmed.
Preclinical
testing and clinical trials for product candidates must satisfy
stringent regulatory requirements or we may be unable to utilize
the results.
The pre-clinical testing and clinical trials of any product
candidates that we develop must comply with regulations by
numerous federal, state and local government authorities in the
United States, principally the FDA, and by similar agencies in
other countries. Clinical trials are subject to continuing
oversight by governmental regulatory authorities and
institutional review boards and must meet the requirements of
these authorities in the United States, including those for
informed consent and good clinical practices. We may not be able
to comply with these requirements, which could disqualify
completed or ongoing clinical trials. We may experience numerous
unforeseen events during, or as a result of, the testing process
that could delay or prevent commercialization of our product
candidates, including the following:
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safety and efficacy results from human clinical trials may show
the product candidate to be less effective or safe than desired
or earlier results may not be replicated in later clinical
trials;
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the results of preclinical studies may be inconclusive or they
may not be indicative of results that will be obtained in human
clinical trials;
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after reviewing relevant information, including preclinical
testing or human clinical trial results, we may abandon or
substantially restructure programs that we might previously have
believed to be promising;
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we or the FDA or similar regulatory authorities in other
countries may suspend or terminate clinical trials if the
participating patients are being exposed to unacceptable health
risks or for other reasons; and
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the effects of our product candidates may not be the desired
effects or may include undesirable side effects or other
characteristics that interrupt, delay or cause us or the FDA to
halt clinical trials or cause the FDA or foreign regulatory
authorities to deny approval of the product candidate for any or
all target indications.
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Each phase of testing is highly regulated, and during each phase
there is risk that we will encounter serious obstacles or will
not achieve our goals, and accordingly we may abandon a product
in which we have invested substantial amounts of time and money.
In addition, we must provide the FDA and similar foreign
regulatory authorities with pre-clinical and clinical data that
demonstrate that our product candidates are safe and effective
for each target indication before they can be approved for
commercial distribution. We cannot state with certainty when or
whether any of our products now under development will be
approved or launched; or whether any products, once launched,
will be commercially successful.
The
FDA or an Advisory Committee may determine our clinical trials
data regarding safety or efficacy are insufficient for
regulatory approval.
We discuss with and obtain guidance from regulatory authorities
on certain aspects of our clinical development activities. These
discussions are not binding obligations on the part of
regulatory authorities. Under certain circumstances, regulatory
authorities may revise or retract previous guidance during the
course of our clinical activities or after the completion of our
clinical trials. The FDA may also disqualify a clinical trial in
whole or in part from consideration in support of approval of a
potential product for commercial sale or otherwise deny approval
of that product. Even if we obtain successful clinical safety
and efficacy data, we may be required to conduct additional,
expensive trials to obtain regulatory approval. Prior to
regulatory approval, the FDA may elect to obtain advice from
outside experts regarding scientific issues
and/or
marketing applications under FDA review. These outside experts
are convened through the FDAs Advisory Committee process.
An Advisory Committee will report to the FDA and make
recommendations. Views of the Advisory Committee may differ from
those of the FDA, and may impact our ability to commercial a
product candidate.
If we
encounter difficulties enrolling patients in our clinical
trials, our trials could be delayed or otherwise adversely
affected.
Clinical trials for our product candidates may require that we
identify and enroll a large number of patients with the disease
under investigation. We may not be able to enroll a sufficient
number of patients, or those with required or desired
characteristics to achieve diversity in a study, to complete our
clinical trials in a timely manner.
Patient enrollment is affected by factors including:
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design of the trial protocol;
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the size of the patient population;
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eligibility criteria for the study in question;
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perceived risks and benefits of the product candidate under
study;
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availability of competing therapies and clinical trials;
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efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians;
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the ability to monitor patients adequately during and after
treatment; and
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geographic proximity and availability of clinical trial sites
for prospective patients.
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If we have difficulty enrolling a sufficient number of patients
with sufficient diversity to conduct our clinical trials as
planned, we may need to delay or terminate ongoing or planned
clinical trials, either of which would have a negative effect on
our business.
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Risks
Relating to Our Financial Position and Operations
We
have a history of operating losses. We expect to continue to
incur losses for the near future, and we may never become
profitable.
As of December 31, 2010, our accumulated deficit was
$1.2 billion. We have incurred net losses as a result of
research and development expenses, clinical trial expenses,
contract manufacturing expenses and general and administrative
expenses in support of our operations and research efforts. We
anticipate that near term we will continue to fund our ongoing
research, development and general operations from available
cash, including proceeds from our January 2011 convertible notes
offering, and revenue generated from commercial sales of
PROVENGE as we expand our operations including our manufacturing
capabilities, continue our clinical trials, apply for regulatory
approvals and build commercial infrastructure outside the
U.S. and invest in research and product development. The
majority of our resources continue to be used in support of the
commercialization of PROVENGE. Even if we are able to
successfully realize our commercialization goals for PROVENGE,
because of the numerous risks and uncertainties associated with
commercialization of a biologic, we are unable to predict when
we will become profitable, if at all. Even if we do produce
revenues and achieve profitability, we may not be able to
maintain or increase profitability.
We may
require additional funding, and our future access to capital is
uncertain.
It is expensive to develop and commercialize cancer
immunotherapy and small molecule product candidates. We plan to
continue to simultaneously conduct clinical trials and
preclinical research for a number of product candidates while
pursuing commercial acceptance and our marketing goals for
PROVENGE. Our product development efforts may not lead to
commercial products, either because our product candidates fail
to be found safe or effective in clinical trials or because we
lack the necessary financial or other resources or relationships
to pursue our programs through commercialization. Even if
commercialized, a product may not achieve revenues that exceed
the costs of producing and selling it. Our capital and future
cash flow may not be sufficient to support the expenses of our
operations and we may need to raise additional capital depending
on a number of factors, including the following:
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the rate of progress and cost of our research and development
and clinical trial activities;
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to establish additional manufacturing and distribution
capability for the potential
non-U.S. marketing
of PROVENGE; and
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to remain competitive in the event of the introduction into the
marketplace of competing products and other adverse market
developments.
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We may not be able to obtain additional financing if and when
needed. If we are unable to raise additional funds on terms we
find acceptable, we may have to delay, reduce or eliminate some
of our clinical trials and our development programs. If we raise
additional funds by issuing equity or equity-linked securities,
further dilution to our existing stockholders will result. In
addition, the expectation of future dilution as a result of our
offering of securities convertible into equity securities may
cause our stock price to decline.
Difficulties
we may encounter managing our growth may divert resources and
limit our ability to successfully expand our
operations.
We have been and continue to be engaged in a period of rapid and
substantial growth, which places a strain on our commercial,
clinical, administrative and operational infrastructure. We will
need to continue to manage multiple locations and additional
relationships with various collaborative partners, suppliers and
other third parties. Our ability to manage our operations and
growth effectively requires us to continue to hire necessary
personnel and to continue to improve our reporting systems and
procedures as well as our operational, financial and management
controls. We may not be able to effectively manage a rapid pace
of growth and timely implement improvements to our management
information and control systems. Any failure by us to
appropriately monitor and manage our business growth could cause
one or more of our initiatives to fail to meet its goals, thus
harming our business and near term prospects.
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Our
existing indebtedness could adversely affect our financial
condition.
Our existing indebtedness includes an aggregate of
$27.7 million in outstanding 4.75% Convertible Senior
Subordinated Notes due 2014 (the 2014 Notes) which
bear interest at 4.75% and an aggregate of $620 million in
outstanding Convertible Senior Notes due 2016 (the 2016
Notes) which bear interest at 2.875%. Our indebtedness and
annual debt service requirements may adversely impact our
business, operations and financial condition in the future. For
example, it could:
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increase our vulnerability to general adverse economic and
industry conditions;
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limit our ability to raise additional funds by borrowing or
engaging in equity sales in order to fund future working
capital, capital expenditures, research and development and
other general corporate requirements;
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require us to dedicate a substantial portion of our cash to
service payments on our debt; or
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limit our flexibility to react to changes in our business and
the industry in which we operate or to pursue certain strategic
opportunities that may present themselves.
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The
accounting method for convertible debt securities that may be
settled in cash, such as the 2014 Notes and the 2016 Notes,
could have a material effect on our reported financial
results.
In May 2008 (and effective for fiscal years beginning after
December 15, 2008), the Financial Accounting Standards
Board, which we refer to as FASB, issued FASB Staff Position
No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement), which subsequently was included under FASB
Accounting Standards Codification
Section 470-20,
Debt with Conversion and other Options (ASC
470-20).
Under
ASC 470-20,
an entity must separately account for the liability and equity
components of the convertible debt instruments (such as the
notes) that may be settled entirely or partially in cash upon
conversion in a manner that reflects the issuers economic
interest cost. The effect of
ASC 470-20
on the accounting for our outstanding convertible notes is that
the equity component is required to be included in the
additional paid-in capital section of stockholders equity
on our consolidated balance sheets and the value of the equity
component would be treated as original issue discount for
purposes of accounting for the debt component of the notes. As a
result, we will be required to record non-cash interest expense
as a result of the amortization of the discounted carrying value
of the notes to their face amount over the term of the notes. We
will report higher interest expense in our financial results
because
ASC 470-20
will require interest to include both the current periods
amortization of the debt discount and the instruments
coupon interest, which could adversely affect our reported or
future financial results, the trading price of our common stock
and the trading price of the notes.
Finally, because the notes will be convertible at any time until
close of business on the second scheduled trading day
immediately preceding the maturity date, applicable accounting
rules may require us to classify all or a portion of the
outstanding principal amount of the notes as a current rather
than long-term liability which would result in a material
reduction in our net working capital.
Our
stockholders may be diluted by the conversion of our outstanding
convertible notes.
The holders of the 2014 Notes may choose at any time to convert
their notes into common stock prior to maturity in June 2014.
The holders of the 2016 Notes may choose at any time to convert
their notes prior to maturing in January 2016, and upon
conversion we may issue cash, stock, or a combination thereof at
our option. The 2014 Notes are convertible into our common
stock, initially at the conversion price of $10.28 per share,
equal to a conversion rate of approximately 97.2644 shares
per $1,000 principal amount of the 2014 Notes. The 2016 Notes
are convertible into our common stock initially at the
conversion rate of 19.5160 shares per $1,000 principal
amount, or approximately $51.24 per share, subject to
adjustment. The number of shares of common stock issuable upon
conversion of the 2014 Notes and 2016 Notes, and therefore the
dilution of existing common stockholders, could increase under
certain circumstances described in the indentures under which
the 2014 Notes and 2016 Notes were issued. The conversion of the
2014 Notes and potentially the 2016 Notes will result in the
issuance of additional shares of common stock, diluting existing
common stockholders.
23
We may
elect to issue additional shares of our common stock or other
securities that may be convertible into our common stock, which
could result in further dilution to our existing
stockholders.
Future sales of our common stock will depend primarily on the
market price of our common stock, the terms we may receive upon
the sale of debt or convertible securities, the interest in our
company by institutional investors and our cash needs. In
addition, we may register additional equity, debt or other
convertible securities with the SEC for sale in the future. Each
of our issuances of common stock or securities convertible into
common stock to investors under a registration statement or
otherwise will proportionately decrease our existing
stockholders percentage ownership of our total outstanding
equity interests and may reduce our stock price.
Our
business, financial condition and future prospects could suffer
as a result of carrying out strategic alternatives in the
future.
We may decide it is in our best interests to engage in a
strategic transaction that could dilute our existing
stockholders or cause us to incur contingent liabilities,
commitments, or significant expense. In the course of pursuing
strategic alternatives, we may evaluate potential acquisitions
or investments in related businesses, products or technologies.
Future acquisitions or investments could subject us to a number
of risks, including, but not limited to:
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the assumption of additional indebtedness or contingent
liabilities;
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risks and uncertainties associated with the other party to such
a transaction, including but not limited to the prospects of
that party and their existing products or product candidates and
regulatory approvals;
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the loss of key personnel and business relationships;
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difficulties associated with assimilating and integrating new
personnel, intellectual property and operations of an acquired
company;
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our inability to generate revenue from acquired technology
and/or
products sufficient to meet our objectives in undertaking the
acquisition or even to offset the associated acquisition and
maintenance costs; and
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the distraction of our management from our existing product
programs and initiatives in pursuing such a strategic merger or
acquisition.
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In connection with an acquisition, we must estimate the value of
the transaction by making certain assumptions that may prove to
be incorrect, which could cause us to fail to realize the
anticipated benefits of a transaction. We may incur as part of a
transaction substantial charges for closure costs associated
with the elimination of duplicate operations and facilities and
acquired in-process research and development charges. In either
case, the incurrence of these charges could adversely affect our
results of operations for particular quarterly or annual
periods. Any strategic transaction we may pursue may not result
in the benefits we initially believe,
and/or
result in costs that end up outweighing the benefits, and may
adversely impact our financial condition and business prospects.
Risks
Related to Regulation of the Pharmaceutical Industry
PROVENGE
and our other products in development cannot be sold if we do
not maintain or gain required regulatory
approvals.
Our business is subject to extensive regulation by numerous
state and federal governmental authorities in the United States,
including the FDA, and potentially by foreign regulatory
authorities, with regulations differing from country to country.
In the United States, the FDA regulates, among other things, the
pre-clinical testing, clinical trials, manufacturing, safety,
efficacy, potency, labeling, storage, record keeping, quality
systems, advertising, promotion, sale and distribution of
therapeutic products. Failure to comply with applicable
requirements could result in, among other things, one or more of
the following actions: notices of violation, untitled letters,
warning letters, fines and other monetary penalties,
unanticipated expenditures, delays in approval or refusal to
approve a product candidate; product recall or seizure;
interruption of manufacturing or clinical trials; operating
restrictions; injunctions; and criminal prosecution. We are
required in the United States and in foreign countries to obtain
approval from regulatory authorities before we can manufacture,
market and sell our products. Obtaining regulatory
24
approval for marketing of a product candidate in one country
does not ensure we will be able to obtain regulatory approval in
other countries but a failure or delay in obtaining regulatory
approval in one country may have a negative effect on the
regulatory process in other countries. Once approved, the FDA
and other U.S. and foreign regulatory agencies have
substantial authority to require additional testing, change
product labeling or mandate withdrawal of our products. The
marketing of our approved products will be subject to extensive
regulatory requirements administered by the FDA and other
regulatory bodies, including adverse event reporting
requirements. In general, the FDA requires advertising and
promotional labeling to be truthful and not misleading, and
marketed only for the approved indications and in accordance
with the provisions of the approved label. The FDA routinely
provides its interpretations of that authority in informal
communications and also in more formal communications such as
untitled letters or warning letters, and although such
communications are not final agency decisions, companies may
decide not to contest the agencys interpretations so as to
avoid disputes with the FDA, even if they believe the claims to
be truthful, not misleading and otherwise lawful. If the FDA or
other regulatory authorities were to challenge our promotional
materials or activities, they may bring enforcement action. The
manufacturing facilities for our approved products are also
subject to continual review and periodic inspection and approval
of manufacturing modifications. The FDA stringently applies
regulatory standards for manufacturing. Manufacturing facilities
that manufacture drug products for the United States market,
whether they are located inside or outside the United States,
are subject to biennial inspections by the FDA and must comply
with the FDAs current good manufacturing practice, or
cGMP, regulations.
The FDA can delay, limit or withhold approval of a product
candidate for many reasons, including the following:
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a product candidate may not demonstrate sufficient safety in
human trials or efficacy in treatment;
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the FDA may determine that certain aspects of the clinical
testing, manufacture, or quality control are not in compliance
with the regulations;
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the FDA may interpret data from preclinical testing and clinical
trials in different ways than we interpret the data or may
require additional
and/or
different categories of data than what we obtained in our
clinical trials;
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the FDA may require additional information about the efficacy,
safety, purity, stability, identity or functionality of a
product candidate;
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the FDA may not approve our manufacturing processes or
facilities or the processes or facilities of our contract
manufacturers; and
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the FDA may change its approval policies or adopt new
regulations that impact our business.
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Our failure to obtain approval, significant delays in the
approval process, or our failure to maintain approval in any
jurisdiction will prevent us from selling a product in that
jurisdiction and receiving product sales revenues. Any product
and its manufacturer will continue to be subject to strict
regulations after approval, including but not limited to,
manufacturing, quality control, labeling, packaging, adverse
event reporting, advertising, promotion and record-keeping
requirements. Any problems with an approved product, including
the later exhibition of adverse effects or any violation of
regulations could result in restrictions on the product,
including its withdrawal from the market, which could materially
harm our business. The process of obtaining approvals in foreign
countries is subject to delay and failure for many of the same
reasons.
Regulatory agencies could also add new regulations or change
existing regulations at any time, which could affect our ability
to obtain or maintain approval of our products. The 2007
creation of the Food and Drug Administration Amendments Act of
2007 (FDAAA) significantly added to the FDAs
authority, allowing the FDA to (i) require sponsors of
marketed products to conduct post-approval clinical studies;
(ii) mandate labeling changes to products and
(iii) require sponsors to implement a REMS (Risk
Evaluation and Mitigation Strategy) for a product. Failure
to comply with FDAAA requirements could result in significant
civil monetary penalties, reputational harm and increased
product liability risk. The process of obtaining required FDA
and other regulatory approvals, including foreign approvals, is
expensive, often takes many years and can vary substantially
based upon the type, complexity and novelty of the products
involved. PROVENGE and our investigational cellular
immunotherapies are novel; therefore, regulatory agencies may
lack experience with them, which may lengthen the
25
regulatory review process, increase our development costs and
delay or prevent commercialization of PROVENGE outside of the
U.S. and with respect to our active immunotherapy products
under development. We are unable to predict when and whether any
changes to regulatory policy affecting our business could occur,
and such changes could have a material adverse impact on our
business. If regulatory authorities determine that we have not
complied with regulations in the research and development of a
product candidate, a new indication for an existing product or
information to support a current indication, they may not
approve the product candidate or new indication or maintain
approval of the current indication in its current form or at
all, and we would not be able to market and sell it. If we were
unable to market and sell our products or product candidates,
our business and results of operations would be materially and
adversely affected.
Failure
to comply with foreign regulatory requirements governing human
clinical trials and marketing approval for product candidates
could prevent us from selling our products in foreign markets,
which may adversely affect our operating results and financial
condition.
The requirements governing the conduct of clinical trials,
manufacturing, testing, product approvals, pricing and
reimbursement outside the United States vary greatly from
country to country. In addition, the time required to obtain
approvals outside the United States may differ significantly
from that required to obtain FDA approval. We may not obtain
foreign regulatory approvals on the timeframe we may desire, if
at all. Approval by the FDA does not ensure approval by
regulatory authorities in other countries, and foreign
regulatory authorities could require additional testing. Failure
to comply with these regulatory requirements or obtain required
approvals could impair our ability to develop foreign markets
for our products and may have a material adverse effect on our
business and future prospects.
Our
product sales depend on adequate coverage and reimbursement from
third-party payers.
Our sale of PROVENGE is dependent on the availability and extent
of coverage and reimbursement from third-party payers, including
government healthcare programs and private insurance plans. We
rely in large part on the reimbursement coverage by federal and
state sponsored government programs such as Medicare and
Medicaid in the United States. In the event we seek approvals to
market PROVENGE in
non-U.S. territories,
we will need to work with the government-sponsored healthcare
systems in Europe and other foreign countries that are the
primary payers of healthcare costs in those regions. Governments
and private payers may regulate prices, reimbursement levels
and/or
access to PROVENGE and any other products we may market to
control costs or to affect levels of use of our products. We
cannot predict the availability or level of coverage and
reimbursement for PROVENGE or our product candidates and a
reduction in coverage
and/or
reimbursement for our products could have a material adverse
effect on our product sales and results of operations.
The
availability and amount of reimbursement for PROVENGE and our
product candidates and the manner in which government and
private payers may reimburse for our potential products is
uncertain.
In many of the markets where we may do business in the future,
the prices of pharmaceutical products are subject to direct
price controls pursuant to applicable law or regulation and to
drug reimbursement programs with varying price control
mechanisms. We expect that many of the patients in the
U.S. who seek treatment with PROVENGE or any other of our
products that are approved for marketing will be eligible for
Medicare benefits. Other patients may be covered by private
health plans. The Medicare program is administered by the
Centers for Medicare & Medicaid Services
(CMS), and coverage and reimbursement for products
and services under Medicare are determined pursuant to
regulations promulgated by CMS and pursuant to CMSs
subregulatory coverage and reimbursement determinations. It is
difficult to predict how CMS may apply those regulations and
policy determinations to newly approved products, especially
novel products such as ours, and those regulations and
interpretive determinations are subject to change. Moreover, the
procedures by which CMS makes coverage and reimbursement
determinations is subject to change, particularly because of
budgetary pressures facing the Medicare program.
On June 30, 2010, CMS initiated a national coverage
analysis (NCA) for the treatment of metastatic
prostate cancer with PROVENGE. As a part of the process, the
Agency for Healthcare Research and Quality published a draft
technology assessment on the outcomes of PROVENGE therapy on
November 2, 2010 solely for the
26
discussion and review by the Medicare Evidence
Development & Coverage Advisory Committee
(MedCAC) at its meeting on November 17, 2010.
CMS expects to issue a proposed decision on or before
March 30, 2011, and the final decision should be released
on or before June 30, 2011. During the pendency of the NCA,
CMS may engage in discussions with local Medicare contractors or
make statements that could be interpreted negatively. which
could create uncertainty among contractors and have a chilling
effect on coverage determinations. We cannot predict at this
time whether CMS will issue a national coverage determination
(NCD), and if so, whether the NCD will be favorable
to PROVENGE. In the event Medicare and private health plans do
not provide for adequate levels of reimbursement support and
coverage of PROVENGE, our ability to sell PROVENGE will be
adversely affected. In addition, third-party payors may impose
additional coverage criteria that may restrict the use of
PROVENGE, including, for example, utilization parameters and
limiting the sites of service
and/or
providers who may be reimbursed for certain services. This may
adversely affect our ability to market or sell PROVENGE or our
other potential products, if approved.
In addition, major health care legislation, the Patient
Protection and Affordable Care Act, as amended by the Health
Care and Education Affordability Reconciliation Act
(collectively, the PPACA), was passed in March 2010
and, absent changes to the new law, is expected to substantially
impact the U.S. pharmaceutical industry and how health care
is financed by both governmental and private insurers. Some of
the specific key PPACA provisions, among other things:
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establish annual, non-deductible fees on any entity that
manufactures or imports certain branded prescription drugs and
biologics, beginning 2011;
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expand eligibility criteria for Medicaid programs by, among
other things, allowing states to offer Medicaid coverage to
additional individuals beginning April 2010 and by adding new
mandatory eligibility categories for certain individuals with
income at or below 133% of the Federal Poverty Level beginning
2014, thereby potentially increasing manufacturers
Medicaid rebate liability; and
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establish a new Patient-Centered Outcomes Research Institute to
oversee, identify priorities in and conduct comparative clinical
effectiveness research.
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Moreover, a number of state and federal legislative and
regulatory proposals aimed at reforming the healthcare system in
the United States continue to be proposed, the effect of which,
if enacted, could adversely impact our product sales and results
of operations.
In the European Union, governments influence the price of
pharmaceutical products through their pricing and reimbursement
rules and control of national health care systems that fund a
large part of the cost of such products to consumers. The
approach taken varies from member state to member state. Some
jurisdictions operate positive
and/or
negative list systems under which products may only be marketed
once a reimbursement price has been agreed. Other member states
allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs,
has become very intense. As a result, increasingly high barriers
are being erected to the entry of new products, as exemplified
by the role of the National Institute for Health and Clinical
Excellence in the United Kingdom, which evaluates the data
supporting new medicines and passes reimbursement
recommendations to the government. All of these factors could
adversely impact our ability to successfully commercialize
product candidates in these jurisdictions.
The
pharmaceutical industry is subject to significant regulation and
oversight in the United States to prevent inducement and fraud
pursuant to anti-kickback laws and false claims
statutes.
In the United States, we are also subject to health care fraud
and abuse regulation and enforcement by both the federal
government and the states in which we conduct our business. The
laws that may affect our ability to operate include:
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the federal health care programs Anti-Kickback Law, which
prohibits, among other things, persons from knowingly and
willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in exchange for or to
induce either the referral of an individual for, or the
purchase, order or recommendation
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of, any good or service for which payment may be made under
federal health care programs such as the Medicare and Medicaid
programs;
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federal false claims laws which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to
be presented, claims for payment from Medicare, Medicaid, or
other third-party payors that are false or fraudulent;
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federal sunshine laws that require transparency
regarding financial arrangements with health care providers,
such as the reporting and disclosure requirements imposed by
PPACA on drug manufacturers regarding any transfer of
value made or distributed to prescribers and other health
care providers; and
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state law equivalents of each of the above federal laws, such as
anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payor, including
commercial insurers.
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Some states, such as California, Massachusetts and Vermont,
mandate implementation of commercial compliance programs to
ensure compliance with these laws.
The risk of our being found in violation of these laws is
increased by the fact that many of them have not been fully
interpreted by the regulatory authorities or the courts, and
their provisions are open to a variety of interpretations.
Moreover, recent health care reform legislation has strengthened
these laws. For example, the recently enacted PPACA, among other
things, amends the intent requirement of the federal
anti-kickback and criminal health care fraud statutes; a person
or entity no longer needs to have actual knowledge of this
statute or specific intent to violate it. In addition, PPACA
provides that the government may assert that a claim including
items or services resulting from a violation of the federal
anti-kickback statute constitutes a false or fraudulent claim
for purposes of the false claims statutes. Moreover, we expect
there will continue to be federal and state laws
and/or
regulations, proposed and implemented, that could impact our
operations and business. The extent to which future legislation
or regulations, if any, relating to health care fraud abuse laws
and/or
enforcement, may be enacted or what effect such legislation or
regulation would have on our business remains uncertain. If our
operations are found to be in violation of any of the laws
described above or any other governmental regulations that apply
to us, we may be subject to penalties, including civil and
criminal penalties, damages, fines, exclusion from governmental
health care programs, and the curtailment or restructuring of
our operations, any of which could adversely affect our ability
to operate our business and our financial results.
We use
hazardous materials in our business and must comply with
environmental laws and regulations, which can be
expensive.
Our operations produce hazardous waste products, including
chemicals and radioactive and biological materials. We are
subject to a variety of federal, state and local laws and
regulations relating to the use, handling, storage and disposal
of these materials. Although we believe that our safety
procedures for handling and disposing of these materials
complies with the standards prescribed by state and federal laws
and regulations, the risk of accidental contamination or injury
from these materials cannot be eliminated. We generally contract
with third parties for the disposal of such hazardous waste
products and store our low level radioactive waste at our
facilities in compliance with applicable environmental laws
until the materials are no longer considered radioactive. We are
also subject to regulation by the Occupational Safety and Health
Administration (OSHA), and the Environmental
Protection Agency (the EPA), and to regulation under
the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations.
OSHA and/or
the EPA may promulgate regulations that may affect our research
and development programs. We may be required to incur further
costs to comply with current or future environmental and safety
laws and regulations. In addition, in the event of accidental
contamination or injury from these materials, we could be held
liable for any damages that result, including remediation, and
any such liability could exceed our resources.
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Risks
from Competitive Factors
Our
competitors may develop and market products that are less
expensive, more effective, safer or reach the market sooner,
which may diminish or eliminate the commercial success of any
products we may commercialize.
Competition in the cancer therapeutics field is intense and is
accentuated by the rapid pace of advancements in product
development. We anticipate that we will face increased
competition in the future as new companies enter our markets.
Some competitors are pursuing product development strategies
competitive with ours. In addition, we compete with other
clinical-stage companies and institutions for clinical trial
participants, which could reduce our ability to recruit
participants for our clinical trials. Delay in recruiting
clinical trial participants could adversely affect our ability
to bring a product to market prior to our competitors. Further,
research and discoveries by others may result in breakthroughs
that render potential products obsolete before they generate
revenue.
There are products currently under development by other
companies and organizations that could compete with PROVENGE,
and potentially other products that we are developing. Products
such as androgen metabolism or androgen receptor antagonists,
endothelin A receptor antagonists, antisense compounds,
angiogenesis inhibitors and gene therapies for cancer are also
under development by a number of companies and could potentially
compete with PROVENGE and product candidates we may develop.
Chemotherapeutic, taxane-based therapy has been available since
2004 for the therapeutic treatment of metastatic,
androgen-independent prostate cancer. In addition, many
universities and private and public research institutes may
become active in cancer research, which may be in direct
competition with us.
Some of our competitors in the cancer therapeutics field have
substantially greater research and development capabilities and
manufacturing, marketing, financial and managerial resources
than we do. In addition, our competitors may obtain patent
protection or FDA approval and commercialize products more
rapidly than we do, which may impact future sales of our
products. We expect that competition among products approved for
sale will be based, among other things, on product efficacy,
price, safety, reliability, availability, patent protection, and
sales, marketing and distribution capabilities. Our
profitability and financial position will suffer if our products
receive regulatory approval, but cannot compete effectively in
the marketplace.
We
could face competition for PROVENGE or other approved products
from biosimilar products which could impact our
profitability.
We may face competition in Europe from biosimilar products, and
we expect we may face competition from biosimilars in the future
in the U.S. as well. Lawmakers in the United States have
recently enacted healthcare reform legislation which included an
abbreviated regulatory pathway for the approval of biosimilars.
The E.U. has already created such a regulatory pathway. To the
extent that governments adopt more permissive approval
frameworks and competitors are able to obtain broader marketing
approval for biosimilars, our products will become subject to
increased competition. Expiration or successful challenge of
applicable patent rights could trigger such competition, and we
could face more litigation regarding the validity
and/or scope
of our patents.
In the E.U., the European Commission has granted marketing
authorizations for several biosimilars pursuant to a set of
general and product
class-specific
guidelines for biosimilar approvals issued over the past few
years. We cannot predict to what extent the entry of biosimilar
products or other competing products could impact our future
potential sale of PROVENGE in the E.U. Our inability to compete
effectively in
non-U.S. territories
would reduce global sales potential, which could have a material
adverse effect on our results of operations.
On March 23, 2010, President Obama signed into law the
PPACA which authorized the FDA to approve biosimilar products.
The new law established a period of 12 years of data
exclusivity for reference products in order to preserve
incentives for future innovation and outlined statutory criteria
for science-based biosimilar approval standards that take into
account patient safety considerations. Under this framework,
data exclusivity protects the data in the innovators
regulatory application by prohibiting, for a period of
12 years, others from gaining FDA approval based in part on
reliance or reference to the innovators data in their
application to the FDA. The next phase of the process will be
implementation of the biosimilars regulatory approval pathway by
the FDA. The new law does not change the duration of patents
granted on biologic products. While the FDA now has the
authority to approve
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biosimilar products, the FDA has not announced whether they will
first publish guidance or rules for biosimilar applicants before
approving biosimilar products. With the likely introduction of a
pathway for the approval of biosimilars in the United States, we
may in the future face greater competition from biosimilar
products and downward pressure on our product prices, sales and
revenues, subject to our ability to enforce our patents.
Further, biosimilar manufacturers with approved products in
Europe may seek to quickly obtain U.S. approval now that
the regulatory pathway for biosimilars has been enacted.
Failure
to retain key personnel could impede our ability to develop our
products and to obtain new collaborations or other sources of
funding.
We depend, to a significant extent, on the efforts of our key
employees, including senior management and senior scientific,
clinical, regulatory, operational and other personnel. The
development of new therapeutic products requires expertise from
a number of different disciplines, some of which are not widely
available.
We depend upon our scientific staff to discover new product
candidates and to develop and conduct preclinical studies of
those new potential products. Our clinical and regulatory staff
is responsible for the design and execution of clinical trials
in accordance with FDA requirements and for the advancement of
our product candidates toward FDA approval and submission of
data supporting approval. The quality and reputation of our
scientific, clinical and regulatory staff, especially the senior
staff, and their success in performing their responsibilities,
may directly influence the success of our product development
programs. As we pursue successful commercialization of PROVENGE,
our sales and marketing, and operations executive management
staff takes on increasing significance and influence upon our
organizational success. In addition, our Chief Executive Officer
and other executive officers are involved in a broad range of
critical activities, including providing strategic and
operational guidance. The loss of these individuals, or our
inability to retain or recruit other key management and
scientific, clinical, regulatory, medical, operational and other
personnel, may delay or prevent us from achieving our business
objectives. We face intense competition for personnel from other
companies, universities, public and private research
institutions, government entities and other organizations.
Risks
Relating to Collaboration Arrangements and Reliance on Third
Parties
We
must rely at present on relationships with third-party suppliers
to supply necessary components used in our products, which
relationships are not easy to replace.
We rely upon contract manufacturers for components used in the
manufacture and distribution of PROVENGE. Problems with any of
our or our suppliers facilities or processes could result
in failure to produce or a delay in production of adequate
supplies of the antigen or other components we use in the
manufacture of PROVENGE. This could delay or reduce commercial
sales and materially harm our business. Any prolonged
interruption in the operations of our suppliers facilities
could result in cancellation of orders, loss of components in
the process of being manufactured or a shortfall in availability
of a necessary component. A number of factors could cause
interruptions, including the inability of a supplier to provide
raw materials, equipment malfunctions or failures, damage to a
facility due to natural disasters, changes in FDA regulatory
requirements or standards that require modifications to
manufacturing processes, or action by us to implement process
changes or other similar factors. Because manufacturing
processes are highly complex and are subject to a lengthy FDA
approval process, alternative qualified supply may not be
available on a timely basis or at all. Difficulties or delays in
our suppliers manufacturing and supply of components could
delay our clinical trials, increase our costs, damage our
reputation and, for PROVENGE, cause us to lose revenue or market
share if we are unable to timely meet market demands.
We are
dependent on our leukapheresis network for raw materials
required for the manufacture of PROVENGE.
The manufacture of each patient-specific dose of PROVENGE first
requires we obtain immune cells from the relevant patient, which
is done through a leukapheresis process at a cell collection
center with which we have contracted. We have entered into
agreements with independent cell collection and blood centers,
including the American Red Cross, to perform this process for
us. However there are a finite number of centers with the
requisite skill, training, staffing and equipment to perform the
leukapheresis procedure for PROVENGE patients and we
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cannot be certain that as our manufacturing capacity expands the
leukapheresis network presently available to us will be
sufficient to service demand at full capacity. We anticipate
that we will need to expand the leukapheresis network available
to us prospectively through additional partnerships or other
endeavors. There can be no assurances that we will be able to
secure sufficient leukapheresis capacity to manufacture PROVENGE
when and as desired. If we are unable to expand our access to
these services as necessary, our revenues will suffer and our
business could be harmed.
We
rely on single source vendors for some key components for
PROVENGE and our active immunotherapy product candidates, which
could impair our ability to manufacture and supply our
products.
We currently depend on single source vendors for components used
in PROVENGE and other active immunotherapy candidates. We have a
long-term contract with Diosynth RTP, Inc. for the production of
the antigen used in the manufacturing of PROVENGE, and have
recently entered into an agreement with GlaxoSmithKline LLC to
establish an additional source of supply of the antigen. Any
production shortfall on the part of Diosynth or, assuming
successful completion of process implementation,
GlaxoSmithKline, that impairs the supply of the antigen to us
could have a material adverse effect on our business, financial
condition and results of operations. In addition, we rely on
single-source unaffiliated third-party suppliers for certain
other raw materials, medical devices and components necessary
for the formulation, fill and finish of our products. Certain of
these raw materials, medical devices and components are the
proprietary products of these unaffiliated third-party suppliers
and are specifically cited in the drug application with
regulatory agencies so that they must be obtained from that
specific sole source and could not be obtained from another
supplier unless and until the regulatory agency approved such
supplier. An inability to continue to source product from any of
these suppliers, which could be due to regulatory actions or
requirements affecting the supplier, adverse financial or other
strategic developments experienced by a supplier, labor disputes
or shortages, unexpected demands or quality issues, could
adversely affect our ability to satisfy demand for PROVENGE or
other products, which could adversely affect our product sales
and operating results materially or our ability to conduct
clinical trials, either of which could significantly harm our
business.
If we
fail to enter into any needed collaboration agreements for our
product candidates, we may be unable to commercialize them
effectively or at all.
Product collaborations are complex and any potential discussions
may not result in a definitive agreement for many reasons. For
example, whether we reach a definitive agreement for a
collaboration would depend, among other things, upon our
assessment of the collaborators resources and expertise,
the terms and conditions of the proposed collaboration, and the
proposed collaborators evaluation of a number of factors.
Those factors may include the design or results of clinical
trials, the potential market for the product candidate, the
costs and complexities of manufacturing and delivering the
product candidate to patients, the potential of competing
products, the existence of uncertainty with respect to our
ownership of technology, which can exist if there is a challenge
to such ownership without regard to the merits of the challenge
and industry and market conditions generally. If we were to
determine that a collaboration for a particular product is
necessary in order to commercialize it and were unable to enter
into such a collaboration on acceptable terms, we might elect to
delay or scale back the commercialization of a product in order
to preserve our financial resources or to allow us adequate time
to develop the required physical resources and systems and
expertise ourselves.
If we enter into a collaboration agreement we consider
acceptable, the collaboration may not proceed as quickly,
smoothly or successfully as we plan. The risks in a
collaboration agreement generally include:
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the collaborator may not apply the expected financial resources
or required expertise in developing the physical resources and
systems necessary to successfully commercialize a product;
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the collaborator may not invest in the development of a sales
and marketing force and the related infrastructure at levels
that ensure that sales of a product reach their full potential;
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disputes may arise between us and a collaborator that delay the
commercialization of the product or adversely affect its sales
or profitability; or
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the collaborator may independently develop, or develop with
third parties, products that could compete with the product.
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With respect to a collaboration for any of our products or
product candidates, we are dependent on the success of our
collaborators in performing their respective responsibilities
and the continued cooperation of our collaborators. Our
collaborators may not cooperate with us to perform their
obligations under our agreements with them. We cannot control
the amount and timing of our collaborators resources that
will be devoted to activities related to our collaborative
agreements with them. Our collaborators may choose to pursue
existing or alternative technologies in preference to those
being developed in collaboration with us. A collaborator may
have the right to terminate the collaboration at its discretion.
Any termination may require us to seek a new collaborator, which
we may not be able to do on a timely basis, if at all, or
require us to delay or scale back the commercialization efforts.
The occurrence of any of these events could adversely affect the
commercialization of product candidates we may commercialize and
materially harm our business and stock price by slowing the pace
of growth of such sales, by reducing the profitability of the
product or by adversely affecting the reputation of the product
in the market.
Risks in
Protecting Our Intellectual Property
If we
are unable to protect our proprietary rights or to defend
against infringement claims, we may not be able to compete
effectively or operate profitably.
We invent and develop technologies that are the basis for or
incorporated in our potential products. We protect our
technology through United States and foreign patent filings,
trademarks and trade secrets. We have issued patents, and
applications for United States and foreign patents in various
stages of prosecution. We expect that we will continue to file
and prosecute patent applications and that our success depends
in part on our ability to establish and defend our proprietary
rights in the technologies that are the subject of issued
patents and patent applications.
The fact that we have filed a patent application or that a
patent has issued, however, does not ensure that we will have
meaningful protection from competition with regard to the
underlying technology or product. Patents, if issued, may be
challenged, invalidated, declared unenforceable or circumvented
or may not cover all applications we may desire. Our pending
patent applications as well as those we may file in the future
may not result in issued patents. Patents may not provide us
with adequate proprietary protection or advantages against
competitors with, or who could develop, similar or competing
technologies or who could design around our patents.
We also rely on trade secrets and know-how that we seek to
protect, in part, through confidentiality agreements. Our policy
is to require our officers, employees, consultants, contractors,
manufacturers, outside scientific collaborators and sponsored
researchers and other advisors to execute confidentiality
agreements. These agreements provide that all confidential
information developed or made known to the individual during the
course of the individuals relationship with us be kept
confidential and not disclosed to third parties except in
specific limited circumstances. We also require signed
confidentiality agreements from companies that receive our
confidential data. For employees, consultants and contractors,
we require confidentiality agreements providing that all
inventions conceived while rendering services to us shall be
assigned to us as our exclusive property. It is possible,
however, that these parties may breach those agreements, and we
may not have adequate remedies for any breach. It is also
possible that our trade secrets or know-how will otherwise
become known to or be independently developed by competitors.
We are also subject to the risk of claims, whether meritorious
or not, that our products or immunotherapy candidates infringe
or misappropriate third party intellectual property rights. If
we are found to infringe or misappropriate third party
intellectual property, we could be required to seek a license or
discontinue our products or cease using certain technologies or
delay commercialization of the affected product or products, and
we could be required to pay substantial damages, which could
materially harm our business.
We may
be subject to litigation with respect to the ownership and use
of intellectual property that will be costly to defend or pursue
and uncertain in its outcome.
Our business may bring us into conflict with our licensees,
licensors or others with whom we have contractual or other
business relationships, or with our competitors or others whose
interests differ from ours. If we are unable to
32
resolve those conflicts on terms that are satisfactory to all
parties, we may become involved in litigation brought by or
against us. That litigation is likely to be expensive and may
require a significant amount of managements time and
attention, at the expense of other aspects of our business.
Litigation relating to the ownership and use of intellectual
property is expensive, and our position as a relatively small
company in an industry dominated by very large companies may
cause us to be at a disadvantage in defending our intellectual
property rights and in defending against claims that our
immunotherapy candidates infringe or misappropriate third party
intellectual property rights. Even if we are able to defend our
position, the cost of doing so may adversely affect our
profitability. We may in the future be subject to patent
litigation and may not be able to protect our intellectual
property at a reasonable cost if such litigation is initiated.
The outcome of litigation is always uncertain, and in some cases
could include judgments against us that require us to pay
damages, enjoin us from certain activities or otherwise affect
our legal or contractual rights, which could have a significant
adverse effect on our business.
We are
exposed to potential product liability claims, and insurance
against these claims may not be available to us at a reasonable
rate in the future.
Our business exposes us to potential liability risks inherent in
the research, development, manufacturing and marketing of drug
candidates and products. If any of our drug candidates in
clinical trials or our marketed products harm people or
allegedly harm people, we may be subject to costly and damaging
product liability claims. Most, if not all, of the patients who
participate in our clinical trials are already seriously ill
when they enter a trial. We have clinical trial insurance
coverage, and commercial product liability insurance coverage.
However, this insurance coverage may not be adequate to cover
all claims against us. There is also a risk that adequate
insurance coverage will not be available in the future on
commercially reasonable terms, if at all. The successful
assertion of an uninsured product liability or other claim
against us could cause us to incur significant expenses to pay
such a claim, could adversely affect our product development or
product sales and could cause a decline in our product revenues.
Even a successfully defended product liability claim could cause
us to incur significant expenses to defend such a claim, could
adversely affect our product development and could cause a
decline in our product revenues.
Risks
Relating to an Investment in Our Common Stock
Our
business may be affected by legal proceedings.
We have been in the past, and may become in the future, involved
in legal proceedings. You should carefully review and consider
the various disclosures we make in our reports filed with the
SEC regarding legal matters that may affect our business. Civil
and criminal litigation is inherently unpredictable and outcomes
can result in excessive verdicts, fines, penalties
and/or
injunctive relief that affect how we operate our business.
Monitoring and defending against legal actions, whether or not
meritorious, and considering stockholder demands, is
time-consuming for our management and detracts from our ability
to fully focus our internal resources on our business
activities. In addition, legal fees and costs incurred in
connection with such activities may be significant. We cannot
predict with certainty the outcome of any legal proceedings in
which we become involved and it is difficult to estimate the
possible costs to us stemming from these matters. Settlements
and decisions adverse to our interests in legal actions could
result in the payment of substantial amounts and could have a
material adverse effect on our cash flow, results of operations
and financial position.
Market
volatility may affect our stock price, and the value of an
investment in our common stock may be subject to sudden
decreases.
The trading price for our common stock has been, and we expect
it to continue to be, volatile. The price at which our common
stock trades depends on a number of factors, including the
following, many of which are beyond our control:
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the relative success of our commercialization efforts for
PROVENGE;
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preclinical and clinical trial results and other product
development activities;
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our historical and anticipated operating results, including
fluctuations in our financial and operating results;
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changes in government regulations affecting product approvals,
reimbursement or other aspects of our or our competitors
businesses;
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announcements of technological innovations or new commercial
products by us or our competitors;
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developments concerning our key personnel;
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our ability to protect our intellectual property, including in
the face of changing laws;
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announcements regarding significant collaborations or strategic
alliances;
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publicity regarding actual or potential performance of products
under development by us or our competitors;
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market perception of the prospects for biotechnology companies
as an industry sector; and
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general market and economic conditions.
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During periods of extreme stock market price volatility, share
prices of many biotechnology companies have often fluctuated in
a manner not necessarily related to their individual operating
performance. Accordingly, our common stock may be subject to
greater price volatility than the stock market as a whole.
Anti-takeover
provisions in our charter documents and under Delaware law and
our stockholders rights plan could make an acquisition of
us, which may be beneficial to our stockholders, more
difficult.
Provisions of our amended and restated certificate of
incorporation, as amended (certification of
incorporation) and amended and restated bylaws
(bylaws) will make it more difficult for a third
party to acquire us on terms not approved by our board of
directors and may have the effect of deterring hostile takeover
attempts. Our certificate of incorporation authorizes our board
of directors to issue up to 10,000,000 shares of preferred
stock, of which 1,000,000 shares have been designated as
Series A Junior Participating Preferred Stock,
and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of
the holders of our common stock will be subject to, and may be
junior to the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock
could reduce the voting power of the holders of our common stock
and the likelihood that common stockholders will receive
payments upon liquidation.
In addition, our certificate of incorporation divides our board
of directors into three classes having staggered terms. This may
delay any attempt to replace our board of directors. We have
also implemented a stockholders rights plan, also called a
poison pill, which would substantially reduce or eliminate the
expected economic benefit to an acquirer from acquiring us in a
manner or on terms not approved by our board of directors. These
and other impediments to a third party acquisition or change of
control could limit the price investors are willing to pay in
the future for shares of our common stock. Our executive
officers have employment agreements that include change of
control provisions providing severance benefits in the event
that their employment terminates involuntarily without cause or
for good reason within twelve months after a change of control
of us. These agreements could affect the consummation of and the
terms of a third party acquisition.
We are also subject to provisions of Delaware law that could
have the effect of delaying, deferring or preventing a change in
control of our company. One of these provisions prevents us from
engaging in a business combination with any interested
stockholder for a period of three years from the date the person
becomes an interested stockholder, unless specified conditions
are satisfied.
We do
not intend to pay cash dividends on our common stock in the
foreseeable future.
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain any future earnings to fund
the development and growth of our business and do not currently
anticipate paying any cash dividends in the foreseeable future.
Accordingly, our shareholders will not realize a return on their
investment unless they sell shares after the trading price of
our shares appreciates.
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The
fundamental change repurchase feature of our convertible notes
may delay or prevent a takeover attempt of our company that
would otherwise be beneficial to investors.
The indenture governing each of our 2014 Notes and 2016 Notes
will require us to repurchase the notes for cash upon the
occurrence of a fundamental change and, in certain
circumstances, to increase the conversion rate for a holder that
converts its notes in connection with a fundamental change. A
takeover of our company may trigger the requirement that we
repurchase the notes and increase the conversion rate, which
could make it more costly for a potential acquirer to engage in
a combinatory transaction with us. Such additional costs may
have the effect of delaying or preventing a takeover of our
company that would otherwise be beneficial to investors.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
Our principal research, development and administrative
facilities are located in Seattle, Washington and consist of
approximately 143,000 square feet under three leases. The
first lease approximates 71,000 square feet and expires in
December 2011. The second lease for 24,000 square feet, as
amended, also expires in December 2011. In April 2010, we leased
an additional 11,500 square feet in this building, with a
term commencing in May 2010 and ending December 31, 2011.
The third lease for the remaining 37,000 square feet
expires in April 2011. In February 2011, we entered into a lease
with Northwest Mutual Insurance Company for office space of
179,656 rentable square feet in Seattle, Washington. The
initial lease term is for five and a half years, with one
renewal term of three years. Also in February 2011, we entered
into a sublease with Zymogenetics, Inc. for laboratory and
office space of 97,365 rentable square feet in Seattle,
Washington. The initial lease term is for seven and a half years.
We lease approximately 2,400 square feet of office space in
Morrisville, North Carolina under a lease expiring in October
2014. We lease approximately 158,000 square feet of
manufacturing space in Morris Plains, New Jersey under a lease
expiring in October 2012. This lease may be extended at our
option for two ten-year periods and one five-year period. In
July 2009, we entered into a lease with Majestic Realty Co. for
a building to be constructed in Atlanta, Georgia consisting of
approximately 160,000 rentable square feet. The facility is
intended for use by us as a manufacturing facility following
construction and build-out, which was substantially completed in
2010. The initial lease term is for ten and a half years
expiring in August 2020, with two renewal terms of five years
each. The lease includes a one-time purchase option exercisable
prior to March 2011, and a ten-year expansion option for up to
an additional 47,000 square feet. In August 2009, we
entered into a lease with Knickerbocker Properties, Inc. XLVI
for existing space totaling approximately 184,000 rentable
square feet in Orange County, California for use by us as a
manufacturing facility following build-out, which was
substantially completed in 2010. The initial lease term is for
ten and a half years expiring in December 2019, with two renewal
terms of five years each. The lease includes a one-time purchase
option exercisable during the first three years of the lease
term. We believe that our existing properties are in good
condition and suitable for the conduct of our business.
To support our commercialization efforts, we have made
significant investments in manufacturing facilities and related
operations. We have pursued a plan to outfit our New Jersey
Facility in phases to meet the anticipated manufacturing needs
for PROVENGE. The initial build-out of our New Jersey Facility
was completed in July 2006. In February 2007, we started to
manufacture PROVENGE for clinical use in the New Jersey
Facility. As of December 31, 2010, approximately 25% of the
capacity at our New Jersey Facility had been approved by the FDA
for commercial manufacturing. We have completed validation
activities necessary to support FDA licensure of the additional
capacity. Subject to license by the FDA, we expect the
additional capacity to be available in the first quarter of 2011.
We also intend to use our Atlanta Facility and Orange County
Facility for commercial manufacturing. We commenced occupation
of the Atlanta Facility and Orange County Facility during the
third quarter of 2010 and have commenced validation activities
for these facilities. These facilities will be available for
commercial manufacture of PROVENGE after review and license by
the FDA, which we anticipate to occur mid-year 2011.
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ITEM 3.
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LEGAL
PROCEEDINGS
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On October 4, 2007, the United States District Court for
the Western District of Washington consolidated four proposed
securities class actions under the caption McGuire v.
Dendreon Corporation, et al., Case
No. C07-800-MJP,
and designated a lead plaintiff. This action was purportedly
brought on behalf of a class of persons and entities who
purchased Dendreon common stock between March 1, 2007, and
May 8, 2007, inclusive. Lead plaintiff filed an amended
complaint on June 2, 2008, a second amended complaint on
January 5, 2009, and a third amended complaint on
June 8, 2009. The third amended complaint named Dendreon,
Chief Executive Officer Mitchell Gold, and Senior Vice President
and Chief Scientific Officer David Urdal as defendants, and
alleged that defendants made false or misleading statements. It
also included a claim for insider trading against Dr. Gold.
On September 16, 2010, the parties agreed to settle
McGuire v. Dendreon for a payment of
$16.5 million to the class, with no admission of wrongdoing
on the part of defendants. A ruling on defendants motion
for partial summary judgment was pending at the time the parties
notified the Court that they had arrived at a settlement. On
October 25, 2010, lead plaintiff filed a motion for
preliminary approval of the settlement, and a settlement hearing
was held on December 17, 2010. On December 20, 2010,
the Court filed orders granting lead plaintiffs motions
for approval of the settlement and for approval of
attorneys fees and expenses. On February 17, 2011,
the Court entered final judgment and dismissed the class action
with prejudice.
On March 31, 2009, a securities action was filed against
the Company and certain of its officers and directors in the
United States District Court for the Western District of
Washington under the caption Mountanos v. Dendreon
Corporation, et al., Case
No. C09-426
RAJ. The complaint in Mountanos makes similar factual and
legal allegations as the third amended complaint filed in
McGuire v. Dendreon, but Mountanos was not a
class action and the named plaintiffs allegedly purchased
options rather than the Companys common stock. On
September 27, 2010, the Court dismissed the action with
prejudice, after the parties notified the Court that they had
reached a settlement. A ruling on defendants motion for
partial summary judgment was pending at the time the parties
notified the Court that they had arrived at a settlement.
On January 7, 2011, a complaint was filed in the United
States District Court for the Western District of Washington by
a party that had opted out of the settlement made on behalf of
the class in McGuire v. Dendreon. The complaint is
captioned ORG Lluch Salvado, S.A. v. Dendreon
Corporation, et al., and names the Company, Dr. Urdal,
and Dr. Gold as defendants. Plaintiff is a Spanish company
that purportedly purchased shares of Dendreon common stock
between March 29, 2007 and May 8, 2007. The complaint
makes similar factual and legal contentions as the third amended
complaint in McGuire v. Dendreon. Defendants have
not yet answered this complaint and no briefing schedule has
been set.
Management believes that final resolution of these matters,
individually or in aggregate, will not have a material adverse
effect on our financial position, our results of operations, or
our cash flows. However, these matters are subject to inherent
uncertainties and the actual cost, as well as the distraction
from the conduct of our business, will depend upon many unknown
factors and managements view of these may change in the
future.
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EXECUTIVE
OFFICERS OF THE REGISTRANT
Our executive officers and their ages as of February 23,
2011 were as follows:
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Name
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Age
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Position
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Mitchell H. Gold, M.D.
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President and Chief Executive Officer
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Hans E. Bishop
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Executive Vice President and Chief Operating Officer
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Mark W. Frohlich, M.D.
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Executive Vice President for Clinical Affairs and Chief Medical
Officer
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Richard F. Hamm, Jr.
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Executive Vice President, Corporate Development, General Counsel
and Secretary
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Richard J. Ranieri
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Executive Vice President, Human Resources
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Gregory T. Schiffman
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Executive Vice President, Chief Financial Officer and Treasurer
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David L. Urdal, Ph.D.
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Executive Vice President and Chief Scientific Officer
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Mitchell H. Gold, M.D. has served as our Chief
Executive Officer since January 1, 2003, and as a director
since May 2002. Dr. Gold also served as our Vice President
of Business Development from June 2001 to May 2002, and as our
Chief Business Officer from May 2002 through December 2002. From
April 2000 to May 2001, Dr. Gold served as Vice President
of Business Development and Vice President of Sales and
Marketing for Data Critical Corporation, a company engaged in
wireless transmission of critical healthcare data, now a
division of GE Medical. From 1995 to April 2000, Dr. Gold
was the President and Chief Executive Officer, and a co-founder
of Elixis Corporation, a medical information systems company.
From 1993 to 1998, Dr. Gold was a resident physician in the
Department of Urology at the University of Washington.
Dr. Gold currently serves on the boards of the University
of Washington/Fred Hutchinson Cancer Research Center Prostate
Cancer Institute, the Washington Biotechnology and BioMedical
Association and the Biotechnology Industry Organizations
Emerging Company Section Governing Board. Dr. Gold
received a B.S. from the University of Wisconsin-Madison and an
M.D. from Rush Medical College.
Hans E. Bishop has served as our Executive Vice President
and Chief Operating Officer since January 4, 2010.
Mr. Bishop had previously served since 2008 as President of
the specialty medicine at Bayer and previously served as
President of its hematology/cardiovascular division since 2007.
Prior to his position with Bayer, from 2004 to 2007,
Mr. Bishop served as Senior Vice President of global
commercial operations at Chiron Corporation, as well as its Vice
President and General Manager of European biopharmaceuticals.
Mr. Bishop previously held various positions at Glaxo
Wellcome and SmithKlineBeecham. In addition, he served as
Executive Vice President of operations with a global telecom
service company. Mr. Bishop received a B.S. in chemistry
from Brunel University in London.
Mark W. Frohlich, M.D. has served as our Executive
Vice President for Clinical Affairs and Chief Medical Officer
since December 2010. Previously, Mr. Frohlich became our
Senior Vice President for Clinical Affairs and Chief Medical
Officer on January 1, 2008. Dr. Frohlich served as our
Vice President of Clinical Affairs from April 2006 and from
August 2005 served as our Senior Medical Director. Prior to
joining Dendreon, Dr. Frohlich was Vice President and
Medical Director at Xcyte Therapies, Inc., a biotechnology
company, from October 2001 to July 2005. From 1998 to 2001,
Dr. Frohlich was a member of the faculty of the University
of California at San Francisco where he served as an
assistant professor in the Division of Hematology/Oncology.
Dr. Frohlich received a B.S. in electrical engineering and
economics from Yale University and an M.D. from Harvard Medical
School.
Richard F. Hamm, Jr. has served as our Executive
Vice President, General Counsel and Secretary since December
2010. He previously served as our Senior Vice President,
Corporate Development since December 2005, in addition to his
positions as our Senior Vice President, General Counsel and
Secretary, in which capacities he has served us since November
2004. Mr. Hamm also served as our principal financial
officer from January to December 2006. From April 2002 to
November 2004, Mr. Hamm was the Vice President and Deputy
General Counsel of Medtronic, Inc., a leading medical technology
company. Mr. Hamm is a director of EMCOR Group, Inc., an
electrical and mechanical construction and facilities services
company. From August 2000 until September 2009,
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Mr. Hamm was a director of Axsys Technologies, Inc., a
manufacturer of precision optical components and systems for
aerospace, defense and other high technology markets.
Mr. Hamm received a B.S. in Business Administration from
Arizona State University, a J.D. from Harvard Law School and an
M.B.A. from the Wharton School at the University of Pennsylvania.
Richard J. Ranieri has served as our Executive Vice
President, Human Resources since December 2010. Mr. Ranieri
joined us in April 2010 as our Senior Vice President, Human
Resources. Mr. Ranieri joined Dendreon from Sepracor, Inc.,
where he served as the Executive Vice President of Human
Resources and Administration. Mr. Ranieri previously served
as the Senior Vice President of Human Resources and Chief
Administrative Officer at Neurocrine Biosciences, where he was
responsible for managing and directing the human resources,
corporate communications, operations and purchasing functions of
the company. Mr. Ranieri also has held positions at
Genencor International and SmithKline Beecham. Mr. Ranieri
received a M.S. from Rider College and a B.A. from Villanova
University.
Gregory T. Schiffman has served as our Executive Vice
President, Chief Financial Officer and Treasurer since December
2010. Mr. Schiffman joined us in December 2006 as Senior
Vice President, Chief Financial Officer and Treasurer. Prior to
that time, Mr. Schiffman was the Executive Vice President
and Chief Financial Officer of Affymetrix, Inc., a manufacturer
of genetic analysis products. He served as Affymetrixs
Vice President of Finance from March 2001 and was appointed Vice
President and Chief Financial Officer in August 2001. At
Affymetrix, Mr. Schiffman was promoted to Senior Vice
President in October 2002 and to Executive Vice President in
February 2005. Prior to joining Affymetrix, Mr. Schiffman
was Vice President, Controller of Applied Biosystems, Inc. from
October 1998. From 1987 through 1998, Mr. Schiffman held
various managerial and financial positions at Hewlett Packard
Company. Mr. Schiffman served as a director of Vnus
Technologies, Inc., a medical device company from April 2006
until July 2009, Xenogen Corporation, a life sciences tools
company from January 2005 until August 2006, and Impac Software
Medical Systems, Inc., an information systems company making
products for managing radiation and medical oncology practices
from February 2003 until April 2005. Mr. Schiffman received
a B.S. from De Paul University and an M.B.A. from the Kellogg
School at Northwestern University.
David L. Urdal, Ph.D. has served as our Executive
Vice President and Chief Scientific Officer since December 2010.
Previously, he served as our Senior Vice President and Chief
Scientific Officer since June 2004. In January 2006,
Dr. Urdal assumed oversight of manufacturing operations for
the Company. Prior to June 2004, he served as Vice Chairman of
the Companys Board of Directors and Chief Scientific
Officer since joining the Company in July 1995. He served as the
Companys President from January 2001 to December 2003, and
he served as the Companys Executive Vice President from
January 1999 through December 2000. From 1982 until July 1995,
Dr. Urdal held various positions with Immunex Corporation,
a biotechnology company, including President of Immunex
Manufacturing Corporation, Vice President and Director of
Development, and head of the departments of biochemistry and
membrane biochemistry. Dr. Urdal serves as a director of
VLST, a biotechnology company and previously served as a
director of ORE Pharmaceuticals, Inc., a pharmaceutical drug
repositioning and development company, from 2007 until 2010.
Dr. Urdal received a B.S. in zoology, an M.S. in Public
Health and a Ph.D. in Biochemical Oncology from the University
of Washington.
38
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock trades on the Nasdaq Global Market under the
symbol DNDN. The following table sets forth, for the
periods indicated, the high and low reported intraday sale
prices of our common stock as reported on the Nasdaq Global
Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
38.12
|
|
|
$
|
26.25
|
|
Second quarter
|
|
|
57.67
|
|
|
|
32.10
|
|
Third quarter
|
|
|
43.90
|
|
|
|
25.78
|
|
Fourth quarter
|
|
|
41.63
|
|
|
|
33.60
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
4.80
|
|
|
$
|
2.55
|
|
Second quarter
|
|
|
27.40
|
|
|
|
4.02
|
|
Third quarter
|
|
|
30.42
|
|
|
|
21.25
|
|
Fourth quarter
|
|
|
30.42
|
|
|
|
24.79
|
|
On February 23, 2011, the last reported sale price of our
common stock on the NASDAQ Global Select Market was $32.86 per
share.
Recordholders. As of February 23, 2011,
there were 301 holders of record of our common stock.
Dividends. We have never declared or paid cash
dividends on our capital stock. We currently intend to retain
any future earnings to fund the development and growth of our
business and do not currently anticipate paying any cash
dividends in the foreseeable future. Future dividends, if any,
will be determined by our board of directors and will depend
upon our financial condition, results of operations, capital
requirements and other factors.
Share Repurchases. The following table sets
forth information with respect to purchases of shares of our
common stock made during the three months ended
December 31, 2010 by or on behalf of the Company or any
affiliated purchaser, as defined by
Rule 10b-18
of the Securities Exchange Act of 1934:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
Part of
|
|
|
May Yet be
|
|
|
|
Total
|
|
|
|
|
|
Publicly
|
|
|
Purchased
|
|
|
|
Number of
|
|
|
Average
|
|
|
Announced
|
|
|
Under the
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Plans or
|
|
|
Plans or
|
|
Period
|
|
Purchased(1)
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
October 1 October 31, 2010
|
|
|
12,987
|
|
|
$
|
37.81
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2010
|
|
|
4,556
|
|
|
|
36.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,543
|
|
|
$
|
37.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents shares withheld from vested restricted stock to
satisfy the minimum withholding requirement for federal and
state taxes. |
39
Performance
Comparison Graph
The following graph shows the total stockholder return of an
investment of $100 in cash in our common stock or in each of the
following indices on December 31, 2005: (i) the Nasdaq
Composite Index and (ii) the Nasdaq Biotechnology Index.
All values assume reinvestment of the full amount of all
dividends and are calculated as of December 31, 2010.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Dendreon Corporation, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
|
|
|
* |
|
$100 invested on
12/31/05 in
stock or index, including reinvestment of dividends. Fiscal year
ending December 31. |
40
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
You should read the selected financial data set forth below in
conjunction with the information in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our audited
financial statements and the related notes thereto appearing
elsewhere in this annual report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
48,057
|
|
|
$
|
101
|
|
|
$
|
111
|
|
|
$
|
743
|
|
|
$
|
273
|
|
Cost of revenue
|
|
|
28,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
311,701
|
|
|
|
100,142
|
|
|
|
70,589
|
|
|
|
102,362
|
|
|
|
97,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(292,164
|
)
|
|
|
(100,041
|
)
|
|
|
(70,478
|
)
|
|
|
(101,619
|
)
|
|
|
(97,356
|
)
|
Interest income (expense)
|
|
|
(444
|
)
|
|
|
(1,357
|
)
|
|
|
(1,537
|
)
|
|
|
2,355
|
|
|
|
5,714
|
|
(Loss) gain from valuation of warrant liability
|
|
|
(142,567
|
)
|
|
|
(118,763
|
)
|
|
|
371
|
|
|
|
|
|
|
|
|
|
Loss on debt conversion
|
|
|
(4,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(439,480
|
)
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
|
$
|
(99,264
|
)
|
|
$
|
(91,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(3.18
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(1.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic and diluted net loss per
share
|
|
|
138,206
|
|
|
|
108,050
|
|
|
|
90,357
|
|
|
|
82,531
|
|
|
|
72,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, short- and long-term investments
|
|
$
|
277,296
|
|
|
$
|
606,386
|
|
|
$
|
110,577
|
|
|
$
|
120,575
|
|
|
$
|
121,283
|
|
Working capital
|
|
|
280,315
|
|
|
|
441,550
|
|
|
|
84,485
|
|
|
|
81,656
|
|
|
|
89,557
|
|
Total assets
|
|
|
603,953
|
|
|
|
735,415
|
|
|
|
147,204
|
|
|
|
161,662
|
|
|
|
163,643
|
|
Warrant liability
|
|
|
|
|
|
|
132,953
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
Long-term liabilities and obligations, less current portion
|
|
|
61,100
|
|
|
|
68,915
|
|
|
|
93,802
|
|
|
|
95,647
|
|
|
|
17,027
|
|
Total stockholders equity
|
|
|
492,774
|
|
|
|
503,564
|
|
|
|
27,006
|
|
|
|
40,377
|
|
|
|
125,717
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW
We are a biotechnology company focused on the discovery,
development and commercialization of novel therapeutics that may
significantly improve cancer treatment options for patients. Our
product portfolio includes active cellular immunotherapy and
small molecule product candidates to treat a wide range of
cancers.
On April 29, 2010, the U.S. Food and Drug
Administration (FDA) licensed
PROVENGE®
(sipuleucel-T), our first in class autologous cellular
immunotherapy for the treatment of asymptomatic or minimally
symptomatic, metastatic, castrate-resistant (hormone-refractory)
prostate cancer. Commercial sale of PROVENGE began in May 2010.
In January 2011, we announced plans to seek marketing
authorization for the sale of PROVENGE in Europe. Prostate
cancer is the most common non-skin cancer among men in the
United States, with over one million men currently diagnosed
with the disease, and the second leading cause of cancer deaths
in men in the United States. We own worldwide rights for
PROVENGE.
41
We have incurred significant losses since our inception. As of
December 31, 2010, our accumulated deficit was
$1.2 billion, of which $261.0 million relates to the
value of the warrant liability described below. We have incurred
net losses as a result of research and development expenses,
clinical trial expenses, contract manufacturing and facility
expenses, costs associated with the commercial launch of
PROVENGE and general and administrative expenses in support of
our operations and research efforts. We anticipate that near
term we will continue to fund our ongoing research, development
and general operations from available cash, including proceeds
from our January 2011 convertible notes offering, and revenue
generated from commercial sales of PROVENGE. Our available cash
will allow us to continue to expand our operations including our
manufacturing capabilities, continue our clinical trials, apply
for regulatory approvals and build commercial infrastructure
outside the U.S. and invest in research and product
development. The majority of our resources continue to be used
in support of the commercialization of PROVENGE. Even if we are
able to successfully realize our commercialization goals for
PROVENGE, because of the numerous risks and uncertainties
associated with commercialization of a biologic, we are unable
to predict when we will become profitable, if at all. Even if we
do produce revenues and achieve profitability, we may not be
able to maintain or increase profitability.
In 2010, we achieved revenue from PROVENGE of
$48.0 million. During 2010, we supported commercial sale of
PROVENGE from the available capacity at our manufacturing
facility in Morris Plains, New Jersey (New Jersey
Facility). We anticipate our manufacturing capabilities
will significantly increase during 2011 with the licensure by
the FDA of additional capacity at our New Jersey Facility in the
first quarter of 2011, and licensure of our new facilities in
Orange County, California (Orange County Facility)
and Atlanta, Georgia (Atlanta Facility), which we
anticipate to occur mid-year 2011. On February 28, 2011, we
submitted our request to the FDA for licensure of the Orange
County facility to manufacture PROVENGE. We expect to establish
relationships with and support approximately 450 infusion sites
by the end of 2011.
Soon after PROVENGE was approved by the FDA, the National
Comprehensive Cancer Network (NCCN) listed PROVENGE
in the NCCN Clinical Practice Guidelines in Oncology for
Prostate Cancer and NCCN Drugs & Biologics Compendium
as a category 1 treatment recommendation for patients with
castrate-resistant prostate cancer. A category 1 recommendation
means that the recommendation is based on high level
evidence (e.g., randomized controlled trials) and there is
uniform NCCN consensus. With respect to reimbursement, all
of the regional Medicare Administrative Contractors
(MACs) have established coverage guidelines for
on-label use of PROVENGE or have stated that they will process
PROVENGE claims. In addition, a significant number of private
payers including Aetna, Emblem Health, Humana, Kaiser, CIGNA,
HealthNet, Regence of Washington, United Healthcare and
WellPoint established local or national coverage. On
June 30, 2010, the Centers for Medicare and Medicaid
Services (CMS) opened a national coverage analysis
for PROVENGE. The agency is expected to issue a proposed
decision memorandum by March 30, 2011 with an analysis
completion date of June 30, 2011. In the event CMS were to
impose restrictions or additional requirements on coverage of
PROVENGE by Medicare contractors it could have a significant
adverse impact on PROVENGE sales. CMS met in November 2010 to
consider and review commentary on the currently available
evidence regarding the impact of labeled and unlabeled use of
autologous cellular immunotherapy treatment on health outcomes
of patients with metastatic prostate cancer.
Data from the pivotal Phase 3 IMPACT study for PROVENGE was
published in the July 29, 2010 issue of the New England
Journal of Medicine, showing that PROVENGE demonstrated a
statistically significant improvement in overall survival
compared to control in men with asymptomatic or minimally
symptomatic metastatic castration resistant prostate cancer.
Following a number of pre-submission meetings with European
Union (E.U.) National Agencies, we expect that data
from our Phase 3 D9902B IMPACT (IMmunotherapy for Prostate
AdenoCarcinoma Treatment) study, supported by data from our
D9901 and D9902A studies, will be sufficient to seek regulatory
approval for PROVENGE in the E.U. We plan to use the clinical
data described in our U.S. Biologics License Application to
file our marketing authorization application (MAA)
to the European Medicines Agency (EMA) in late 2011
or early 2012. To accelerate the regulatory timeline, initially
PROVENGE will be manufactured through a contract manufacturing
organization while we concurrently build an immunotherapy
manufacturing facility in Europe. We anticipate a regulatory
decision from the E.U. in the first half of 2013.
As of December 31, 2010, our manufacturing operations
employed approximately 750 individuals and our commercial team
included approximately 87 individuals employed in sales,
marketing, and government affairs.
42
During the second half of 2010, our field based teams were
primarily focused on training infusion sites and customer
education in addition to sales activity for PROVENGE.
Other potential product candidates we have under development
include our investigational active cellular immunotherapy,
DN24-02, directed against HER2/neu for the treatment of patients
with bladder, breast, ovarian and other solid tumors expressing
HER2/neu. In December 2010 we filed an Investigational New Drug
application with the FDA for DN24-02 for the treatment of
invasive bladder cancer. Active cellular immunotherapies
directed at carbonic anhydrase 9 (CA-9), an antigen
highly expressed in renal cell carcinoma, and carcinoembryonic
antigen (CEA), an antigen expressed in colorectal
cancer, are in preclinical development. We are also developing
an orally-available small molecule targeting TRPM8 that could be
applicable to multiple types of cancer in advanced cancer
patients. We commenced our Phase 1 clinical trial to evaluate
TRPM8 in 2009 and the trial is ongoing.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We make judgmental decisions and estimates with underlying
assumptions when applying accounting principles to prepare our
consolidated financial statements. Certain critical accounting
policies requiring significant judgments, estimates, and
assumptions are detailed below. We consider an accounting
estimate to be critical if (1) it requires assumptions to
be made that are uncertain at the time the estimate is made and
(2) changes to the estimate or different estimates that
could have reasonably been used would have materially changed
our consolidated financial statements. The development and
selection of these critical accounting policies have been
reviewed with the Audit Committee of our Board of Directors.
We believe the current assumptions and other considerations used
to estimate amounts reflected in our consolidated financial
statements are appropriate. However, should our actual
experience differ from these assumptions and other
considerations used in estimating these amounts, the impact of
these differences could have a material impact on our
consolidated financial statements.
Revenue
Recognition
We recognize revenue primarily from the sale of PROVENGE and
collaborative research agreements. Revenue from the sale of
PROVENGE is recorded net of product returns and estimated
healthcare provider contractual chargebacks. Revenues from sales
of PROVENGE are recognized upon our confirmed product delivery
to and issuance of the product release form to the physician
site. As we executed a drop shipment agreement with a credit
worthy third party wholesaler (wholesaler) to sell
PROVENGE, the wholesaler assumes all bad debt risk from the
physician, and no allowance for bad debt is recorded. Due to the
limited usable life of our product, actual returns are credited
against sales in the month they are incurred. Healthcare
provider contractual chargebacks are the result of contractual
commitments by us to provide products to healthcare providers at
specified prices or discounts such as pursuant to mandatory
federal programs. Chargebacks occur when a contracted healthcare
provider purchases our products through the wholesaler at fixed
contract prices that are lower than the price we charge the
wholesaler. The wholesaler, in turn, charges us back for the
difference between the price initially paid by the wholesaler
and the contract price paid to the wholesaler by the healthcare
providers. These chargebacks will be recognized in the same
period that the related revenue is recognized, resulting in a
reduction in product sales revenue and are recorded as other
accrued liabilities. For the year ended December 31, 2010
we did not have any chargebacks.
We recognize collaborative research revenue from up-front
payments, milestone payments, and personnel-supported research
funding. The payments received under these research
collaboration agreements are generally contractually not
refundable even if the research effort is not successful.
Performance under our collaborative agreements is measured by
scientific progress, as mutually agreed upon by us and our
collaborators. Such revenue was insignificant for the years
ended December 31, 2010, 2009 and 2008.
Inventory
Inventories are determined at the lower of cost or market value
with cost determined under the specific identification method.
Inventories consist of raw materials, work in process and
finished goods. We began capitalizing raw material inventory in
mid-April 2009 in preparation for our PROVENGE product launch
when the product was considered to have a high probability of
regulatory approval and the related costs were expected to
43
be recoverable through the commercialization of the product.
Costs incurred prior to mid-April 2009 have been recorded as
research and development expense in our statement of operations.
As a result, inventory balances and cost of revenue for the next
few quarters will reflect a lower average per unit cost of
materials.
Cash,
Cash Equivalents, and Investments
We consider investments in highly liquid instruments purchased
with an original maturity at purchase of 90 days or less to
be cash equivalents. The amounts are recorded at cost, which
approximates fair value. Our cash equivalents and short-term and
long-term investments consist principally of commercial paper,
money market securities, treasury notes, agency bonds, corporate
bonds/notes and certificates of deposit.
We have classified our entire investment portfolio as
available-for-sale.
Available-for-sale
securities are carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders
equity and included in accumulated other comprehensive income
(loss). The amortized cost of investments is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion are included in interest income.
Interest earned on securities is included in interest income.
Gains are recognized when realized in our consolidated
statements of operations. Losses are recognized when realized
and when we have determined that an
other-than-temporary
decline in fair value has occurred.
We periodically evaluate whether declines in fair values of our
investments below their cost are
other-than-temporary.
This evaluation consists of several qualitative and quantitative
factors regarding the severity and duration of the unrealized
loss as well as our ability and intent to hold the investment
until a forecasted recovery occurs. Additionally, we assess
whether it is more likely than not we will be required to sell
any investment before recovery of its amortized cost basis.
We consider an investment with a maturity greater than twelve
months from the balance sheet date as long-term and a maturity
less than twelve months as short-term at the balance sheet date.
The cost of securities sold is based on the specific
identification method.
Fair
Value
We currently measure and report at fair value our cash
equivalents and investment securities. We also measured and
reported at fair value our warrant liability, prior to exercise
of the warrants in the second quarter of 2010. Fair value is
defined as the exchange price that would be received for an
asset or paid to transfer a liability, an exit price, in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize
the use of unobservable inputs.
Assets and liabilities typically recorded at fair value on a
non-recurring basis include long-lived assets measured at fair
value due to an impairment assessment under
ASC 360-10,
Property, Plant and Equipment, and asset retirement
obligations initially measured under
ASC 410-20,
Asset Retirement and Environmental Obligations.
Accounting
for Stock-Based Compensation
Stock-based compensation cost is estimated at the grant date
based on the awards fair value and is recognized on the
accelerated method as expense over the requisite service period.
Compensation cost for all stock-based awards is measured at fair
value as of the grant date. The fair value of our stock options
is calculated using the Black-Scholes-Merton (BSM)
option pricing model. The BSM model requires various highly
judgmental assumptions including volatility, forfeiture rates
and expected option life. If any of the assumptions used in the
BSM model change significantly, stock-based compensation expense
for new awards may differ materially in the future from that
recorded in the current period.
We also grant restricted stock awards that generally vest over a
four year period and restricted stock awards with performance
conditions. In December 2010 we granted restricted stock awards
with certain performance conditions to certain executive
officers. At each reporting date, we are required to evaluate
whether achievement of the performance condition is probable.
Compensation expense is recorded based upon our assessment of
44
accomplishing each performance provision, over the appropriate
service period. For the year ended December 31, 2010, no
expense was recognized related to these awards.
We determine the fair value of awards under our Employee Stock
Purchase Plan using the BSM model.
For additional information about stock-based compensation, see
Note 11 to the Consolidated Financial Statements.
Recent
Accounting Pronouncements
Effective during the quarter ended March 31, 2010, the
Financial Accounting Standards Board (the FASB)
issued Accounting Standards Update (ASU)
2010-09,
Subsequent Events (ASU
2010-09),
amending ASC 855, Subsequent Events, to state
that an entity that is a SEC filer is required to evaluate
subsequent events through the date that the financial statements
are issued, but is not required to disclose the date. The
amendment was effective commencing with the quarter ended
March 31, 2010. The adoption of ASU
2010-09 did
not have a significant impact on our financial statements.
During the quarter ended March 31, 2010, we adopted ASU
2010-06,
Fair Value Measurements and Disclosures (ASU
2010-6),
which updated ASC 820, Fair Value Measurements and
Disclosures. ASU
2010-06
requires disclosure as to the amounts and purpose of significant
asset transfers between Level 1 and 2 fair value
measurements. ASU
2010-06 also
requires separate disclosure of Level 3 fair value
measurement activity as it relates to purchases, sales,
issuances and settlements. The disclosure requirements related
to Level 1 and Level 2 fair value measurements were
effective commencing with the quarter ended March 31, 2010.
The disclosure requirements related to the Level 3 fair
value measurements are effective commencing with the quarter
ending March 31, 2011. The adoption of ASU
2010-06 did
not have a material impact on our financial statements.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND
2008
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Product revenue
|
|
$
|
47,957
|
|
|
$
|
|
|
|
$
|
|
|
Collaborative revenue
|
|
|
100
|
|
|
|
101
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
48,057
|
|
|
$
|
101
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue of $48.0 million in 2010 resulted from
commercial sale of PROVENGE following FDA approval on
April 29, 2010. Product revenue for 2010 reflects
approximately eight months of product sales activity. We
recognize product revenues from the sale of PROVENGE upon our
confirmed product delivery to the prescribing site and issuance
of the product release form to the physician site. We expect
product revenue to increase in 2011 as additional manufacturing
capacity becomes available and we increase our commercialization
efforts.
Collaborative revenue includes the recognition of deferred
revenue related to a license agreement and royalty revenue.
Cost
of Revenue
Cost of revenue was $28.5 million for the year ended
December 31, 2010. The cost of revenue includes the costs
of manufacturing and distributing PROVENGE, including overhead
and excess manufacturing costs due to under utilization of our
New Jersey Facility plant capacity during 2010. Although
commercial manufacture of PROVENGE began in May 2010 after FDA
approval, substantial production of PROVENGE for commercial sale
did not commence until the third quarter of 2010. During April
and May 2010, the New Jersey Facility primarily manufactured
PROVENGE for clinical patients who were enrolled in existing
clinical trials prior to FDA approval. The costs related to
clinical manufacture are classified as research and development
expense.
45
Gross margins on new product introductions generally increase
over the life of the product as utilization of capacity
increases and manufacturing efforts on product cost reduction
are successful. As we expand our product distribution, we
anticipate cost of revenue as a percentage of product revenue
will decline in future years.
We incurred substantial costs associated with the portion of the
New Jersey Facility that was not operational during the year.
These costs were classified as selling, general and
administrative expense. We expect that these expenses will
continue to increase as we add additional headcount in
anticipation of being licensed by the FDA during the first
quarter of 2011 to produce PROVENGE for commercial sale in the
expanded capacity of our New Jersey Facility, as well as
hiring for our Orange County Facility and Atlanta Facility.
We began capitalizing raw material inventory in mid-April 2009,
in preparation for our PROVENGE product launch, when the product
was considered to have a high probability of regulatory approval
and the related costs were expected to be recoverable through
the commercialization of the product. Such costs incurred prior
to mid-April 2009 were recorded as research and development
expense in our statement of operations. As a result, cost of
revenues will reflect a lower average per unit cost of materials
offset by higher per unit manufacturing overhead due to under
utilization of plant capacity for the next few quarters.
Research
and Development Expenses
Research and development expenses were $75.9 million in
2010, $61.6 million in 2009 and $50.1 million in 2008.
The increase in research and development expense for the year
ended 2010 is the result of increased employee-related expenses,
including stock-based compensation expense, clinical trial costs
in connection with sipuleucel-T trials, as well as expenses
incurred in securing second source suppliers and expanding
product pipeline development. We also manufactured PROVENGE for
clinical patients who were enrolled in existing clinical trials
prior to the approval date. The increase in research and
development expense for the year ended 2009 as compared to 2008
is the result of increased wages, payroll taxes and other
employee-related expenses, including stock-based compensation
expense, as well as product development costs in connection with
PROVENGE.
Financial data related to our research and development
activities is categorized as either costs associated with
clinical programs, discovery research or developing second
source suppliers. Our research and development expenses for the
years ended December 31, 2010, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Clinical programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
$
|
10.5
|
|
|
$
|
5.0
|
|
|
$
|
9.0
|
|
Indirect costs
|
|
|
47.4
|
|
|
|
51.7
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total clinical programs
|
|
|
57.9
|
|
|
|
56.7
|
|
|
|
46.7
|
|
Second source contract manufacturing expenses
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
Discovery research
|
|
|
8.1
|
|
|
|
4.9
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expense
|
|
$
|
75.9
|
|
|
$
|
61.6
|
|
|
$
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct research and development costs associated with our
clinical programs include clinical trial site costs, clinical
manufacturing costs, costs incurred for consultants and other
outside services, such as data management and statistical
analysis support, and materials and supplies used in support of
the clinical programs. Indirect costs of our clinical programs
include wages, payroll taxes and other employee-related
expenses, including stock-based compensation, rent, utilities
and other facilities-related maintenance costs. Costs
attributable to second source contract manufacturing expenses
include technology transfer and process development costs
related to developing second source suppliers. Costs
attributable to our discovery research programs represent our
efforts to develop and expand our product pipeline. The costs in
each category may change in the future and new categories may be
added.
46
While we believe our clinical programs are promising, we do not
know whether any commercially viable products in addition to
PROVENGE will result from our research and development efforts.
Due to the unpredictable nature of scientific research and
product development, we cannot reasonably estimate:
|
|
|
|
|
the timeframe over which our product development programs are
likely to be completed;
|
|
|
|
whether they will be completed;
|
|
|
|
if they are completed, whether they will provide therapeutic
benefit or be approved for commercialization by the necessary
regulatory agencies; or
|
|
|
|
whether, if approved, they will be scalable to meet commercial
demand.
|
Selling,
General and Administrative Expenses
Selling, general and administrative expenses were
$235.8 million in 2010, $38.6 million in 2009 and
$20.5 million in 2008. Selling, general and administrative
expenses primarily consisted of salaries and wages, stock-based
compensation, consulting fees, sales and marketing fees and
administrative costs to support our operations. In addition, as
mentioned above, selling, general and administrative expenses
include the expenses associated with the portion of our New
Jersey Facility which was not commercially operational during
2010 and related costs of personnel in training. The significant
increase in selling, general and administrative expenses in 2010
as compared to 2009 was primarily attributable to higher payroll
costs from increased headcount and commercial product launch
preparation activities, including non-operational manufacturing
capacity.
We incurred substantial costs associated with the portion of the
New Jersey Facility which was not operational during 2010. We
have also begun incurring pre-operational costs at the Atlanta
Facility and Orange County Facility, both of which have been
substantially completed and are undergoing validation
activities. These costs include facility-related expenditures,
additional headcount to support the build-out as well as to
prepare for commercial production of PROVENGE in anticipation of
licensure of the facilities mid-year 2011 by the FDA. The cost
related to these activities in 2010 was approximately
$105 million, and represents ongoing expenses at all three
of the manufacturing facilities that will be classified as cost
of revenue when the related commercial operations commence, as
well as one-time start up costs required to support the
manufacturing launch of PROVENGE. We expect that these types of
expenditures will continue to increase until the facilities
become fully operational.
The increase in selling, general and administrative expenses in
2009 compared with 2008 was primarily attributable to increased
payroll and outside costs related to pre-commercialization
efforts for PROVENGE.
Interest
Income
Interest income was $1.1 million in 2010, $964,000 in 2009
and $3.6 million in 2008. The slight increase in interest
income in 2010 was primarily due to higher average investment
balances during 2010, as compared to 2009. The decrease in 2009
compared to 2008 was due to lower average interest rates.
Interest
Expense
Interest expense was $1.6 million in 2010,
$2.3 million in 2009 and $5.2 million in 2008. The
decrease in interest expense in 2010 compared to 2009 was
primarily due to increased capitalized interest expense in 2010
related to the construction of our manufacturing facilities. The
decrease in interest expense in 2009 compared to 2008 was the
result of lower average debt balances and an increase in
capitalized interest related to the construction of our
manufacturing facilities and our product tracking and scheduling
system.
Warrant
Liability
In April 2008, we issued 8.0 million shares of our common
stock, and warrants to purchase up to 8.0 million shares of
common stock to an institutional investor, as further discussed
in the Liquidity and Capital Resources: Financings from the
Sale of Securities and Issuance of Convertible Notes
section. The warrants contained a fundamental
change provision, as defined in the warrants, which may in
certain circumstances allow the warrants to be redeemed for cash
in an amount equal to the Black-Scholes Value.
47
The warrants were recorded at fair value at issuance and were
adjusted to fair value at each reporting period until exercised
in the second quarter of 2010. Any change in fair value between
reporting periods was recorded as other income (expense). The
warrants continued to be reported as a liability until they were
exercised, at which time the warrants were adjusted to fair
value and reclassified from liabilities to stockholders
equity. The fair value of the Warrants was estimated using the
BSM model.
The fair value of the warrants on the Exercise Date was
$275.5 million, compared with $133.0 million at
December 31, 2009. Non-operating loss associated with the
increase in warrant liability for the year ended
December 31, 2010 was $142.6 million, as compared to a
non-operating loss of $118.8 million for the year ended
December 31, 2009 and a non-operating gain of $371,000 for
the year ended December 31, 2008. The warrant agreement was
amended and immediately exercised in May 2010 and therefore the
fair value of the warrants will have no further impact on our
results of operations in the future.
Income
Taxes
We recognized $0.4 million in income tax benefit in 2010
relating to refundable credits, compared with no income tax
expense or benefit in 2009 or 2008.
As of December 31, 2010, we had federal and state net
operating loss carryforwards (NOLs) of approximately
$843 million and $252 million, respectively. We also
had federal and state research and development credit
carryforwards (R&D Credits) of approximately
$20.7 million and $2.6 million, respectively. The NOLs
and R&D Credits expire at various dates, beginning in 2011
through 2030, if not utilized. Utilization of the NOLs and
R&D Credits may be subject to annual limitations due to the
ownership change limitations provided by the Internal Revenue
Code of 1986. The annual limitations may result in the
expiration of NOLs and R&D Credits before utilization.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of our
deferred tax assets include net operating loss carryforwards,
research credits and stock-based compensation. Our net deferred
tax asset of $353.6 million and $240.6 million at
December 31, 2010 and 2009, respectively, has been fully
offset by a valuation allowance.
Realization of deferred tax assets is dependent on future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the deferred tax assets have been offset by a
valuation allowance. The valuation allowance relates primarily
to net deferred tax assets from operating losses. Excess tax
benefits associated with stock option exercises are recorded
directly to stockholders equity only when realized. As a
result, the excess tax benefits included in net operating loss
carryforwards, but not reflected in deferred tax assets, for
fiscal year 2010 and 2009 are $146.7 million and
$46.2 million, respectively.
Stock-Based
Compensation Expense
We recorded stock-based compensation expense in the consolidated
statements of operations for 2010, 2009 and 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cost of revenue
|
|
$
|
1.5
|
|
|
$
|
|
|
|
$
|
|
|
Research and development
|
|
|
8.4
|
|
|
|
8.2
|
|
|
|
2.9
|
|
Selling, general and administrative
|
|
|
30.4
|
|
|
|
9.0
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40.3
|
|
|
$
|
17.2
|
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense recognized in the
consolidated statement of operations for 2010, 2009 and 2008
increased our net loss per share by $0.29, $0.16 and $0.06,
respectively. The increase in stock-based compensation expense
in 2010 was primarily related to increased headcount and the
increased valuation of stock options and restricted stock awards
as a result of our increased stock price.
48
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Uses and Proceeds
As of December 31, 2010, we had approximately
$277.3 million in cash, cash equivalents, short-term and
long-term investments. To date, we have financed our operations
primarily through proceeds from the sale of equity, debt and
convertible securities, cash receipts from collaborative
agreements, interest income, and most recently sales of PROVENGE.
Net cash used in operating activities for the years ended
December 31, 2010, 2009 and 2008 was $267.5 million,
$85.5 million and $67.3 million, respectively.
Expenditures related to operating activities in these periods
were a result of costs associated with the commercial launch of
PROVENGE in 2010, and research and development expenses,
clinical trial costs, contract manufacturing costs and selling,
general and administrative expenses in support of our operations
in each of these years. The increase in net cash used in
operating activities in 2010 resulted from expenses associated
with the commercial launch of PROVENGE in 2010, including
working capital needs to support increased inventory, increased
selling, general and administrative expense, primarily as a
result of an increase in personnel from 414 as of
December 31, 2009 to 1,316 as of December 31, 2010,
and pre-launch expenditures. The increase in net cash used in
operating activities in 2009, as compared to 2008, was due to
expenses incurred related to the prospective commercial launch
of PROVENGE in 2010.
Since our inception, investing activities, other than purchases
and maturities of short-term and long-term investments,
consisted primarily of purchases of property and equipment.
Purchases of property and equipment increased to
$140.8 million in 2010 compared to $65.9 million in
2009 and $6.8 million in 2008, primarily related to
facilities expenditures for the three manufacturing facility
build-outs.
Net cash provided by financing activities was $80.7 million
in 2010, compared with $647.9 million in 2009 and
$60.9 million in 2008. The decrease in net cash provided by
financing activities in 2010 is primarily due to the absence of
any public offerings in 2010, while cash provided from common
stock issuances in May 2009 and December 2009, resulted in net
proceeds of $630.3 million. This decrease was partially
offset by an increase in cash provided by financing activities
related to the exercise of warrants in 2010, which resulted in
net cash provided of $71.4 million.
We believe that our current cash on hand as of December 31,
2010, the net proceeds from the January 2011 convertible notes
offering of approximately $607.3 million and revenue
generated from commercial sales of PROVENGE, will be sufficient
to meet our anticipated expenditures for at least the next
12 months as we expand our operations, including our
manufacturing capabilities, continue our clinical trials, apply
for regulatory approvals and build commercial infrastructure
outside the U.S. and invest in research and product
development. The majority of our resources continue to be used
in support of the commercialization of PROVENGE. We expect
revenue from PROVENGE product sales could be a significant
source of cash. However, we may need to raise additional funds
to meet potential additional long term liquidity needs for uses
including:
|
|
|
|
|
the development of marketing, manufacturing, information
technology and other infrastructure and activities related to
the commercialization of PROVENGE,
|
|
|
|
working capital needs,
|
|
|
|
increased personnel needs,
|
|
|
|
continuing and expanding our internal research and development
programs, and
|
|
|
|
engaging in clinical trials outside of the U.S., commercial
infrastructure development and other investment in order to
support the commercialization of PROVENGE in territories outside
the United States.
|
Leases
and Other Commitments
Office
Leases
We lease our principal research, development and administrative
facilities in Seattle, Washington that consist of approximately
143,000 square feet under three leases. The first lease
approximates 71,000 square feet under an
49
operating lease through December 31, 2011. The annual base
rent for the extended lease term is approximately
$2.7 million.
The second lease for 24,000 square feet with Selig Holdings
Company, LLC, as amended, also expires in December 2011. In
April 2010, we leased an additional 11,500 square feet in
this building, with a term commencing in May 2010 and ending
December 31, 2011.
In July 2009, we entered into a sublease agreement with Hearst
Newspapers, LLC (the sublandlord to Legacy Partners II, the
landlord) for office space in Seattle, Washington, comprising
approximately 37,000 square feet. The term of the sublease
is through April 2011.
In February 2011, we entered into a lease with Northwest Mutual
Insurance Company for office space of 179,656 rentable
square feet in Seattle, Washington. The initial lease term is
for five and a half years, with one renewal term of three years.
The aggregate rent payable under the initial lease term is
approximately $25 million.
Also in February 2011, we entered into a sublease with
Zymogenetics, Inc. for laboratory and office space of
97,365 rentable square feet in Seattle, Washington. The
initial lease term is for seven and a half years. The aggregate
rent payable under the initial lease term is approximately
$25 million.
Manufacturing
Facilities Leases
Facilities related expenses, including equipment expenditures,
increased significantly during 2010 as we executed on our plan
for commercial launch of PROVENGE.
In August 2005, we entered into an agreement to lease
approximately 158,000 square feet of commercial
manufacturing space in Morris Plains, New Jersey. The lease term
is seven years, and we have the option to extend the lease for
two ten-year periods and one five-year period, with the same
terms and conditions except for rent, which adjusts upon renewal
to market rate. The aggregate rent payable under the initial
lease term is $7.2 million.
The New Jersey lease required us to provide the landlord with a
letter of credit in the initial amount of $3.1 million as a
security deposit. We provided Wells Fargo, the bank that issued
the letter of credit on our behalf, a security deposit of
$3.1 million to guarantee the letter of credit. The deposit
was later reduced to $1.9 million in 2008 and is recorded
as a long-term investment as of December 31, 2010 and 2009
on our consolidated balance sheets. As part of an agreement with
the Township of Hanover relating to the permitting of the
expansion of our New Jersey Facility, we also have
$1.9 million in long-term investments being held as a
security deposit to ensure completion of certain improvements at
the property.
In August 2009, we entered into a lease with Knickerbocker
Properties, Inc. XLVI for existing building space totaling
approximately 184,000 rentable square feet in Orange
County, California for use by us as a manufacturing facility
following build-out. The initial lease term is ten and a half
years, with two renewal terms of five years each. The lease
includes a one-time purchase option exercisable during the first
three years of the lease term. The aggregate rent payable under
the initial lease term is $13.6 million.
In July 2009, we entered into a lease with Majestic Realty Co.
for a building space totaling approximately 160,000 square
feet in Atlanta, Georgia for use by us as a manufacturing
facility following build-out. The lease commenced when we took
possession of the building upon substantial completion of
construction of the building shell in March 2010. The initial
lease term is ten and a half years, with five renewal terms of
five years each. The lease includes a one-time purchase option
exercisable prior to March 2011. The aggregate rent payable for
the Atlanta Facility under the initial lease term is
$6.7 million.
The Orange County Facility and Atlanta Facility leases required
us to provide the landlords with letters of credit in the total
amount of $2.4 million as security deposits. The Atlanta
Facility letter of credit totaling $222,000 was returned to us
in May 2010. The Orange County Facility letter of credit was
$2.2 million as of December 31, 2010, and is secured
by a deposit of $2.2 million. This deposit was recorded as
a long-term investment on our consolidated balance sheet as of
December 31, 2010.
50
The three manufacturing facility leases each have a provision
requiring that we restore the building to its original condition
upon lease termination. Accordingly, we have accrued the
estimated costs of dismantlement and restoration as these
obligations accumulate.
Production
and Supply Expenses
We have a supply agreement with Diosynth RTP, Inc.
(Diosynth) covering the commercial production of the
recombinant antigen used in the manufacture PROVENGE. On
May 12, 2010, we entered into a Second Amendment to the
supply agreement to extend the term of the agreement through
December 31, 2018, and unless terminated, the agreement
will renew automatically thereafter for additional
5-year
terms. The agreement may be terminated upon written notice by us
or Diosynth at least 24 months before the end of the
initial term or a renewal term or by either party in the event
of an uncured material breach or default by the other party.
We currently have a commitment with Diosynth to purchase antigen
through 2011 for a total of $77.6 million related to two
orders. As of December 31, 2010, we have paid
$38.4 million toward the orders and have a remaining
obligation of approximately $39.2 million. We began
receiving shipments of the first order in the third quarter 2010
and expect delivery of the second order to commence in mid-2011.
In addition, in 2010 we entered into commitments with Diosynth
to purchase antigen in 2012 for a total of $41.5 million
and in 2013 for a total of $43.8 million. In February 2011,
we paid $9.9 million toward the 2012 order.
In September 2010, we entered into a development and supply
agreement with GlaxoSmithKline LLC. This agreement is intended
to provide a second source for the commercial production and
supply of the recombinant antigen used in the manufacture of
PROVENGE. The term of the agreement is through December 31,
2015, unless earlier terminated pursuant to the terms of the
agreement, and provides for one or more two-year extensions to
the then expiring term. As of December 31, 2010, we have a
remaining payment obligation for the transfer of the antigen
production process aggregating $14.6 million payable
through September 2011. Upon execution of the agreement, we
placed an initial order for approximately $8.3 million,
with delivery of commercial orders to commence in 2012.
Software
and Equipment Financing
During 2009 and 2010, we entered into various lease agreements
for the lease of software licenses and equipment. The leases
have been treated as capital leases. The capital leases, with an
aggregate original principal amount totaling $13.3 million
and lease terms from 15 to 60 months, bear interest at
rates ranging from 2.9% to 11.9% per year.
Financings
from the Sale of Securities and Issuance of Convertible
Notes
Equity
Offering Proceeds
In December 2009, we received net proceeds of
$409.5 million after deducting underwriting commissions and
estimated offering expenses from our issuance of
17,250,000 shares of common stock at the public offering
price of $24.75 per share.
In May 2009, we received net proceeds of $220.8 million
after deducting underwriting commissions and estimated offering
expenses from our issuance of 11,979,166 shares of common
stock at the public offering price of $19.20 per share.
In April 2008, we issued 8.0 million shares of our common
stock, and warrants to purchase up to 8.0 million shares of
common stock to an institutional investor. We received net
proceeds of $46.0 million from our issuance of the shares
and the warrants to the investor. The investor purchased the
shares and warrants for a negotiated price of $5.92 per share of
common stock purchased. The warrants were exercisable at any
time prior to October 8, 2015, with an original exercise
price of $20.00 per share of common stock and included a net
exercise feature. On May 18, 2010 (the Exercise
Date), we entered into an amendment (the
Amendment) to the warrant agreement. Pursuant to the
terms of the Amendment, the exercise price of the warrants was
amended from $20.00 to $8.92 per share, and the investor
concurrently exercised the warrants for 8,000,000 shares of
common stock, resulting in aggregate cash proceeds to the
Company of $71.4 million.
51
On October 11, 2007, we entered into an equity line of
credit arrangement with Azimuth Opportunity Ltd.
(Azimuth) pursuant to a Common Stock Purchase
Agreement, which we amended in October 2008 and February 2009.
As amended, the Common Stock Purchase Agreement provided that,
upon the terms and subject to the conditions set forth therein,
Azimuth was committed to purchase up to $130.0 million of
our common stock over the approximate
36-month
term of the Common Stock Purchase Agreement. Pursuant to a
single draw down notice, on October 10, 2008, we sold
3,610,760 shares of our common stock at a price of $5.80
per share to Azimuth for net proceeds of approximately
$19.8 million. The Common Stock Purchase Agreement expired
in October 2010.
Convertible
Notes
In 2007, an aggregate of $85.3 million of the
4.75% Notes due 2014 (the 2014 Notes) were sold
in a private placement to qualified institutional buyers.
Proceeds from the offering, after deducting placement agent fees
and our estimated expenses, were approximately
$82.3 million. The 2014 Notes were issued at face principal
amount and pay interest semi-annually in arrears on June 15 and
December 15 of each year. Record dates for payment of interest
on the 2014 Notes are each June 1st and
December 1st. In certain circumstances, additional amounts
may become due as additional interest. We can elect that the
sole remedy for an event of default for our failure to comply
with the reporting obligations provisions of the
indenture under which the 2014 Notes were issued (the
Indenture), for the first 180 days after the
occurrence of such event of default would be for the holders of
the 2014 Notes to receive additional interest on the 2014 Notes
at an annual rate equal to 1% of the outstanding principal
amount of the 2014 Notes. We recorded interest expense,
including the amortization of debt issuance costs related to the
2014 Notes, of $3.9 million, $2.9 million and
$4.5 million during 2010, 2009 and 2008, respectively.
The 2014 Notes are convertible into our common stock, initially
at the conversion price of $10.28 per share, equal to a
conversion rate of approximately 97.2644 shares per $1,000
principal amount of the 2014 Notes, subject to adjustment. There
may be an increase in the conversion rate of the 2014 Notes
under certain circumstances described in the Indenture; however,
the number of shares of common stock issued will not exceed
114.2857 per $1,000 principal amount of the 2014 Notes. A holder
that converts 2014 Notes in connection with a fundamental
change, as defined in the Indenture, may in some
circumstances be entitled to an increased conversion rate (i.e.,
a lower per share conversion price) as a make whole premium. If
a fundamental change occurs, holders of the 2014 Notes may
require us to repurchase all or a portion of their 2014 Notes
for cash at a repurchase price equal to 100% of the principal
amount of the 2014 Notes to be repurchased, plus any accrued and
unpaid interest and other amounts due thereon. The Indenture
contains customary covenants.
In April 2009, $11.5 million in principal amount of the
2014 Notes were converted by holders of the 2014 Notes,
resulting in the issuance of approximately 1.1 million
shares of common stock. In May 2009, we exchanged approximately
2.1 million shares of our common stock for
$21.2 million principal face amount of the 2014 Notes. In
December 2010, we exchanged approximately 2.5 million
shares of common stock for $24.9 million principal face
amount of the 2014 Notes, which included a premium of
approximately 129,000 shares of common stock. The premium
is recorded as a loss on debt conversion of $4.7 million,
in other expense in the consolidated statements of operations
for 2010.
As of December 31, 2010 and 2009, the aggregate principal
amount of the 2014 Notes outstanding was $27.7 million and
$52.5 million, respectively. The fair value of the 2014
Notes at December 31, 2010 and December 31, 2009,
based on the average trading prices of similar instruments near
each respective year-end, was approximately $98.0 million
and $141.8 million, respectively.
On January 14, 2011, we entered into an underwriting
agreement with J.P. Morgan Securities LLC (the
Underwriter) relating to the offer and sale of
$540 million aggregate principal amount of our
2.875% Convertible Senior Notes due 2016 (the 2016
Notes). Under the terms of the underwriting agreement, we
granted the Underwriter an option, exercisable within
30 days of the date of the agreement, to purchase up to an
additional $80 million aggregate principal amount of 2016
Notes to cover overallotments. We issued $540 million in
aggregate principal amount of the 2016 Notes upon the closing of
the offering on January 20, 2011. Net proceeds to us, after
payment of underwriting fees and estimated expenses, were
approximately $528.8 million. On January 31, 2011, the
Underwriter exercised the overallotment option in full, and we
closed on the sale of the additional $80 million in
52
principal amount of the 2016 Notes on February 3, 2011. Net
proceeds to us from the exercise of the overallotment option,
after deducting underwriting fees, were approximately
$78.5 million.
On January 20, 2011, we entered into the First Supplemental
Indenture (the Supplemental Indenture), dated as of
January 20, 2011, with The Bank of New York Mellon
Trust Company, N.A., as trustee (the Trustee),
to our existing Base Indenture (the Base Indenture
and, together with the Supplemental Indenture, the 2016
Indenture), dated as of March 16, 2007, with the
Trustee. The 2016 Indenture sets forth the rights and provisions
governing the 2016 Notes. Interest is payable on the 2016 Notes
semi-annually in arrears on January 15 and July 15 of each year,
beginning on July 15, 2011. Record dates for payment of
interest on the 2016 Notes are each January 1 and July 1.
The 2016 Notes are convertible at the option of the holder, and
we may choose to satisfy in cash, shares of our common stock, or
a combination of cash and shares of our common stock, based on a
conversion rate initially equal to 19.5160 shares of our
common stock per $1,000 principal amount of the 2016 Notes,
which is equivalent to an initial conversion price of
approximately $51.24 per share. The conversion rate will be
increased under certain circumstances described in the 2016
Indenture; however, the number of shares of common stock issued
upon conversion of a 2016 Note will not exceed 27.3224 per
$1,000 principal amount of 2016 Notes, subject to adjustment in
accordance with the 2016 Indenture.
The offering of the 2016 Notes was made pursuant to our
effective shelf registration statement on
Form S-3
(Registration
No. 333-163573),
as amended by a post-effective amendment, including the related
prospectus dated January 13, 2011 and the prospectus
supplement dated January 14, 2011, each as filed with the
Securities and Exchange Commission.
Contractual
Commitments
The following are contractual commitments at December 31,
2010 associated with supply agreements, construction contracts,
debt and lease obligations, including interest and unconditional
purchase obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Contractual Commitments(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior subordinated notes
(2014 Notes) (including interest)(b)
|
|
$
|
32,288
|
|
|
$
|
1,315
|
|
|
$
|
2,630
|
|
|
$
|
28,343
|
|
|
|
|
|
Facility lease obligations (including interest)(c)
|
|
|
27,266
|
|
|
|
1,817
|
|
|
|
3,759
|
|
|
|
3,900
|
|
|
|
17,790
|
|
Contractual commitments(d)
|
|
|
165,879
|
|
|
|
70,344
|
|
|
|
93,409
|
|
|
|
2,126
|
|
|
|
|
|
Operating leases(e)
|
|
|
24,388
|
|
|
|
5,991
|
|
|
|
3,231
|
|
|
|
2,646
|
|
|
|
12,520
|
|
Unconditional purchase obligations
|
|
|
3,104
|
|
|
|
3,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
252,925
|
|
|
$
|
82,571
|
|
|
$
|
103,029
|
|
|
$
|
37,015
|
|
|
$
|
30,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Contractual Commitments table above does not include
obligations related to construction management contracts for the
Orange County Facility and the Atlanta Facility, of which
approximately $3.1 million remained payable under these
contracts at December 31, 2010. |
|
(b) |
|
See Note 9 to our Consolidated Financial Statements for
additional information related to the 2014 Notes. |
|
(c) |
|
See Note 8 to our Consolidated Financial Statements for
additional information related to our facility lease
obligations. Our facility lease obligation commitment reflects
the initial term of the Lease and a renewal period. |
|
(d) |
|
See Note 14 to our Consolidated Financial Statements for
additional information related to our contractual commitments
with Diosynth and GlaxoSmithKline LLC, and related to product
support under capital leases included in our operating lease
disclosure. See Note 8 to our Consolidated Financial
Statements for additional information related to our capital
lease obligations. |
|
(e) |
|
See Note 14 to our Consolidated Financial Statements for
additional information related to our operating lease
contractual commitments. |
53
The above table of contractual commitments excludes commitments
from 2011 to 2016 related to the sale in January 2011 of
$620 million aggregate principal amount of our 2016 Notes.
Interest is payable on the 2016 Notes semi-annually in arrears
on January 15 and July 15 of each year, beginning on
July 15, 2011. Record dates for payment of interest on the
2016 Notes are each January 1 and July 1.
The above table of contractual commitments also excludes
commitments from two leases entered into in February 2011, with
Northwest Mutual Insurance Company and Zymogenetics, Inc. The
initial lease terms are five and a half years, with one renewal
term of three years, and seven and a half years, respectively.
The aggregate rent payable for the buildings under the initial
lease terms is approximately $25 million and
$25 million, respectively.
OFF-BALANCE
SHEET ARRANGEMENTS
We have no material off-balance sheet arrangements.
FORWARD-LOOKING
STATEMENTS
Some of the statements contained in this annual report are
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), and are subject to the
safe harbor created by the Private Securities Litigation Reform
Act of 1995. We have based these forward-looking statements
largely on our expectations and projections about future events
and financial trends affecting the financial condition
and/or
operating results of our business. Forward-looking statements
involve risks and uncertainties, particularly those risks and
uncertainties inherent in the process of discovering, developing
and commercializing drugs that are safe and effective for use as
human therapeutics. There are important factors that could cause
actual results to be substantially different from the results
expressed or implied by these forward-looking statements,
including, among other things:
|
|
|
|
|
whether we have adequate financial resources and access to
capital to fund commercialization of PROVENGE and that of other
potential product candidates we may develop;
|
|
|
|
our ability to successfully manufacture PROVENGE and other
product candidates in necessary quantities with required quality;
|
|
|
|
our ability to successfully obtain regulatory approvals and
commercialize our products that are under development and
develop the infrastructure necessary to support
commercialization if regulatory approvals are received;
|
|
|
|
our ability to complete and achieve positive results in ongoing
and new clinical trials;
|
|
|
|
our dependence on single-source vendors for some of the
components used in our product candidates;
|
|
|
|
the extent to which the costs of any products that we are able
to commercialize will be reimbursable by third-party payors;
|
|
|
|
the extent to which any products that we are able to
commercialize will be accepted by the market;
|
|
|
|
our dependence on our intellectual property and ability to
protect our proprietary rights and operate our business without
conflicting with the rights of others;
|
|
|
|
the effect that any intellectual property litigation, or product
liability claims may have on our business and operating and
financial performance;
|
|
|
|
our expectations and estimates concerning our future operating
and financial performance;
|
|
|
|
the impact of competition and regulatory requirements and
technological change on our business;
|
|
|
|
our ability to recruit and retain key personnel;
|
|
|
|
our ability to enter into future collaboration agreements;
|
|
|
|
anticipated trends in our business and the biotechnology
industry generally; and
|
|
|
|
other factors described under Item 1A, Risk
Factors.
|
54
In addition, in this annual report the words
believe, may, will,
estimate, continue,
anticipate, intend, plan,
expect, potential, or
opportunity, the negative of these words or similar
expressions, as they relate to us, our business, future
financial or operating performance or our management, are
intended to identify forward-looking statements. We do not
intend to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise. Past financial or operating performance is not
necessarily a reliable indicator of future performance and you
should not use our historical performance to anticipate results
or future period trends.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our investment portfolio is maintained in accordance with our
investment policy, which specifies credit quality standards,
limits our credit exposure to any single issuer and defines
allowable investments. Pursuant to our policy, auction rate or
asset-backed securities without a guarantee by the
U.S. government are not permitted to be purchased. The fair
value of our cash equivalents and marketable securities is
subject to change as a result of changes in market interest
rates and investment risk related to the issuers credit
worthiness.
As of December 31, 2010 and 2009, we had short-term
investments of $121.8 million and $167.1 million,
respectively, and long-term investments of $22.5 million
and $29.4 million, respectively. Our short-term and
long-term investments are subject to interest rate risk and will
decline in value if market interest rates increase. The
estimated fair value of our short-term and long-term investments
at December 31, 2010, assuming a 100 basis point
increase in market interest rates, would decrease by
$0.6 million, which would not materially impact our results
of operations, cash flows or financial position. While changes
in interest rates may affect the fair value of our investment
portfolio, any gains or losses will not be recognized in our
statement of operations until the investment is sold or if the
reduction in fair value was determined to be an other than
temporary impairment.
We proactively monitor and manage our portfolio. If necessary,
we believe we are able to liquidate our investments within the
next year without significant loss. We currently believe these
securities are not significantly impaired, primarily due to the
government and major corporate guarantees of the underlying
securities; however, it could take until the final maturity of
the underlying notes to realize our investments recorded
values. Based on our expected operating cash flows, and our
other sources of cash, we do not anticipate the potential lack
of liquidity on these investments will affect our ability to
execute our current business plan.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Our financial statements, together with related notes, are
listed in Item 15(a) and included herein beginning on
page F-1.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
We carried out an evaluation required by the Exchange Act, under
the supervision and with the participation of our chief
executive officer and chief financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in
Rule 13a-15(e)
of the Exchange Act, as of December 31, 2010. Based on this
evaluation, our chief executive officer and chief financial
officer concluded that, as of December 31, 2010, our
disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed
by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the
time periods specified in the rules and forms of the Securities
and Exchange Commission and to provide reasonable assurance that
such information is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosures.
55
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
of the Exchange Act. Management has assessed the effectiveness
of our internal control over financial reporting as of
December 31, 2010 based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. As a
result of this assessment, management concluded that, as of
December 31, 2010, our internal control over financial
reporting was effective in providing reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Ernst & Young LLP has independently assessed the
effectiveness of our internal control over financial reporting
and its report is included below.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2010 that
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Limitations
on Controls
Management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will
prevent or detect all error and fraud. Any control system, no
matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute,
assurance that its objectives will be met. Further, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected.
The effectiveness of our internal control over financial
reporting as of December 31, 2010, was audited by our
independent registered public accounting firm, Ernst &
Young LLP, as stated in its report, which is included below.
56
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dendreon Corporation
We have audited Dendreon Corporations internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Dendreon
Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company, (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company, and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Dendreon Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Dendreon Corporation as of December 31,
2010 and 2009, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended December 31, 2010
and our report dated March 1, 2011 expressed an unqualified
opinion thereon.
Seattle, Washington
March 1, 2011
57
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item concerning our directors
and nominees is incorporated by reference to our definitive
Proxy Statement for our 2011 Annual Meeting of Stockholders (the
2011 Proxy Statement) under the caption
Election of Directors. Information on our nominating
committee process, and on our audit committee members including
our audit committee financial expert(s) is incorporated by
reference to the headings Governance Committee and
Audit Committee in our 2011 Proxy Statement.
Information regarding Section 16(a) beneficial ownership
reporting compliance is incorporated by reference to the
material under the heading Security Ownership of Certain
Beneficial Owners and Management in our 2011 Proxy
Statement. Information relating to our executive officers is
contained under the caption Executive Officers of the
Registrant in Part I of this annual report.
Our Board of Directors has adopted a Code of Business Conduct
applicable to our directors and all of our officers and
employees. The Code of Business Conduct is available, free of
charge, through the investor relations section of our website at
http://investor.dendreon.com/governance.cfm.
We intend to disclose any amendment to, or waiver from, the Code
of Business Conduct by posting such amendment or waiver, as
applicable, on our website.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated by
reference to the 2011 Proxy Statement under the captions
Executive Compensation and Director
Compensation.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information regarding security ownership is incorporated by
reference to the 2011 Proxy Statement under the caption
Security Ownership of Certain Beneficial Owners and
Management.
Securities Authorized for Issuance Under Equity Compensation
Plans. We maintain the 2002 Broad Based Equity
Incentive Plan (the 2002 Plan), the 2009 Equity
Incentive Plan (the 2009 Plan) and the Employee
Stock Purchase Plan (the ESPP), pursuant to which we
may grant equity awards to eligible persons. The 2000 Equity
Incentive Plan (the 2000 Plan) expired by its terms
during 2010, however it still governs outstanding awards
originally issued under that plan. The following table provides
information as of December 31, 2010, regarding the 2000
Plan, the 2002 Plan, the 2009 Plan and the ESPP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Future Issuance
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
Reflected in Column (a))
|
|
|
Equity compensation plans approved by stockholders(1)
|
|
|
2,250,013
|
|
|
$
|
23.81
|
(3)
|
|
|
11,274,521
|
(4)
|
Equity compensation plans not approved by stockholders(2)
|
|
|
422,959
|
|
|
$
|
23.64
|
|
|
|
25,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,672,972
|
|
|
$
|
23.78
|
|
|
|
11,299,856
|
|
|
|
|
(1) |
|
These plans are the 2000 Plan, the 2009 Plan and the ESPP. |
|
(2) |
|
This plan is the 2002 Plan. See Note 11 to our Consolidated
Financial Statements for a description of the material terms of
the 2002 Plan. |
58
|
|
|
(3) |
|
Includes information relating solely to options to purchase
common stock under the 2000 and 2009 Plan. |
|
(4) |
|
Of these shares, 1,547,729 remained available for purchase under
the ESPP as of December 31, 2010. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to the 2011 Proxy Statement under the captions
Management and Certain Security Holders of
Dendreon Certain Transactions and
Director Independence.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the 2011 Proxy Statement under the caption
Information Regarding Our Independent Registered Public
Accounting Firm.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of this
report:
(1) Financial Statements and Report of Independent
Auditors.
The financial statements required by this item are submitted in
a separate section beginning on
page F-1
of this annual report.
|
|
|
|
|
|
|
Page
|
|
Index to Consolidated Financial Statements
|
|
|
F-1
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets
|
|
|
F-3
|
|
Consolidated Statements of Operations
|
|
|
F-4
|
|
Consolidated Statements of Stockholders Equity
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
(2) Financial Statement Schedules.
None required.
(3) Exhibits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Period
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
Herewith
|
|
Form
|
|
Ending
|
|
Exhibit
|
|
Filing Date
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation.
|
|
|
|
10-Q
|
|
3/31/2002
|
|
|
3
|
.1
|
|
5/14/2002
|
|
3
|
.2
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
|
|
8-K
|
|
|
|
|
3
|
.1
|
|
6/13/2005
|
|
3
|
.3
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Dendreon Corporation
|
|
|
|
8-K
|
|
|
|
|
3
|
.1
|
|
6/16/2009
|
|
3
|
.4
|
|
Amended and Restated Bylaws.
|
|
|
|
10-Q
|
|
6/30/2004
|
|
|
3
|
.2
|
|
8/5/2004
|
|
3
|
.5
|
|
Amended and Restated Bylaws.
|
|
|
|
8-K
|
|
|
|
|
3
|
.2
|
|
12/8/2008
|
|
4
|
.1
|
|
Specimen Common Stock certificate.
|
|
|
|
S-1/A
|
|
|
|
|
4
|
.1
|
|
5/22/2000
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Period
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
Herewith
|
|
Form
|
|
Ending
|
|
Exhibit
|
|
Filing Date
|
|
|
4
|
.2
|
|
Certificate of Designation of Series A Junior Participating
Preferred Stock.
|
|
|
|
8-K
|
|
|
|
|
4
|
.1
|
|
9/25/2002
|
|
4
|
.3
|
|
Rights Agreement between the registrant and Mellon Investor
Services LLC, as Rights Agent, dated September 18, 2002.
|
|
|
|
8-K
|
|
|
|
|
99
|
.2
|
|
9/25/2002
|
|
4
|
.4
|
|
Form of Right Certificate.
|
|
|
|
8-K
|
|
|
|
|
99
|
.3
|
|
9/25/2002
|
|
4
|
.5
|
|
Indenture, dated as of June 11, 2007, between Dendreon
Corporation and The Bank of New York Trust Company, N.A.
|
|
|
|
8-K
|
|
|
|
|
10
|
.1
|
|
6/12/2007
|
|
4
|
.6
|
|
Amendment to Common Stock Purchase Warrant dated May 18,
2010.
|
|
|
|
8-K
|
|
|
|
|
4
|
.1
|
|
5/19/2010
|
|
4
|
.7
|
|
First Supplemental Indenture, dated as of January 20, 2011,
by and between the Company and The Bank of New York Mellon
Trust Company, N.A.
|
|
|
|
8-K
|
|
|
|
|
10
|
.01
|
|
1/20/2011
|
|
10
|
.1
|
|
Form of Amended Executive Employment Agreement with certain
named executive officers.*
|
|
|
|
8-K
|
|
|
|
|
99
|
.1
|
|
1/4/2007
|
|
10
|
.2
|
|
Indemnity Agreement between the registrant and each of its
directors and certain of its officers.
|
|
|
|
S-1
|
|
|
|
|
10
|
.1
|
|
10/11/2000
|
|
10
|
.3
|
|
Amended and Restated 2000 Broad Based Equity Incentive Plan.*
|
|
|
|
10-K
|
|
12/31/2006
|
|
|
10
|
.3
|
|
3/14/2007
|
|
10
|
.4
|
|
Amended and Restated 2002 Broad Based Equity Incentive Plan.*
|
|
|
|
10-K
|
|
12/31/2006
|
|
|
10
|
.4
|
|
3/14/2007
|
|
10
|
.5
|
|
2000 Employee Stock Purchase Plan.*
|
|
|
|
S-1
|
|
|
|
|
10
|
.3
|
|
10/11/2000
|
|
10
|
.6
|
|
2009 Offering under the Amended and Restated 2000 Employee Stock
Purchase Plan.*
|
|
|
|
10-K
|
|
12/31/2008
|
|
|
10
|
.6
|
|
3/12/2009
|
|
10
|
.7
|
|
Form of Stock Option Agreement under 2000 Equity Incentive Plan.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.33
|
|
6/13/2005
|
|
10
|
.8
|
|
Form of Stock Option Agreement under 2002 Broad Based Equity
Incentive Plan.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.34
|
|
6/13/2005
|
|
10
|
.9
|
|
Form of Stock Option Agreement (Nonstatutory Stock Options)
under 2009 Equity Incentive Plan.*
|
|
|
|
10-Q
|
|
3/31/2010
|
|
|
10
|
.1
|
|
5/10/2010
|
|
10
|
.10
|
|
Form of Incentive Stock Option Agreement under 2009 Equity
Incentive Plan.*
|
|
|
|
10-Q
|
|
3/31/2010
|
|
|
10
|
.2
|
|
5/10/2010
|
|
10
|
.11
|
|
Form of Restricted Stock Award Agreement.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.46
|
|
1/24/2006
|
|
10
|
.12
|
|
Form of Restricted Stock Agreement under 2009 Equity Incentive
Plan.*
|
|
|
|
10-Q
|
|
3/31/2010
|
|
|
10
|
.3
|
|
5/10/2010
|
|
10
|
.13
|
|
Dendreon Corporation Incentive Plan.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.31
|
|
6/13/2005
|
|
10
|
.14
|
|
Supply Agreement, dated as of December 22, 2005, by and
between Dendreon Corporation and Diosynth RTP.
|
|
|
|
8-K
|
|
|
|
|
10
|
.41
|
|
12/28/2005
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Period
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
Herewith
|
|
Form
|
|
Ending
|
|
Exhibit
|
|
Filing Date
|
|
|
10
|
.15
|
|
Settlement Agreement and Amendment to the Supply Agreement,
dated as of October 24, 2008, by and between Dendreon
Corporation and Diosynth RTP, Inc.
|
|
|
|
10-Q
|
|
9/30/2008
|
|
|
10
|
.1
|
|
11/10/2008
|
|
10
|
.16
|
|
Second Amendment to Supply Agreement, dated as of May 6,
2010, by and between Dendreon Corporation and Diosynth RTP Inc.
|
|
|
|
8-K
|
|
|
|
|
10
|
.1
|
|
5/13/2010
|
|
10
|
.17
|
|
Lease Agreement between First Industrial, L.P. and Dendreon
Corporation, dated August 17, 2005.
|
|
|
|
8-K
|
|
|
|
|
10
|
.36
|
|
8/18/2005
|
|
10
|
.18
|
|
Office Lease between Selig Real Estate Holdings Fourteen and
Dendreon Corporation, dated September 2, 2005.
|
|
|
|
10-Q
|
|
9/30/2005
|
|
|
10
|
.37
|
|
11/8/2005
|
|
10
|
.19
|
|
Second Amendment to Office Lease Agreement between Selig Real
Estate Holdings Fourteen and Dendreon Corporation, dated
March 9, 2009
|
|
|
|
10-K
|
|
12/31/2008
|
|
|
10
|
.15
|
|
3/12/2009
|
|
10
|
.20
|
|
Lease Agreement, dated July 31, 1998, between the
Registrant and ARE-3005 First Avenue, LLC.
|
|
|
|
S-1
|
|
|
|
|
10
|
.11
|
|
3/8/2000
|
|
10
|
.21
|
|
Third Amendment to Lease Agreement, dated August 22, 2007
between Dendreon Corporation and ARE-3005 First Avenue, LLC.
|
|
|
|
8-K
|
|
|
|
|
10
|
.1
|
|
8/23/2007
|
|
10
|
.22
|
|
Common Stock Purchase Agreement, dated October 11, 2007,
between Dendreon Corporation and Azimuth Opportunity, Inc.
|
|
|
|
8-K
|
|
|
|
|
10
|
.1
|
|
10/12/2007
|
|
10
|
.23
|
|
Amendment No. 1 to Common Stock Purchase Agreement, dated
October 8, 2008.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.2
|
|
10/10/2008
|
|
10
|
.24
|
|
Amendment No. 2 to Common Stock Purchase Agreement, dated
February 9, 2009.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.3
|
|
2/11/2009
|
|
10
|
.25
|
|
Dendreon Corporation 2009 Equity Incentive Plan.
|
|
|
|
DEF 14A
|
|
|
|
|
Appendix A
|
|
|
4/30/2009
|
|
10
|
.26
|
|
Construction Agreement between The Henderson Corporation of PA,
Inc. and Dendreon Corporation dated June 16, 2009.
|
|
|
|
8-K
|
|
|
|
|
99
|
.1
|
|
6/22/2009
|
|
10
|
.27
|
|
Industrial Real Estate Lease between Majestic Realty Co. as
Landlord and Dendreon Corporation as Tenant.
|
|
|
|
10-Q
|
|
6/30/2009
|
|
|
10
|
.1
|
|
8/10/2009
|
|
10
|
.28
|
|
Industrial Real Estate Lease between Knickerbocker Properties,
Inc. XLVI, as Landlord and Dendreon Corporation as Tenant.
|
|
|
|
10-Q
|
|
6/30/2009
|
|
|
10
|
.2
|
|
8/10/2009
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Period
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
Herewith
|
|
Form
|
|
Ending
|
|
Exhibit
|
|
Filing Date
|
|
|
10
|
.29
|
|
Leukapheresis Services Agreement with the American Red Cross,
dated September 24, 2009.
|
|
|
|
8-K
|
|
|
|
|
99
|
.2
|
|
9/29/2009
|
|
10
|
.30
|
|
Executive Employment Agreement dated January 4, 2010,
between Hans Bishop and the Company.*
|
|
|
|
8-K
|
|
|
|
|
10
|
.1
|
|
1/8/2010
|
|
10
|
.31
|
|
Form of Executive Employment Agreement*
|
|
|
|
10-Q
|
|
3/31/2010
|
|
|
10
|
.4
|
|
5/10/2010
|
|
10
|
.32
|
|
Construction Management Agreement between Turner Construction
Company and Dendreon Corporation dated December 9, 2009.
|
|
|
|
10-K
|
|
12/31/2009
|
|
|
10
|
.27
|
|
2/22/2010
|
|
10
|
.33
|
|
Construction Management Agreement between Turner Construction
Company and Dendreon Corporation dated January 6, 2010.
|
|
|
|
10-K
|
|
12/31/2009
|
|
|
10
|
.28
|
|
2/22/2010
|
|
10
|
.34
|
|
Development and Supply Agreement, dated as of September 15,
2010, by and between Dendreon Corporation and GlaxoSmithKline
LLC.
|
|
|
|
8-K
|
|
|
|
|
10
|
.1
|
|
9/21/2010
|
|
10
|
.35
|
|
Underwriting Agreement, dated as of January 14, 2011, by
and between the Company and J.P. Morgan Securities LLC.
|
|
|
|
8-K
|
|
|
|
|
1
|
.01
|
|
1/20/2011
|
|
10
|
.36
|
|
Office Lease, dated as of February 25, 2011, by and between
The Northwestern Mutual Life Insurance Company and Dendreon
Corporation
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.37
|
|
Sublease, dated as of February 28, 2011, by and between
Zymogenetics, Inc. and Dendreon Corporation
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
21
|
.1
|
|
Dendreon Corporation List of Subsidiaries
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
24
|
.1
|
|
Power of Attorney (contained on signature page).
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C § 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Period
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
Herewith
|
|
Form
|
|
Ending
|
|
Exhibit
|
|
Filing Date
|
|
|
101
|
|
|
Instance Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
Schema Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
Labels Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Confidential treatment granted as to certain portions of this
Exhibit. |
|
* |
|
Management compensatory plans and arrangements required to be
filed as exhibits to this Report. |
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on this 1st day of March, 2011.
DENDREON CORPORATION
|
|
|
|
By:
|
/s/ Mitchell
H. Gold, M.D.
|
Mitchell H. Gold, M.D.
President and Chief Executive Officer
|
|
|
|
By:
|
/s/ Gregory
T. Schiffman
|
Gregory T. Schiffman
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
Gregory R. Cox
Vice President, Finance
(Principal Accounting Officer)
64
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Mitchell H.
Gold, M.D. and Richard F. Hamm, Jr., his or her true
and lawful attorneys-in-fact each acting alone, with full power
of substitution and re-substitution, for him or her and in his
or her name, place and stead in any and all capacities to sign
any or all amendments to this report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mitchell
H. Gold,
Mitchell
H. Gold, M.D.
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 1, 2011
|
|
|
|
|
|
/s/ Gregory
T. Schiffman
Gregory
T. Schiffman
|
|
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
|
March 1, 2011
|
|
|
|
|
|
/s/ Gregory
R. Cox
Gregory
R. Cox
|
|
Vice President, Finance
(Principal Accounting Officer)
|
|
March 1, 2011
|
|
|
|
|
|
Richard
B. Brewer
|
|
Chairman of the Board of Directors
|
|
March 1, 2011
|
|
|
|
|
|
Susan
B. Bayh
|
|
Director
|
|
March 1, 2011
|
|
|
|
|
|
Gerardo
Canet
|
|
Director
|
|
March 1, 2011
|
|
|
|
|
|
/s/ Bogdan
Dziurzynski, D.P.A.
Bogdan
Dziurzynski, D.P.A.
|
|
Director
|
|
March 1, 2011
|
|
|
|
|
|
/s/ Pedro
P. Granadillo
Pedro
P. Granadillo
|
|
Director
|
|
March 1, 2011
|
|
|
|
|
|
/s/ David
C. Stump
David
C. Stump
|
|
Director
|
|
March 1, 2011
|
|
|
|
|
|
/s/ David
L. Urdal, Ph.D.
David
L. Urdal, Ph.D.
|
|
Director
|
|
March 1, 2011
|
|
|
|
|
|
/s/ Douglas
G. Watson
Douglas
G. Watson
|
|
Director
|
|
March 1, 2011
|
65
DENDREON
CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dendreon Corporation
We have audited the accompanying consolidated balance sheets of
Dendreon Corporation as of December 31, 2010 and 2009, and
the related statements of operations, stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2010. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Dendreon Corporation at December 31,
2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Dendreon Corporations internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 1, 2011
expressed an unqualified opinion thereon.
Seattle, Washington
March 1, 2011
F-2
DENDREON
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
132,995
|
|
|
$
|
409,829
|
|
Short-term investments
|
|
|
121,796
|
|
|
|
167,116
|
|
Trade accounts receivable
|
|
|
12,679
|
|
|
|
|
|
Inventory
|
|
|
30,928
|
|
|
|
1,882
|
|
Prepaid antigen costs
|
|
|
17,656
|
|
|
|
18,975
|
|
Prepaid expenses and other current assets
|
|
|
14,340
|
|
|
|
6,684
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
330,394
|
|
|
|
604,486
|
|
Property and equipment, net
|
|
|
246,889
|
|
|
|
98,964
|
|
Long-term investments
|
|
|
22,505
|
|
|
|
29,441
|
|
Debt issuance costs and other assets
|
|
|
4,165
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
603,953
|
|
|
$
|
735,415
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,847
|
|
|
$
|
2,257
|
|
Accrued liabilities
|
|
|
19,842
|
|
|
|
19,557
|
|
Accrued compensation
|
|
|
17,410
|
|
|
|
6,855
|
|
Warrant liability
|
|
|
|
|
|
|
132,953
|
|
Current portion of capital lease obligations
|
|
|
4,045
|
|
|
|
722
|
|
Current portion of facility lease obligations
|
|
|
935
|
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
50,079
|
|
|
|
162,936
|
|
Long-term accrued liabilities
|
|
|
6,760
|
|
|
|
1,554
|
|
Capital lease obligations, less current portion
|
|
|
7,099
|
|
|
|
706
|
|
Facility lease obligations, less current portion
|
|
|
19,556
|
|
|
|
14,120
|
|
Convertible senior subordinated notes
|
|
|
27,685
|
|
|
|
52,535
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 250,000,000 shares
authorized, 145,233,948 and 131,125,690 shares issued and
outstanding at December 31, 2010 and 2009, respectively
|
|
|
145
|
|
|
|
131
|
|
Additional paid-in capital
|
|
|
1,715,522
|
|
|
|
1,286,891
|
|
Accumulated other comprehensive income (loss)
|
|
|
41
|
|
|
|
(4
|
)
|
Accumulated deficit
|
|
|
(1,222,934
|
)
|
|
|
(783,454
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
492,774
|
|
|
|
503,564
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
603,953
|
|
|
$
|
735,415
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
DENDREON
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue
|
|
$
|
48,057
|
|
|
$
|
101
|
|
|
$
|
111
|
|
Cost of revenue
|
|
|
28,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
19,537
|
|
|
|
101
|
|
|
|
111
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
75,941
|
|
|
|
61,586
|
|
|
|
50,086
|
|
Selling, general and administrative
|
|
|
235,760
|
|
|
|
38,556
|
|
|
|
20,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
311,701
|
|
|
|
100,142
|
|
|
|
70,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(292,164
|
)
|
|
|
(100,041
|
)
|
|
|
(70,478
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,144
|
|
|
|
964
|
|
|
|
3,619
|
|
Interest expense
|
|
|
(1,588
|
)
|
|
|
(2,321
|
)
|
|
|
(5,156
|
)
|
Loss on debt conversion
|
|
|
(4,716
|
)
|
|
|
|
|
|
|
|
|
(Loss) gain from valuation of warrant liability
|
|
|
(142,567
|
)
|
|
|
(118,763
|
)
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income tax benefit
|
|
|
(439,891
|
)
|
|
|
(220,161
|
)
|
|
|
(71,644
|
)
|
Income tax benefit
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(439,480
|
)
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(3.18
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(0.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic and diluted net loss per
share
|
|
|
138,206
|
|
|
|
108,050
|
|
|
|
90,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
DENDREON
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Balance, January 1, 2008
|
|
|
83,258,210
|
|
|
$
|
83
|
|
|
$
|
531,891
|
|
|
$
|
52
|
|
|
$
|
(491,649
|
)
|
|
$
|
40,377
|
|
Exercise of stock options for cash
|
|
|
131,133
|
|
|
|
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
204,731
|
|
|
|
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
721
|
|
Issuance of common stock (net of issuance cost of $2,550)
|
|
|
11,610,760
|
|
|
|
12
|
|
|
|
51,179
|
|
|
|
|
|
|
|
|
|
|
|
51,191
|
|
Non-cash stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
5,872
|
|
|
|
|
|
|
|
|
|
|
|
5,872
|
|
Issuance of restricted stock grants
|
|
|
372,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,644
|
)
|
|
|
(71,644
|
)
|
Net unrealized loss on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
95,577,664
|
|
|
$
|
95
|
|
|
$
|
590,159
|
|
|
$
|
45
|
|
|
$
|
(563,293
|
)
|
|
$
|
27,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options for cash
|
|
|
2,229,953
|
|
|
|
2
|
|
|
|
14,934
|
|
|
|
|
|
|
|
|
|
|
|
14,936
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
386,125
|
|
|
|
1
|
|
|
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
Issuance of common stock (net of issuance cost of $26,663)
|
|
|
29,229,166
|
|
|
|
30
|
|
|
|
630,275
|
|
|
|
|
|
|
|
|
|
|
|
630,305
|
|
Conversion of convertible debt
|
|
|
3,255,947
|
|
|
|
3
|
|
|
|
32,712
|
|
|
|
|
|
|
|
|
|
|
|
32,715
|
|
Non-cash stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
17,212
|
|
|
|
|
|
|
|
|
|
|
|
17,212
|
|
Issuance of restricted stock grants
|
|
|
446,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,161
|
)
|
|
|
(220,161
|
)
|
Net unrealized loss on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
131,125,690
|
|
|
$
|
131
|
|
|
$
|
1,286,891
|
|
|
$
|
(4
|
)
|
|
$
|
(783,454
|
)
|
|
$
|
503,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options for cash and other
|
|
|
1,596,258
|
|
|
|
2
|
|
|
|
7,509
|
|
|
|
|
|
|
|
|
|
|
|
7,511
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
636,369
|
|
|
|
1
|
|
|
|
4,406
|
|
|
|
|
|
|
|
|
|
|
|
4,407
|
|
Conversion of convertible debt
|
|
|
2,546,232
|
|
|
|
3
|
|
|
|
29,582
|
|
|
|
|
|
|
|
|
|
|
|
29,585
|
|
Non-cash stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
40,262
|
|
|
|
|
|
|
|
|
|
|
|
40,262
|
|
Issuance of restricted stock grants
|
|
|
1,329,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
8,000,000
|
|
|
|
8
|
|
|
|
346,872
|
|
|
|
|
|
|
|
|
|
|
|
346,880
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439,480
|
)
|
|
|
(439,480
|
)
|
Net unrealized gain on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
145,233,948
|
|
|
$
|
145
|
|
|
$
|
1,715,522
|
|
|
$
|
41
|
|
|
$
|
(1,222,934
|
)
|
|
$
|
492,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
DENDREON
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(439,480
|
)
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
16,084
|
|
|
|
4,662
|
|
|
|
5,716
|
|
Non-cash stock-based compensation expense
|
|
|
40,262
|
|
|
|
17,212
|
|
|
|
5,872
|
|
Loss (gain) on valuation of warrant liability
|
|
|
142,567
|
|
|
|
118,763
|
|
|
|
(371
|
)
|
Amortization of securities discount and premium
|
|
|
1,540
|
|
|
|
648
|
|
|
|
56
|
|
Loss on conversion of debt
|
|
|
4,716
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,623
|
|
|
|
|
|
|
|
413
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(12,679
|
)
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(17,054
|
)
|
|
|
(1,882
|
)
|
|
|
|
|
Prepaid antigen costs
|
|
|
(10,673
|
)
|
|
|
(18,975
|
)
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(10,722
|
)
|
|
|
(4,584
|
)
|
|
|
1,168
|
|
Accounts payable
|
|
|
5,590
|
|
|
|
2,020
|
|
|
|
(1,984
|
)
|
Accrued liabilities and compensation
|
|
|
10,840
|
|
|
|
16,856
|
|
|
|
(6,473
|
)
|
Other long term liabilities
|
|
|
(82
|
)
|
|
|
(82
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(267,468
|
)
|
|
|
(85,523
|
)
|
|
|
(67,330
|
)
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities and sales of investments
|
|
|
362,713
|
|
|
|
69,894
|
|
|
|
52,545
|
|
Purchases of investments
|
|
|
(312,064
|
)
|
|
|
(216,094
|
)
|
|
|
(55,520
|
)
|
Purchases of property and equipment
|
|
|
(140,761
|
)
|
|
|
(65,912
|
)
|
|
|
(6,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(90,112
|
)
|
|
|
(212,112
|
)
|
|
|
(9,780
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrant
|
|
|
71,360
|
|
|
|
|
|
|
|
|
|
Proceeds from common stock offering, net of issuance costs
|
|
|
|
|
|
|
630,305
|
|
|
|
51,191
|
|
Proceeds from issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
14,561
|
|
Net proceeds from release of security deposits associated with
debt
|
|
|
112
|
|
|
|
3,853
|
|
|
|
700
|
|
Payments on long-term debt
|
|
|
|
|
|
|
(2,194
|
)
|
|
|
(5,732
|
)
|
Payments on facility lease obligations
|
|
|
(685
|
)
|
|
|
(194
|
)
|
|
|
(172
|
)
|
Payments on capital lease obligations
|
|
|
(1,959
|
)
|
|
|
(365
|
)
|
|
|
(853
|
)
|
Net proceeds from exercise of stock options and other
|
|
|
7,511
|
|
|
|
14,936
|
|
|
|
496
|
|
Issuance of common stock under the Employee Stock Purchase Plan
|
|
|
4,407
|
|
|
|
1,600
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
80,746
|
|
|
|
647,941
|
|
|
|
60,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(276,834
|
)
|
|
|
350,306
|
|
|
|
(16,198
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
409,829
|
|
|
|
59,523
|
|
|
|
75,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
132,995
|
|
|
$
|
409,829
|
|
|
$
|
59,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
3,569
|
|
|
$
|
3,299
|
|
|
$
|
5,187
|
|
Conversion of debt into common stock
|
|
|
24,850
|
|
|
|
32,715
|
|
|
|
|
|
Assets acquired under facility and capital leases
|
|
|
18,031
|
|
|
|
8,458
|
|
|
|
|
|
Increase in asset retirement obligation
|
|
|
5,157
|
|
|
|
1,106
|
|
|
|
20
|
|
Exercise of warrant
|
|
|
275,520
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
DENDREON
CORPORATION
|
|
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Dendreon Corporation (Dendreon, the
Company, we, us, or
our), a Delaware corporation, is a biotechnology
company focused on the discovery, development and
commercialization of novel therapeutics that may significantly
improve cancer treatment options for patients. Our product
portfolio includes active cellular immunotherapy and small
molecule product candidates to treat a wide range of cancers.
On April 29, 2010, the U.S. Food and Drug
Administration (FDA) licensed
PROVENGE®
(sipuleucel-T), our first in class autologous cellular
immunotherapy for the treatment of asymptomatic or minimally
symptomatic, metastatic, castrate-resistant (hormone-refractory)
prostate cancer. Commercial sale of PROVENGE began in May 2010.
Prostate cancer is the most common non-skin cancer among men in
the United States, with over one million men currently diagnosed
with the disease, and the second leading cause of cancer deaths
in men in the United States. We own worldwide rights for
PROVENGE.
Principles
of Consolidation
During 2010, we established four new entities, Dendreon UK Ltd
(Dendreon UK), Dendreon Manufacturing, LLC
(Dendreon Manufacturing), Dendreon Holdings, LLC
(Dendreon Holdings) and Dendreon Distribution, LLC
(Dendreon Distribution). Dendreon UK and Dendreon
Holdings are wholly-owned subsidiaries of the Company, and
Dendreon Distribution and Dendreon Manufacturing are
wholly-owned subsidiaries of Dendreon Holdings. The consolidated
financial statements for the year ended December 31, 2010
include the accounts of Dendreon and its direct and indirect
wholly-owned subsidiaries, Dendreon UK, Dendreon Holdings,
Dendreon Distribution and Dendreon Manufacturing. The
consolidated financial statements for the years ended
December 31, 2009 and 2008 include the accounts of Dendreon
and its wholly-owned subsidiary, Dendreon San Diego, LLC,
through February 2, 2009, the effective date of dissolution
of the entity.
All intercompany transactions and balances have been eliminated
in consolidation.
Reclassifications
Certain prior period balances have been reclassified in order to
conform to the current period presentation.
Use of
Estimates
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments in certain circumstances that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. In preparing these financial statements, management
has made its best estimates and judgments of certain amounts
included in the financial statements, giving due consideration
to materiality. On an ongoing basis, we evaluate our estimates,
including those related to revenue recognition, investments,
fair values of acquired assets, income taxes, financing
activities, long-term service contracts, clinical trial accruals
and other contingencies. Management bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual
results could differ from these estimates.
Revenue
Recognition
We recognize revenue primarily from the sale of PROVENGE and
collaborative research agreements. Revenue from the sale of
PROVENGE is recorded net of product returns and estimated
healthcare provider contractual chargebacks. Revenue from sales
of PROVENGE is recognized upon our confirmed product delivery to
and issuance of the product release form to the physician site.
As we executed a drop shipment agreement with a credit
F-7
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
worthy third party wholesaler (Wholesaler) to sell
PROVENGE, the Wholesaler assumes all bad debt risk from the
physician, and no allowance for bad debt is recorded. Due to the
limited usable life of our product, actual returns are credited
against sales in the month they are incurred. Healthcare
provider contractual chargebacks are the result of contractual
commitments by us to provide products to healthcare providers at
specified prices or discounts such as pursuant to mandatory
federal programs. Chargebacks occur when a contracted healthcare
provider purchases our products through the Wholesaler at fixed
contract prices that are lower than the price we charge the
Wholesaler. The Wholesaler, in turn, charges us back for the
difference between the price initially paid by the Wholesaler
and the contract price paid to the Wholesaler by the healthcare
providers. These chargebacks will be recognized in the same
period that the related revenue is recognized, resulting in a
reduction in product sales revenue, and will be recorded as
other accrued liabilities. For the year ended December 31,
2010, we did not have any chargebacks.
We recognize collaborative research revenue from up-front
payments, milestone payments, and personnel-supported research
funding. We also recognize license revenue from intellectual
property and technology agreements. The payments received under
these research collaboration agreements are generally
contractually not refundable even if the research effort is not
successful. Performance under our collaborative agreements is
measured by scientific progress, as mutually agreed upon by us
and our collaborators. Such revenue was insignificant for the
years ended December 31, 2010, 2009 and 2008.
Inventory
Inventories are determined at the lower of cost or market value
with cost determined under the specific identification method.
Inventories consisted of raw materials at December 31, 2010
and 2009, but we may also have work in process and finished
goods at any given time. We began capitalizing raw material
inventory in mid-April 2009 in preparation for our PROVENGE
product launch when the product was considered to have a high
probability of regulatory approval and the related costs were
expected to be recoverable through the commercialization of the
product. Costs incurred prior to mid-April 2009 have been
recorded as research and development expense in our statement of
operations. As a result, inventory balances and cost of revenue
for the next few quarters will reflect a lower average per unit
cost of materials.
Prepaid
Antigen Costs
The Company utilizes a third party supplier to manufacture and
package the recombinant antigen used in the manufacture of
PROVENGE. The Company takes title to this material when accepted
from the third party supplier and stores it as raw material
inventory for manufacturing and eventual sale. Upon successful
manufacturing of the antigen, the prepaid costs of these
materials are capitalized and transferred to inventory as
antigen is received.
Research
and Development Expenses
Nonrefundable prepayments for research and development goods and
services are deferred and recognized as the services are
rendered. Research and development expenses include, but are not
limited to, payroll and personnel expenses, lab expenses,
clinical trial and related clinical manufacturing costs,
facilities and related overhead costs.
Property
and Equipment
Property and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives
of the assets, which range from two to sixteen years. Included
in fixed assets is the cost of internally developed software. We
expense all costs related to internally developed software,
other than those incurred during the application development
stage. Costs incurred during the application development stage
are capitalized and amortized over the estimated useful life of
the software. Estimated useful lives of furniture and fixtures
and laboratory and manufacturing equipment are seven years,
office equipment is five years, buildings are sixteen years and
computers and software are three years. Computers and equipment
financed under capital leases are amortized over the shorter of
the useful lives of the related assets or the lease term.
Leasehold improvements are stated at cost
F-8
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and amortized using the straight-line method over the remaining
life of the lease or ten years, whichever is shorter.
Construction in progress is reclassified to the appropriate
fixed asset classifications and depreciated accordingly when
related assets are deemed ready for their intended use and
placed in service. We capitalize interest on borrowings during
the construction period of major capital projects. Capitalized
interest is added to the cost of the underlying assets and is
amortized over the useful lives of the related assets.
Impairment
of Long-Lived Assets
Losses from impairment of long-lived assets used in operations
are recognized when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amount. We
periodically evaluate the carrying value of long-lived assets to
be held and used when events and circumstances indicate that the
carrying amount of an asset may not be recovered.
Cash,
Cash Equivalents, and Investments
We consider investments in highly liquid instruments purchased
with an original maturity at purchase of 90 days or less to
be cash equivalents. The amounts are recorded at cost, which
approximates fair value. Our cash equivalents and short-term and
long-term investments consist principally of commercial paper,
money market securities, treasury notes, agency bonds, corporate
bonds/notes and certificates of deposit.
We have classified our entire investment portfolio as
available-for-sale.
Available-for-sale
securities are carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders
equity and included in accumulated other comprehensive income
(loss). The amortized cost of investments is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion are included in interest income.
Interest earned on securities is included in interest income.
Gains are recognized when realized in our consolidated
statements of operations. Losses are recognized when realized or
when we have determined that an
other-than-temporary
decline in fair value has occurred.
We periodically evaluate whether declines in fair values of our
investments below their cost are
other-than-temporary.
This evaluation consists of several qualitative and quantitative
factors regarding the severity and duration of the unrealized
loss as well as our ability and intent to hold the investment
until a forecasted recovery occurs. Additionally, we assess
whether it is more likely than not we will be required to sell
any investment before recovery of its amortized cost basis.
We consider an investment with a maturity greater than twelve
months from the balance sheet date as long-term and a maturity
less than twelve months as short-term at the balance sheet date.
The cost of securities sold is based on the specific
identification method.
Warrant
Liability
On April 3, 2008, we issued 8.0 million shares (the
Shares) of our common stock, and warrants (the
Warrants) to purchase up to 8.0 million shares
of common stock to an institutional investor (the
Investor). The Investor purchased the Shares and
Warrants for a negotiated price of $5.92 per share of common
stock purchased. The Warrants were exercisable at any time prior
to October 8, 2015, with an original exercise price of
$20.00 per share of common stock and included a net exercise
feature. On May 18, 2010 (the Exercise Date),
we entered into an amendment (the Amendment) to the
warrant agreement. Pursuant to the terms of the Amendment, the
exercise price of the Warrants was amended from $20.00 to $8.92
per share, and the Investor concurrently exercised the warrant
for 8,000,000 shares of common stock, resulting in
aggregate cash proceeds to the Company of $71.4 million.
The Warrants were recorded at fair value at issuance and were
adjusted to fair value at each reporting period until the
Exercise Date. Any change in fair value between reporting
periods was recorded as other income (expense). The Warrants
continued to be reported as a liability until they were
exercised, at which time the Warrants
F-9
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
were adjusted to fair value and reclassified from liabilities to
stockholders equity. The fair value of the Warrants was
estimated using the Black-Scholes-Merton (BSM)
option pricing model. The fair value of the Warrants on the
Exercise Date was $275.5 million, compared with
$133.0 million at December 31, 2009. During the years
ended December 31, 2010 and 2009, losses of
$142.6 million and $118.8 million, respectively, were
recognized from valuation of the warrant liability. During the
year ended December 31, 2008, we recorded a gain of
$371,000 from valuation of the warrant liability.
Fair
Value
We measure and report at fair value our cash equivalents and
investment securities. We also measured and reported at fair
value our warrant liability, prior to exercise of the Warrants
in the second quarter of 2010. Fair value is defined as the
exchange price that would be received for an asset or paid to
transfer a liability, an exit price, in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
Valuation techniques used to measure fair value maximize the use
of observable inputs and minimize the use of unobservable
inputs. The hierarchy of fair value measurements is described
below:
|
|
|
|
Level 1
|
Observable inputs for identical assets or liabilities such as
quoted prices in active markets;
|
|
|
Level 2
|
Inputs other than quoted prices in active markets that are
either directly or indirectly observable; and
|
|
|
Level 3
|
Unobservable inputs in which little or no market data exists,
therefore determined using estimates and assumptions developed
by us, which reflect those that a market participant would use.
|
Debt
Issuance Costs
Debt issuance costs of approximately $3.0 million related
to our 4.75% Convertible Senior Subordinated Notes due 2014
(the 2014 Notes) issued in June and July of 2007 are
amortized over the life of the 2014 Notes. Amortization expense,
including amounts expensed due to the conversion of the notes
into equity, was approximately $1.4 million, $428,000 and
$428,000 for the years ended December 31, 2010, 2009 and
2008, respectively, and is reported as interest expense.
Accounting
for Stock-Based Compensation
Stock-based compensation cost is estimated at the grant date
based on the awards fair value and is recognized on the
accelerated method as expense over the requisite service period.
Compensation cost for all stock-based awards is measured at fair
value as of the grant date. The fair value of our stock options
is calculated using the BSM model. The BSM model requires
various highly judgmental assumptions including volatility,
forfeiture rates and expected option life. If any of the
assumptions used in the BSM model change significantly,
stock-based compensation expense for new awards may differ
materially in the future from that recorded in the current
period.
We also grant restricted stock awards that generally vest over a
four year period; however in 2006 and 2007, we granted
restricted stock awards with certain performance conditions to
all employees. The restricted stock awards granted in 2006 and
2007 with remaining performance conditions all vested upon
marketing approval for PROVENGE by the FDA on April 29,
2010 (the Approval Date). In addition, in December
2010 we granted restricted stock awards with certain performance
conditions to certain executive officers. At each reporting
date, we are required to evaluate whether achievement of the
performance condition is probable. Compensation expense is
recorded based upon our assessment of accomplishing each
performance provision, over the appropriate service period. For
the year ended December 31, 2010, no expense was recognized
related to these awards.
We determine the fair value of awards under our Employee Stock
Purchase Plan using the BSM model.
F-10
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Loss Per Share
Basic net loss per share is calculated by dividing net loss by
the weighted average number of common shares outstanding.
Because we report a net loss, diluted net loss per share is the
same as basic net loss per share. We have excluded all
outstanding stock options, Warrants and unvested restricted
stock, as well as shares issuable in connection with the
conversion of the 2014 Notes and our Common Stock Purchase
Agreement with Azimuth Opportunity Ltd. (the Common Stock
Purchase Agreement) that expired during October 2010, from
the calculation of diluted net loss per common share because all
such securities are anti-dilutive to the computation of net loss
per share. Shares excluded from the computation of net loss per
share were 7.6 million, 31.7 million and
35.6 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Income
Taxes
Deferred taxes are measured using enacted tax rates expected to
be in effect in a year in which the basis difference is expected
to reverse. We continue to record a valuation allowance for the
full amount of deferred 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.
Concentrations
of Risk
We are subject to concentration of risk from our investments and
single-source vendors for some components necessary for PROVENGE
and our active cellular immunotherapy product candidates.
Our investment portfolio is maintained in accordance with our
investment policy, which specifies credit quality standards,
limits our credit exposure to any single issuer and defines
allowable investments. Pursuant to our policy, auction rate or
asset-backed securities without a guarantee by the
U.S. government are not permitted to be purchased. The fair
value of our cash equivalents and marketable securities is
subject to change as a result of changes in market interest
rates and investment risk related to the issuers credit
worthiness.
We proactively monitor and manage our portfolio. If necessary,
we believe we are able to liquidate our investments within the
next year without significant loss. We currently believe these
securities are not significantly impaired, primarily due to the
government and major corporate guarantees of the underlying
securities; however, it could take until the final maturity of
the underlying notes to realize our investments recorded
values. Based on our expected operating cash flows, and our
other sources of cash, we do not anticipate the potential lack
of liquidity on these investments will affect our ability to
execute our current business plan.
Our risk for single-source vendors is managed by maintaining a
certain level of existing stock of components and a continued
effort to establish additional suppliers.
Recent
Accounting Pronouncements
Effective during the quarter ended March 31, 2010, the
Financial Accounting Standards Board (the FASB)
issued Accounting Standards Update (ASU)
2010-09,
Subsequent Events (ASU
2010-09),
amending ASC 855, Subsequent Events, to state
that an entity that is a SEC filer is required to evaluate
subsequent events through the date that the financial statements
are issued, but is not required to disclose the date. The
amendment was effective commencing with the quarter ended
March 31, 2010. The adoption of ASU
2010-09 did
not have a significant impact on our financial statements.
During the quarter ended March 31, 2010, we adopted ASU
2010-06,
Fair Value Measurements and Disclosures (ASU
2010-06),
which updated ASC 820, Fair Value Measurements and
Disclosures. ASU
2010-06
requires disclosure as to the amounts and purpose of significant
asset transfers between Level 1 and 2 fair value
measurements. ASU
2010-06 also
requires separate disclosure of Level 3 fair value
measurement activity as it relates to purchases, sales,
issuances and settlements. The disclosure requirements related
to Level 1 and Level 2
F-11
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fair value measurements were effective commencing with the
quarter ended March 31, 2010. The disclosure requirements
related to the Level 3 fair value measurements are
effective commencing with the quarter ending March 31,
2011. The adoption of ASU
2010-06 did
not have a material impact on our financial statements.
Securities
available-for-sale
at cost or amortized cost and fair market value by contractual
maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Cost or
|
|
|
Market
|
|
|
|
Amortized
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
121,756
|
|
|
$
|
121,796
|
|
Due after one year through two years
|
|
|
22,504
|
|
|
|
22,505
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144,260
|
|
|
$
|
144,301
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
167,131
|
|
|
$
|
167,116
|
|
Due after one year through two years
|
|
|
29,430
|
|
|
|
29,441
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,561
|
|
|
$
|
196,557
|
|
|
|
|
|
|
|
|
|
|
Our gross realized gains or losses on sales of
available-for-sale
securities were not material for 2010, 2009 or 2008.
Securities
available-for-sale,
short-term and long-term, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair
|
|
|
|
Cost or
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Amortized
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit
|
|
$
|
6,232
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,232
|
|
Corporate debt securities
|
|
|
59,778
|
|
|
|
21
|
|
|
|
(21
|
)
|
|
|
59,778
|
|
Government-sponsored enterprises
|
|
|
63,199
|
|
|
|
39
|
|
|
|
(8
|
)
|
|
|
63,230
|
|
U.S. Treasury Note
|
|
|
15,051
|
|
|
|
10
|
|
|
|
|
|
|
|
15,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144,260
|
|
|
$
|
70
|
|
|
$
|
(29
|
)
|
|
$
|
144,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposit
|
|
$
|
6,344
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,344
|
|
Corporate debt securities
|
|
|
92,263
|
|
|
|
19
|
|
|
|
(9
|
)
|
|
|
92,273
|
|
Government-sponsored enterprises
|
|
|
33,015
|
|
|
|
15
|
|
|
|
(8
|
)
|
|
|
33,022
|
|
U.S. Treasury Note
|
|
|
64,939
|
|
|
|
7
|
|
|
|
(28
|
)
|
|
|
64,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,561
|
|
|
$
|
41
|
|
|
$
|
(45
|
)
|
|
$
|
196,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None of our securities have been in a continuous unrealized loss
position for more than 12 months at December 31, 2010.
Market values were determined for each individual security in
the investment portfolio. The declines in value of these
investments are primarily related to changes in interest rates
and are considered to be temporary in nature. It is not more
likely than not that we will be required to sell these
securities before the recovery of their amortized cost
F-12
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
basis; therefore we do not consider these investments to be
other-than-temporarily
impaired as of December 31, 2010. See Note 3 for
further discussion.
|
|
3.
|
FAIR
VALUE MEASUREMENTS
|
We currently measure and report at fair value our cash
equivalents and investment securities. We also measured and
reported at fair value our warrant liability, prior to exercise
of the Warrants in the second quarter of 2010. Fair value is
defined as the exchange price that would be received for an
asset or paid to transfer a liability, an exit price, in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair
value maximize the use of observable inputs and minimize the use
of unobservable inputs. The hierarchy of fair value measurements
is described below:
|
|
|
|
Level 1
|
Observable inputs for identical assets or liabilities such as
quoted prices in active markets,
|
|
|
Level 2
|
Inputs other than quoted prices in active markets that are
either directly or indirectly observable, and
|
|
|
Level 3
|
Unobservable inputs in which little or no market data exists,
therefore developed using estimates and assumptions developed by
us, which reflect those that a market participant would use.
|
The following table summarizes our financial assets and
liabilities measured at fair value on a recurring basis (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
Balance as of
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
December 31,
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
$
|
112,138
|
|
|
$
|
112,138
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
9,997
|
|
|
|
|
|
|
|
9,997
|
|
|
|
|
|
Corporate debt securities
|
|
|
59,778
|
|
|
|
|
|
|
|
59,778
|
|
|
|
|
|
Government-sponsored enterprises
|
|
|
63,230
|
|
|
|
|
|
|
|
63,230
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
15,061
|
|
|
|
|
|
|
|
15,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
260,204
|
|
|
$
|
112,138
|
|
|
$
|
148,066
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
$
|
378,663
|
|
|
$
|
378,663
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
32,543
|
|
|
|
|
|
|
|
32,543
|
|
|
|
|
|
Corporate debt securities
|
|
|
92,273
|
|
|
|
|
|
|
|
92,273
|
|
|
|
|
|
Government-sponsored enterprises
|
|
|
33,022
|
|
|
|
|
|
|
|
33,022
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
64,918
|
|
|
|
|
|
|
|
64,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
601,419
|
|
|
$
|
378,663
|
|
|
$
|
222,756
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$
|
132,953
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
132,953
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our fixed income investment securities are valued using the
market approach. The fair value of the Warrants was determined
using the BSM model with volatility derived from the weighted
average current volatility and implied volatilities of traded
options.
The following table is a roll forward of the fair value of the
Warrants, as to which fair value is determined by Level 3
inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Description
|
|
2010
|
|
|
2009
|
|
|
Beginning balance, January 1
|
|
$
|
132,953
|
|
|
$
|
14,190
|
|
Purchases, issuances, and settlements
|
|
|
|
|
|
|
|
|
Total loss included in net loss(1)
|
|
|
142,567
|
|
|
|
118,763
|
|
Exercise and conversion into common stock
|
|
|
(275,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
$
|
132,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The loss is reflected in our consolidated statements of
operations as a component of other expense, and relates to the
revaluation of the warrant liability in 2009 and from
January 1, 2010 through May 18, 2010, the date of
exercise. |
The fair value of the 2014 Notes at December 31, 2010 was
approximately $98.0 million, based on the average trading
prices of similar instruments near December 31, 2010. The
fair value is determined based on quoted prices in active
markets for similar instruments (a Level 2
input).
The carrying amounts reflected in the consolidated balance
sheets for cash, prepaid expenses, other current assets,
accounts payable, accrued expenses and other liabilities
approximate fair value due to their short-term nature. In
addition, our capital lease and debt obligations approximate
fair value based on current interest rates, which contain an
element of default risk.
Inventories, stated at the lower of cost or market, consisted of
raw materials of $30.9 million and $1.9 million as of
December 31, 2010 and 2009, respectively.
As of December 31, 2010 and 2009, there was
$17.7 million and $19.0 million, respectively, of
prepaid costs associated with the purchase of the antigen used
in the manufacture of PROVENGE, which Diosynth RTP, Inc.
(Diosynth) is obligated to manufacture.
In addition, as of December 31, 2010 and 2009, there was
$7.3 million and $3.6 million, respectively, included
in prepaid expenses and other current assets and other assets on
our consolidated balance sheets related to prepaid costs
associated with agreements to provide second source suppliers
for materials used in the manufacture of PROVENGE.
F-14
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Furniture and office equipment
|
|
$
|
4,591
|
|
|
$
|
1,473
|
|
Laboratory and manufacturing equipment
|
|
|
15,653
|
|
|
|
12,313
|
|
Computer equipment and software
|
|
|
44,490
|
|
|
|
22,485
|
|
Leasehold improvements
|
|
|
118,102
|
|
|
|
16,157
|
|
Buildings
|
|
|
18,053
|
|
|
|
1,730
|
|
Construction in progress
|
|
|
93,033
|
|
|
|
76,235
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
293,922
|
|
|
$
|
130,393
|
|
Less accumulated depreciation and amortization
|
|
|
(47,033
|
)
|
|
|
(31,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,889
|
|
|
$
|
98,964
|
|
|
|
|
|
|
|
|
|
|
In August 2005, we entered into an agreement to lease
approximately 158,000 square feet of commercial
manufacturing space in Morris Plains, New Jersey (the New
Jersey Facility). The lease term is seven years, and we
have the option to extend the lease for two ten-year periods and
one five-year period, with the same terms and conditions except
for rent, which adjusts upon renewal to market rate. The
aggregate rent payable under the initial lease term is
$7.2 million. The initial phase (Phase I) of the
build-out of the New Jersey Facility was completed in July 2006.
In February 2007, we started to manufacture PROVENGE for
clinical use in the New Jersey Facility. In June 2009, we
entered into a construction agreement for the build-out of
Phases II and III of the New Jersey Facility.
Phase II of the facility was substantially complete in
January 2010, and Phase III of the facility was
substantially complete in May 2010. We have completed validation
activities for the expansion space and are seeking licensure by
the FDA.
The New Jersey lease required us to provide the landlord with a
letter of credit in the initial amount of $3.1 million as a
security deposit. We provided Wells Fargo, the bank that issued
the letter of credit on our behalf, a security deposit of
$3.1 million to guarantee the letter of credit. The deposit
was later reduced to $1.9 million in 2008 and is recorded
as a long-term investment as of December 31, 2010 and 2009
on our consolidated balance sheets.
As part of an agreement with the Township of Hanover relating to
the permitting of the expansion of our New Jersey Facility,
we have $1.9 million in long-term investments being held as
a security deposit to ensure completion of certain improvements
at the property.
In August 2009, we entered into a lease with Knickerbocker
Properties, Inc. XLVI for existing building space totaling
approximately 184,000 rentable square feet in Orange
County, California (the Orange County Facility) for
use by us as a manufacturing facility following build-out. The
initial lease term is ten and a half years, with two renewal
terms of five years each. The lease includes a one-time purchase
option exercisable during the first three years of the lease
term. The aggregate rent payable under the initial lease term is
$13.6 million. The facility build-out was substantially
complete in August 2010 and we received a final certificate of
occupancy on January 31, 2011. We have commenced validation
activities for the facility.
In July 2009, we entered into a lease with Majestic Realty Co.
for a building space totaling approximately 160,000 square
feet in Atlanta, Georgia (the Atlanta Facility) for
use by us as a manufacturing facility following build-out. The
lease commenced when we took possession of the building upon
substantial completion of construction of the building shell in
March 2010. The initial lease term is ten and a half years, with
five renewal terms of five years each. The lease includes a
one-time purchase option exercisable prior to March 2011. The
F-15
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
aggregate rent payable for the Atlanta Facility under the
initial lease term is $6.7 million. We have substantially
completed the build-out of the facility and received a final
certificate of occupancy on October 21, 2010. We have
commenced validation activities for the facility.
The Orange County Facility and Atlanta Facility leases required
us to provide the landlords with letters of credit in the total
amount of $2.4 million as security deposits. The Georgia
letter of credit totaling $222,000 was returned to us in May
2010. The California letter of credit was $2.2 million as
of December 31, 2010, and is secured by a deposit of
$2.2 million. This deposit was recorded as a long-term
investment on our consolidated balance sheet as of
December 31, 2010.
The facility leases have provisions requiring that we restore
the building to its original condition upon lease termination.
Accordingly, we have accrued the estimated costs of
dismantlement and restoration as these obligations accumulate.
The following table is a roll forward of our asset retirement
obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Description
|
|
2010
|
|
|
2009
|
|
|
Beginning balance, January 1
|
|
$
|
1,322
|
|
|
$
|
216
|
|
Additions
|
|
|
5,157
|
|
|
|
1,084
|
|
Accretion
|
|
|
131
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,610
|
|
|
$
|
1,322
|
|
|
|
|
|
|
|
|
|
|
For further description of the facilities leases, see
Notes 8 and 14, which include the applicable future minimum
payments under the leases.
In December 2010, we entered into an industrial revenue bond
transaction related to our Atlanta Facility. Pursuant to the
terms of the industrial revenue bonds, we transferred title to
certain of our fixed assets with costs of $63.3 million, as
of December 31, 2010, to a local governmental authority in
the U.S. to receive a property tax abatement related to
economic development. The title to these assets will revert back
to us upon retirement or cancellation of the applicable bonds.
These fixed assets are still recognized in our consolidated
balance sheets as all risks and benefits remain with us.
At December 31, 2010, construction in progress of
$93.0 million includes $26.5 million related to the
New Jersey Facility expansion, $27.6 million related
to the build-out of the Orange County Facility,
$24.1 million related to the build-out of the Atlanta
Facility, $9.4 million in capitalized facility lease
obligations and $5.4 million in software and other.
At December 31, 2010, construction in progress included
$2.4 million of capitalized interest, compared with
$1.9 million at December 31, 2009.
Depreciation expense, including the depreciation of assets
acquired through capital leases, for the years ended
December 31, 2010, 2009 and 2008 was $16.1 million,
$4.7 million and $5.7 million, respectively.
F-16
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Clinical trial costs
|
|
$
|
849
|
|
|
$
|
1,243
|
|
Deferred rent
|
|
|
1,187
|
|
|
|
1,334
|
|
Accrued property and equipment
|
|
|
4,454
|
|
|
|
9,443
|
|
Inventory receipts
|
|
|
3,022
|
|
|
|
1,325
|
|
Accrued consulting and other services
|
|
|
7,591
|
|
|
|
2,305
|
|
Other accrued liabilities
|
|
|
2,739
|
|
|
|
3,907
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,842
|
|
|
$
|
19,557
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
FINANCING
OBLIGATIONS AND DEBT
|
In August 2005, we leased the New Jersey Facility and, in
accordance with
ASC 840-40-15-5,
we were deemed the owner of the New Jersey Facility during the
construction period, as we were responsible for the construction
costs. Therefore, we capitalized approximately
$8.6 million, which represented the estimated fair value of
the building, and recorded a related facility lease obligation
of approximately $8.6 million at the commencement of
construction. Accordingly, the lease payments are allocated to
the building and land based on their estimated relative fair
values. The portion of the lease related to land is treated as
an operating lease; refer to Note 14 for inclusion of these
payments in the future minimum lease payments disclosure. The
New Jersey Facility lease obligation has an extended term of
17 years with an effective interest rate of 7.64%. The
estimated lease term is based on the initial
7-year term
of the New Jersey lease and a
10-year
renewal. The future minimum payments of the New Jersey Facility
lease obligation, as presented below, reflect such
17-year
period. The New Jersey lease may be renewed for up to an
additional 15 years beyond the estimated
17-year
term. Upon completion of construction in 2010, we continued to
account for the New Jersey Facility as an asset with a related
facility lease obligation due to our significant investment in
the build-out of the facility. The remaining facility lease
obligation related to this facility was $7.8 million at
December 31, 2010.
In August 2009, we leased the Orange County Facility and, in
accordance with
ASC 840-40-15-5,
we were deemed the owner of the facility during the construction
period, as we were responsible for the construction costs.
Therefore, we capitalized approximately $6.7 million, which
represented the estimated fair value of the building, and
recorded a related facility lease obligation of approximately
$6.7 million upon taking possession of the facility and
subsequently beginning construction. The lease payments are
allocated to the building and land based on their estimated
relative fair values. The portion of the lease related to land
is treated as an operating lease; refer to Note 14 for
inclusion of these payments in the future minimum lease payments
disclosure. The Orange County Facility lease obligation has an
extended term of 15.5 years with an effective interest rate
of 1.46%. The estimated lease term is based on the initial
10.5 year term of the Orange County lease and a 5 year
renewal. The future minimum payments of the Orange County
Facility lease obligation, as presented below, reflect such
15.5 year period. The Orange County lease may be renewed
for up to an additional five years beyond the estimated
15.5 year term. Upon completion of construction in 2010, we
continued to account for the Orange County Facility as an asset
with a related facility lease obligation due to our significant
investment in the build-out of the facility. The remaining
facility lease obligation related to this facility was
$6.4 million at December 31, 2010.
In July 2009, we leased the Atlanta Facility and, in accordance
with
ASC 840-40-15-5,
we were deemed the owner of the facility during the construction
period, as we were responsible for the construction costs.
Therefore, upon possession of the building in March 2010, we
capitalized approximately $6.4 million, which represented
the estimated fair value of the building, and recorded a related
facility lease obligation of approximately $6.4 million.
F-17
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The lease payments are allocated to the building and land based
on their estimated relative fair values. The portion of the
lease related to land is treated as an operating lease; refer to
Note 14 for inclusion of these payments in the future
minimum lease payments disclosure. The Atlanta Facility lease
obligation has an extended term of 15.5 years with an
effective interest rate of 3.37%. The estimated lease term is
based on the initial 10.5-year term of the Atlanta Facility
lease and a
5-year
renewal. The future minimum payments of the Atlanta Facility
lease obligation, as presented below, reflect such 15.5-year
period. The Atlanta lease may be renewed for up to an additional
20 years beyond the estimated 15.5-year term. Upon
completion of construction in 2010, we continued to account for
the Atlanta Facility as an asset with a related facility lease
obligation due to our significant investment in the build-out of
the facility. The remaining facility lease obligation related to
this facility was $6.4 million at December 31, 2010.
See Notes 6 and 14 for a further description of the
facility leases.
In December 2005, we entered into the first two of a series of
anticipated Promissory Notes (the GE Notes), with
General Electric Capital Corporation (GE Capital),
for the purchase of equipment and associated build-out costs for
the New Jersey Facility. The GE Notes, which evidence one loan
with an original principal amount of $7.0 million bearing
interest at 7.55% per year was paid in full at December 31,
2008, and the remaining loans with original principal amounts
totaling $9.6 million and an average interest rate of
10.1%, were paid in full at December 31, 2009. The GE Notes
were secured by a Master Security Agreement, and two Security
Deposit Pledge Agreements (the Pledge Agreements).
Pursuant to the Pledge Agreements, we deposited an aggregate of
$7.0 million as a security deposit for the repayment of the
GE Notes. Upon payment in full, the balance of the security
deposit was returned to us as of December 31, 2009.
During 2009 and 2010, we entered into various lease agreements
for the lease of software licenses and equipment. The leases
have been treated as capital leases. The capital leases, with an
aggregate original principal amount totaling $13.3 million
and lease terms from 15 to 60 months, bear interest at
rates ranging from 2.9% to 11.9% per year.
Future minimum payments due under capital lease and financing
obligations, including payments allocated to the building
portion of each facility lease, were as follows as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Facility
|
|
|
|
Lease
|
|
|
Lease
|
|
|
|
Obligations
|
|
|
Obligations
|
|
|
|
(In thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
4,248
|
|
|
$
|
1,817
|
|
2012
|
|
|
3,737
|
|
|
|
1,863
|
|
2013
|
|
|
2,308
|
|
|
|
1,896
|
|
2014
|
|
|
885
|
|
|
|
1,914
|
|
2015
|
|
|
885
|
|
|
|
1,986
|
|
Thereafter
|
|
|
|
|
|
|
17,790
|
|
|
|
|
|
|
|
|
|
|
Total payments
|
|
$
|
12,063
|
|
|
$
|
27,266
|
|
Less amount representing interest
|
|
|
(919
|
)
|
|
|
(6,775
|
)
|
|
|
|
|
|
|
|
|
|
Present value of payments
|
|
|
11,144
|
|
|
|
20,491
|
|
Less current portion of obligations
|
|
|
(4,045
|
)
|
|
|
(935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,099
|
|
|
$
|
19,556
|
|
|
|
|
|
|
|
|
|
|
F-18
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
CONVERTIBLE
SENIOR SUBORDINATED NOTES
|
In 2007, an aggregate of $85.3 million of the 2014 Notes
were sold in a private placement to qualified institutional
buyers. Proceeds from the offering, after deducting placement
agent fees and our estimated expenses, were approximately
$82.3 million. The 2014 Notes were issued at face principal
amount and pay interest semi-annually in arrears on June 15 and
December 15 of each year. Record dates for payment of interest
on the 2014 Notes are each June 1st and
December 1st. In certain circumstances, additional amounts
may become due as additional interest. We can elect that the
sole remedy for an event of default for our failure to comply
with the reporting obligations provisions of the
indenture under which the 2014 Notes were issued (the
Indenture), for the first 180 days after the
occurrence of such event of default would be for the holders of
the 2014 Notes to receive additional interest on the 2014 Notes
at an annual rate equal to 1% of the outstanding principal
amount of the 2014 Notes. We recorded interest expense,
including the amortization of debt issuance costs related to the
2014 Notes, of $3.9 million, $2.9 million and
$4.5 million during 2010, 2009 and 2008, respectively.
The 2014 Notes are convertible into our common stock, initially
at the conversion price of $10.28 per share, equal to a
conversion rate of approximately 97.2644 shares per $1,000
principal amount of the 2014 Notes, subject to adjustment. There
may be an increase in the conversion rate of the 2014 Notes
under certain circumstances described in the Indenture; however,
the number of shares of common stock issued will not exceed
114.2857 per $1,000 principal amount of the 2014 Notes, or
approximately 3.2 million shares. A holder that converts
2014 Notes in connection with a fundamental change,
as defined in the Indenture, may in some circumstances be
entitled to an increased conversion rate (i.e., a lower per
share conversion price) as a make whole premium. If a
fundamental change occurs, holders of the 2014 Notes may require
us to repurchase all or a portion of their 2014 Notes for cash
at a repurchase price equal to 100% of the principal amount of
the 2014 Notes to be repurchased, plus any accrued and unpaid
interest and other amounts due thereon. The Indenture contains
customary covenants.
In April 2009, $11.5 million in principal amount of the
2014 Notes were converted by holders of the 2014 Notes,
resulting in the issuance of approximately 1.1 million
shares of common stock. In May 2009, we exchanged approximately
2.1 million shares of our common stock for
$21.2 million principal face amount of the 2014 Notes. In
December 2010, we exchanged approximately 2.5 million
shares of common stock for $24.9 million principal face
amount of the 2014 Notes, which included a premium of
approximately 129,000 shares of common stock. The premium
is recorded as a loss on debt conversion of $4.7 million,
in other expense in the consolidated statements of operations
for 2010.
We have identified embedded derivatives associated with the 2014
Notes. These embedded derivatives meet certain criteria and are
therefore not required to be accounted for separately from the
2014 Notes.
As of December 31, 2010 and 2009, the aggregate principal
amount of the 2014 Notes outstanding was $27.7 million and
$52.5 million, respectively. The fair value of the 2014
Notes at December 31, 2010 and December 31, 2009,
based on the average trading prices of similar instruments near
each respective year-end, was approximately $98.0 million
and $141.8 million, respectively.
Preferred
Stock
We currently have 10,000,000 shares, $0.001 par value,
of authorized preferred stock, of which 1,000,000 shares
have been designated as Series A Junior Participating
Preferred Stock. No preferred stock was issued or outstanding as
of December 31, 2010 and 2009.
F-19
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common
Stock
At the 2009 Annual Meeting, our stockholders approved an
amendment to the Companys Amended and Restated Certificate
of Incorporation to increase the Companys authorized
number of shares of Common Stock from 150,000,000 shares to
250,000,000 shares.
Equity
Sales
In December 2009, we received net proceeds of
$409.5 million after deducting underwriting commissions and
estimated offering expenses from our issuance of
17,250,000 shares of common stock at the public offering
price of $24.75 per share.
In May 2009, we received net proceeds of $220.8 million
after deducting underwriting commissions and estimated offering
expenses from our issuance of 11,979,166 shares of common
stock at the public offering price of $19.20 per share.
In April 2008, we issued 8.0 million Shares of our common
stock, and Warrants to purchase up to 8.0 million shares of
common stock to an institutional Investor. We received net
proceeds of $46.0 million from our issuance of the Shares
and the Warrants to the Investor. The Investor purchased the
Shares and Warrants for a negotiated price of $5.92 per share of
common stock purchased. On the Exercise Date, we entered into
the Amendment to the warrant agreement. Pursuant to the terms of
the Amendment, the exercise price of the Warrants was amended
from $20.00 to $8.92 per share, and the Investor concurrently
exercised the Warrants for 8,000,000 shares of common
stock, resulting in aggregate cash proceeds to the Company of
$71.4 million.
The Warrants were recorded at fair value at issuance and were
adjusted to fair value at each reporting period until the
Exercise Date. Any change in fair value between reporting
periods was recorded as other income (expense). The Warrants
continued to be reported as a liability until they were
exercised, at which time the Warrants were adjusted to fair
value and reclassified from liabilities to stockholders
equity. The fair value of the Warrants was estimated using the
BSM option pricing model. The fair value of the Warrants on the
Exercise Date was $275.5 million, compared with
$133.0 million at December 31, 2009. During the years
ended December 31, 2010 and 2009, losses of
$142.6 million and $118.8 million, respectively, were
recognized from valuation of the warrant liability. During the
year ended December 31, 2008, we recorded a gain of
$371,000 from valuation of the warrant liability.
On October 11, 2007, we entered into an equity line of
credit arrangement with Azimuth Opportunity Ltd.
(Azimuth) pursuant to a Common Stock Purchase
Agreement, which we amended in October 2008 and February 2009.
As amended, the Common Stock Purchase Agreement provided that,
upon the terms and subject to the conditions set forth therein,
Azimuth was committed to purchase up to $130.0 million of
our common stock over the approximate
36-month
term of the Common Stock Purchase Agreement. Pursuant to a
single draw down notice, on October 10, 2008, we sold
3,610,760 shares of our common stock at a price of $5.80
per share to Azimuth for net proceeds of approximately
$19.8 million. The Common Stock Purchase Agreement expired
in October 2010.
|
|
11.
|
STOCK-BASED
COMPENSATION PLANS
|
We maintain two stock-based incentive plans under which we may
grant non-qualified stock options, incentive stock options,
restricted stock, restricted stock units or stock appreciation
rights to employees, non-employee directors and consultants. We
also have an Employee Stock Purchase Plan (the ESPP).
We recognize compensation expense for our stock-based payment
awards on the accelerated method over the requisite service
period of the entire award, unless the awards are subject to
other conditions, in which case we recognize compensation
expense over the requisite service period of each separate
vesting tranche. We determine the grant-date fair value of our
stock-based payment awards using the BSM option pricing model.
F-20
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recorded stock-based compensation expense in the consolidated
statements of operations for 2010, 2009 and 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cost of revenue
|
|
$
|
1.5
|
|
|
$
|
|
|
|
$
|
|
|
Research and development
|
|
|
8.4
|
|
|
|
8.2
|
|
|
|
2.9
|
|
Selling, general and administrative
|
|
|
30.4
|
|
|
|
9.0
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40.3
|
|
|
$
|
17.2
|
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense recognized in the
consolidated statement of operations for 2010, 2009 and 2008
increased our net loss per share by $0.29, $0.16 and $0.06,
respectively. As we use a full valuation allowance with respect
to deferred taxes, there is no impact on deferred taxes. In each
of the years ended December 31, 2010, 2009 and 2008, the
tax deductions related to stock compensation expense were not
recognized because of the availability of net operating losses,
and therefore no such financing cash flows were reported.
Employee
Stock Purchase Plan
We determine the fair value of awards under our ESPP using the
BSM option pricing model. Each year, the number of shares
reserved for issuance under the ESPP is automatically increased
by the lesser of (i) 1% of the total number of fully
diluted shares of our common stock then outstanding, including
convertible securities, (ii) 400,000 shares, or
(iii) a number determined by our Board of Directors. On
January 1, 2011, the number of shares reserved for future
issuance under the ESPP was automatically increased by an
additional 400,000 shares, to an aggregate of
1,947,729 shares.
In 2010, 2009 and 2008, 636,369, 386,125 and
204,731 shares, respectively, were issued under the ESPP at
an average price of $6.93, $4.14 and $3.52, respectively.
Equity
Compensation Plans
The 2000 Equity Incentive Plan (the 2000 Plan)
expired in February 2010. The options granted under the 2000
Plan could be either incentive stock options or nonqualified
stock options. Options granted under the 2000 Plan expire no
later than 10 years from the date of grant. The option
price must have been at least 100% of the fair value on the date
of grant for incentive stock options, and no less than 85% of
the fair value on the date of grant for nonqualified stock
options. The options generally become exercisable in increments
over a period of four years from the date of grant, with the
first increment vesting after one year. Options could be granted
with different vesting terms.
The 2002 Broad Based Equity Incentive Plan (the 2002
Plan) will expire in February 2012. The 2002 Plan provides
for the award of options, stock bonuses, and rights to acquire
restricted stock. A total of 1,500,000 shares of common
stock have been authorized and reserved for issuance under the
2002 Plan. The stock options granted under the 2002 Plan are
nonqualified options and expire no later than 10 years from
the date of the grant. The exercise price for each option must
not be less than 85% of the fair market value of the common
stock on the date of the grant. Employees, officers, members of
our Board of Directors and consultants are eligible to receive
awards under the 2002 Plan. No more than 49% of the number of
shares underlying options granted under the 2002 Plan may be
awarded to directors and senior officers of Dendreon. The
Compensation Committee of the Board of Directors determines the
terms of each option, including the number of shares, the option
price, the term of the option, the vesting period and the
purchase price.
The 2009 Equity Incentive Plan (the 2009 Plan) will
expire in 2019. A total of 13,200,000 shares of common
stock have been reserved for issuance under the 2009 Plan. The
2009 Plan authorizes our Board of Directors to
F-21
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provide equity-based compensation in the form of incentive or
nonqualified stock options, stock appreciation rights,
restricted stock, restricted stock units, and other stock-based
awards. Any common stock shares that are subject to option
rights or stock appreciation rights are counted against this
limit as one common share for every one common share subject to
such option awards or stock appreciation rights and any common
stock shares that are subject to awards other than option awards
or stock appreciation rights are counted against this limit as
1.37 common shares for every one common share subject to such
other awards. Shares issued under the 2009 Plan may be shares of
original issuance or treasury shares or a combination of both.
Options granted under the 2009 Plan expire no later than
10 years from the date of grant. The option price must be
at least 100% of the fair value on the date of grant. The
options generally become exercisable in increments over a period
of four years from the date of grant, with the first increment
vesting after one year. Options may be granted with different
vesting terms.
Stock
Options and Employee Stock Purchases
The fair value of stock-based awards was estimated at the date
of grant using the BSM option pricing model with the following
weighted average assumptions for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Options
|
|
Employee Stock Purchase Plan
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted average estimated fair value
|
|
$21.72
|
|
$17.90
|
|
$4.34
|
|
$17.36
|
|
$12.47
|
|
$1.36
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield(A)
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected volatility(B)
|
|
77%
|
|
94%
|
|
91%
|
|
100%
|
|
157%
|
|
58%
|
Risk-free interest rate(C)
|
|
1.7%
|
|
2.0%
|
|
2.5%
|
|
0.3%
|
|
0.6%
|
|
1.5%
|
Expected term(D)
|
|
4.4 years
|
|
4.4 years
|
|
4.5 years
|
|
0.6 years
|
|
1.2 years
|
|
0.5 years
|
|
|
|
(A) |
|
We have not paid dividends in the past and do not plan to pay
dividends in the near future. |
|
(B) |
|
The expected stock price volatility is based on the weighted
average of the historical volatility of our stock and the
volatilities of certain peer companies. |
|
(C) |
|
The risk-free interest rate is based on the implied yield
available on U.S. Treasury zero-coupon issues with a term equal
to the expected life of the award on the date of grant. |
|
(D) |
|
The expected term of the options for 2010 represents the
estimated period of time until exercise and is based on the
weighted average of our historical experience with similar
awards, giving consideration to the contractual terms, vesting
schedules and expectations of future employee behavior, and the
expected terms of certain peer companies. The expected term of
the options for 2009 and 2008 represents the estimated period of
time until exercise and is based on the weighted average of our
historical experience with similar awards, giving consideration
to the contractual terms, vesting schedules and expectations of
future employee behavior. The expected term of awards under the
ESPP represents the weighted average purchase period of each
offering. |
F-22
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our stock option activity during
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Outstanding at January 1
|
|
|
3,274,615
|
|
|
$
|
11.73
|
|
|
|
4,877,268
|
|
|
$
|
6.99
|
|
|
|
5,223,439
|
|
|
$
|
7.10
|
|
Granted
|
|
|
1,070,635
|
|
|
|
36.85
|
|
|
|
831,500
|
|
|
|
26.27
|
|
|
|
376,564
|
|
|
|
6.39
|
|
Exercised
|
|
|
(1,596,258
|
)
|
|
|
7.65
|
|
|
|
(2,229,953
|
)
|
|
|
7.18
|
|
|
|
(131,133
|
)
|
|
|
4.37
|
|
Forfeited and expired
|
|
|
(76,020
|
)
|
|
|
27.43
|
|
|
|
(204,200
|
)
|
|
|
7.55
|
|
|
|
(591,602
|
)
|
|
|
8.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
2,672,972
|
|
|
|
23.78
|
|
|
|
3,274,615
|
|
|
|
11.73
|
|
|
|
4,877,268
|
|
|
|
6.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31
|
|
|
972,396
|
|
|
|
14.33
|
|
|
|
1,929,911
|
|
|
|
7.75
|
|
|
|
3,617,543
|
|
|
|
7.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future grant
|
|
|
9,752,127
|
|
|
|
|
|
|
|
12,630,046
|
|
|
|
|
|
|
|
703,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options outstanding and
exercisable as of December 31, 2010 was $33.5 million
and $20.8 million, respectively. The weighted-average
remaining contractual term for options exercisable was
6.3 years as of December 31, 2010. The total intrinsic
value of options exercised during the years ended
December 31, 2010, 2009, and 2008 was $62.4 million,
$36.2 million and $229,000, respectively. The total fair
value of the options vested during 2010, 2009 and 2008 was
$5.4 million, $2.8 million and $2.6 million,
respectively.
As of December 31, 2010, we had approximately
$18.6 million of unrecognized compensation expense related
to our unvested options. We expect to recognize this
compensation expense over a weighted average period of
approximately 1.5 years.
Restricted
Stock Awards
Restricted stock awards granted generally vest over a four-year
period; however, in 2006 and 2007 we granted restricted stock
awards with certain performance conditions to all employees. The
restricted stock awards granted in 2006 and 2007 with remaining
performance conditions all vested upon marketing approval for
PROVENGE by the FDA on April 29, 2010. In addition, in
December 2010 we granted restricted stock awards with certain
performance conditions to certain executive officers. At each
reporting date, we are required to evaluate whether achievement
of the performance condition is probable. Compensation expense
is recorded based upon our assessment of accomplishing each
performance provision over the appropriate service period. For
the year ended December 31, 2010, no expense was recognized
related to these awards.
The following table summarizes our restricted stock award
activity during the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Grant Date
|
|
|
Stock
|
|
|
Grant Date
|
|
|
Stock
|
|
|
Grant Date
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Outstanding at January 1
|
|
|
2,360,138
|
|
|
$
|
7.71
|
|
|
|
1,462,936
|
|
|
$
|
6.13
|
|
|
|
1,449,687
|
|
|
$
|
5.96
|
|
Granted
|
|
|
1,423,019
|
|
|
|
34.38
|
|
|
|
1,521,147
|
|
|
|
8.50
|
|
|
|
554,138
|
|
|
|
6.33
|
|
Vested
|
|
|
(1,456,775
|
)
|
|
|
8.49
|
|
|
|
(498,749
|
)
|
|
|
5.97
|
|
|
|
(386,759
|
)
|
|
|
5.68
|
|
Forfeited and expired
|
|
|
(112,122
|
)
|
|
|
17.26
|
|
|
|
(125,196
|
)
|
|
|
5.84
|
|
|
|
(154,130
|
)
|
|
|
7.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
2,214,260
|
|
|
$
|
23.85
|
|
|
|
2,360,138
|
|
|
$
|
7.71
|
|
|
|
1,462,936
|
|
|
$
|
6.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2010 we had approximately
$29.4 million in total unrecognized compensation expense
related to our restricted stock awards, of which
$25.1 million was related to restricted stock awards with
service conditions which will be recognized over a weighted
average period of approximately 1.3 years and
$4.3 million was related to restricted stock awards with
performance conditions which will be recognized over the
required service period when the condition becomes probable.
As of December 31, 2010, equity based awards (including
stock option and stock awards) available for future issuances
are as follows:
|
|
|
|
|
|
|
Awards
|
|
|
|
Available
|
|
|
|
for Grant
|
|
|
Balance at January 1, 2008
|
|
|
138,267
|
|
Additional shares reserved
|
|
|
750,000
|
|
Granted
|
|
|
(930,702
|
)
|
Forfeited and expired
|
|
|
745,732
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
703,297
|
|
Additional shares reserved (includes 13,200,000 for the 2009
Plan)
|
|
|
13,950,000
|
|
Granted
|
|
|
(2,352,647
|
)
|
Forfeited and expired
|
|
|
329,396
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
12,630,046
|
|
Additional shares reserved
|
|
|
|
|
Granted
|
|
|
(3,004,528
|
)
|
Forfeited and expired
|
|
|
126,609
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
9,752,127
|
|
|
|
|
|
|
Common
Stock Reserved
As of December 31, 2010, shares of our common stock were
reserved for issuance as follows:
|
|
|
|
|
Convertible senior subordinated notes
|
|
|
2,692,765
|
|
Outstanding common stock options
|
|
|
2,672,972
|
|
Employee stock purchase plan
|
|
|
1,547,729
|
|
Common stock awards
|
|
|
2,214,260
|
|
Available for future grant under equity plans
|
|
|
9,752,127
|
|
|
|
|
|
|
|
|
|
18,879,853
|
|
|
|
|
|
|
We recognized $0.4 million in income tax benefit in 2010
relating to refundable credits, compared with no income tax
expense or benefit in 2009 or 2008.
As of December 31, 2010, we had federal and state net
operating loss carryforwards (NOLs) of approximately
$843 million and $252 million, respectively. We also
had federal and state research and development credit
carryforwards (R&D Credits) of approximately
$20.7 million and $2.6 million, respectively. The NOLs
and R&D Credits will expire at various dates, beginning in
2011 through 2030, if not utilized.
F-24
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We are subject to U.S. federal and state income tax
examinations for years after 2005 and 2004, respectively.
However, carryforward attributes that were generated prior to
2004 may still be adjusted by a taxing authority upon
examination if the attributes have been or will be used in a
future period.
We recognize interest and penalties accrued on any unrecognized
tax benefits as a component of income tax expense. During the
year ended December 31, 2010, 2009 and 2008, we did not
have any accrued interest or penalties associated with any
unrecognized tax benefits.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of our
deferred tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
309,096
|
|
|
$
|
213,157
|
|
Research credits
|
|
|
23,331
|
|
|
|
18,379
|
|
Stock-based compensation
|
|
|
11,411
|
|
|
|
4,610
|
|
Other
|
|
|
9,728
|
|
|
|
4,497
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
353,566
|
|
|
$
|
240,643
|
|
Valuation allowance
|
|
|
(353,566
|
)
|
|
|
(240,643
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax asset has been fully offset by a valuation
allowance. The valuation allowance increased by
$113 million, $29.2 million and $26.0 million
during the years ended December 31, 2010, 2009 and 2008,
respectively.
Realization of deferred tax assets is dependent on future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the deferred tax assets have been offset by a
valuation allowance. The valuation allowance relates primarily
to net deferred tax assets from operating losses. Excess tax
benefits associated with stock option exercises are recorded
directly to stockholders equity only when realized. As a
result, the excess tax benefits included in net operating loss
carryforwards, but not reflected in deferred tax assets, for
fiscal year 2010 and 2009 are $146.7 million and
$46.2 million, respectively.
The computation of basic and diluted net loss per share is based
on the weighted average number of shares of common stock
outstanding during the year, and excludes all outstanding stock
options, Warrants and unvested restricted stock, as well as
shares issuable in connection with the conversion of the 2014
Notes and the Common Stock Purchase Agreement with Azimuth that
expired during October 2010, from the calculation of diluted net
loss per share, as such securities are anti-dilutive for all
periods presented. Shares excluded from the computations of
diluted net loss per common share were 7.6 million,
31.7 million and 35.6 million for December 31,
2010, 2009 and 2008, respectively.
F-25
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the calculation of basic and
diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net loss
|
|
$
|
(439,480
|
)
|
|
$
|
(220,161
|
)
|
|
$
|
(71,644
|
)
|
Weighted average shares used in computation of basic and diluted
net loss per share
|
|
|
138,206
|
|
|
|
108,050
|
|
|
|
90,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(3.18
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(0.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2011, we issued $620 million in
aggregate principal amount of our 2.875% Convertible Senior
Notes due 2016 (the 2016 Notes), as further
disclosed in Note 16. The 2016 Notes are convertible at the
option of the holder, and we may choose to satisfy in cash,
shares of our common stock, or a combination of cash and shares
of our common stock, based on a conversion rate initially equal
to 19.5160 shares of the companys common stock per
$1,000 principal amount of the 2016 Notes, which is equivalent
to an initial conversion price of approximately $51.24 per
share. The conversion rate will be increased under certain
circumstances described in the Indenture; however, the number of
shares of Common Stock issued upon conversion of a 2016 Note
will not exceed 27.3224 per $1,000 principal amount of 2016
Notes, subject to adjustment in accordance with the Indenture
pursuant to which the 2016 Notes were issued. If this
transaction had occurred prior to December 31, 2010, shares
excluded from the computation of diluted net loss per common
share would have been 19.7 million, which includes
12.1 million shares related to the issuance of our 2016
Notes.
|
|
14.
|
COMMITMENTS
AND CONTINGENCIES
|
We have a supply agreement with Diosynth covering the commercial
production of the recombinant antigen used in the manufacture of
PROVENGE. On May 12, 2010, we entered into a Second
Amendment to the supply agreement to extend the term of the
agreement through December 31, 2018, and unless terminated,
the agreement will renew automatically thereafter for additional
5-year
terms. The agreement may be terminated upon written notice by us
or Diosynth at least 24 months before the end of the
initial term or a renewal term or by either party in the event
of an uncured material breach or default by the other party.
We currently have a commitment with Diosynth to purchase antigen
through 2011 for a total of $77.6 million related to two
orders. As of December 31, 2010, we have paid
$38.4 million toward the orders and have a remaining
obligation of approximately $39.2 million. We began
receiving shipments of the first order in the third quarter 2010
and expect delivery of the second order to commence in mid-2011.
In addition, in 2010 we entered into commitments with Diosynth
to purchase antigen in 2012 for a total of $41.5 million
and in 2013 for a total of $43.8 million. As of
December 31, 2010, no payments have been made related to
these orders.
In September 2010, we entered into a development and supply
agreement with GlaxoSmithKline LLC. This agreement is intended
to provide a second source for the commercial production and
supply of the recombinant antigen used in the manufacture of
PROVENGE. The term of the agreement is through December 31,
2015, unless earlier terminated pursuant to the terms of the
agreement, and provides for one or more two-year extensions to
the then expiring term. As of December 31, 2010, we have a
remaining payment obligation for the transfer of the antigen
production process aggregating $14.6 million payable
through September 2011. Upon execution of the agreement, we
placed an initial order for approximately $8.3 million,
with delivery of commercial orders to commence in 2012.
In June 2009, we entered into a construction agreement with The
Henderson Corporation of PA, Inc. (Henderson) to
retain Henderson to perform construction related services and to
arrange for, monitor, supervise, administer and contract for the
construction of Phase II and Phase III of our New
Jersey Facility. The guaranteed maximum price for the completion
of all work under the construction agreement was approximately
$51.1 million, all of which was paid by December 31,
2010.
F-26
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2009 and January 2010, we entered into construction
agreements with Turner Construction Company (Turner)
to retain Turner to perform construction related services and to
arrange for, monitor, supervise, administer and contract for the
construction of the build-out of the Atlanta Facility and Orange
County Facility, for a maximum total cost of approximately
$86.9 million, of which $83.8 million had been paid
through December 31, 2010. The agreements include
incentives for the completion of work prior to milestone dates
and penalties for failing to meet such deadlines.
The majority of our operating lease payments relate to our three
leases in Seattle, Washington, which collectively cover our
principal corporate offices in Seattle, and the manufacturing
facility leases in Morris Plains, New Jersey, Orange County,
California and Atlanta, Georgia. The three leases in Seattle
began in 1998, 2004 and 2009 and expire in 2011; the lease on
the New Jersey Facility began in 2005 and the initial term
expires in 2012; the lease on the Orange County Facility began
in 2009 and the initial term expires in 2019; the lease for the
Atlanta Facility began in 2010 and the initial term expires in
2020. We account for the New Jersey Facility, the Orange County
Facility and the Atlanta Facility as assets with related
facility lease obligations due to our significant investment in
the build-out of the facilities. The lease payments are
allocated to the building and land based on their estimated
relative fair values. The portion of the lease related to land
is treated as an operating lease and included in the payment
schedule below. For the New Jersey Facility, payments below
reflect the initial 7 year term of the lease and a
10 year renewal period. For the Orange County Facility and
the Atlanta Facility, payments below reflect the initial
10.5 year terms of the leases and a 5 year renewal
period. See Notes 6 and 8 for a further description of the
leases, and future minimum lease payments due under facility
lease obligations, which represents the building portion of each
facility.
Future minimum lease payments under non-cancelable operating
leases, including the land portion of our manufacturing
facilities and the maintenance component of capital leases, at
December 31, 2010, were as follows:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
|
(In thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2011
|
|
$
|
8,462
|
|
2012
|
|
|
3,841
|
|
2013
|
|
|
3,051
|
|
2014
|
|
|
1,493
|
|
2015
|
|
|
1,509
|
|
Thereafter
|
|
|
12,520
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
30,876
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2010, 2009
and 2008 was $6.1 million, $4.4 million and
$4.4 million, respectively.
On October 4, 2007, the United States District Court for
the Western District of Washington consolidated four proposed
securities class actions under the caption McGuire v.
Dendreon Corporation, et al., Case
No. C07-800-MJP,
and designated a lead plaintiff. This action was purportedly
brought on behalf of a class of persons and entities who
purchased Dendreon common stock between March 1, 2007, and
May 8, 2007, inclusive. Lead plaintiff filed an amended
complaint on June 2, 2008, a second amended complaint on
January 5, 2009, and a third amended complaint on
June 8, 2009. The third amended complaint named Dendreon,
Chief Executive Officer Mitchell Gold, and Senior Vice President
and Chief Scientific Officer David Urdal as defendants, and
alleged that defendants made false or misleading statements. It
also included a claim for insider trading against Dr. Gold.
On September 16, 2010, the parties agreed to settle
McGuire v. Dendreon for a payment of
$16.5 million to the class, with no admission of wrongdoing
on the part of defendants. A ruling on defendants motion
for partial
F-27
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
summary judgment was pending at the time the parties notified
the Court that they had arrived at a settlement. On
October 25, 2010, lead plaintiff filed a motion for
preliminary approval of the settlement, and a settlement hearing
was held on December 17, 2010. On December 20, 2010,
the Court filed orders granting lead plaintiffs motions
for approval of the settlement and for approval of
attorneys fees and expenses. On February 17, 2011,
the Court entered final judgment and dismissed the class action
with prejudice.
On March 31, 2009, a securities action was filed against
the Company and certain of its officers and directors in the
United States District Court for the Western District of
Washington under the caption Mountanos v. Dendreon
Corporation, et al., Case
No. C09-426
RAJ. The complaint in Mountanos makes similar factual and
legal allegations as the third amended complaint filed in
McGuire v. Dendreon, but Mountanos was not a
class action and the named plaintiffs allegedly purchased
options rather than the Companys common stock. On
September 27, 2010, the Court dismissed the action with
prejudice, after the parties notified the Court that they had
reached a settlement. A ruling on defendants motion for
partial summary judgment was pending at the time the parties
notified the Court that they had arrived at a settlement.
On January 7, 2011, a complaint was filed in the United
States District Court for the Western District of Washington by
a party that had opted out of the settlement made on behalf of
the class in McGuire v. Dendreon. The complaint is
captioned ORG Lluch Salvado, S.A. v. Dendreon
Corporation, et al., and names the Company, Dr. Urdal,
and Dr. Gold as defendants. Plaintiff is a Spanish company
that purportedly purchased shares of Dendreon common stock
between March 29, 2007 and May 8, 2007. The complaint
makes similar factual and legal contentions as the third amended
complaint in McGuire v. Dendreon. Defendants have
not yet answered this complaint and no briefing schedule has
been set.
Management believes that final resolution of these matters,
individually or in aggregate, will not have a material adverse
effect on our financial position, our results of operations, or
our cash flows. However, these matters are subject to inherent
uncertainties and the actual cost, as well as the distraction
from the conduct of our business, will depend upon many unknown
factors and managements view of these may change in the
future.
|
|
15.
|
EMPLOYEE
BENEFIT PLAN
|
We have a 401(k) plan for our employees who meet eligibility
requirements. Eligible employees may contribute up to 60% of
their eligible compensation, subject to Internal Revenue Service
limitations.
Our contributions to the plans are discretionary as determined
by the Board of Directors. We match employee contributions fifty
cents for each dollar, up to a maximum of $4,000 per employee
per year in 2010, $4,000 per employee per year in 2009 and
$2,000 per employee per year in 2008. Employer contributions in
the years ended December 31, 2010, 2009 and 2008 were
$1.9 million, $681,210 and $311,000, respectively.
Convertible
Senior Notes Issuance
On January 14, 2011, we entered into an underwriting
agreement with J.P. Morgan Securities LLC (the
Underwriter) relating to the offer and sale of
$540 million aggregate principal amount of our 2016 Notes.
Under the terms of the underwriting agreement, we granted the
Underwriter an option, exercisable within 30 days of the
date of the agreement, to purchase up to an additional
$80 million aggregate principal amount of 2016 Notes to
cover overallotments. We issued $540 million in aggregate
principal amount of the 2016 Notes upon the closing of the
offering on January 20, 2011. Net proceeds to us, after
payment of underwriting fees and estimated expenses, were
approximately $528.8 million. On January 31, 2011, the
Underwriter exercised the overallotment option in full, and we
closed on the sale of the additional $80 million in
principal amount of the 2016 Notes on February 3, 2011. Net
proceeds to us from the exercise of the overallotment option,
after deducting underwriting fees, were $78.5 million.
F-28
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 20, 2011, we entered into the First Supplemental
Indenture (the Supplemental Indenture), dated as of
January 20, 2011, with The Bank of New York Mellon
Trust Company, N.A., as trustee (the Trustee),
to our existing Base Indenture (the Base Indenture
and, together with the Supplemental Indenture, the 2016
Indenture), dated as of March 16, 2007, with the
Trustee. The 2016 Indenture sets forth the rights and provisions
governing the 2016 Notes. Interest is payable on the 2016 Notes
semi-annually in arrears on January 15 and July 15 of each year,
beginning on July 15, 2011. Record dates for payment of
interest on the 2016 Notes are each January 1 and July 1.
The 2016 Notes are convertible at the option of the holder, and
we may choose to satisfy in cash, shares of our common stock, or
a combination of cash and shares of our common stock, based on a
conversion rate initially equal to 19.5160 shares of our
common stock per $1,000 principal amount of the 2016 Notes,
which is equivalent to an initial conversion price of
approximately $51.24 per share. The conversion rate will be
increased under certain circumstances described in the 2016
Indenture; however, the number of shares of common stock issued
upon conversion of a 2016 Note will not exceed 27.3224 per
$1,000 principal amount of 2016 Notes, subject to adjustment in
accordance with the 2016 Indenture.
The offering of the 2016 Notes was made pursuant to our
effective shelf registration statement on
Form S-3
(Registration
No. 333-163573),
as amended by a post-effective amendment, including the related
prospectus dated January 13, 2011 and the prospectus
supplement dated January 14, 2011, each as filed with the
Securities and Exchange Commission.
We are currently evaluating the accounting impact of this
transaction on our consolidated financial statements.
Leases
Effective as of February 25, 2011, we entered into a lease
with Northwest Mutual Insurance Company for office space of
179,656 rentable square feet in Seattle, Washington. The
initial lease term is for five and a half years, with one
renewal term of three years. The aggregate rent payable under
the initial lease term is approximately $25 million.
Effective as of February 28, 2011, we entered into a
sublease with Zymogenetics, Inc. for laboratory and office space
of 97,365 rentable square feet in Seattle, Washington. The
initial lease term is for seven and a half years. The aggregate
rent payable under the initial lease term is approximately
$25 million.
F-29
DENDREON
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
QUARTERLY
INFORMATION (UNAUDITED)
|
The following table summarizes the unaudited statements of
operations for each quarter of 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands, except per share amounts)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
21
|
|
|
$
|
2,810
|
|
|
$
|
20,219
|
|
|
$
|
25,007
|
|
Cost of revenue
|
|
|
|
|
|
|
2,692
|
|
|
|
12,433
|
|
|
|
13,395
|
|
Gross profit
|
|
|
21
|
|
|
|
118
|
|
|
|
7,786
|
|
|
|
11,612
|
|
Total operating expenses
|
|
|
57,632
|
|
|
|
68,440
|
|
|
|
87,676
|
|
|
|
97,953
|
|
Loss from operations
|
|
|
(57,611
|
)
|
|
|
(68,322
|
)
|
|
|
(79,890
|
)
|
|
|
(86,341
|
)
|
Net loss(a)
|
|
|
(125,730
|
)
|
|
|
(142,616
|
)
|
|
|
(79,301
|
)
|
|
|
(91,833
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.96
|
)
|
|
$
|
(1.04
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands, except per share amounts)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
21
|
|
Total operating expenses
|
|
|
17,014
|
|
|
|
20,929
|
|
|
|
25,795
|
|
|
|
36,404
|
|
Loss from operations
|
|
|
(16,984
|
)
|
|
|
(20,904
|
)
|
|
|
(25,770
|
)
|
|
|
(36,383
|
)
|
Net loss(b)
|
|
|
(15,384
|
)
|
|
|
(126,717
|
)
|
|
|
(45,551
|
)
|
|
|
(32,509
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.16
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
(a) |
|
Net loss during the quarters ended March 31, 2010 and
June 30, 2010 includes loss from warrant valuation of
$68.1 million and $74.5 million, respectively. |
|
(b) |
|
Net loss during the quarters ended June 30, 2009 and
September 30, 2009 includes loss from warrant valuation of
$105.8 million and $19.4 million, respectively. Net
loss during the quarters ended March 31, 2009 and
December 31, 2009 includes gain from warrant valuation of
$2.4 million and $4.0 million, respectively. |
F-30