UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD
FROM TO
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Commission file number:
001-33882
ONCOTHYREON INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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26-0868560
(I.R.S. Employer
Identification Number)
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2601 Fourth Ave, Suite 500
Seattle, Washington
(Address of principal
executive offices)
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98121
(Zip
Code)
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Registrants telephone number, including area code:
(206) 801-2100
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which
Registered
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Common Stock, $0.0001 par value
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The NASDAQ Stock Market LLC
(The NASDAQ Global Market)
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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 o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes 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 Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by 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 the
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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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 voting and non-voting stock
held by non-affiliates of the Registrant, based on the closing
sale price of the Registrants common stock on the last day
of its most recently completed second fiscal quarter, as
reported on the NASDAQ Global Market, was approximately
$85 million. Shares of common stock held by each executive
officer and director and by each person who owns 5% or more of
the outstanding common stock, based on filings with the
Securities and Exchange Commission, have been excluded from this
computation since such persons may be deemed affiliates of the
Registrant. The determination of affiliate status for this
purpose is not necessarily a conclusive determination for other
purposes.
There were 30,088,628 shares of the Registrants
common stock, $0.0001 par value, outstanding on
March 14, 2011.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
ONCOTHYREON
INC.
ANNUAL REPORT ON FORM 10 K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS
-i-
PART I
This
annual report on
Form 10-K,
including the Managements Discussion and Analysis of
Financial Condition and Results of Operation section in
Item 7 of this report, and other materials accompanying
this annual report on
Form 10-K
contain forward-looking statements or incorporate by reference
forward-looking statements. You should read these statements
carefully because they discuss future expectations, contain
projections of future results of operations or financial
condition, or state other forward-looking
information. These statements relate to our, or in some cases
our partners future plans, objectives, expectations,
intentions and financial performance and the assumptions that
underlie these statements. These forward-looking statements
include, but are not limited to, statements that we:
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identify
and capitalize on possible collaboration, strategic partnering,
acquisition or divestiture opportunities;
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obtain
suitable financing to support our operations, clinical trials
and commercialization of our products;
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manage
our growth and the commercialization of our products;
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achieve
operating efficiencies as we progress from a mid-stage to a
final-stage biotechnology company;
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successfully
compete in our markets;
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effectively
manage our expenses;
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realize
the results we anticipate from our pre-clinical development
activities and the clinical trials of our products;
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succeed
in finding and retaining joint venture and collaboration
partners to assist us in the successful marketing, distribution
and commercialization of our products;
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achieve
regulatory approval for our products;
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believe
that our product candidates could potentially be useful for many
different oncology indications that address large
markets;
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obtain on
commercially reasonable terms adequate product liability
insurance for our commercialized products;
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adequately
protect our proprietary information and technology from
competitors and avoid infringement of proprietary information
and technology of our competitors;
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assure
that our products, if successfully developed and commercialized
following regulatory approval, are not rendered obsolete by
products or technologies of competitors; and
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not
encounter problems with third parties, including key personnel,
upon whom we are dependent.
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All
forward-looking statements are based on information available to
us on the date of this annual report and we will not update any
of the forward-looking statements after the date of this annual
report, except as required by law. Our actual results could
differ materially from those discussed in this annual report.
The forward-looking statements contained in this annual report,
and other written and oral forward-looking statements made by us
from time to time, are subject to certain risks and
uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking
statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the following
discussion and within Part I. Item 1A Risk
Factors of this annual report.
Overview
We are a clinical-stage biopharmaceutical company focused
primarily on the development of therapeutic products for the
treatment of cancer. Our goal is to develop and commercialize
novel synthetic vaccines and targeted small molecules that have
the potential to improve the lives and outcomes of cancer
patients. Our cancer vaccines are designed to stimulate the
immune system to attack cancer cells, while our small molecule
compounds are designed to inhibit the activity of specific
cancer-related proteins. We are advancing our product candidates
through in-house development efforts and strategic
collaborations.
We believe the quality and breadth of our product candidate
pipeline, strategic collaborations and scientific team will
potentially enable us to become an integrated
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biopharmaceutical company with a diversified portfolio of novel,
commercialized therapeutics for major diseases.
Our lead product candidate, Stimuvax, is being evaluated in two
Phase 3 clinical trials for the treatment of non-small cell lung
cancer, or NSCLC. We have granted an exclusive, worldwide
license to Merck KGaA of Darmstadt, Germany, or Merck KGaA, for
the development, manufacture and commercialization of Stimuvax.
Our pipeline of clinical stage proprietary small molecule
product candidates was acquired by us in October 2006 from ProlX
Pharmaceuticals Corporation, or ProlX. We are currently focusing
our internal development efforts on PX-866, for which we
initiated two Phase
1/2
trials in 2010, and plan to initiate two additional Phase 2
trials in the first half of 2011. As of the date of this report,
we have not licensed any rights to our small molecules to any
third party and retain all development, commercialization and
manufacturing rights. We are also conducting preclinical
development of ONT-10 (formerly BGLP40), a cancer vaccine
directed against a target similar to Stimuvax, and which is
proprietary to us. In addition to our product candidates, we
have developed novel vaccine technology we may further develop
ourselves
and/or
license to others.
We were incorporated in 1985 in Canada under the name Biomira
Inc., or Biomira. On December 10, 2007, Oncothyreon became
the successor corporation to Biomira by way of a plan of
arrangement effected pursuant to Canadian law. The plan of
arrangement represents a transaction among entities under common
control. The assets and liabilities of the predecessor Biomira
have been reflected at their historical cost in the accounts of
Oncothyreon.
Our executive office is located at 2601 Fourth Avenue,
Suite 500, Seattle, Washington 98121 and our telephone
number is
(206) 801-2100.
Our common stock trades on the NASDAQ Global Market under the
symbol ONTY.
Available
Information
We make available free of charge through our investor relations
website, www.oncothyreon.com, our annual reports,
quarterly reports, current reports, proxy statements and all
amendments to those reports as soon as reasonably practicable
after such material is electronically filed or furnished with
the SEC. These reports may also be obtained without charge by
contacting Investor Relations, Oncothyreon Inc., 2601 Fourth
Avenue, Suite 500, Seattle, Washington 98121,
e-mail:
IR@oncothyreon.com. Our Internet website and the
information contained therein or incorporated therein are not
intended to be incorporated into this Annual Report on
Form 10-K.
In addition, the public may read and copy any materials we file
or furnish with the SEC at the SECs Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549 or
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
Moreover, the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding reports that we file or furnish electronically with
them at www.sec.gov.
Our
Strategy
Our pipeline of product candidates is comprised of cancer
vaccines and small molecules. Our cancer vaccines attack cancer
cells by stimulating the immune system, while our small molecule
product candidates inhibit critical cancer-related pathways. The
resulting product pipeline provides us with opportunities to
diversify risk, develop new therapies and establish strategic
partnerships. This pipeline is the foundation on which we intend
to build a valuable oncology franchise and become a leading
developer of vaccine and small molecule therapies for cancer.
Key elements of our strategy are to:
Advance Our Product Pipeline. Our primary
focus is advancing our pipeline of product candidates: Stimuvax
and PX-866, which are in clinical trials, and ONT-10, which is
in pre-
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clinical development, on our own or with partners. To that end,
we are building internal expertise in our development,
regulatory and clinical groups. We also have relationships with
key scientific advisors, research organizations and contract
manufacturers to supplement our internal efforts.
Establish and Maintain Strategic Collaborations to Advance
our Product Pipeline. Our strategy is to enter
into collaborations or license arrangements at appropriate
stages in our research and development process to accelerate the
commercialization of our product candidates. Collaborations can
supplement our own internal expertise in areas such as clinical
trials and manufacturing, as well as provide us with access to
our collaborators
and/or
licensees marketing, sales and distribution capabilities.
For example, in 2001 we initiated a collaboration with Merck
KGaA to pursue joint global product research, clinical
development and commercialization of Stimuvax. That
collaboration evolved over time and in December 2008, the
collaboration arrangement with Merck KGaA was replaced with a
license agreement, pursuant to which Merck KGaA has sole
responsibility for the clinical development, manufacture and
commercialization of Stimuvax. We understand Merck KGaA plans to
investigate the use of Stimuvax in multiple types of cancer,
which we would not have been able to do alone. All development
costs for Stimuvax have been borne exclusively by Merck KGaA
since March 1, 2006, with the exception of manufacturing
process development costs, which Merck KGaA also assumed
beginning on December 18, 2008. We have no further
performance obligations under our arrangement with Merck KGaA
and will potentially receive cash payments upon the occurrence
of certain events and royalties based on net sales.
Selectively License our Technologies. As a
result of our experience in cancer vaccine development, we have
acquired and developed unique technologies that are available
for license. For example, we have developed a fully synthetic
toll-like receptor 4 agonist called PET-lipid A, which we
believe to be useful as a vaccine adjuvant.
Acquire or In-license Attractive Product Candidates and
Technologies. In addition to our internal
research and development initiatives, we have ongoing efforts to
identify products and technologies to acquire or in-license from
biotechnology and pharmaceutical companies and academic
institutions. Our acquisition of ProlX in October 2006 is an
example of such an acquisition. We plan to continue
supplementing our internal development programs through
strategic acquisition or in-licensing transactions.
Product
Candidates Overview
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Product Candidate
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Technology
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Most Advanced
Indication
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Development Stage
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Stimuvax
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Vaccine
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Non-small cell lung cancer
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Phase 3
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PX-866
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Small Molecule
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To be determined
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Phase 2
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ONT-10
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Vaccine
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To be determined
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Preclinical
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In the table above, under the heading Development
Stage, Phase 3 indicates evaluation of
clinical efficacy and safety within an expanded patient
population, at geographically dispersed clinical trial sites;
Phase 2 indicates clinical safety testing, dosage
testing and initial efficacy testing in a limited patient
population; and Preclinical indicates the program
has not yet entered human clinical trials.
Vaccine
Products
General
The immunotherapeutic or cancer vaccine approach is
based on the concept that tumors possess distinct antigens, like
the Mucin 1, or MUC1, antigen incorporated in our Stimuvax and
ONT-10 vaccines, which should be recognized by the bodys
immune system. Immunotherapy is designed to stimulate an
individuals immune system to recognize
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cancer cells and control the growth and spread of cancers in
order to increase the survival of cancer patients.
Stimuvax
Our lead product candidate currently under clinical development
is a vaccine we call Stimuvax. Stimuvax incorporates a 25 amino
acid sequence of the cancer antigen MUC1, in a liposomal
formulation. Stimuvax is designed to induce an immune response
to destroy cancer cells that express MUC1, a protein antigen
widely expressed on many common cancers, such as lung cancer,
breast cancer and colorectal cancer. Stimuvax is thought to work
by stimulating the bodys immune system to identify and
destroy cancer cells expressing MUC1. Stimuvax is being
evaluated in two Phase 3 clinical trials for the treatment of
NSCLC.
Lung Cancer. Lung cancer is the leading cause
of cancer death for both men and women. More people die of lung
cancer than of colon, breast, and prostate cancers combined.
According to a report of the World Health Organization, lung
cancer (both non-small cell and small cell type) affects more
than 1.2 million patients a year, with around
1.1 million deaths annually and around 500,000 in the
United States, Europe and Japan. About 85% of all lung cancers
are of the non-small cell type. Further, only about 15% of
people diagnosed with NSCLC survive this disease after five
years. For most patients with NSCLC, current treatments provide
limited success.
According to a 2010 Global Data report, the NSCLC market was
estimated to exceed $4.0 billion. There are currently no
therapeutic vaccines approved for the treatment of NSCLC. We
believe therapeutic vaccines have the potential to substantially
enlarge the NSCLC market, both because of their novel mechanism
of action and their expected safety profile. Stimuvax is
currently being developed as maintenance therapy following
treatment of inoperable locoregional Stage III NSCLC with
induction chemotherapy.
Stage I-IIIa NSCLC patients are generally treated with surgery
and radiation, while Stage IIIb-IV patients are inoperable and
generally treated with chemotherapy, radiation and palliative
care. The market is currently driven by the use of several drug
classes, namely chemotherapeutic agents (taxanes and cytotoxics)
and targeted therapies (Iressa, Nexavar, Sutent, Tarceva and
Avastin). There are currently two products approved as
maintenance therapy following treatment of inoperable
locoregional Stage III NSCLC with induction chemotherapy,
Tarceva (erlotinib), a targeted small molecule from Genentech,
Inc., a member of the Roche Group, and Alimta (pemetrexed), a
chemotherapeutic from Eli Lilly and Company. Stimuvax has not
been tested in combination with or in comparison to these
products. It is possible that other existing or new agents will
be approved for this indication.
Clinical Results and Status. In the fourth
quarter of 2002, we completed the enrollment of
171 patients in a Phase 2b multi-center trial of Stimuvax
in patients with advanced (Stages IIIB and IV) NSCLC at 13
sites in Canada and four sites in the United Kingdom. All
patients had received first line standard chemotherapy and had
responded to chemotherapy treatment with either a complete
response or stable disease. Patients were randomly chosen to
receive either Stimuvax along with best supportive care, or best
supportive care alone. Second line chemotherapy
and/or
palliative radiotherapy were allowed where indicated for
treatment of progressive disease. The objectives of the trial
were to measure safety and the possible survival benefit of
Stimuvax in these patients. Secondary endpoints of the trial
were quality of life and immune response.
We reported the preliminary results from our Phase 2b trial of
Stimuvax in December 2004. The median survival of those patients
receiving Stimuvax was 4.4 months longer than those on the
control arm who did not receive the vaccine. The overall median
survival was 17.4 months for patients who received the
vaccine versus 13 months for the patients on
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the control arm who did not receive the vaccine. The two-year
survival rate was 43.2% for the vaccine arm versus 28.9% for the
control arm. The two-year survival rate for patients who had
locoregional Stage IIIB NSCLC cancer was 60% for the vaccine arm
versus 36.7% for the control arm.
In mid-2005, we began scheduling for the manufacture of new
vaccine supplies incorporating manufacturing changes intended to
secure the future commercial supply of the vaccine. We began a
small clinical safety study of the new formulation of Stimuvax
in the second quarter of 2005. The results of this study
indicated that the new formulation is equivalent to the
formulation used in the Phase 2b trial. In mid-2008 Merck KGaA
reported that the two-year survival rate for patients in this
trial was 64%.
In April 2006, we announced that the final survival analysis of
our Phase 2b trial of Stimuvax in patients with Stages IIIB
and IV NSCLC showed that the median survival in the
pre-stratified subset of locoregional Stage IIIB patients on the
vaccine arm was 30.6 months compared to 13.3 months
observed for the same stage patients who did not receive the
vaccine, a difference of 17.3 months. These data were
obtained through ongoing, regular
follow-up of
patients enrolled in the trial.
In December 2006, we reached an agreement with the
U.S. Food and Drug Administration, or FDA, on a Special
Protocol Assessment, or SPA, for the Phase 3 trial of Stimuvax
for the treatment of NSCLC. The SPA relates to the design of the
Phase 3 trial and outlines definitive clinical objectives and
data analyses considered necessary to support regulatory
approval of Stimuvax however the SPA does not guarantee approval
even if the endpoints are successfully reached.
The FDA has granted Fast Track status to the investigation of
Stimuvax for its proposed use in the treatment of NSCLC. The
FDAs Fast Track programs are designed to facilitate the
development and expedite review of drugs that are intended to
treat serious or life-threatening conditions and that
demonstrate the potential to address unmet medical needs. With
Fast Track designation, there may be more frequent interactions
with the FDA during the development of a product and eventually
a company may be eligible to file a U.S. Biologics License
Application on a rolling basis as data become available.
In January 2007, a global Phase 3 trial assessing the efficacy
and safety of Stimuvax as a potential treatment for patients
with unresectable, or inoperable, Stage III NSCLC was
opened for enrollment. The trial, known as START, is being
conducted by Merck KGaA and is expected to include more than
1,300 patients in approximately 30 countries.
In June 2009, Merck KGaA initiated a global Phase 3 trial called
STRIDE to assess the efficacy and safety of Stimuvax as a
potential therapy for patients with hormone receptor-positive,
locally advanced, recurrent or metastatic breast cancer. The
trial was anticipated to enroll more than 900 patients at
approximately 180 sites in over 30 countries; the primary
endpoint was progression-free survival.
In December 2009, Merck KGaA initiated a Phase 3 trial of
Stimuvax in Asian patients with advanced NSCLC. The trial, named
INSPIRE, is anticipated to enroll approximately
420 patients in China, Hong Kong, South Korea, Singapore
and Taiwan.
On March 23, 2010, we announced that Merck suspended the
clinical development program for Stimuvax as the result of a
suspected unexpected serious adverse event reaction in a patient
with multiple myeloma participating in an exploratory clinical
trial. The exploratory trial was designed to investigate the
mechanism of action of Stimuvax and the effect of
cyclophosphamide on regulatory T cells which may affect the
response to the therapeutic vaccine. The adverse event occurred
in a patient receiving a more intensive cyclophosphamide regimen
than is utilized in the Phase 3 clinical program for Stimuvax.
The patient developed an encephalitis, or inflammation of the
brain, of unknown cause, and subsequently died of such
condition. This suspension was a precautionary measure while
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investigation of the cause of this adverse event was conducted.
In June 2010, the FDA lifted the clinical hold on the NSCLC
trials, but the clinical hold on the Stimuvax trial in breast
cancer remains in effect and Merck KGaA has discontinued the
Phase 3 trial in breast cancer. The suspension affected the
Phase 3 clinical program for Stimuvax, including the trials in
NSCLC and in breast cancer. For example, we have been informed
that Merck KGaA plans to increase the size of the START trial of
Stimuvax®
in NSCLC from an estimated number of 1322 to 1476 patients as
part of a plan to maintain the statistical power of the trial.
This change was agreed in consultation with the U.S. Food and
Drug Administration (the FDA), and the Special
Protocol Agreement (SPA) for START has been amended
to reflect the change.
ONT-10
Liposome Vaccine Product Candidate
We have developed a completely synthetic MUC1-based liposomal
glycolipopeptide cancer vaccine, ONT-10, for potential use in
several cancer indications, including breast, thyroid, colon,
stomach, pancreas, ovarian and prostate, as well as certain
types of lung cancer. The ONT-10 glycolipopeptide combines
carbohydrate and peptide determinates in a multi-epitopic
vaccine that evokes both cellular and humoral immune responses
against major cancer-associated epitopes expressed on
adenocarcinomas. ONT-10 is expected to be our first completely
synthetic vaccine. ONT-10 includes our proprietary liposomal
delivery technology. This product candidate is currently in
pre-clinical development, with the goal of completing the
studies which will enable us to file an Investigational New Drug
application in late 2011.
We currently own all rights to ONT-10. As discussed in the
section captioned, Our Strategic Collaboration
with Merck KGaA, if we intend to license the development
or marketing rights to ONT-10, Merck KGaA will have a right of
first negotiation with respect to such license rights.
Small Molecule
Drugs
General
On October 30, 2006, we acquired ProlX Pharmaceuticals
Corporation, or ProlX, of Tucson, Arizona, a privately held
biopharmaceutical company focused on the development of novel
targeted small molecules for the treatment of cancer. We are
currently developing PX-866 which we obtained as a part of the
ProlX acquisition. We continue to evaluate new opportunities to
acquire or in-license additional small molecule compounds
designed to inhibit the activity of specific cancer-related
proteins. We believe this approach gives us multiple
opportunities for successful clinical development while
diversifying risk.
PX-866
PX-866 is an inhibitor of the phosphatidylinositol-3-kinase
(PI-3-kinase)/PTEN/Akt pathway, an important survival signaling
pathway that is activated in many types of human cancer.
PI-3-kinase is over expressed in a number of human cancers,
especially ovarian, colon, head and neck, urinary tract, and
cervical cancers, where it leads to increased proliferation and
inhibition of apoptosis, or programmed cell death. The
PI-3-kinase inhibitor PX-866 induces prolonged inhibition of
tumor PI-3-kinase signaling following both oral and intravenous
administration and has been shown to have good in vivo
anti-tumor activity in human ovarian and lung cancer, as well as
intracranial glioblastoma, tumor models. PX-866 may potentiate
the anti-tumor activity of other cancer therapeutics and
radiation.
We have completed a Phase 1 trial of PX-866 in patients with
advanced metastatic cancer which evaluated both an intermittent
and a continuous dosing schedule of PX-866. Based on the results
we have seen in this open label trial, we have initiated two
Phase
1/2
trials of PX-866 in combination with other agents in 2010. The
first trial will examine PX-866 in
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combination with docetaxel
(Taxotere®)
in patients with either non-small cell lung cancer or locally
advanced, recurrent or metastatic squamous cell carcinoma of the
head and neck. The second trial will randomize patients to
cetuximab
(Erbitux®)
with or without PX-866 and will include patients with either
squamous cell carcinoma of the head and neck or colorectal
cancer. We also plan to initiate two Phase 2 trials of PX-866 as
a single agent in the first half of 2011, one in patients with
glioblastoma and the other in patients with castration-resistant
metastatic prostate cancer. These single agent trials will be
conducted by the National Cancer Institute of Canada Clinical
Trials Group.
PX-478
PX-478 is a small molecule inhibitor of hypoxia inducible
factor-1a (HIF-1a), a component of a transcription factor which
is an important regulator of the tumor response to hypoxia.
We have completed a Phase 1 trial of PX-478 in patients with
advanced metastatic cancer. Based on results from this trial, we
have determined not to advance PX-478 into additional trials.
Market
Opportunity for Targeted Small Molecules
The market for targeted cancer drugs, both small molecules and
biologic agents, is expanding rapidly, with the approval of such
agents as Gleevec, Herceptin, Tarceva, Nexavar, Sutent and
Avastin. For example, Roche Group reported aggregate world-wide
sales for Herceptin, Tarceva and Avastin of $11.8 billion
in 2009. Our small molecule compounds are highly targeted agents
directed at proteins found in many types of cancer cells.
Therefore, we believe that these product candidates could
potentially be useful for many different oncology indications
that address large markets.
Research
Programs/Vaccine Technology
In addition to our pipeline of product candidates, we have
developed a proprietary synthetic lipid A analog, PET lipid-A, a
toll like receptor 4 (TLR4) agonist. Pet lipid-A has been
produced under current Good Manufacturing Practices, or cGMP,
conditions as an adjuvant for vaccine formulations for clinical
trials and is a component of our preclinical vaccine candidate,
ONT-10. We also have other effective lipid-A analogs available
for our own use and for evaluation by our licensing partners.
Our synthetic lipid analogs provide strong innate immune
stimulation. These synthetic structures are easy to formulate
and manufacture. We are also open to new collaborations to
discover novel applications of these molecules as stand-alone
therapeutics and as synergistic adjuvants for antibiotic and
antiviral drugs.
Our Strategic
Collaboration with Merck KGaA
In May 2001, we and Merck KGaA entered into a collaborative
arrangement to pursue joint global product research, clinical
development and commercialization for our then two most advanced
product candidates, Stimuvax vaccine and Theratope vaccine. The
collaboration covered the entire field of oncology for these two
product candidates and was documented in collaboration and
supply agreements, which we refer to as the 2001 agreements. In
addition to granting the license with respect to certain rights
to develop and commercialize the product candidates, the parties
agreed to collaborate in substantially all aspects of clinical
development and commercialization and we agreed to manufacture
the clinical and commercial supply of the product candidates. In
2004, following the failure of Theratope in a Phase 3 clinical
trial, Merck KGaA returned all rights to Theratope to us.
Development of Theratope was subsequently discontinued and we do
not currently plan further clinical development. Following the
discontinuation of Theratope development efforts, we continued
to collaborate with Merck KGaA with respect to the development
of Stimuvax, pursuant to the terms of the 2001 agreements.
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In January 2006, we and Merck KGaA entered into a binding letter
of intent, pursuant to which the 2001 agreements were amended
and we and Merck KGaA agreed to negotiate in good faith to amend
and restate the 2001 agreements. Pursuant to the letter of
intent, in addition to the rights granted to Merck KGaA under
the 2001 agreements, we granted to Merck KGaA additional rights
with respect to the clinical development and commercialization
of Stimuvax in the United States and, subject to certain
conditions, the right to act as a secondary manufacturer of
Stimuvax.
In August 2007, we amended and restated the collaboration and
supply agreements with Merck KGaA, which restructured the 2001
agreements and formalized the terms of the 2006 letter of
intent. Pursuant to the 2007 agreements, Merck KGaA assumed
world-wide responsibility for the clinical development and
commercialization of Stimuvax, while we retained responsibility
for manufacturing process development and manufacturing the
clinical and commercial supply of Stimuvax.
In December 2008, we entered into a license agreement which
replaced the 2007 agreements. Under the 2008 license agreement,
(1) we licensed to Merck KGaA the exclusive right to
manufacture Stimuvax (in addition to the previously licensed
rights) and the right to sublicense to other persons all rights
licensed to Merck KGaA by us, (2) we transferred certain
manufacturing know-how, (3) we agreed not to develop any
product, other than ONT-10, that is competitive with Stimuvax
and (4) if we intend to license the development or
commercialization rights to ONT-10, Merck KGaA will have a right
of first negotiation with respect to such rights.
Upon the execution of the 2008 license agreement and asset
purchase agreement described below, all of our future
performance obligations related to the collaboration for the
clinical development and development of the manufacturing
process for Stimuvax were removed and continuing involvement by
us in the development and manufacturing of Stimuvax ceased
(although we continue to be entitled to certain information
rights with respect to clinical testing, development and
manufacture of Stimuvax).
In return for the license of manufacturing rights and transfer
of manufacturing know-how under the 2008 license agreement, we
received an up-front cash payment of approximately
$10.5 million. In addition, under the 2008 license
agreement we may receive additional future cash payments of up
to $90 million (which figure excludes the final
$2.0 million manufacturing process transfer payment
received on December 31, 2009, pursuant to the terms of the
2008 license agreement and $19.8 million received prior to
the execution of the 2008 license agreement pursuant to the
terms of the predecessor agreements), for biologics license
application, or BLA, submission for first and second cancer
indications, for regulatory approval for first and second cancer
indications, and for sales milestones. We understand Merck KGaA
plans to investigate the use of Stimuvax in multiple types of
cancer. We will receive a royalty based on certain net sales
thresholds, ranging from a percentage in the mid-teens to the
high single digits, depending on the territory in which the net
sales occur. The royalty rate is higher in North America than in
the rest of the world in return for our relinquishing our prior
co-promotion interest in U.S. and Canadian sales.
In connection with the entry into the 2008 license agreement, we
also entered into an asset purchase agreement, pursuant to which
we sold to Merck KGaA certain assets related to the manufacture
of, and inventory of, Stimuvax, placebo and raw materials, and
Merck KGaA agreed to assume certain liabilities related to the
manufacture of Stimuvax and our obligations related to the lease
of our Edmonton, Alberta, Canada facility. The aggregate
purchase price paid by Merck KGaA pursuant to the terms of the
asset purchase agreement consisted of approximately
$2.5 million, for aggregate consideration payable to us in
connection with the 2008 license agreement and the asset
purchase agreement of approximately $13.0 million.
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License
Agreements
We have in-licensed targets and intellectual property from
academic institutions for use in our pipeline programs,
including the following:
Cancer Research Technology Limited. In 1991,
we acquired from Cancer Research Technology Limited, or CRTL, of
London, England an exclusive world-wide license of CRTLs
rights to the Mucin 1 peptide antigen, or MUC1, found on human
breast, ovarian, colon and pancreatic cancer and other types of
solid tumor cells for uses in the treatment and diagnosis of
cancer. MUC1 is incorporated in our Stimuvax and ONT-10
vaccines. This license agreement was amended and restated in
November 2000. Under the terms of the amended and restated
agreement, we are required to pay royalties on net sales of
products covered by issued patents licensed from CRTL. Based on
these issued patents, we would be required to pay a royalty on
U.S. sales of Stimuvax in the mid single digits until
expiry of these patents in the United States, which is currently
anticipated to be 2018. We are also required to pay certain
royalties on sublicense revenue received by us ranging from a
percentage in the mid to high single digits. These sublicense
royalties will be credited against minimum sublicense royalty
payments of $0.75 million made by us in 2001. To date, we
have utilized approximately $0.68 million of these credits.
University of Alberta. In 2001, we entered
into an exclusive license with the University of Alberta for
certain patents relating to uses of liposomal cancer vaccines of
MUC1, and an adjuvant, lipid A, for vaccine formulations which
we use in Stimuvax. Under the terms of this agreement, we have
made payments of CDN $0.2 million, and are required to make
progress-dependent milestone payments of up to CDN
$0.3 million and to pay royalties at a fraction of a
percent on net sales of products covered by issued patents
licensed from the University of Alberta. Based on these issued
patents, this royalty would be due on sales of Stimuvax in the
U.S. until expiry of the patents in the United States,
which is currently anticipated to be 2018.
University of Arizona. In connection with our
acquisition of ProlX, we assumed ProlXs existing license
agreements with the University of Arizona. Pursuant to these
agreements, we have exclusive worldwide licenses to certain
intellectual property related to PX-478, PX-866 and certain
other product candidates that we are no longer developing. If
PX-478 and PX-866 are commercialized, we will owe the University
of Arizona certain progress-dependent milestone payments up to a
maximum of $637,500. We will also owe the University of Arizona
low single-digit royalties on net sales of products sold by us
or sublicensees that are covered by the license agreements. In
addition, if we grant a third party a sublicense to patents we
have licensed from the University of Arizona, after we recoup
any research costs relating to the applicable product that we
incurred prior to granting the sublicense, we will owe to the
University of Arizona a
sub-teen
double-digit percentage of any sublicensing income we receive
from a third party sublicensee with regard to such product.
Patents and
Proprietary Information
We seek appropriate patent protection for our proprietary
technologies by filing patent applications in the United States
and other countries. As of December 31, 2010, we owned
approximately 37 U.S. patents and patent applications, as
well as the corresponding foreign patents and patent
applications and held exclusive or partially exclusive licenses
to 10 U.S. patents and patent applications, as well as the
corresponding foreign patents and patent applications.
Our patents and patent applications are directed to our product
candidates as well as to our liposomal formulation technology.
Although we believe our patents and patent applications provide
us with a competitive advantage, the patent positions of
biotechnology and pharmaceutical companies can be uncertain and
involve complex legal
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and factual questions. We and our corporate collaborators may
not be able to develop patentable products or processes or
obtain patents from pending patent applications. Even if patent
claims are allowed, the claims may not issue, or in the event of
issuance, may not be sufficient to protect the technology owned
by or licensed to us or our corporate collaborators. For
example, claims covering the composition of PX-478 were only
filed in the United States and Canada, which will prevent us
from being able to obtain claims covering the composition of
PX-478 in other foreign jurisdictions, including Europe.
Our clinical product candidates are protected by composition and
use patents and patent applications. Patent protection afforded
by the patents and patent applications covering our product
candidates will expire over the following time frames:
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Product Candidate
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Expiration of Patent
Protection
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Stimuvax
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2018 (patent) 2029 (patent application)
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PX 478
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2014 (patent) 2025 (patent)
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PX 866
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2022 (patent) 2031 (patent application)
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ONT 10
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2022 (patent applications) 2032 (patent
applications)
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In addition, our composition of matter patents for Stimuvax and
PX-866 will expire in 2018 and 2023, respectively, and our
composition of matter patent application, if issued, for ONT-10
will expire in 2032. We also rely on trade secrets and
proprietary know-how, especially when we do not believe that
patent protection is appropriate or can be obtained. Our policy
is to require each of our employees, consultants and advisors to
execute a confidentiality and inventions assignment agreement
before beginning their employment, consulting or advisory
relationship with us. These agreements provide that the
individual must keep confidential and not disclose to other
parties any confidential information developed or learned by the
individual during the course of their relationship with us
except in limited circumstances. These agreements also provide
that we shall own all inventions conceived by the individual in
the course of rendering services to us.
Manufacturing
We currently outsource the manufacturing of drug substances and
drug products for all of our products in clinical development.
This arrangement allows us to use contract manufacturers that
already have extensive GMP manufacturing experience. We have a
staff with experience in the management of contract
manufacturing and the development of efficient commercial
manufacturing processes for our products. We currently intend to
outsource the supply of all our commercial products.
As discussed above under the caption, Our
Strategic Relationship with Merck KGaA, in December 2008
we entered into a license agreement with Merck KGaA pursuant to
which we licensed to Merck KGaA the exclusive right to
manufacture Stimuvax. Prior to the entry into the 2008 license
agreement, we were responsible for the manufacture of Stimuvax
and Merck KGaA purchased Stimuvax and placebo from us for use in
clinical trials in accordance with our arrangement with them.
Concurrently with the entry into the 2008 license agreement, we
also entered into an asset purchase agreement pursuant to which
we sold to Merck KGaA our remaining inventory of both Stimuvax
and placebo. The manufacture of Stimuvax is outsourced pursuant
to agreements with Baxter (for the manufacture of Stimuvax) and
Corixa, a subsidiary of GlaxoSmithKline (for the manufacture of
the adjuvant used in Stimuvax). These agreements were assigned
to Merck KGaA in accordance with the terms of the asset purchase
agreement. The Corixa agreement includes royalty payments
payable to Corixa which Merck KGaA is responsible for paying. If
Stimuvax is not approved by 2015, Corixa may terminate its
obligation to supply the adjuvant. Although in such a case we
would retain the necessary licenses from Corixa required to have
the adjuvant manufactured, the transfer of the process to a
third party would delay the development and commercialization of
Stimuvax. In addition, prior
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to the entry into the 2008 license agreement and asset purchase
agreement, we performed process development, assay development,
quality control and
scale-up
activities for Stimuvax at our Edmonton facility; this facility
and those activities were also transferred to Merck KGaA.
For our small molecule programs, we rely on third parties to
manufacture both the active pharmaceutical ingredients, or API,
and drug product. We believe there are several contract
manufacturers capable of manufacturing both the API and drug
product for these compounds; however, establishing a
relationship with an alternative supplier would likely delay our
ability to produce material.
We believe that our existing supplies of drug product and our
contract manufacturing relationships with our existing and other
potential contract manufacturers with whom we are in
discussions, will be sufficient to accommodate our planned
clinical trials. However, we may need to obtain additional
manufacturing arrangements, if available on commercially
reasonable terms, or increase our own manufacturing capability
to meet our future needs, both of which would require
significant capital investment. We may also enter into
collaborations with pharmaceutical or larger biotechnology
companies to enhance the manufacturing capabilities for our
product candidates.
Competition
The pharmaceutical and biotechnology industries are intensely
competitive, and any product candidate developed by us would
compete with existing drugs and therapies. There are many
pharmaceutical companies, biotechnology companies, public and
private universities, government agencies and research
organizations that compete with us in developing various
approaches to cancer therapy. Many of these organizations have
substantially greater financial, technical, manufacturing and
marketing resources than we have. Several of them have developed
or are developing therapies that could be used for treatment of
the same diseases that we are targeting. In addition, many of
these competitors have significantly greater commercial
infrastructures than we have. Our ability to compete
successfully will depend largely on our ability to:
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design and develop products that are superior to other products
in the market and under development;
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attract and retain qualified scientific, product development and
commercial personnel;
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obtain patent
and/or other
proprietary protection for our product candidates and
technologies;
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obtain required regulatory approvals;
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successfully collaborate with pharmaceutical companies in the
design, development and commercialization of new products;
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compete on, among other things, product efficacy and safety,
time to market, price, extent of adverse side effects and the
basis of and convenience of treatment procedures; and
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identify, secure the rights to and develop products and exploit
these products commercially before others are able to develop
competitive products.
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In addition, our ability to compete may be affected if insurers
and other third party payors seek to encourage the use of
generic products, making branded products less attractive to
buyers from a cost perspective.
Stimuvax. There are currently two products
approved as maintenance therapy following treatment of
inoperable locoregional Stage III NSCLC with induction
chemotherapy, Tarceva (erlotinib), a targeted small molecule
from Genentech, Inc., a member of the Roche Group, and Alimta
(pemetrexed), a chemotherapeutic from Eli Lilly and Company.
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Stimuvax has not been tested in combination with or in
comparison to these products. It is possible that other existing
or new agents will be approved for this indication. In addition,
there are at least three vaccines in development for the
treatment of NSCLC, including GSKs MAGE A3 vaccine in
Phase 3, NovaRx Corporations Lucanix in Phase 3 and
Transgenes TG-4010 in Phase 2. TG-4010 also targets MUC1,
although using technology different from Stimuvax. To our
knowledge, these vaccines are not currently being developed in
the same indications as Stimuvax. However, subsequent
development of these vaccines, including Stimuvax, may result in
direct competition.
Small Molecule Products. PX-866 is an
inhibitor of PI-3-kinase and several other companies have
product candidates directed at this target in clinical trials,
including Novartis (Phase 1/2), Roche/Genentech (Phase 1), Bayer
(Phase 1), Semafore (Phase 1), Sanofi-Aventis (Phase 2), Pfizer
(Phase 1) and Calistoga (Phase 2). There are also several
approved targeted therapies for cancer and in development
against which our small molecule products might compete.
Government
Regulation
Government authorities in the United States, at the federal,
state and local level, and other countries extensively regulate,
among other things, the research, development, testing,
manufacture, labeling, promotion, advertising, distribution,
marketing and export and import of biopharmaceutical products
such as those we are developing.
U.S.
Government Regulation
In the United States, the information that must be submitted to
the FDA in order to obtain approval to market a new drug varies
depending on whether the drug is a new product whose safety and
effectiveness has not previously been demonstrated in humans or
a drug whose active ingredient(s) and certain other properties
are the same as those of a previously approved drug. A new drug
will follow the New Drug Application, or NDA, route for
approval, a new biologic will follow the Biologics License
Application, or BLA, route for approval, and a drug that claims
to be the same as an already approved drug may be able to follow
the Abbreviated New Drug application, or ANDA, route for
approval.
NDA and BLA
Approval Process
In the United States, the FDA regulates drugs and biologics
under the Federal Food, Drug and Cosmetic Act, and, in the case
of biologics, also under the Public Health Service Act, and
implementing regulations. If we fail to comply with the
applicable U.S. requirements at any time during the product
development process, approval process or after approval, we may
become subject to administrative or judicial sanctions. These
sanctions could include the FDAs refusal to approve
pending applications, license suspension or revocation,
withdrawal of an approval, a clinical hold, warning letters,
product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, civil
penalties or criminal prosecution. Any agency or judicial
enforcement action could have a material adverse effect on us.
The steps required before a drug or biologic may be marketed in
the United States include:
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completion of pre-clinical laboratory tests, animal studies and
formulation studies under the FDAs good laboratory
practices regulations;
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submission to the FDA of an IND for human clinical testing,
which must become effective before human clinical trials may
begin;
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performance of adequate and well-controlled clinical trials to
establish the safety and efficacy of the product for each
indication;
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submission to the FDA of an NDA or BLA;
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satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the product is
produced to assess compliance with cGMP; and
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FDA review and approval of the NDA or BLA.
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Preclinical tests include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies.
An IND sponsor must submit the results of the pre-clinical
tests, together with manufacturing information and analytical
data, to the FDA as part of the IND. The IND must become
effective before human clinical trials may begin. An IND will
automatically become effective 30 days after receipt by the
FDA, unless before that time the FDA raises concerns or
questions about issues such as the conduct of the trials as
outlined in the IND. In that case, the IND sponsor and the FDA
must resolve any outstanding FDA concerns or questions before
clinical trials can proceed. Submission of an IND may not result
in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the
investigational product to human subjects under the supervision
of qualified investigators. Clinical trials are conducted under
protocols detailing, among other things, the objectives of the
study, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. Each clinical protocol
must be submitted to the FDA as part of the IND.
Clinical trials typically are conducted in three sequential
phases, but the phases may overlap or be combined. Each trial
must be reviewed and approved by an independent institutional
review board at each site where the trial will be conducted
before it can begin at that site. Phase 1 clinical trials
usually involve the initial introduction of the investigational
drug into humans to evaluate the products safety, dosage
tolerance, pharmacokinetics and pharmacodynamics and, if
possible, to gain an early indication of its effectiveness.
Phase 2 clinical trials usually involve controlled trials in a
limited patient population to evaluate dosage tolerance and
appropriate dosage, identify possible adverse effects and safety
risks, and evaluate preliminarily the efficacy of the drug for
specific indications. Phase 3 clinical trials usually further
evaluate clinical efficacy and further test for safety in an
expanded patient population. Phase 1, Phase 2 and Phase 3
testing may not be completed successfully within any specified
period, if at all. The FDA or we may suspend or terminate
clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an
unacceptable health risk.
Assuming successful completion of the required clinical testing,
the results of the pre-clinical studies and of the clinical
studies, together with other detailed information, including
information on the chemistry, manufacture and control criteria
of the product, are submitted to the FDA in the form of an NDA
or BLA requesting approval to market the product for one or more
indications. The FDA reviews an NDA to determine, among other
things, whether a product is safe and effective for its intended
use. The FDA reviews a BLA to determine, among other things,
whether the product is safe, pure and potent and whether the
facility in which it is manufactured, processed, packed or held
meets standards designed to assure the products continued
safety, purity and potency. In connection with the submission of
an NDA or BLA, an applicant may seek a special protocol
assessment, or SPA, which is an agreement between an applicant
and the FDA on the design and size of clinical trials that is
intended to form the basis of an NDA or BLA. In December 2006,
we entered into an SPA agreement with the FDA for the Phase 3
trial of Stimuvax for the treatment of NSCLC. The SPA agreement
relates to the design of the Phase 3 trial and outlines
definitive clinical objectives and data analyses considered
necessary to support regulatory approval of Stimuvax however the
SPA does not guarantee approval even if the endpoints are
successfully reached.
Before approving an application, the FDA will inspect the
facility or the facilities at which the product is manufactured.
The FDA will not approve the product unless cGMP compliance is
satisfactory. If the FDA determines the application,
manufacturing process or
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manufacturing facilities are not acceptable, it will outline the
deficiencies in the submission and often will request additional
testing or information. Notwithstanding the submission of any
requested additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria
for approval.
The testing and approval process requires substantial time,
effort and financial resources, and each may take several years
to complete. The FDA may not grant approval on a timely basis,
or at all. We may encounter difficulties or unanticipated costs
in our efforts to secure necessary governmental approvals, which
could delay or preclude us from marketing our product
candidates. The FDA may limit the indications for use or place
other conditions on any approvals that could restrict the
commercial application of our product candidates. After
approval, some types of changes to the approved product, such as
adding new indications, manufacturing changes and additional
labeling claims, are subject to further FDA review and approval.
Fast Track
Designation / Priority Review
We received Fast Track designation from the FDA for Stimuvax for
the treatment of NSCLC. 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 marketing.
The FDA can base approval of a marketing application for a Fast
Track product on an effect on a surrogate endpoint, or on
another endpoint that is reasonably likely to predict clinical
benefit. The FDA may condition approval of an application for a
Fast Track product on a commitment to do post-approval studies
to validate the surrogate endpoint or confirm the effect on the
clinical endpoint and require prior review of all promotional
materials. In addition, the FDA may withdraw approval of a Fast
Track product in an expedited manner on a number of grounds,
including the sponsors failure to conduct any required
post-approval study in a timely manner.
The FDA also has established priority and standard review
classifications for original NDAs and efficacy supplements.
Priority review applies to the time frame for FDA review of
completed marketing applications and is separate from and
independent of the Fast Track and accelerated approval
mechanisms. The classification system, which does not preclude
the FDA from doing work on other projects, provides a way of
prioritizing NDAs upon receipt and throughout the application
review process.
Priority designation applies to new drugs that have the
potential for providing significant improvement compared to
marketed products in the treatment or prevention of a disease.
Hence, even if an NDA is initially classified as a priority
application, this status can change during the FDA review
process, such as in the situation where another product is
approved for the same disease for which previously there was no
available therapy. In addition, priority review does not
guarantee that a product candidate will receive regulatory
approval. To date, none of our product candidates have obtained
priority designation from the FDA.
Post-Approval
Requirements
After regulatory approval of a product is obtained, we are
required to comply with a number of post-approval requirements.
Holders of an approved NDA or BLA are required to report certain
adverse reactions and production problems to the FDA, to provide
updated safety and efficacy information and to comply with
requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval. The
FDA
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periodically inspects manufacturing facilities to assess
compliance with cGMP, which imposes certain procedural,
substantive and recordkeeping requirements. Accordingly,
manufacturers must continue to expend time, money and effort in
the area of production and quality control to maintain
compliance with cGMP and other aspects of regulatory compliance.
We use, and in at least the near-term will continue to use,
third party manufacturers to produce our product candidates in
clinical and commercial quantities. Future FDA inspections may
identify compliance issues at our facilities or at the
facilities of our contract manufacturers that may disrupt
production or distribution, or require substantial resources to
correct. In addition, discovery of problems with a product or
the failure to comply with applicable requirements may result in
restrictions on a product, manufacturer or holder of an approved
NDA or BLA, including withdrawal or recall of the product from
the market or other voluntary, FDA-initiated or judicial action
that could delay or prohibit further marketing. Also, new
government requirements may be established that could delay or
prevent regulatory approval of our product candidates under
development.
In addition, as a condition of approval of an NDA or BLA, the
FDA may require post-marketing testing and surveillance to
monitor the products safety or efficacy.
Canadian and
Foreign Regulation
In addition to regulations in the United States, we will be
subject to a variety of foreign regulations governing clinical
trials and commercial sales and distribution of our product
candidates. Whether or not we obtain FDA approval for a product
candidate, we must obtain approval of a product candidate by the
comparable regulatory authorities of foreign countries before we
can commence clinical trials or marketing of the product
candidate in those countries. The approval process varies from
country to country, and the time may be longer or shorter than
that required for FDA approval. The requirements governing the
conduct of clinical trials, product licensing, pricing and
reimbursement vary greatly from country to country.
Under the Canadian regulatory system, Health Canada is the
regulatory body that governs the sale of drugs for the purposes
of use in clinical trials. Accordingly, any company that wishes
to conduct a clinical trial in Canada must submit a clinical
trial application to Health Canada. Health Canada reviews the
application and notifies the company within 30 days if the
application is found to be deficient. If the application is
deemed acceptable, Health Canada will issue a letter to the
company within the
30-day
review period which means the company may proceed with its
clinical trial(s).
Under European Union regulatory systems, we may submit marketing
authorizations either under a centralized or decentralized
procedure. The centralized procedure provides for the grant of a
single marketing authorization that is valid for all European
Union member states. The decentralized procedure provides for
mutual recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization from
one member state may submit an application to the remaining
member states. Within 90 days of receiving the application and
assessment report, each member state must decide whether to
recognize approval.
Reimbursement
Sales of biopharmaceutical products depend in significant part
on the availability of third party reimbursement, including
Medicare. Each third party payor may have its own policy
regarding what products it will cover, the conditions under
which it will cover such products, and how much it will pay for
such products. It is time consuming and expensive for us to seek
reimbursement from third party payors. Reimbursement may not be
available or sufficient to allow us to sell our products on a
competitive and profitable basis.
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In addition, in some foreign countries, the proposed pricing for
a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to
country. For example, the European Union provides options for
its member states to restrict the range of medicinal products
for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products
for human use. A member state may approve a specific price for
the medicinal product or it may instead adopt a system of direct
or indirect controls on the profitability of the company placing
the medicinal product on the market.
Political, economic and regulatory influences are subjecting the
healthcare industry in the United States to fundamental changes.
There have been, and we expect there will continue to be,
legislative and regulatory proposals to change the healthcare
system in ways that could significantly affect our business,
including the Affordable Care Act of 2010. We anticipate that
the U.S. Congress, state legislatures and the private
sector will continue to consider and may adopt healthcare
policies intended to curb rising healthcare costs. These cost
containment measures include:
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controls on government funded reimbursement for drugs;
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controls on healthcare providers;
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challenges to the pricing of drugs or limits or prohibitions on
reimbursement for specific products through other means;
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reform of drug importation laws; and
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expansion of use of managed care systems in which healthcare
providers contract to provide comprehensive healthcare for a
fixed cost per person.
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We are unable to predict what legislation, regulations or
policies, if any, relating to the healthcare industry or third
party coverage and reimbursement may be enacted in the future or
what the magnitude of the effect such legislation, regulations
or policies would have on our business. Any cost containment
measures, including those listed above, or other healthcare
system reforms that are adopted could have a material adverse
effect on our business, financial condition and profitability.
Research and
Development
We devote a substantial portion of our resources to developing
new product candidates. During the years ended December 31,
2010, 2009 and 2008, we expended approximately
$11.2 million, $6.1 million, and $8.8 million,
respectively, on research and development activities.
Employees
As of December 31, 2010, we (including our consolidated
subsidiaries) had 25 employees, 18 of whom are engaged in
development activities, seven in finance and administration, and
seven of whom hold Ph.D.
and/or M.D.
degrees. A number of our management and professional employees
have had prior experience with other pharmaceutical or medical
products companies.
Our ability to develop marketable products and to establish and
maintain our competitive position in light of technological
developments will depend, in part, on our ability to attract and
retain qualified personnel. Competition for such personnel is
intense. We have also chosen to outsource activities where
skills are in short supply or where it is economically prudent
to do so.
None of our employees are covered by collective bargaining
agreements and we believe that our relations with our employees
are good.
-16-
Factors That
Could Affect Future Results
Set forth
below and elsewhere in this report, and in other documents we
file with the SEC are descriptions of risks and uncertainties
that could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained
in this report. Because of the following factors, as well as
other variables affecting our operating results, past financial
performance should not be considered a reliable indicator of
future performance and investors should not use historical
trends to anticipate results or trends in future periods. The
risks and uncertainties described below are not the only ones
facing us. Other events that we do not currently anticipate or
that we currently deem immaterial also affect our results of
operations and financial condition.
Risks Relating to
our Business
Our near-term
success is highly dependent on the success of our lead product
candidate, Stimuvax, and we cannot be certain that it will be
successfully developed or receive regulatory approval or be
successfully commercialized.
Our lead product candidate, Stimuvax, is being evaluated in
Phase 3 clinical trials for the treatment of non-small cell lung
cancer, or NSCLC, and, until the March 2010 suspension of
clinical trials, was being evaluated in a global Phase 3 trial
in breast cancer. The March 2010 suspension by Merck KGaA of the
clinical development program for Stimuvax was the result of a
suspected unexpected serious adverse event reaction in a patient
with multiple myeloma participating in an exploratory clinical
trial. In June 2010, we announced that the U.S. Food and
Drug Administration, or FDA, lifted the clinical hold it had
placed on the Phase 3 clinical trials in NSCLC. Merck KGaA has
resumed the treatment and enrollment in these trials for
Stimuvax in NSCLC. The clinical hold on the Stimuvax trial in
breast cancer remains in effect and Merck KGaA has discontinued
the Phase 3 trial in breast cancer. Stimuvax will require the
successful completion of the ongoing NSCLC trials and possibly
other clinical trials before submission of a biologic license
application, or BLA, or its foreign equivalent for approval.
This process can take many years and require the expenditure of
substantial resources. Pursuant to our agreement with Merck
KGaA, Merck KGaA is responsible for the development and the
regulatory approval process and any subsequent commercialization
of Stimuvax. We cannot assure you that Merck KGaA will continue
to advance the development and commercialization of Stimuvax as
quickly as would be optimal for our stockholders. In addition,
Merck KGaA has the right to terminate the 2008 license agreement
upon 30 days prior written notice if, in its
reasonable judgment, it determines there are issues concerning
the safety or efficacy of Stimuvax that would materially and
adversely affect Stimuvaxs medical, economic or
competitive viability. Clinical trials involving the number of
sites and patients required for FDA approval of Stimuvax may not
be successfully completed. If these clinical trials fail to
demonstrate that Stimuvax is safe and effective, it will not
receive regulatory approval. Even if Stimuvax receives
regulatory approval, it may never be successfully
commercialized. If Stimuvax does not receive regulatory approval
or is not successfully commercialized, or if Merck were to
terminate the 2008 license agreement, we may not be able to
generate revenue, become profitable or continue our operations.
Any failure of Stimuvax to receive regulatory approval or be
successfully commercialized would have a material adverse effect
on our business, operating results, and financial condition and
could result in a substantial decline in the price of our common
stock.
We understand that Merck KGaA intends to submit for regulatory
approval of Stimuvax for the treatment of NSCLC based on the
results of a single Phase 3 trial, the START study. If the FDA
determines that the results of this single study do not
demonstrate the efficacy of Stimuvax with a sufficient degree of
statistical certainty, the FDA may require an additional Phase 3
study to be performed prior to regulatory approval. Such a trial
requirement would delay or prevent commercialization of Stimuvax
and could result in the termination by
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Merk KGaA of our license agreement with them. In addition, there
can be no guarantee that the results of an additional trial
would be supportive of the results of the START trial.
Stimuvax and
ONT-10 are based on novel technologies, which may raise new
regulatory issues that could delay or make FDA approval more
difficult.
The process of obtaining required FDA and other regulatory
approvals, including foreign approvals, is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. Stimuvax and
ONT-10 are novel; therefore, regulatory agencies may lack
experience with them, which may lengthen the regulatory review
process, increase our development costs and delay or prevent
commercialization of Stimuvax and our other active vaccine
products under development.
To date, the FDA has approved for commercial sale in the United
States only one active vaccine designed to stimulate an immune
response against cancer. Consequently, there is limited
precedent for the successful development or commercialization of
products based on our technologies in this area.
The suspension
of Mercks clinical development program for Stimuvax could
severely harm our business.
In March 2010, we announced that Merck KGaA suspended the
clinical development program for Stimuvax as the result of a
suspected unexpected serious adverse event reaction in a patient
with multiple myeloma participating in an exploratory clinical
trial. The suspension was a precautionary measure while an
investigation of the cause of the adverse event was conducted,
but it affected the Phase 3 clinical trials in NSCLC and in
breast cancer. In June 2010, we announced that the FDA, lifted
the clinical hold it had placed on the Phase 3 clinical trials
in NSCLC. Merck KGaA has resumed the treatment and enrollment in
these trials for Stimuvax in NSCLC. The clinical hold on the
Stimuvax trial in breast cancer remains in effect and Merck KGaA
has discontinued the Phase 3 trial in breast cancer.
As of the date of this Annual Report on
Form 10-K,
we can offer no assurances that this serious adverse event was
not caused by Stimuvax or that there are not or will not be more
such serious adverse events in the future. The occurrence of
this serious adverse event, or other such serious adverse
events, could result in a prolonged delay, including the need to
enroll more patients or collect more data, or the termination of
the clinical development program for Stimuvax. For example, we
have been informed that Merck KGaA plans to increase the size of
the START trial of
Stimuvax®
in NSCLC from an estimated number of 1322 to 1476 patients as
part of a plan to maintain the statistical power of the trial.
This change was agreed in consultation with the U.S. Food and
Drug Administration (the FDA), and the Special
Protocol Agreement (SPA) for START has been amended
to reflect the change. Another unexpected serious adverse event
reaction could cause a similar suspension of clinical trials in
the future. Any of these foregoing risks could materially and
adversely affect our business, results of operations and the
trading price of our common stock.
The terms of
our secured debt facility may restrict our current and future
operations, particularly our ability to respond to changes or to
take some actions, and our failure to comply with such
covenants, whether due to events beyond our control or
otherwise, could result in an event of default which could
materially and adversely affect our operating results and our
financial condition.
In February 2011 we borrowed $5.0 million pursuant to the
terms of a loan and security agreement, or the loan agreement,
with General Electric Capital Corporation, or GECC. In addition,
at any time before November 1, 2011 we may, at our sole
option, borrow from GECC an additional $7.5 million,
subject to our satisfaction of specified conditions
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precedent. The loan agreement with GECC contains certain
restrictive covenants that limit or restrict our ability to
incur indebtedness, grant liens, merge or consolidate, dispose
of assets, make investments, make acquisitions, enter into
certain transactions with affiliates, pay dividends or make
distributions, or repurchase stock. The loan agreement also
requires that we have 12 months of unrestricted cash and
cash equivalents (as calculated in the loan agreement) as of
each December 31 during the term of the loan agreement. A breach
of any of these covenants or the occurrence of certain other
events of default, which are customary in similar loan
facilities, would result in a default under the loan agreement.
If there was an uncured event of default, GECC could cause all
amounts outstanding under the loan agreement to become due and
payable immediately and could proceed against the collateral
securing the indebtedness, including our cash, cash equivalents
and short-term investments. We cannot be certain that our assets
would be sufficient to fully repay borrowings under the loan
agreement, either upon maturity or acceleration upon an uncured
event of default.
Our ability to
continue with our planned operations is dependent on our success
at raising additional capital sufficient to meet our obligations
on a timely basis. If we fail to obtain additional financing
when needed, we may be unable to complete the development,
regulatory approval and commercialization of our product
candidates.
We have expended and continue to expend substantial funds in
connection with our product development activities and clinical
trials and regulatory approvals. The very limited funds
generated currently from our operations will be insufficient to
enable us to bring all of our products currently under
development to commercialization. Accordingly, we need to raise
additional funds from the sale of our securities, partnering
arrangements or other financing transactions in order to finance
the commercialization of our product candidates. The current
financing environment in the United States, particularly for
biotechnology companies like us, remains challenging and we can
provide no assurances as to when such environment will improve.
For these reasons, among others, we cannot be certain that
additional financing will be available when and as needed or, if
available, that it will be available on acceptable terms. For
example, pursuant to the terms of the loan agreement with GECC,
we may borrow an additional $7.5 million at any time before
November 1, 2011, subject to our satisfaction of certain
specified conditions precedent. We cannot guarantee that we will
be able to satisfy such conditions and, thus, the additional
$7.5 million may be unavailable. If financing is available,
it may be on terms that adversely affect the interests of our
existing stockholders or restrict our ability to conduct our
operations. If adequate financing is not available, we may need
to continue to reduce or eliminate our expenditures for research
and development, testing, production and marketing for some of
our product candidates. Our actual capital requirements will
depend on numerous factors, including:
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activities and arrangements related to the commercialization of
our product candidates;
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the progress of our research and development programs;
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the progress of pre-clinical and clinical testing of our product
candidates;
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the time and cost involved in obtaining regulatory approvals for
our product candidates;
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the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights with
respect to our intellectual property;
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the effect of competing technological and market developments;
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the effect of changes and developments in our existing licensing
and other relationships; and
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the terms of any new collaborative, licensing and other
arrangements that we may establish.
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We may not be able to secure sufficient financing on acceptable
terms. If we cannot, we may need to delay, reduce or eliminate
some or all of our research and development programs, any of
which would be expected to have a material adverse effect on our
business, operating results, and financial condition.
Further, since we failed to timely file our Annual Report on
Form 10-K
for the year ended December 31, 2009, we are ineligible to
utilize a registration statement on
Form S-3
to raise capital and will continue to be ineligible to use such
registration statement until at least April 1, 2011. Our
inability to take advantage of the benefits afforded by
Form S-3
will limit our financing alternatives and may significantly
increase our cost of capital or the dilutive impact on the
voting and economic interests of our existing stockholders, as
transactions effected using a registration statement on
Form S-3
are simpler and less costly to execute and may be perceived by
potential investors as being more attractive than those effected
in a different manner. If financing is available, the terms of
such financing may place restrictions on us and adversely affect
the trading price of our common stock and the interests of our
existing stockholders.
We have a
history of net losses, we anticipate additional losses and we
may never become profitable.
Other than the year ended December 31, 2008, we have
incurred net losses in each fiscal year since we commenced our
research activities in 1985. The net income we realized in 2008
was due entirely to our December 2008 transactions with Merck
KGaA and we do not anticipate realizing net income again for the
foreseeable future. As of December 31, 2010, our
accumulated deficit was approximately $347.3 million. Our
losses have resulted primarily from expenses incurred in
research and development of our product candidates. We do not
know when or if we will complete our product development
efforts, receive regulatory approval for any of our product
candidates, or successfully commercialize any approved products.
As a result, it is difficult to predict the extent of any future
losses or the time required to achieve profitability, if at all.
Any failure of our products to complete successful clinical
trials and obtain regulatory approval and any failure to become
and remain profitable would adversely affect the price of our
common stock and our ability to raise capital and continue
operations.
There is no
assurance that we will be granted regulatory approval for any of
our product candidates.
Merck KGaA has been testing our lead product candidate,
Stimuvax, in Phase 3 clinical trials for the treatment of NSCLC.
We have initiated two Phase
1/2
trials in 2010 for PX-866, and plan to initiate two additional
Phase 2 trials in the first half of 2011. Our other product
candidates remain in the pre-clinical testing stages. The
results from pre-clinical testing and clinical trials that we
have completed may not be predictive of results in future
pre-clinical tests and clinical trials, and there can be no
assurance that we will demonstrate sufficient safety and
efficacy to obtain the requisite regulatory approvals. A number
of companies in the biotechnology and pharmaceutical industries,
including our company, have suffered significant setbacks in
advanced clinical trials, even after promising results in
earlier trials. For example, the clinical trials for Stimuvax
were suspended as a result of a suspected unexpected serious
adverse event reaction in a patient. Although the clinical hold
for trials in NSCLC has been lifted, it remains in effect for
the trial in breast cancer and Merck KGaA has decided to
discontinue the Phase 3 trial in breast cancer. Regulatory
approval may not be obtained for any of our product candidates.
If our product candidates are not shown to be safe and effective
in clinical trials, the resulting delays in developing other
product candidates and conducting related pre-clinical testing
and clinical trials, as well as the potential need for
additional financing, would have a material adverse effect on
our business, financial condition and results of operations.
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We are
dependent upon Merck KGaA to develop and commercialize our lead
product candidate, Stimuvax.
Under our license agreement with Merck KGaA for our lead product
candidate, Stimuvax, Merck KGaA is entirely responsible for the
development, manufacture and worldwide commercialization of
Stimuvax and the costs associated with such development,
manufacture and commercialization. Any future payments,
including royalties to us, will depend on the extent to which
Merck KGaA advances Stimuvax through development and
commercialization. Merck KGaA has the right to terminate the
2008 license agreement, upon 30 days written notice,
if, in Merck KGaAs reasonable judgment, Merck KGaA
determines that there are issues concerning the safety or
efficacy of Stimuvax which materially adversely affect
Stimuvaxs medical, economic or competitive viability;
provided that if we do not agree with such determination we have
the right to cause the matter to be submitted to binding
arbitration. Our ability to receive any significant revenue from
Stimuvax is dependent on the efforts of Merck KGaA. If Merck
KGaA fails to fulfill its obligations under the 2008 license
agreement, we would need to obtain the capital necessary to fund
the development and commercialization of Stimuvax or enter into
alternative arrangements with a third party. We could also
become involved in disputes with Merck KGaA, which could lead to
delays in or termination of our development and
commercialization of Stimuvax and time-consuming and expensive
litigation or arbitration. If Merck KGaA terminates or breaches
its agreement with us, or otherwise fails to complete its
obligations in a timely manner, the chances of successfully
developing or commercializing Stimuvax would be materially and
adversely affected.
We and Merck
KGaA currently rely on third party manufacturers to supply our
product candidates, which could delay or prevent the clinical
development and commercialization of our product
candidates.
We currently depend on third party manufacturers for the
manufacture of PX-866. Any disruption in production, inability
of these third party manufacturers to produce adequate
quantities to meet our needs or other impediments with respect
to development or manufacturing could adversely affect our
ability to continue our research and development activities or
successfully complete pre-clinical studies and clinical trials,
delay submissions of our regulatory applications or adversely
affect our ability to commercialize our product candidates in a
timely manner, or at all.
Merck KGaA currently depends on a single manufacturer, Baxter
International Inc., or Baxter, for the supply of our lead
product candidate, Stimuvax, and on Corixa Corp. (now a part of
GlaxoSmithKline plc, or GSK) for the manufacture of the adjuvant
in Stimuvax. If Stimuvax is not approved by 2015, Corixa/GSK may
terminate its obligation to supply the adjuvant. In this case,
we would retain the necessary licenses from Corixa/GSK required
to have the adjuvant manufactured, but the transfer of the
process to a third party would delay the development and
commercialization of Stimuvax, which would materially harm our
business.
Similarly, we rely on a single manufacturer, Fermentek, LTD for
the supply of Wortmannin, a key raw ingredient for PX-866.
Without the timely support of Fermentek, LTD, our development
program for PX-866 could suffer significant delays, require
significantly higher spending or face cancellation.
Our product candidates have not yet been manufactured on a
commercial scale. In order to commercialize a product candidate,
the third party manufacturer may need to increase its
manufacturing capacity, which may require the manufacturer to
fund capital improvements to support the scale up of
manufacturing and related activities. With respect to PX-866, we
may be required to provide all or a portion of these funds. The
third party manufacturer may not be able to successfully
increase its manufacturing capacity for our product candidate
for which we obtain marketing approval in a timely or economic
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manner, or at all. If any manufacturer is unable to provide
commercial quantities of a product candidate, we (or Merck KGaA,
in the case of Stimuvax) will need to successfully transfer
manufacturing technology to a new manufacturer. Engaging a new
manufacturer for a particular product candidate could require us
(or Merck KGaA, in the case of Stimuvax) to conduct comparative
studies or use other means to determine equivalence between
product candidates manufactured by a new manufacturer and those
previously manufactured by the existing manufacturer, which
could delay or prevent commercialization of our product
candidates. If any of these manufacturers is unable or unwilling
to increase its manufacturing capacity or if alternative
arrangements are not established on a timely basis or on
acceptable terms, the development and commercialization of our
product candidates may be delayed or there may be a shortage in
supply.
Any manufacturer of our products must comply with current Good
Manufacturing Practices, or cGMP, requirements enforced by the
FDA through its facilities inspection program or by foreign
regulatory agencies. These requirements include quality control,
quality assurance and the maintenance of records and
documentation. Manufacturers of our products may be unable to
comply with these cGMP requirements and with other FDA, state
and foreign regulatory requirements. We have little control over
our manufacturers compliance with these regulations and
standards. A failure to comply with these requirements may
result in fines and civil penalties, suspension of production,
suspension or delay in product approval, product seizure or
recall, or withdrawal of product approval. If the safety of any
quantities supplied is compromised due to our
manufacturers failure to adhere to applicable laws or for
other reasons, we may not be able to obtain regulatory approval
for or successfully commercialize our products.
Any failure or
delay in commencing or completing clinical trials for our
product candidates could severely harm our
business.
Each of our product candidates must undergo extensive
pre-clinical studies and clinical trials as a condition to
regulatory approval. Pre-clinical studies and clinical trials
are expensive and take many years to complete. The commencement
and completion of clinical trials for our product candidates may
be delayed by many factors, including:
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safety issues or side effects;
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delays in patient enrollment and variability in the number and
types of patients available for clinical trials;
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poor effectiveness of product candidates during clinical trials;
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governmental or regulatory delays and changes in regulatory
requirements, policy and guidelines;
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our or our collaborators ability to obtain regulatory
approval to commence a clinical trial;
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our or our collaborators ability to manufacture or obtain
from third parties materials sufficient for use in pre-clinical
studies and clinical trials; and
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varying interpretation of data by the FDA and similar foreign
regulatory agencies.
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It is possible that none of our product candidates will complete
clinical trials in any of the markets in which we
and/or our
collaborators intend to sell those product candidates.
Accordingly, we
and/or our
collaborators may not receive the regulatory approvals necessary
to market our product candidates. Any failure or delay in
commencing or completing clinical trials or obtaining regulatory
approvals for product candidates would prevent or delay their
commercialization and severely harm our business and financial
condition. For example, although the suspension of the clinical
development program for Stimuvax in March 2010 has been lifted
for trials in NSCLC, it remains in effect for trials in
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breast cancer and, in any event, may result in a prolonged delay
or in the termination of the clinical development program for
Stimuvax. For example, Merck KGaA has announced that it has
decided to discontinue the Phase 3 trial in breast cancer. A
prolonged delay or termination of the clinical development
program would have a material adverse impact on our business and
financial condition.
The failure to
enroll patients for clinical trials may cause delays in
developing our product candidates.
We may encounter delays if we, any collaboration partners or
Merck KGaA are unable to enroll enough patients to complete
clinical trials. Patient enrollment depends on many factors,
including, the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the
eligibility criteria for the trial. Moreover, when one product
candidate is evaluated in multiple clinical trials
simultaneously, patient enrollment in ongoing trials can be
adversely affected by negative results from completed trials.
Our product candidates are focused in oncology, which can be a
difficult patient population to recruit. In addition, the
suspension of the Stimuvax trials may require Merck KGaA to
enroll additional patients which could delay such trials.
We rely on third parties to conduct our clinical trials. If
these third parties do not perform as contractually required or
otherwise expected, we may not be able to obtain regulatory
approval for or be able to commercialize our product candidates.
We rely on third parties, such as contract research
organizations, medical institutions, clinical investigators and
contract laboratories, to assist in conducting our clinical
trials. We have, in the ordinary course of business, entered
into agreements with these third parties. Nonetheless, we are
responsible for confirming that each of our clinical trials is
conducted in accordance with its general investigational plan
and protocol. Moreover, the FDA and foreign regulatory agencies
require us to comply with regulations and standards, commonly
referred to as good clinical practices, for conducting,
recording and reporting the results of clinical trials to assure
that data and reported results are credible and accurate and
that the trial participants are adequately protected. Our
reliance on third parties does not relieve us of these
responsibilities and requirements. If these third parties do not
successfully carry out their contractual duties or regulatory
obligations or meet expected deadlines, if the third parties
need to be replaced or if the quality or accuracy of the data
they obtain is compromised due to the failure to adhere to our
clinical protocols or regulatory requirements or for other
reasons, our pre-clinical development activities or clinical
trials may be extended, delayed, suspended or terminated, and we
may not be able to obtain regulatory approval for our product
candidates.
Even if
regulatory approval is received for our product candidates, the
later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions, including
withdrawal of the product from the market.
Approval of a product candidate may be conditioned upon certain
limitations and restrictions as to the drugs use, or upon
the conduct of further studies, and may be subject to continuous
review. After approval of a product, if any, there will be
significant ongoing regulatory compliance obligations, and if we
or our collaborators fail to comply with these requirements, we,
any of our collaborators or Merck KGaA could be subject to
penalties, including:
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warning letters;
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fines;
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product recalls;
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withdrawal of regulatory approval;
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operating restrictions;
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disgorgement of profits;
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injunctions; and
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criminal prosecution.
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Regulatory agencies may require us, any of our collaborators or
Merck KGaA to delay, restrict or discontinue clinical trials on
various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk. For
example, in March 2010, Merck KGaA suspended the clinical
development program for Stimuvax in both NSCLC and breast cancer
as the result of a suspected unexpected serious adverse event
reaction in a patient with multiple myeloma participating in an
exploratory clinical trial. Although the clinical hold placed on
Stimuvax clinical trials in NSCLC has been lifted, the
suspension of clinical trials in breast cancer remains in effect
and Merck KGaA has announced that it has decided to discontinue
the Phase 3 trial in breast cancer. In addition, we, any of our
collaborators or Merck KGaA may be unable to submit applications
to regulatory agencies within the time frame we currently
expect. Once submitted, applications must be approved by various
regulatory agencies before we, any of our collaborators or Merck
KGaA can commercialize the product described in the application.
All statutes and regulations governing the conduct of clinical
trials are subject to change in the future, which could affect
the cost of such clinical trials. Any unanticipated costs or
delays in such clinical studies could delay our ability to
generate revenues and harm our financial condition and results
of operations.
Failure to
obtain regulatory approval in foreign jurisdictions would
prevent us from marketing our products
internationally.
We intend to have our product candidates marketed outside the
United States. In order to market our products in the European
Union and many other
non-U.S. jurisdictions,
we must obtain separate regulatory approvals and comply with
numerous and varying regulatory requirements. To date, we have
not filed for marketing approval for any of our product
candidates and may not receive the approvals necessary to
commercialize our product candidates in any market. The approval
procedure varies among countries and can involve additional
testing and data review. The time required to obtain foreign
regulatory approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include
all of the risks associated with obtaining FDA approval. We may
not obtain foreign regulatory approvals on a timely basis, if at
all. Approval by the FDA does not ensure approval by regulatory
agencies in other countries, and approval by one foreign
regulatory authority does not ensure approval by regulatory
agencies in other foreign countries or by the FDA. However, a
failure or delay in obtaining regulatory approval in one
jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by
the FDA. The failure to obtain regulatory approval in foreign
jurisdictions could harm our business.
Our product
candidates may never achieve market acceptance even if we obtain
regulatory approvals.
Even if we receive regulatory approvals for the commercial sale
of our product candidates, the commercial success of these
product candidates will depend on, among other things, their
acceptance by physicians, patients, third party payers such as
health insurance companies and other members of the medical
community as a therapeutic and cost-effective alternative to
competing products and treatments. If our product candidates
fail to gain market acceptance, we may be unable to earn
sufficient revenue to continue our business. Market acceptance
of, and demand for, any product that we may develop and
commercialize will depend on many factors, including:
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our ability to provide acceptable evidence of safety and
efficacy;
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the prevalence and severity of adverse side effects;
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availability, relative cost and relative efficacy of alternative
and competing treatments;
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the effectiveness of our marketing and distribution strategy;
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publicity concerning our products or competing products and
treatments; and
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our ability to obtain sufficient third party insurance coverage
or reimbursement.
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If our product candidates do not become widely accepted by
physicians, patients, third party payors and other members of
the medical community, our business, financial condition and
results of operations would be materially and adversely affected.
If we are
unable to obtain, maintain and enforce our proprietary rights,
we may not be able to compete effectively or operate
profitably.
Our success is dependent in part on obtaining, maintaining and
enforcing our patents and other proprietary rights and will
depend in large part on our ability to:
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obtain patent and other proprietary protection for our
technology, processes and product candidates;
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defend patents once issued;
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preserve trade secrets; and
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operate without infringing the patents and proprietary rights of
third parties.
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As of December 31, 2010, we owned approximately 16
U.S. patents and 21 U.S. patent applications, as well
as the corresponding foreign patents and patent applications,
and held exclusive or partially exclusive licenses to
approximately eight U.S. patents and two U.S. patent
applications, as well as the corresponding foreign patents and
patent applications. The degree of future protection for our
proprietary rights is uncertain. For example:
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we might not have been the first to make the inventions covered
by any of our patents, if issued, or our pending patent
applications;
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we might not have been the first to file patent applications for
these inventions;
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others may independently develop similar or alternative
technologies or products
and/or
duplicate any of our technologies
and/or
products;
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it is possible that none of our pending patent applications will
result in issued patents or, if issued, these patents may not be
sufficient to protect our technology or provide us with a basis
for commercially-viable products and may not provide us with any
competitive advantages;
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if our pending applications issue as patents, they may be
challenged by third parties as infringed, invalid or
unenforceable under U.S. or foreign laws;
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if issued, the patents under which we hold rights may not be
valid or enforceable; or
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we may develop additional proprietary technologies that are not
patentable and which may not be adequately protected through
trade secrets, if for example a competitor were to independently
develop duplicative, similar or alternative technologies.
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The patent position of biotechnology and pharmaceutical firms is
highly uncertain and involves many complex legal and technical
issues. There is no clear policy involving the breadth of claims
allowed in patents or the degree of protection afforded under
patents. Although we believe our potential rights under patent
applications provide a competitive advantage, it is possible
that patent applications owned by or licensed to us will not
result in patents being issued, or that, if issued, the patents
will not give us an advantage over competitors with similar
products or technology, nor can we assure you that we can
-25-
obtain, maintain and enforce all ownership and other proprietary
rights necessary to develop and commercialize our product
candidates.
Even if any or all of our patent applications issue as patents,
others may challenge the validity, inventorship, ownership,
enforceability or scope of our patents or other technology used
in or otherwise necessary for the development and
commercialization of our product candidates. We may not be
successful in defending against any such challenges. Moreover,
the cost of litigation to uphold the validity of patents to
prevent infringement or to otherwise protect our proprietary
rights can be substantial. If the outcome of litigation is
adverse to us, third parties may be able to use the challenged
technologies without payment to us. There is no assurance that
our patents, if issued, will not be infringed or successfully
avoided through design innovation. Intellectual property
lawsuits are expensive and would consume time and other
resources, even if the outcome were successful. In addition,
there is a risk that a court would decide that our patents, if
issued, are not valid and that we do not have the right to stop
the other party from using the inventions. There is also the
risk that, even if the validity of a patent were upheld, a court
would refuse to stop the other party from using the inventions,
including on the ground that its activities do not infringe that
patent. If any of these events were to occur, our business,
financial condition and results of operations would be
materially and adversely effected.
In addition to the intellectual property and other rights
described above, we also rely on unpatented technology, trade
secrets, trademarks and confidential information, particularly
when we do not believe that patent protection is appropriate or
available. However, trade secrets are difficult to protect and
it is possible that others will independently develop
substantially equivalent information and techniques or otherwise
gain access to or disclose our unpatented technology, trade
secrets and confidential information. We require each of our
employees, consultants and advisors to execute a confidentiality
and invention assignment agreement at the commencement of an
employment or consulting relationship with us. However, it is
possible that these agreements will not provide effective
protection of our confidential information or, in the event of
unauthorized use of our intellectual property or the
intellectual property of third parties, provide adequate or
effective remedies or protection.
If our vaccine technology or our product candidates, including
Stimuvax, conflict with the rights of others, we may not be able
to manufacture or market our product candidates, which could
have a material and adverse effect on us and on our
collaboration with Merck KGaA.
Issued patents held by others may limit our ability to develop
commercial products. All issued patents are entitled to a
presumption of validity under the laws of the United States. If
we need licenses to such patents to permit us to develop or
market our product candidates, we may be required to pay
significant fees or royalties, and we cannot be certain that we
would be able to obtain such licenses on commercially reasonable
terms, if at all. Competitors or third parties may obtain
patents that may cover subject matter we use in developing the
technology required to bring our products to market, that we use
in producing our products, or that we use in treating patients
with our products.
We know that others have filed patent applications in various
jurisdictions that relate to several areas in which we are
developing products. Some of these patent applications have
already resulted in the issuance of patents and some are still
pending. We may be required to alter our processes or product
candidates, pay licensing fees or cease activities. Certain
parts of our vaccine technology, including the MUC1 antigen,
originated from third party sources.
These third party sources include academic, government and other
research laboratories, as well as the public domain. If use of
technology incorporated into or used to produce our
-26-
product candidates is challenged, or if our processes or product
candidates conflict with patent rights of others, third parties
could bring legal actions against us, in Europe, the United
States and elsewhere, claiming damages and seeking to enjoin
manufacturing and marketing of the affected products.
Additionally, it is not possible to predict with certainty what
patent claims may issue from pending applications. In the United
States, for example, patent prosecution can proceed in secret
prior to issuance of a patent. As a result, third parties may be
able to obtain patents with claims relating to our product
candidates which they could attempt to assert against us.
Further, as we develop our products, third parties may assert
that we infringe the patents currently held or licensed by them
and it is difficult to provide the outcome of any such action.
There has been significant litigation in the biotechnology
industry over patents and other proprietary rights and if we
become involved in any litigation, it could consume a
substantial portion of our resources, regardless of the outcome
of the litigation. If these legal actions are successful, in
addition to any potential liability for damages, we could be
required to obtain a license, grant cross-licenses and pay
substantial royalties in order to continue to manufacture or
market the affected products.
There is no assurance that we would prevail in any legal action
or that any license required under a third party patent would be
made available on acceptable terms or at all. Ultimately, we
could be prevented from commercializing a product, or forced to
cease some aspect of our business operations, as a result of
claims of patent infringement or violation of other intellectual
property rights, which could have a material and adverse effect
on our business, financial condition and results of operations.
If any
products we develop become subject to unfavorable pricing
regulations, third party reimbursement practices or healthcare
reform initiatives, our ability to successfully commercialize
our products will be impaired.
Our future revenues, profitability and access to capital will be
affected by the continuing efforts of governmental and private
third party payers to contain or reduce the costs of health care
through various means. We expect a number of federal, state and
foreign proposals to control the cost of drugs through
government regulation. We are unsure of the impact recent health
care reform legislation may have on our business or what actions
federal, state, foreign and private payers may take in response
to the recent reforms. Therefore, it is difficult to provide the
effect of any implemented reform on our business. Our ability to
commercialize our products successfully will depend, in part, on
the extent to which reimbursement for the cost of such products
and related treatments will be available from government health
administration authorities, such as Medicare and Medicaid in the
United States, private health insurers and other organizations.
Significant uncertainty exists as to the reimbursement status of
newly approved health care products, particularly for
indications for which there is no current effective treatment or
for which medical care typically is not sought. Adequate third
party coverage may not be available to enable us to maintain
price levels sufficient to realize an appropriate return on our
investment in product research and development. If adequate
coverage and reimbursement levels are not provided by government
and third party payors for use of our products, our products may
fail to achieve market acceptance and our results of operations
will be harmed.
Governments
often impose strict price controls, which may adversely affect
our future profitability.
We intend to seek approval to market our future products in both
the United States and foreign jurisdictions. If we obtain
approval in one or more foreign jurisdictions, we will be
subject to rules and regulations in those jurisdictions relating
to our product. In some foreign countries, particularly in the
European Union, prescription drug pricing is subject to
government control. In these countries, pricing negotiations
with governmental authorities
-27-
can take considerable time after the receipt of marketing
approval for a drug candidate. To obtain reimbursement or
pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost-effectiveness of
our future product to other available therapies. In addition, it
is unclear what impact, if any, recent health care reform
legislation will have on the price of drugs; however, prices may
become subject to controls similar to those in other countries.
If reimbursement of our future products is unavailable or
limited in scope or amount, or if pricing is set at
unsatisfactory levels, we may be unable to achieve or sustain
profitability.
We face
potential product liability exposure, and if successful claims
are brought against us, we may incur substantial liability for a
product candidate and may have to limit its
commercialization.
The use of our product candidates in clinical trials and the
sale of any products for which we obtain marketing approval
expose us to the risk of product liability claims. Product
liability claims might be brought against us by consumers,
health care providers, pharmaceutical companies or others
selling our products. If we cannot successfully defend ourselves
against these claims, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may
result in:
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decreased demand for our product candidates;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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loss of revenues; and
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the inability to commercialize our product candidates.
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Although we currently have product liability insurance coverage
for our clinical trials for expenses or losses up to a
$10 million aggregate annual limit, our insurance coverage
may not reimburse us or may not be sufficient to reimburse us
for any or all expenses or losses we may suffer. Moreover,
insurance coverage is becoming increasingly expensive and, in
the future, we may not be able to maintain insurance coverage at
a reasonable cost or in sufficient amounts to protect us against
losses due to liability. We intend to expand our insurance
coverage to include the sale of commercial products if we obtain
marketing approval for our product candidates in development,
but we may be unable to obtain commercially reasonable product
liability insurance for any products approved for marketing. On
occasion, large judgments have been awarded in class action
lawsuits based on products that had unanticipated side effects.
A successful product liability claim or series of claims brought
against us could cause our stock price to fall and, if judgments
exceed our insurance coverage, could decrease our cash and
adversely affect our business.
We face
substantial competition, which may result in others discovering,
developing or commercializing products before, or more
successfully, than we do.
Our future success depends on our ability to demonstrate and
maintain a competitive advantage with respect to the design,
development and commercialization of our product candidates. We
expect any product candidate that we commercialize with our
collaborative partners or on our own will compete with existing,
market-leading products and products in development.
Stimuvax. There are currently two products
approved as maintenance therapy following treatment of
inoperable locoregional Stage III NSCLC with induction
chemotherapy, Tarceva (erlotinib), a targeted small molecule
from Genentech, Inc., a member of the Roche Group, and Alimta
(pemetrexed), a chemotherapeutic from Eli Lilly and Company.
-28-
Stimuvax has not been tested in combination with or in
comparison to these products. It is possible that other existing
or new agents will be approved for this indication. In addition,
there are at least three vaccines in development for the
treatment of NSCLC, including GSKs MAGE A3 vaccine in
Phase 3, NovaRx Corporations Lucanix in Phase 3 and
Transgenes TG-4010 in Phase 2. TG-4010 also targets MUC1,
although using technology different from Stimuvax. To our
knowledge, these vaccines are not currently being developed in
the same indications as Stimuvax. However, subsequent
development of these vaccines, including Stimuvax, may result in
direct competition.
Small Molecule Products. PX-866 is an
inhibitor of phosphoinositide
3-kinase
(PI3K). We are aware of several companies that have entered
clinical trials with competing compounds targeting the same
protein. Among those are compounds being developed by Novartis
(Phase 1/2), Roche/Genentech (Phase 1), Bayer (Phase 1),
Semafore (Phase 1), Sanofi-Aventis (Phase 2), Pfizer (Phase
1) and Calistoga (Phase 2). There are also several approved
targeted therapies for cancer and in development against which
PX-866 might compete.
Many of our potential competitors have substantially greater
financial, technical and personnel resources than we have. In
addition, many of these competitors have significantly greater
commercial infrastructures than we have. Our ability to compete
successfully will depend largely on our ability to:
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design and develop products that are superior to other products
in the market;
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attract qualified scientific, medical, sales and marketing and
commercial personnel;
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obtain patent
and/or other
proprietary protection for our processes and product candidates;
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obtain required regulatory approvals; and
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successfully collaborate with others in the design, development
and commercialization of new products.
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Established competitors may invest heavily to quickly discover
and develop novel compounds that could make our product
candidates obsolete. In addition, any new product that competes
with a generic market-leading product must demonstrate
compelling advantages in efficacy, convenience, tolerability and
safety in order to overcome severe price competition and to be
commercially successful. If we are not able to compete
effectively against our current and future competitors, our
business will not grow and our financial condition and
operations will suffer.
If we are
unable to enter into agreements with partners to perform sales
and marketing functions, or build these functions ourselves, we
will not be able to commercialize our product
candidates.
We currently do not have any internal sales, marketing or
distribution capabilities. In order to commercialize any of our
product candidates, we must either acquire or internally develop
a sales, marketing and distribution infrastructure or enter into
agreements with partners to perform these services for us. Under
our agreements with Merck KGaA, Merck KGaA is responsible for
developing and commercializing Stimuvax, and any problems with
that relationship could delay the development and
commercialization of Stimuvax. Additionally, we may not be able
to enter into arrangements with respect to our product
candidates not covered by the Merck KGaA agreements on
commercially acceptable terms, if at all. Factors that may
inhibit our efforts to commercialize our product candidates
without entering into arrangements with third parties include:
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our inability to recruit and retain adequate numbers of
effective sales and marketing personnel;
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-29-
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the inability of sales personnel to obtain access to or persuade
adequate numbers of physicians to prescribe our products;
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the lack of complementary products to be offered by sales
personnel, which may put us at a competitive disadvantage
relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating a sales
and marketing organization.
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If we are not able to partner with a third party and are not
successful in recruiting sales and marketing personnel or in
building a sales and marketing and distribution infrastructure,
we will have difficulty commercializing our product candidates,
which would adversely affect our business and financial
condition.
If we lose key
personnel, or we are unable to attract and retain
highly-qualified personnel on a cost-effective basis, it would
be more difficult for us to manage our existing business
operations and to identify and pursue new growth
opportunities.
Our success depends in large part upon our ability to attract
and retain highly qualified scientific, clinical, manufacturing,
and management personnel. In addition, any difficulties
retaining key personnel or managing this growth could disrupt
our operations. Future growth will require us to continue to
implement and improve our managerial, operational and financial
systems, and continue to retain, recruit and train additional
qualified personnel, which may impose a strain on our
administrative and operational infrastructure. The competition
for qualified personnel in the biopharmaceutical field is
intense. We are highly dependent on our continued ability to
attract, retain and motivate highly-qualified management,
clinical and scientific personnel. Due to our limited resources,
we may not be able to effectively recruit, train and retain
additional qualified personnel. If we are unable to retain key
personnel or manage our growth effectively, we may not be able
to implement our business plan.
Furthermore, we have not entered into non-competition agreements
with all of our key employees. In addition, we do not maintain
key person life insurance on any of our officers,
employees or consultants. The loss of the services of existing
personnel, the failure to recruit additional key scientific,
technical and managerial personnel in a timely manner, and the
loss of our employees to our competitors would harm our research
and development programs and our business.
Our business
is subject to increasingly complex environmental legislation
that has increased both our costs and the risk of
noncompliance.
Our business may involve the use of hazardous material, which
will require us to comply with environmental regulations. We
face increasing complexity in our product development as we
adjust to new and upcoming requirements relating to the
materials composition of many of our product candidates. If we
use biological and hazardous materials in a manner that causes
contamination or injury or violates laws, we may be liable for
damages. Environmental regulations could have a material adverse
effect on the results of our operations and our financial
position. We maintain insurance under our general liability
policy for any liability associated with our hazardous materials
activities, and it is possible in the future that our coverage
would be insufficient if we incurred a material environmental
liability.
-30-
If we fail to
establish and maintain proper and effective internal controls,
our ability to produce accurate financial statements on a timely
basis could be impaired, which would adversely affect our
consolidated operating results, our ability to operate our
business, and our stock price.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place to produce accurate financial
statements on a timely basis is a costly and time-consuming
effort that needs to be re-evaluated frequently. Failure on our
part to have effective internal financial and accounting
controls would cause our financial reporting to be unreliable,
could have a material adverse effect on our business, operating
results, and financial condition, and could cause the trading
price of our common stock to fall dramatically. For the year
ended December 31, 2009, we and our independent registered
public accounting firm identified certain material weaknesses in
our internal controls that are described in
Item 9A Controls and
Procedures Managements Report on Internal
Control over Financial Reporting, of our Annual Report on
Form 10-K
for the year ended December 31, 2009. Remediation of the
material weakness was fully completed on March 3, 2011;
however, we can provide no assurances that this or other
material weaknesses in our internal control over financial
reporting will not be identified in the future.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP. Our
management does not expect that our internal control over
financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Because
of the inherent limitations in all control systems, 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 will have been detected.
In June 2010 we retained outside consultants to assist us with
designing and implementing an adequate risk assessment process
to identify future complex transactions requiring specialized
knowledge to ensure the appropriate accounting for and
disclosure of such transactions. In September 2010 and January
2011, we retained personnel with the appropriate technical
expertise to assist us in accounting for complex transactions in
accordance with U.S. GAAP. We cannot be certain that the
actions we are taking to improve our internal controls over
financial reporting will be sufficient or that we will be able
to implement our planned processes and procedures in a timely
manner. In future periods, if the process required by
Section 404 of the Sarbanes-Oxley Act reveals any other
material weaknesses or significant deficiencies, the correction
of any such material weaknesses or significant deficiencies
could require additional remedial measures which could be costly
and time-consuming. In addition, we may be unable to produce
accurate financial statements on a timely basis. Any of the
foregoing could cause investors to lose confidence in the
reliability of our consolidated financial statements, which
could cause the market price of our common stock to decline and
make it more difficult for us to finance our operations and
growth.
If we are
required to redeem the shares of our Class UA preferred
stock, our financial condition may be adversely
affected.
Our certificate of incorporation provides for the mandatory
redemption of shares of our Class UA preferred stock if we
realize net profits in any year. See
Note 8 Share Capital
Authorized Shares Class UA preferred
stock of the audited financial statements included
elsewhere in this Annual Report on
Form 10-K.
For this purpose, net
-31-
profits . . . means the after tax profits determined in
accordance with generally accepted accounting principles, where
relevant, consistently applied.
The certificate of incorporation does not specify the
jurisdiction whose generally accepted accounting principles
would apply for the redemption provision. At the time of the
original issuance of the shares, we were a corporation organized
under the federal laws of Canada, and our principal operations
were located in Canada. In addition, the original purchaser and
current holder of the Class UA preferred stock is a
Canadian entity. In connection with our reincorporation in
Delaware, we disclosed that the rights, preferences and
privileges of the shares would remain unchanged except as
required by Delaware law, and the mandatory redemption
provisions were not changed.
In addition, the formula for determining the price at which such
shares would be redeemed is expressed in Canadian dollars.
Although, if challenged, we believe that a Delaware court would
determine that net profits be interpreted in
accordance with Canadian GAAP, we cannot provide assurances that
a Delaware court would agree with such interpretation.
As a result of the December 2008 Merck KGaA transaction, we
recognized on a one-time basis all deferred revenue relating to
Stimuvax, under both U.S. GAAP and Canadian GAAP. Under
U.S. GAAP this resulted in net income. However, under
Canadian GAAP we were required to recognize an impairment on
intangible assets which resulted in a net loss for 2008 and
therefore do not intend to redeem any shares of Class UA
preferred stock in 2009. If in the future we recognize net
income under Canadian GAAP, or any successor to such principles,
or if the holder of Class UA preferred stock were to
challenge, and prevail in a dispute involving, the
interpretation of the mandatory redemption provision, we may be
required to redeem such shares which would have an adverse
effect on our cash position. The maximum aggregate amount that
we would be required to pay to redeem such shares is CAN
$1.25 million.
The holder of the Class UA preferred stock has declined to
sign an acknowledgement that Canadian GAAP applies to the
redemption provision and has indicated that it believes
U.S. GAAP should apply. As of the date of this report, the
holder has not initiated a proceeding to challenge this
interpretation; however, it may do so. If they do dispute this
interpretation, although we believe a Delaware court would agree
with the interpretation described above, we can provide no
assurances that we would prevail in such a dispute. Further, any
dispute regarding this matter, even if we were ultimately
successful, could require significant resources which may
adversely affect our results of operations.
We may expand
our business through the acquisition of companies or businesses
or in-licensing product candidates that could disrupt our
business and harm our financial condition.
We may in the future seek to expand our products and
capabilities by acquiring one or more companies or businesses or
in-licensing one or more product candidates. Acquisitions and
in-licenses involve numerous risks, including:
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substantial cash expenditures;
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potentially dilutive issuance of equity securities;
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incurrence of debt and contingent liabilities, some of which may
be difficult or impossible to identify at the time of
acquisition;
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difficulties in assimilating the operations of the acquired
companies;
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diverting our managements attention away from other
business concerns;
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entering markets in which we have limited or no direct
experience; and
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potential loss of our key employees or key employees of the
acquired companies or businesses.
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In our recent history, we have not expanded our business through
in-licensing and we have completed only one acquisition;
therefore, our experience in making acquisitions and
in-licensing is limited. We cannot assure you that any
acquisition or in-license will result in short-term or long-term
benefits to us. We may incorrectly judge the value or worth of
an acquired company or business or in-licensed product
candidate. In addition, our future success would depend in part
on our ability to manage the rapid growth associated with some
of these acquisitions and in-licenses. We cannot assure you that
we would be able to make the combination of our business with
that of acquired businesses or companies or in-licensed product
candidates work or be successful. Furthermore, the development
or expansion of our business or any acquired business or company
or in-licensed product candidate may require a substantial
capital investment by us. We may not have these necessary funds
or they might not be available to us on acceptable terms or at
all. We may also seek to raise funds by selling shares of our
capital stock, which could dilute our current stockholders
ownership interest, or securities convertible into our capital
stock, which could dilute current stockholders ownership
interest upon conversion.
Risks Related to
the Ownership of Our Common Stock
Our common
stock may become ineligible for listing on The NASDAQ Stock
Market, which would materially adversely affect the liquidity
and price of our common stock.
Our common stock is currently listed for trading in the United
States on The NASDAQ Global Market. As a result of our failure
to timely file our Annual Report on
Form 10-K
for the year ended December 31, 2009, we received a letter
from The NASDAQ Stock Market informing us that we did not comply
with continued listing requirements. Although the filing of our
Annual Report on
Form 10-K
for the year ended December 31, 2009 allowed us to regain
full compliance with SEC reporting requirements and The NASDAQ
Stock Market continued listing requirements, we have in the past
and could in the future be unable to meet The NASDAQ Global
Market continued listing requirements. For example, on
August 20, 2008 we disclosed that we had received a letter
from The NASDAQ Stock Market indicating that we did not comply
with the requirements for continued listing on The NASDAQ Global
Market because we did not meet the maintenance standard in
Marketplace Rule 4450(b)(1)(A) (recodified as Marketplace
Rule 5450(b)) that specifies, among other things, that the
market value of our common stock be at least $50 million or
that our stockholders equity was at least
$10 million. Although we regained compliance with the
stockholders equity standard, we have a history of losses
and would expect that, absent the completion of a financing or
other event that would have a positive impact on our
stockholders equity, our stockholders equity would
decline over time. Further, in the past our stock price has
traded near, and at times below, the $1.00 minimum bid price
required for continued listing on NASDAQ. Although NASDAQ in the
past has provided relief from the $1.00 minimum bid price
requirement as a result of the recent weakness in the stock
market, it may not do so in the future. If we fail to maintain
compliance with NASDAQs listing standards, and our common
stock becomes ineligible for listing on The NASDAQ Stock Market
the liquidity and price of our common stock would be adversely
affected.
If our common stock was delisted, the price of our stock and the
ability of our stockholders to trade in our stock would be
adversely affected. In addition, we would be subject to a number
of restrictions regarding the registration of our stock under
U.S. federal securities laws, and we would not be able to
allow our employees to exercise their outstanding options, which
could adversely affect our business and results of operations.
If we are delisted in the future from The NASDAQ Global Market,
there may be other negative implications, including the
potential loss of confidence by actual or potential
collaboration partners, suppliers and employees and the loss of
institutional investor interest in our company.
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The trading
price of our common stock may be volatile.
The market prices for and trading volumes of securities of
biotechnology companies, including our securities, have been
historically volatile. The market has from time to time
experienced significant price and volume fluctuations unrelated
to the operating performance of particular companies. The market
price of our common shares may fluctuate significantly due to a
variety of factors, including:
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public concern as to the safety of products developed by us or
others;
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the results of pre-clinical testing and clinical trials by us,
our collaborators, our competitors
and/or
companies that are developing products that are similar to ours
(regardless of whether such products are potentially competitive
with ours);
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technological innovations or new therapeutic products;
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governmental regulations;
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developments in patent or other proprietary rights;
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litigation;
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comments by securities analysts;
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the issuance of additional shares of common stock, or securities
convertible into, or exercisable or exchangeable for, shares of
our common stock in connection with financings, acquisitions or
otherwise;
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the perception that shares of our common stock may be delisted
from The NASDAQ Stock Market;
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the incurrence of debt;
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general market conditions in our industry or in the economy as a
whole; and
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political instability, natural disasters, war
and/or
events of terrorism.
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In addition, the stock market has experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of individual
companies. Broad market and industry factors may seriously
affect the market price of companies stock, including
ours, regardless of actual operating performance. In addition,
in the past, following periods of volatility in the overall
market and the market price of a particular companys
securities, securities class action litigation has often been
instituted against these companies. This litigation, if
instituted against us, could result in substantial costs and a
diversion of our managements attention and resources.
Because we do
not expect to pay dividends on our common stock, stockholders
will benefit from an investment in our common stock only if it
appreciates in value.
We have never paid cash dividends on our common shares and have
no present intention to pay any dividends in the future. We are
not profitable and do not expect to earn any material revenues
for at least several years, if at all. As a result, we intend to
use all available cash and liquid assets in the development of
our business. Any future determination about the payment of
dividends will be made at the discretion of our board of
directors and will depend upon our earnings, if any, capital
requirements, operating and financial conditions and on such
other factors as our board of directors deems relevant. As a
result, the success of an investment in our common stock will
depend upon any future appreciation in its value. There is no
guarantee that our common stock will appreciate in value or even
maintain the price at which stockholders have purchased their
shares.
-34-
We expect that
we will seek to raise additional capital in the future; however,
such capital may not be available to us on reasonable terms, if
at all, when or as we require additional funding. If we issue
additional shares of our common stock or other securities that
may be convertible into, or exercisable or exchangeable for, our
common stock, our existing stockholders would experience further
dilution.
We expect that we will seek to raise additional capital from
time to time in the future. For example, in July 2010, we
entered into a common stock purchase agreement with Small Cap
Biotech Value, Ltd., or SCBV, pursuant to which we
may sell to SCBV up to 5,090,759 shares of our common stock
over a
24-month
period, subject to the satisfaction of certain terms and
conditions contained in the common stock purchase agreement.
Future financings may involve the issuance of debt, equity
and/or
securities convertible into or exercisable or exchangeable for
our equity securities. These financings may not be available to
us on reasonable terms or at all when and as we require funding.
In addition, until October 13, 2011, the investors in our
2010 private placement have certain rights of first refusal with
respect to any equity or equity equivalent securities that we
issue. Compliance with the terms of these rights of first
refusal could complicate any future financing transactions we
pursue. If we are able to consummate such financings, the
trading price of our common stock could be adversely affected
and/or the
terms of such financings may adversely affect the interests of
our existing stockholders. Any failure to obtain additional
working capital when required would have a material adverse
effect on our business and financial condition and would be
expected to result in a decline in our stock price. Any
issuances of our common stock, preferred stock, or securities
such as warrants or notes that are convertible into, exercisable
or exchangeable for, our capital stock, would have a dilutive
effect on the voting and economic interest of our existing
stockholders.
Further, as a result of the delayed filing of our Annual Report
on
Form 10-K
for the year ended December 31, 2009, we will be ineligible
to register the offer and sale of our securities on
Form S-3
by us or resale by others until at least April 1, 2011. We
may use
Form S-1
to raise capital or complete acquisitions, but doing so could
increase transaction costs and adversely impact our ability to
raise capital or complete acquisitions of other companies in a
timely manner.
If we sell
shares of our common stock under our existing committed equity
line financing facility, our existing stockholders will
experience immediate dilution and, as a result, our stock price
may go down.
In July 2010, we entered into a committed equity line financing
facility, or financing arrangement, under which we may sell up
to $20.0 million of our common stock to SCBV over a
24-month
period subject to a maximum of 5,150,680 shares of our
common stock, including the 59,921 shares of common stock
we issued to SCBV in July 2010 as compensation for their
commitment to enter into the financing arrangement. The sale of
shares of our common stock pursuant to the financing arrangement
will have a dilutive impact on our existing stockholders. SCBV
may resell some or all of the shares we issue to them under the
financing arrangement and such sales could cause the market
price of our common stock to decline significantly with advances
under the financing arrangement. To the extent of any such
decline, any subsequent advances would require us to issue a
greater number of shares of common stock to SCBV in exchange for
each dollar of the advance. Under these circumstances, our
existing stockholders would experience greater dilution.
Although SCBV is precluded from short sales of shares acquired
pursuant to advances under the financing arrangement, the sale
of our common stock under the financing arrangement could
encourage short sales by third parties, which could contribute
to the further decline of our stock price.
-35-
Our management
will have broad discretion over the use of proceeds from the
sale of securities to SCBV and may not use such proceeds in ways
that increase the value of our stock price.
We will have broad discretion over the use of proceeds from the
sale of securities to SCBV and we could spend the proceeds in
ways that do not improve our results of operations or enhance
the value of our common stock. Our failure to apply these funds
effectively could have a material adverse effect on our
business, delay the development of our product candidates and
cause the price of our common stock to decline.
We can issue
shares of preferred stock that may adversely affect the rights
of a stockholder of our common stock.
Our certificate of incorporation authorizes us to issue up to
10,000,000 shares of preferred stock with designations,
rights, and preferences determined from
time-to-time
by our board of directors. Accordingly, our board of directors
is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other
rights superior to those of holders of our common stock. For
example, an issuance of shares of preferred stock could:
|
|
|
adversely affect the voting power of the holders of our common
stock;
|
|
|
make it more difficult for a third party to gain control of us;
|
|
|
discourage bids for our common stock at a premium;
|
|
|
limit or eliminate any payments that the holders of our common
stock could expect to receive upon our liquidation; or
|
|
|
otherwise adversely affect the market price or our common stock.
|
We have in the past, and we may at any time in the future, issue
additional shares of authorized preferred stock.
We expect our
quarterly operating results to fluctuate in future periods,
which may cause our stock price to fluctuate or
decline.
Our quarterly operating results have fluctuated in the past, and
we believe they will continue to do so in the future. Some of
these fluctuations may be more pronounced than they were in the
past as a result of the issuance by us in May 2009 of warrants
to purchase 2,909,244 shares of our common stock and the
issuance by us in September 2010 of warrants to purchase
3,182,147 shares of our common stock. These warrants are
accounted for as a derivative financial instrument pursuant to
the ASC Topic 815, Derivatives and Hedging, and classified as a
derivative liability. Accordingly, the fair value of the
warrants is recorded on our consolidated balance sheet as a
liability, and such fair value is adjusted at each financial
reporting date with the adjustment to fair value reflected in
our consolidated statement of operations. The fair value of the
warrants is determined using the Black-Scholes option valuation
model. Fluctuations in the assumptions and factors used in the
Black-Scholes model can result in adjustments to the fair value
of the warrants reflected on our balance sheet and, therefore,
our statement of operations. Due to the classification of such
warrants and other factors, quarterly results of operations are
difficult to forecast, and
period-to-period
comparisons of our operating results may not be predictive of
future performance. In one or more future quarters, our results
of operations may fall below the expectations of securities
analysts and investors. In that event, the market price of our
common stock could decline. In addition, the market price of our
common stock may fluctuate or decline regardless of our
operating performance.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
None.
-36-
Description of
Property
In May 2008, we entered into a sublease for a facility in
Seattle, Washington totaling approximately 17,000 square
feet. As of December 31, 2009 our operations are
consolidated in the Seattle facility, which includes laboratory
space. We believe that our Seattle facility is in good
condition, adequately maintained and suitable for the conduct of
our business.
|
|
ITEM 3.
|
Legal
Proceedings
|
We are not a party to any material legal proceedings with
respect to us, our subsidiaries, or any of our material
properties.
|
|
ITEM 4.
|
(Removed
and Reserved)
|
-37-
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information for Common Stock
Our common stock has been quoted on the NASDAQ Global Market
under the symbol ONTY since December 11, 2007.
Prior to that time, Biomiras common shares were quoted on
the NASDAQ Global Market under the symbol BIOM. Our
common stock was also quoted on the Toronto Stock Exchange under
the symbol BRA until December 11, 2007 and
under the symbol ONY until October 14, 2009,
when we announced that the Toronto Stock Exchange had granted
our voluntary application to delist our shares of common stock
from the TSX effective at the close of trading on
October 22, 2009.
The following table sets forth for the indicated periods the
high and low sales prices of our common stock as reported by the
NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
5.90
|
|
|
$
|
3.16
|
|
Second Quarter
|
|
|
4.35
|
|
|
|
2.20
|
|
Third Quarter
|
|
|
4.73
|
|
|
|
3.10
|
|
Fourth Quarter
|
|
|
4.20
|
|
|
|
3.11
|
|
Fiscal year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
1.89
|
|
|
$
|
0.76
|
|
Second Quarter
|
|
|
4.89
|
|
|
|
1.69
|
|
Third Quarter
|
|
|
7.77
|
|
|
|
2.99
|
|
Fourth Quarter
|
|
|
5.86
|
|
|
|
3.41
|
|
Dividends
We have never declared nor paid cash dividends on our common
stock. We currently expect to retain future earnings, if any, to
finance the operation and expansion of our business, and we do
not anticipate paying any cash dividends in the foreseeable
future. Any future determination related to our dividend policy
will be made at the discretion of our Board of Directors.
Stockholders
As of March 14, 2011, there were 30,088,628 shares of
our common stock outstanding held by approximately 702
stockholders of record and approximately 21,000 stockholders in
nominee name.
Securities
Authorized for Issuance under Equity Compensation
Plans
For information concerning our equity compensation plans see the
section of this Annual Report on
Form 10-K
captioned Part III
Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
-38-
Stock Performance
Graph
Notwithstanding
any statement to the contrary in any of our previous or future
filings with the SEC, the following information relating to the
price performance of our common stock shall not be deemed to be
filed with the SEC or to be soliciting
material under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and it shall not be deemed to be
incorporated by reference into any of our filings under the
Securities Act or the Exchange Act, except to the extent we
specifically incorporate it by reference into such
filing.
The graph below compares the cumulative total stockholder return
of our common stock with that of the NASDAQ Pharmaceutical
Index, NASDAQ Biotechnology Index, RDG MicroCap Biotechnology
Index and a composite S&P/TSX index from December 31,
2005 through December 31, 2010. The comparisons in this
graph below are based on historical data and are not intended to
forecast or be indicative of future performance of our common
stock. The graph assumes that $100 was invested and that all
dividends were reinvested.
COMPARISON OF
5 YEAR CUMULATIVE TOTAL RETURN*
* $100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
Unregistered Sale
of Equity Securities
During the three months ended December 31, 2010, we did not
issue or sell any shares of our common stock or other equity
securities pursuant to unregistered transactions in reliance
upon exemption from the registration requirements of the
Securities Act of 1933, as amended.
Issuer Purchases
of Equity Securities
We did not make any purchases of our outstanding common stock
during the three months ended December 31, 2010.
-39-
|
|
ITEM 6.
|
Selected
Financial Data
|
The data set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction
with the consolidated financial statements and notes thereto
included elsewhere in this annual report on
Form 10-K
and also with Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007(2)(3)
|
|
|
2006(4)
|
|
|
|
(Amounts in thousands, except
share and per share data.)
|
|
|
Consolidated Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
$
|
18
|
|
|
$
|
2,051
|
|
|
$
|
24,713
|
|
|
$
|
440
|
|
|
$
|
98
|
|
Contract manufacturing(3)
|
|
|
|
|
|
|
|
|
|
|
15,582
|
|
|
|
2,536
|
|
|
|
|
|
Licensing, royalties and other revenue
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
103
|
|
|
|
119
|
|
Contract research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631
|
|
|
|
3,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
2,078
|
|
|
|
40,295
|
|
|
|
3,710
|
|
|
|
3,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,241
|
|
|
|
6,081
|
|
|
|
8,783
|
|
|
|
9,584
|
|
|
|
12,200
|
|
Manufacturing(1)(3)
|
|
|
|
|
|
|
|
|
|
|
13,675
|
|
|
|
2,564
|
|
|
|
|
|
General and administrative
|
|
|
7,799
|
|
|
|
6,589
|
|
|
|
10,284
|
|
|
|
12,224
|
|
|
|
7,636
|
|
Marketing and business development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565
|
|
|
|
587
|
|
Depreciation and amortization
|
|
|
462
|
|
|
|
269
|
|
|
|
422
|
|
|
|
246
|
|
|
|
247
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,502
|
|
|
|
12,939
|
|
|
|
33,164
|
|
|
|
25,183
|
|
|
|
45,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(19,484
|
)
|
|
|
(10,861
|
)
|
|
|
7,131
|
|
|
|
(21,473
|
)
|
|
|
(41,695
|
)
|
Investment and other (income) expense
|
|
|
(636
|
)
|
|
|
8
|
|
|
|
(298
|
)
|
|
|
371
|
|
|
|
(916
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
5
|
|
|
|
10
|
|
Change in fair value of warrant liability
|
|
|
(3,030
|
)
|
|
|
6,150
|
|
|
|
|
|
|
|
(1,421
|
)
|
|
|
(3,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(15,818
|
)
|
|
|
(17,019
|
)
|
|
|
7,422
|
|
|
|
(20,428
|
)
|
|
|
(36,940
|
)
|
Income tax provision (benefit)
|
|
|
(200
|
)
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(15,618
|
)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
|
$
|
(20,428
|
)
|
|
$
|
(36,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic(2)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
$
|
(2.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted(2)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
$
|
(2.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic(2)
|
|
|
26,888,588
|
|
|
|
22,739,138
|
|
|
|
19,490,621
|
|
|
|
19,485,889
|
|
|
|
15,316,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted(2)
|
|
|
26,888,588
|
|
|
|
22,739,138
|
|
|
|
19,570,170
|
|
|
|
19,485,889
|
|
|
|
15,316,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007(2)(3)
|
|
|
2006(4)
|
|
|
|
(Amounts in thousands, except
share and per share data.)
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short term investments
|
|
$
|
28,877
|
|
|
$
|
33,218
|
|
|
$
|
19,166
|
|
|
$
|
24,186
|
|
|
$
|
28,395
|
|
Total assets
|
|
$
|
34,445
|
|
|
$
|
38,225
|
|
|
$
|
24,971
|
|
|
$
|
36,218
|
|
|
$
|
33,456
|
|
Total long-term liabilities
|
|
$
|
13,727
|
|
|
$
|
10,732
|
|
|
$
|
578
|
|
|
$
|
12,823
|
|
|
$
|
2,537
|
|
Stockholders equity
|
|
$
|
18,857
|
|
|
$
|
25,418
|
|
|
$
|
20,717
|
|
|
$
|
11,722
|
|
|
$
|
27,227
|
|
Common shares outstanding
|
|
|
30,088,628
|
|
|
|
25,753,405
|
|
|
|
19,492,432
|
|
|
|
19,485,889
|
|
|
|
19,485,889
|
|
-40-
|
|
|
(1) |
|
The effect of the asset purchase agreement and 2008 license
agreement with Merck KGaA is reflected for the year ended
December 31, 2008. See Note 10
Collaborative and License Agreements of the audited
financial statements included elsewhere in this Annual Report on
Form 10-K. |
|
(2) |
|
On December 11, 2007, our common stock began trading on the
NASDAQ Global Market under the symbol ONTY and on the Toronto
Stock Exchange under the symbol ONY. On October 14, 2009 we
announced that, the Toronto Stock Exchange had granted our
voluntary application to delist our shares of common stock from
the TSX effective at the close of trading on October 22,
2009. Shareholders of the former Biomira received one share of
our common stock for each six shares of Biomira that they held.
For years presented prior to 2007, the summary consolidated
financial and operating data has been prepared after giving
effect to the 6 for 1 share exchange. |
|
(3) |
|
In August 2007, we signed the amended and restated collaboration
and supply agreements related to Stimuvax with Merck KGaA.
Pursuant to the terms of the collaboration and supply
agreements, from August 2007 to December 2008, with the entry
into the 2008 license agreement, we retained the responsibility
to manufacture Stimuvax and Merck KGaA agreed to purchase
Stimuvax from us. During their term, the collaboration and
supply agreements transformed what were previously
reimbursements of a portion of the Stimuvax manufacturing costs
to a long-term contract manufacturing arrangement. Our financial
reporting during the term of the collaboration and supply
agreements reflects the revenue and associated clinical trial
material costs related to the supply of Stimuvax separately in
the consolidated statements of operations as contract
manufacturing revenue and manufacturing expense, respectively.
Previously, these amounts were reported under contract research
and development revenue and research and development expense,
respectively. |
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(4) |
|
On October 31, 2006, we announced the acquisition of ProlX
and commencing with our quarter ended December 31, 2006 the
results of ProlX have been included in our consolidated
statements of operations. |
|
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ITEM 7.
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our
consolidated financial statements and related notes included
elsewhere in this report. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those discussed
below. Factors that could cause or contribute to such
differences include, but are not limited to, those identified
below, and those discussed in the section titled Risk
Factors included elsewhere in this report. All dollar
amounts included in this discussion and analysis of our
financial condition and results of operations represent
U.S. dollars unless otherwise specified. Throughout this
discussion, unless the context specifies or implies otherwise,
the terms Company, Oncothyreon,
Biomira, we, us and
our refer to Oncothyreon Inc., its predecessor,
Biomira Inc., and its subsidiaries.
Overview
We are a clinical-stage biopharmaceutical company focused
primarily on the development of therapeutic products for the
treatment of cancer. Our goal is to develop and commercialize
novel synthetic vaccines and targeted small molecules that have
the potential to improve the lives and outcomes of cancer
patients. Our cancer vaccines are designed to stimulate the
immune system to attack cancer cells, while our small molecule
compounds are designed to inhibit the activity of specific
cancer-related proteins. We are advancing our product candidates
through in-house development efforts and strategic
collaborations.
-41-
We believe the quality and breadth of our product candidate
pipeline, strategic collaborations and scientific team will
potentially enable us to become an integrated biopharmaceutical
company with a diversified portfolio of novel, commercialized
therapeutics for major diseases.
Our lead product candidate, Stimuvax, is being evaluated in two
Phase 3 clinical trials for the treatment of non-small cell lung
cancer, or NSCLC. We have granted an exclusive, worldwide
license to Merck KGaA of Darmstadt, Germany, or Merck KGaA, for
the development, manufacture and commercialization of Stimuvax.
Our pipeline of clinical stage proprietary small molecule
product candidates was acquired by us in October 2006 from ProlX
Pharmaceuticals Corporation, or ProlX. We are currently focusing
our internal development efforts on PX-866, for which we
initiated two Phase
1/2
trials in 2010, and plan to initiate two additional Phase 2
trials in the first half of 2011. As of the date of this report,
we have not licensed any rights to our small molecules to any
third party and retain all development, commercialization and
manufacturing rights. We are also conducting preclinical
development of ONT-10 (formerly BGLP40), a cancer vaccine
directed against a target similar to Stimuvax, and which is
proprietary to us. In addition to our product candidates, we
have developed novel vaccine technology that we may further
develop ourselves
and/or
license to others.
In May 2001, we entered into a collaborative arrangement with
Merck KGaA to pursue joint global product research, clinical
development and commercialization of Stimuvax. The collaboration
covered the entire field of oncology for this product candidate
and was documented in collaboration and supply agreements, which
we refer to as the 2001 agreements. In connection with the
execution of the 2001 collaboration and supply agreements, we
received up-front cash payments of $2.8 million and
$4.0 million, respectively. In January 2006, we and Merck
KGaA entered into a binding letter of intent, pursuant to which
the 2001 agreements were amended and we granted additional
rights to Merck KGaA. In August 2007, we amended and restated
our collaboration and supply agreements with Merck KGaA, which
we refer to as the 2007 agreements, which restructured the 2001
agreements and formalized the terms set forth in the 2006 letter
of intent. As a result of the 2007 agreements, Merck KGaA
obtained an exclusive world-wide license with respect to the
development and commercialization of Stimuvax. We had
responsibility for the development of the manufacturing process
and plans for the
scale-up for
commercial manufacturing and Merck KGaA had the right to act as
a secondary manufacturer of Stimuvax. We also continued to be
responsible for manufacture of the clinical and commercial
supply of Stimuvax for which Merck KGaA agreed to pay us our
cost of goods and provisions for certain contingent payments to
us related to manufacturing
scale-up and
process transfer were added.
The entry into the 2007 agreements triggered a $2.5 million
payment to us contemplated by the 2006 letter of intent, which
we received in September 2007. In addition, under the 2007
agreements, we were entitled to receive (1) a
$5.0 million payment tied to the transfer of certain assays
and methodology related to the manufacture of Stimuvax, which we
received in December 2007, a $3.0 million payment tied to
the transfer of certain Stimuvax manufacturing technology, which
we received in May 2008, and a $2.0 million payment tied to
the earlier of receipt of the first manufacturing run at
commercial scale of Stimuvax and December 31, 2009, which
we received in December 2009, (2) various additional
contingent payments up to a maximum of $90.0 million in the
aggregate tied to a biologics license application, or BLA,
submission for first and second cancer indications, for
regulatory approval of first and second cancer indications, and
for various sales milestones, (3) royalties in the low
twenties based on net sales outside of North America and
(4) royalties based on net sales inside of North America
with percentages in the mid-twenties, depending on the territory
in which the net sales occur. If the manufacturing
-42-
process payments due by December 31, 2009 were paid in
full, the royalty rates would be reduced in all territories by
1.25%, relative to the 2001 agreements and the letter of intent.
In December 2008, we entered into a license agreement with Merck
KGaA which replaced the 2007 agreements. Pursuant to the 2008
license agreement, in addition to the rights granted pursuant to
the 2007 agreements, (1) we licensed to Merck KGaA the
exclusive right to manufacture Stimuvax and the right to
sublicense to other persons all such rights licensed,
(2) we transferred certain manufacturing know-how to Merck
KGaA, (3) we agreed not to develop any product, other than
ONT-10, that is competitive with Stimuvax and (4) we
granted to Merck a right of first negotiation in connection with
any contemplated collaboration or license agreement with respect
to the development or commercialization of ONT-10. Upon the
execution of the 2008 license agreement, all of our future
performance obligations related to the collaboration for the
clinical development and development of the manufacture process
of Stimuvax were removed and our continuing involvement in the
development and manufacturing of Stimuvax ceased. In return for
the license of manufacturing rights and transfer of
manufacturing know-how, we received an up-front cash payment of
approximately $10.5 million. The provisions with respect to
contingent payments under the 2007 agreements remained unchanged
and we may receive cash payments of up to $90 million,
which figure excludes the $2.0 million received in December
2009 and $19.8 million received prior to the execution of
the 2008 license agreement. We are also entitled to receive
royalties based on net sales of Stimuvax ranging from a
percentage in the mid-teens to high single digits, depending on
the territory in which the net sales occur. Royalty rates were
reduced relative to prior agreements by a specified amount which
we believe is consistent with our estimated costs of goods,
manufacturing
scale-up
costs and certain other expenses assumed by Merck KGaA.
In connection with the entry into the 2008 license agreement, we
also entered into an asset purchase agreement, which, together
with the 2008 license agreement we refer to as the 2008
agreements, pursuant to which we sold to Merck KGaA certain
assets related to the manufacture of, and inventory of,
Stimuvax, placebo and raw materials, and Merck KGaA agreed to
assume certain liabilities related to the manufacture of
Stimuvax and our obligations related to the lease of our
Edmonton, Alberta, Canada facility. The plant and equipment in
the Edmonton facility and inventory of raw materials,
work-in-process
and finished goods were sold for a purchase price of
$0.6 million (including the assumption of lease obligation
of $56,000) and $11.2 million, respectively. The purchase
price of the inventory was first offset against advances made in
prior periods resulting in net cash to us of $2.0 million.
In addition, 43 employees at our former Edmonton facility
were transferred to an affiliate of Merck KGaA, significantly
reducing our operating expenses related to this program.
For additional information regarding our relationship with Merck
KGaA, see Note 10 Collaborative and
License Agreements of the audited financial statements
included elsewhere in this Annual Report on
Form 10-K.
We have not developed a therapeutic product to the commercial
stage. As a result, with the exception of the unusual effects of
the transaction with Merck KGaA in December 2008, our revenue
has been limited to date, and we do not expect to recognize any
material revenue for the foreseeable future. In particular, our
ability to generate revenue in future periods will depend
substantially on the progress of ongoing clinical trials for
Stimuvax and our small molecule compounds, our ability to obtain
development and commercialization partners for our small
molecule compounds, Merck KGaAs success in obtaining
regulatory approval for Stimuvax, our success in obtaining
regulatory approval for our small molecule compounds, and Merck
KGaAs and our respective abilities to establish commercial
markets for these drugs.
-43-
Any adverse clinical results relating to Stimuvax or any
decision by Merck KGaA to discontinue its efforts to develop and
commercialize the product would have a material and adverse
effect on our future revenues and results of operations and
would be expected to have a material adverse effect on the
trading price of our common stock. Our small molecule compounds
are much earlier in the development stage than Stimuvax, and we
do not expect to realize any revenues associated with the
commercialization of our products candidates for the foreseeable
future.
The continued research and development of our product candidates
will require significant additional expenditures, including
preclinical studies, clinical trials, manufacturing costs and
the expenses of seeking regulatory approval. We rely on third
parties to conduct a portion of our preclinical studies, all of
our clinical trials and all of the manufacturing of cGMP
material. We expect expenditures associated with these
activities to increase in future years as we continue the
development of our small molecule product candidates.
We have incurred substantial losses since our inception. As of
December 31, 2010, our accumulated deficit totaled
$347.3 million. We incurred a net loss of
$15.6 million for 2010 compared to a net loss of
$17.2 million for 2009. Our 2008 net income resulted
from the December 2008 transaction with Merck KGaA when we
recognized $13.2 million of deferred revenue,
$11.2 million related to the bulk sale of inventory and
$10.5 million from the sale of Stimuvax manufacturing
rights and know-how. In future periods, we expect to continue to
incur substantial net losses as we expand our research and
development activities with respect to our small molecules
product candidates. To date we have funded our operations
principally through the sale of our equity securities, cash
received through our strategic alliance with Merck KGaA,
government grants, debt financings, and equipment financings. We
completed financings in September 2010, in which we raised
approximately $14.9 million in gross proceeds, in May 2009,
in which we raised approximately $11.0 million in gross
proceeds and in August 2009, in which we raised approximately
$15.0 million in gross proceeds, from the sale of our
common stock and the issuance of warrants. In addition, in
February 2011, we entered into a loan and security agreement,
which we refer to as the loan agreement, pursuant to which we
incurred $5.0 million in term loan indebtedness and,
subject to the satisfaction of certain conditions, may incur an
additional $7.5 million in term loan indebtedness. See the
section captioned Liquidity and Capital Resources
and Note 16 Subsequent Events of the
audited financial statements included elsewhere in this Annual
Report on
Form 10-K
for additional information. Because we have limited revenues and
substantial research and development and operating expenses, we
expect that we will in the future seek additional working
capital funding from the sale of equity, debt securities, or
loans or the licensing of rights to our product candidates.
Key Financial
Metrics
Revenue
Our revenue in 2010 was immaterial; however, the types of
revenues described in this section are relevant for 2009 and
2008. Historically, our revenue has been derived from payments
under our collaborative and license agreements, our contract
manufacturing activities, and miscellaneous licensing, royalty
and other revenues from ancillary activities. Our arrangement
with Merck KGaA regarding Stimuvax has historically contributed
the substantial majority of our revenue.
Licensing Revenue from Collaborative and License
Agreements. Revenue from collaborative and
license agreements consists of (1) up-front cash payments
for initial technology access or licensing fees and
(2) contingent payments triggered by the occurrence of
specified events or other contingencies derived from our
collaborative and license agreements. Royalties from the
commercial sale of products derived from our collaborative and
license agreements are reported as licensing, royalties, and
other
-44-
revenue. For more information on revenue recognition for
licensing revenue from collaborative and license agreements, see
Critical Accounting Policies and Significant
Judgments and Estimates Revenue
Recognition Licensing Revenue from Collaborative and
License Agreements below.
Contract Manufacturing. Revenue from contract
manufacturing consists of payments received under the terms of
supply agreements for the manufacturing of clinical trial
material. For more information on revenue recognition for
contract manufacturing revenue, see Critical
Accounting Policies and Significant Judgments and
Estimates Revenue Recognition Contract
Manufacturing below.
Licensing, Royalties, and Other
Revenue. Licensing, royalties, and other revenue
consist of revenue from sales of compounds and processes from
patented technologies to third parties and royalties received
pursuant to collaborative agreements and license agreements.
Royalties based on reported sales, if any, of licensed products
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectability is reasonably assured. For more information on
revenue recognition for licensing, royalties, and other revenue,
see Critical Accounting Policies and
Significant Judgments and Estimates Revenue
Recognition Licensing, Royalties, and Other
Revenue below.
Expenses
Research and
Development/Manufacturing. Research and
development/manufacturing expense consists of costs associated
with research activities as well as costs associated with our
product development efforts, conducting preclinical studies, and
clinical trial and manufacturing costs. These expenses include
external research and development expenses incurred pursuant to
agreements with third party manufacturing organizations;
technology access and licensing fees related to the use of
proprietary third party technologies; employee and
consultant-related expenses, including salaries, stock-based
compensation expense, benefits, and related costs; and third
party supplier expenses.
For the periods covered by this report, we have recognized
research and development expenses, including those paid to third
parties, as they have been incurred. We credit funding received
from government research and development grants against research
and development expense when such funding is received in the
period when incurred. These credits totaled $0.8 million
and $1.3 million for the years ended December 31, 2009
and 2008, respectively. These grants were Small Business
Innovation Research, or SBIR, grants that we assumed in
connection with our acquisition of ProlX on October 30,
2006. Funding for the SBIR grants was completed in 2009. No SBIR
grants were received in 2010.
Our research and development programs are at an early stage and
may not result in any approved products. Product candidates that
appear promising at early stages of development may not reach
the market for a variety of reasons. For example, we have
completed a Phase 1 trial of PX-478 in patients with advanced
metastatic cancer. Based on results from this trial, we have
determined not to advance PX-478 into additional trials.
Similarly, any of our continuing product candidates may be found
to be ineffective or cause harmful side effects during clinical
trials, may take longer to complete clinical trials than we have
anticipated, may fail to receive necessary regulatory approvals,
and may prove impracticable to manufacture in commercial
quantities at reasonable cost and with acceptable quality. As
part of our business strategy, we may enter into collaboration
or license agreements with larger third party pharmaceutical
companies to complete the development and commercialization of
our small molecule or other product candidates, and it is
unknown whether or on what terms we will be able to secure
collaboration or license agreements for any candidate. In
addition, it is difficult to provide the impact of collaboration
or license agreements, if any, on the development of product
candidates. Establishing product development relationships with
large pharmaceutical companies may
-45-
or may not accelerate the time to completion or reduce our costs
with respect to the development and commercialization of any
product candidate.
As a result of these uncertainties and the other risks inherent
in the drug development process, we cannot determine the
duration and completion costs of current or future clinical
stages of any of our product candidates. Similarly, we cannot
determine when, if, or to what extent we may generate revenue
from the commercialization and sale of any product candidate.
The timeframe for development of any product candidate,
associated development costs, and the probability of regulatory
and commercial success vary widely. As a result, we continually
evaluate our product candidates and make determinations as to
which programs to pursue and how much funding to direct to
specific candidates. These determinations are typically made
based on consideration of numerous factors, including our
evaluation of scientific and clinical trial data and an ongoing
assessment of the product candidates commercial prospects.
We anticipate that we will continue to develop our portfolio of
product candidates, which will increase our research and
development expense in future periods. We do not expect any of
our current candidates to be commercially available before 2013,
if at all.
Until December 2008, when we entered into the 2008 agreements,
we reported costs associated with manufacturing Stimuvax as
manufacturing expense. As a result of the entry into the 2008
agreements with Merck KGaA in December 2008, we will not incur
manufacturing expenses associated with our arrangement with
Merck KGaA.
General and Administrative. General and
administrative expense consists principally of salaries,
benefits, stock-based compensation expense, and related costs
for personnel in our executive, finance, accounting, information
technology, and human resource functions. Other general and
administrative expenses include an allocation of our facility
costs and professional fees for legal, consulting, and
accounting services.
Depreciation and Amortization. Depreciation
expense consists of depreciation of the cost of plant and
equipment such as scientific, office, manufacturing, and
computer equipment as well as depreciation of leasehold
improvements.
Investment and Other (Income) Expense,
Net. Investment income and other net, consists of
interest and other income on our cash and short-term investments
and foreign exchange gains and losses. Our short term
investments consist of certificates of deposits issued by
U.S. banks and insured by the Federal Deposit Insurance
Corporation. Historically, our short term investments and cash
balances were denominated in either U.S. dollars or
Canadian dollars, and the relative weighting between
U.S. dollars and Canadian dollars varied based on market
conditions and our operating requirements in the two countries.
However, with the reincorporation to, and concentration of our
operating activities in, the United States, from October, 2008,
our cash balances have been maintained predominantly in
U.S. dollar deposits. We have historically not engaged in
hedging transactions with respect to our U.S. and Canadian
dollars investment assets or cash balances. In 2010, we were
awarded a federal grant for $0.5 million under the
U.S. Governments Qualifying Therapeutic Discovery
Project, or QTDP, program, which was recorded as other income
since the amounts pertained to expenses incurred in 2009 and
2010. Interest expense consists of interest incurred under
capital lease agreements for computer equipment.
Change in Fair Value of Warrants. Warrants
issued in connection with our securities offering in September
2010 and May 2009 are classified as a liability due to their
settlement features and, as such, were recorded at their
estimated fair value on the date of the closing of the
transaction. The warrants are marked to market for each
financial reporting period, with changes in fair value recorded
as a gain or loss in our statement of operations. The fair value
of the warrants is determined using the Black-Scholes
option-pricing model, which requires the use of significant
judgment and estimates for the inputs used in the model. For
more information, see Note 3 Fair Value
Measurements and
-46-
Note 8 Share Capital of the audited
financial statements included elsewhere in this Annual Report on
Form 10-K.
Provision (benefit) for Income Tax. Due to our
history of significant losses, we do not recognize the benefit
of net operating losses and have established a full valuation
allowance since the realization of these benefits is not
reasonably assured. Our income tax provision in 2009 relates to
alternative minimum tax liability on the sale of manufacturing
rights and know how to Merck KGaA in December 2008 and the final
process transfer payment received in 2009. In 2010 we recorded a
tax benefit for recovery of taxes paid in the previous year.
Critical
Accounting Policies and Significant Judgments and
Estimates
We have prepared this managements discussion and analysis
of financial condition and results of operations based on our
audited consolidated financial statements, which have been
included in this report beginning on
page F-1
and which have been prepared in accordance with generally
accepted accounting principles in the United States. These
accounting principles require us to make significant estimates
and judgments that can affect the reported amounts of assets and
liabilities as of the dates of our consolidated financial
statements as well as the reported amounts of revenue and
expense during the periods presented. We believe that the
estimates and judgments upon which we rely are reasonable based
upon historical experience and information available to us at
the time that we make these estimates and judgments. To the
extent there are material differences between these estimates
and actual results, our consolidated financial statements will
be affected.
The Securities and Exchange Commission considers an accounting
policy to be critical if it is important to a companys
financial condition and results of operations and if it requires
the exercise of significant judgment and the use of estimates on
the part of management in its application. We have discussed the
selection and development of our critical accounting policies
with the audit committee of our board of directors, and our
audit committee has reviewed our related disclosures in this
report. Although we believe that our judgments and estimates are
appropriate, actual results may differ from these estimates.
We believe the following to be our critical accounting policies
because they are important to the portrayal of our financial
condition and results of operations and because they require
critical management judgment and estimates about matters that
are uncertain:
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revenue recognition;
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goodwill impairment;
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stock-based compensation; and
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warrants classified as liabilities.
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Revenue
Recognition
Our revenue in 2010 was immaterial; however, the types of
revenues described in this section are relevant for 2009 and
2008.
We recognize revenue when there is persuasive evidence that an
arrangement exists, delivery has occurred, the price is fixed
and determinable, and collection is reasonably assured. We
evaluate revenue from arrangements with multiple deliverables to
determine whether the deliverables represent one or more units
of accounting. A delivered item is considered a separate unit of
accounting if the following separation criteria are met:
(1) the delivered item has stand-alone value to the
customer; (2) there is objective and reliable evidence of
the fair value of any undelivered items; and (3) if the
arrangement includes a general right of return relative to the
delivered item, the delivery of undelivered items is
-47-
probable and substantially in our control. The relevant revenue
recognition accounting policy is then applied to each unit of
accounting.
We have historically generated revenue from the following
activities:
Licensing Revenue from Collaborative and License
Agreements. Revenue from collaborative and
license agreements consists of (1) up-front cash payments
for initial technology access or licensing fees and
(2) contingent payments triggered by the occurrence of
specified events or other contingencies derived from our
collaborative and license agreements. Royalties from the
commercial sale of products derived from our collaborative and
license agreements are reported as licensing, royalties, and
other revenue.
If we have continuing obligations under a collaborative
agreement and the deliverables within the collaboration cannot
be separated into their own respective units of accounting, we
utilize a multiple attribution model for revenue recognition as
the revenue related to each deliverable within the arrangement
should be recognized upon the culmination of the separate
earnings processes and in such a manner that the accounting
matches the economic substance of the deliverables included in
the unit of accounting. As such, (1) up-front cash payments
are recorded as deferred revenue and recognized as revenue
ratably over the period of performance under the applicable
agreement and (2) contingent payments are recorded as
deferred revenue when receivable and recognized as revenue
ratably over the estimated period of our ongoing obligations.
Royalties based on reported sales of licensed products, if any,
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectibility is reasonably assured.
With respect to our arrangement with Merck KGaA, we determined
that the estimated useful life of the products and estimated
period of our ongoing obligations corresponded to the estimated
life of the issued patents for such product. Under the 2001
agreements, payments that we received were recorded as deferred
revenue and recognized ratably over the period from the date of
execution of the 2001 agreements to 2011. We chose that
amortization period because, at the time, we believed it
reflected an anticipated period of market
exclusivity based upon our expectation of the life of the
patent protection, after which the market entry of competitive
products would likely occur. Payments received pursuant to the
letter of intent and the 2007 agreements were recorded as
deferred revenue and recognized ratably over the remaining
estimated product life of Stimuvax, which was until 2018. Upon
entering into the 2008 agreements, all of our future performance
obligations related to our collaboration with Merck KGaA
regarding Stimuvax were removed and our continuing involvement
in the development and manufacturing of Stimuvax ceased;
therefore, we recognized the balance of all previously recorded
deferred revenue relating to our arrangement with Merck KGaA.
Similarly, our receipt of the final manufacturing process
transfer milestone payment in December 2009 was recognized
currently since we had no continuing obligations pursuant to
such arrangement. Any future contingent payments we receive
pursuant to the 2008 license agreement will be immediately
recognized in revenue.
Contract Manufacturing. Revenue from contract
manufacturing consists of payments received under the terms of
supply agreements for the manufacturing of clinical trial
material. Such payments compensate us for the cost of
manufacturing clinical trial material and are recognized after
shipment of the clinical trial material and upon the earlier of
the expiration of a specified return period, as returns cannot
be reasonably estimated, and formal acceptance of the clinical
trial material by the customer. Pursuant to the 2006 letter of
intent, we continued to be responsible for the manufacturing of
the clinical and commercial supply of Stimuvax for which Merck
KGaA agreed to pay us our cost of manufacturing (which included
amounts owed to third parties) during 2008. Merck KGaAs
-48-
payments to us for the clinical supply of Stimuvax were reported
as contract manufacturing revenue. Upon entering into the asset
purchase agreement with Merck KGaA in December 2008, we
recognized proceeds from the sale of inventory of raw materials,
work-in-process
and finished goods as contract manufacturing revenue. In
connection with the December 2008 agreements, we granted to
Merck KGaA the exclusive right to manufacture Stimuvax and
transferred our manufacturing know-how and capabilities to Merck
KGaA. As a result, we do not anticipate receiving such contract
manufacturing revenue in the foreseeable future.
Licensing, Royalties, and Other
Revenue. Licensing, royalties, and other revenue
consists of revenue from sales of compounds and processes from
patented technologies to third parties and royalties received
pursuant to collaborative agreements and license agreements.
Royalties based on reported sales, if any, of licensed products
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectability is reasonably assured. As of the date of this
report, we have not received any royalties pursuant to our
arrangement with Merck KGaA.
If we have no continuing obligations under a license agreement,
or a license deliverable qualifies as a separate unit of
accounting included in a collaborative arrangement,
consideration that is allocated to the license deliverable is
recognized as revenue upon commencement of the license term and
contingent payments are recognized as revenue upon the
occurrence of the events or contingencies provided for in such
agreement, assuming collectability is reasonably assured.
Goodwill
Impairment
Goodwill is carried at cost and is not amortized, but is
reviewed annually for impairment on October 1 of each year, or
more frequently when events or changes in circumstances indicate
that the asset may be impaired. If the carrying value of
goodwill exceeds its fair value, an impairment loss would be
recognized. As of December 31, 2010, we had one reporting
unit and there was a substantial excess of fair value compared
to the carrying value. There were no impairment charges recorded
for any of the periods presented.
Stock-Based
Compensation
We maintain a share option plan under which an aggregate of
2,075,025 shares of common stock underlie outstanding
options as of December 31, 2010 and an aggregate of
933,837 shares of common stock were available for future
issuance. We maintain a restricted share unit plan under which
an aggregate of 217,198 shares of common stock underlie
restricted stock units, or RSUs, as of December 31, 2010
and an aggregate of 220,341 shares of common stock were
available for future issuance. We have generally granted options
to our employees and directors under the share option plan, and
we have granted RSUs to non-employee directors under the
restricted share unit plan. Prior to the April 1, 2008
amendment to our share option plan, we granted options with an
exercise price denominated in Canadian dollars equal to the
closing price of our shares on the Toronto Stock Exchange on the
trading day immediately prior to the date of grant. On and after
April 1, 2008, we granted options with an exercise price
denominated in U.S. dollars equal to the closing price of
our shares on The NASDAQ Global Market on the date of grant. On
and after June 12, 2009 the fair value of the restricted
share units has been determined to be the equivalent of our
common shares closing trading price on the date immediately
prior to the grant as quoted on The NASDAQ Global Market. Prior
to June 12, 2009, the fair value was computed using the
closing trading price on the date immediately prior to the grant
as quoted in Canadian dollars on the Toronto Stock Exchange.
We use the Black-Scholes option pricing model for determining
the estimated fair value for stock-based awards, which requires
the use of highly subjective and complex assumptions to
determine the fair value of stock-based awards, including the
options expected term
-49-
and the price volatility of the underlying stock. We recognize
the value of the portion of the awards that is ultimately
expected to vest as expense over the requisite vesting periods
on a straight-line basis for the entire award in our
consolidated statements of operations. Forfeitures are estimated
at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
Historically we have based the risk-free interest rate for the
expected term of the option on the yield available on Government
of Canada benchmark bonds with an equivalent expected term.
Subsequent to April 1, 2008, we use the yield at the time
of grant of a U.S. Treasury security. The expected life of
options in years represents the period of time stock-based
awards are expected to be outstanding, giving consideration to
the contractual terms of the awards, vesting schedules and
historical employee behavior. The expected volatility is based
on the historical volatility of our common stock for a period
equal to the stock options expected life.
Warrant
liability
In May 2009 and September 2010, we issued warrants to purchase
2,909,244, of which 91,500 warrants were exercised in 2009, and
3,182,147 shares of our common stock respectively in
connection with a registered direct offering of our common stock
and warrants. These warrants are classified as liabilities due
to potential cash settlement upon the occurrence of certain
transactions specified in the warrant agreement related to the
warrants and, in the case of the warrants issued in May 2009,
certain adjustments that may be made to the terms of the
warrants if we issue or sell shares below the exercise price.
The September 2010 equity financing triggered certain adjustment
provisions in the May 2009 warrants and, as a result, the
aggregate number of shares underlying such unexercised warrants
increased by 135,600 to 2,953,344 as of December 31, 2010
and the per share exercise price decreased from $3.92 to $3.74.
Pursuant to the terms of the warrant agreement, the terms of the
warrants issued in May 2009 will not be further adjusted for any
future transactions. Accordingly, the fair value of the warrants
is recorded on our consolidated balance sheet as a liability,
and such fair value is adjusted at each financial reporting
period with the adjustment to fair value reflected in our
consolidated statement of operations. The fair value of the
warrants is determined using the Black-Scholes option pricing
model. Fluctuations in the assumptions and factors used in the
Black-Scholes model can result in adjustments to the fair value
of the warrants reflected on our balance sheet and, therefore,
our statement of operations. On December 31, 2010, we
changed the way we estimated volatility when determining the
fair value of the warrants using the Black-Scholes model. For
more information, see Note 3 Fair Value
Measurements of the audited financial statements included
elsewhere in this Annual Report on
Form 10-K.
-50-
Results of
Operations for the years ended December 31, 2010, 2009 and
2008
The following table sets forth selected consolidated statements
of operations data for each of the periods indicated.
Overview
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|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except per share
amounts)
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
40.3
|
|
Expenses
|
|
|
(18.8
|
)
|
|
|
(12.9
|
)
|
|
|
(32.9
|
)
|
Change in fair value of warrant liability
|
|
|
3.0
|
|
|
|
(6.2
|
)
|
|
|
|
|
Benefit (provision) for income tax
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(15.6
|
)
|
|
$
|
(17.2
|
)
|
|
$
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$
|
(0.58
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$
|
(0.58
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We incurred a net loss of $15.6 million in 2010 compared to
a net loss of $17.2 million in 2009. The decrease in our
net loss was primarily due to the decline in the fair value of
our warrant liability, which was attributable principally to the
decrease in the price of our common stock. This was
substantially offset by higher expenses in research and
development related to the development of PX-866 and ONT-10. In
addition, general and administrative expenses were higher due to
higher professional fees incurred in 2010 with respect to
analysis of the accounting for our arrangement with Merck KGaA
and a proposed transaction, which was ultimately not
consummated, pursuant to which we had intended to monetize
certain Canadian tax losses. The net loss of $17.2 million
in 2009 compared to a net income of $7.4 million in 2008
was primarily driven by the entry into the 2008 agreements with
Merck KGaA which resulted in the recognition of
$13.2 million in revenue under the arrangement superseded
by the 2008 license agreement and $10.5 million from the
license of the manufacturing rights to Stimuvax and know-how.
Pursuant to the 2008 asset purchase agreement, we recognized
$11.4 million in revenue along with the associated cost of
sales of $9.7 million. The $20 million decrease in
expenses from 2008 is due to reduce cost of operations related
to the transfer of our Canadian facility to Merck KGaA in
December 2008. In 2010 and 2009, our operating loss reflected a
gain and loss respectively related to the change in fair value
of warrants issued in connection with our September 2010 and May
2009 financings. Based on our development plans for our small
molecule and vaccine candidates we will continue to incur
operating losses for the foreseeable future.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Licensing revenues from collaborative and license agreements
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
24.7
|
|
Contract manufacturing
|
|
|
|
|
|
|
|
|
|
|
15.6
|
|
Licensing, royalties, and other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
40.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As we licensed our manufacturing rights and transferred our
manufacturing know-how and capabilities to Merck KGaA in
December 2008, we did not receive any revenues from
-51-
contract manufacturing during 2010 and 2009. License revenue
declined by $22.6 million in 2009 to $2.1 million from
$24.7 million in 2008. The 2008 license revenue primarily
reflects the acceleration of the recognition of
$13.2 million in revenue that had been previously deferred
and $10.5 million from the sale of our manufacturing rights
and know-how to Merck KGaA. License revenue in 2009 included a
$2.0 million contractually obligated payment from Merck
KGaA. We do not expect revenue from the license of Stimuvax
until the submission, by Merck KGaA, of the BLA for the first
indication.
Research and
Development/Manufacturing Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
11.2
|
|
|
$
|
6.1
|
|
|
$
|
8.8
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
13.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.2
|
|
|
$
|
6.1
|
|
|
$
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $5.1 million, or 83.6%, increase in research and
development expenses for 2010 compared to 2009 was primarily
driven by a $2.8 million increase in contract laboratory
services and contract manufacturing and lab supplies, related to
the development of PX-866 and ONT-10. Salaries and benefits and
clinical trial expenses were higher by $1.3 million and
$0.2 million, respectively, due to increased headcount and
greater clinical trial activity. Grant revenue used to offset
research and development expenses decreased to zero in 2010 from
$0.8 million in 2009, since our activities related to the
SBIR grant ceased in 2009. As we continue with our development
on PX-866 and ONT-10, we expect that our research and
development costs will increase in 2011.
The $2.7 million, or 30.7%, decrease in research and
development expenses for 2009 compared to 2008 was due
principally to the transfer of our Edmonton facility to Merck
KGaA in December 2008 which included the transfer of
43 employees resulting in declines in salaries and
compensation related expenses of $3.0 million, facility
overhead costs of $0.9 million, lab supplies and
consumables costs of $0.3 million and consultant
compensation of $0.1 million. These decreases were
partially offset by increases in clinical research and contract
manufacturing of $0.7 million and $0.4 million
respectively, relating to our small molecule candidates PX-478
and PX-866. In addition, grant revenue declined in 2009 by
$0.5 million to $0.8 million from $1.3 million in
2008.
Since we licensed our manufacturing rights and transferred our
manufacturing know-how and capabilities to Merck KGaA in
December 2008, we did not incur any costs related to this
activity in 2010 and 2009.
General and
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
General and administrative
|
|
$
|
7.8
|
|
|
$
|
6.6
|
|
|
$
|
10.3
|
|
The $1.2 million increase in 2010 relative to 2009 was
principally due to a $1.3 million increase in professional
fees incurred related to regulatory compliance in the first half
of 2010 and a $0.2 million increase in directors and
officers insurance premiums. The increase was partially offset
by lower stock based compensation expense of $0.4 million
and lower overhead allocation of $0.4 million, which
includes rent, repair and maintenance, communication expenses
and supplies. We expect general and administrative expenses to
decrease during 2011.
The $3.7 million decline in 2009 relative to 2008 was
principally due to the consolidation of our operations in the
United States. This decline is attributable to decreases in
staffing
-52-
costs of $1.9 million, professional fees of
$1.5 million, and facility and overhead of
$0.3 million.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
Depreciation and amortization
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
Depreciation expense for 2010 increased by $0.2 million
compared to 2009 primarily due to the build out of laboratory
facilities that were placed in service in 2010. The
$0.1 million decrease in our depreciation expense for 2009
compared to 2008 was due to the transfer of our Edmonton
facility to Merck KGaA in December 2008.
Investment and
Other (Income), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
Investment and other (income), net
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
Investment and other income, net, increased by $0.6 million
for 2010 compared to 2009 primarily due to receipt of a
government grant of $0.5 million and higher average yields
on investments in 2010.
Our investment and other income, net was not material in 2009 as
$0.1 million in investment income was offset by foreign
exchange losses. In 2009, the $0.3 million decrease in
investment and other income compared to 2008 was primarily
attributable to a decrease in investment income due to lower
investment yields.
Change in Fair
Value of Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
Change in fair value of warrant liability
|
|
$
|
(3.0
|
)
|
|
$
|
6.2
|
|
|
$
|
|
|
The $3.0 million recorded was due to the decline in fair
value of warrant liability for the year ended 2010. Such decline
was attributable principally to the decrease in the price of our
common stock and pertains to warrants issued in connection with
the September 2010 and May 2009 financings. On December 31,
2010, we changed the way we estimated volatility when
determining the fair value of the warrants using the
Black-Scholes model. For more information, see
Note 3 Fair Value Measurements of
the audited financial statements included elsewhere in this
Annual Report on
Form 10-K.
The warrants issued in May 2009 were subject to certain
adjustments if we issued or sold shares below the original
exercise price. A September 2010 equity financing triggered such
adjustment provisions and, as a result, the aggregate number of
shares underlying such unexercised warrants increased by 135,600
to 2,953,344 as of December 31, 2010 and the per share
exercise price decreased from $3.92 to $3.74. Pursuant to the
terms of the warrant agreement, the terms of the warrants issued
in May 2009 will not be further adjusted for any future
transactions.
The $6.2 million loss on the change in fair value of
warrant liability for the year ended 2009, relative to the
comparable prior year period, was attributable to the warrants
issued in connection with the May 2009 financing.
-53-
Income tax
(benefit) provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
Income tax (benefit) provision
|
|
$
|
(0.2
|
)
|
|
$
|
0.2
|
|
|
$
|
|
|
In 2010, we recorded a tax benefit for the recovery of taxes
paid in the previous year.
The provision for income tax in 2009 relates to alternative
minimum tax incurred in connection with the December 2008
transactions with Merck KGaA and the final process manufacturing
transfer payment received during 2009. While we have incurred
substantial losses in historical periods (except for 2008),
there are no assurances that we will realize any tax benefits
and we have recorded a full valuation allowance against our net
deferred tax assets.
Liquidity and
Capital Resources
Cash, Cash
Equivalents, Short Term Investments and Working
Capital
As of December 31, 2010, our principal sources of liquidity
consisted of cash and cash equivalents of $5.5 million and
short term investments of $23.4 million. Our cash
equivalents are invested in money market funds and certificates
of deposits insured by the Federal Deposit Insurance
Corporation. Our primary source of cash has historically been
proceeds from the issuance of equity securities, debt and
equipment financings, and payments to us under licensing and
collaboration agreements. These proceeds have been used to fund
our operations.
Our cash and cash equivalents were $5.5 million as of
December 31, 2010 compared to $19.0 million as of
December 31, 2009, a decrease of $13.5 million, or
71.0%. The net decrease reflects net cash used in operations of
$17.7 million, net purchases of short term investments of
$9.1 million and purchases of capital assets of
$0.3 million offset by $13.7 million in net cash
received from a financing in September 2010.
As of December 31, 2010, our working capital was
$28.2 million compared to $31.5 million as of
December 31, 2009, a decrease of $3.3 million, or
10.4%. The decrease in working capital was primarily
attributable to a $4.3 million decrease in cash and cash
equivalents and short term investments offset by a
$0.5 million increase in government grants receivable, a
$0.4 million increase in receivables and prepaid expenses
and a decrease in accounts payable and accrued expenses of
$0.2 million. We believe that our currently available cash
and cash equivalents is sufficient to finance our operations for
at least the next 12 months. Nevertheless, we expect that
we will require additional capital from time to time in the
future in order to continue the development of products in our
pipeline and to expand our product portfolio. We would expect to
seek additional financing from the sale and issuance of equity
or debt securities, and we cannot predict that financing will be
available when and as we need financing or that, if available,
the financing terms will be commercially reasonable. If we are
unable to raise additional financing when and if we require, it
would have a material adverse effect on our business and results
of operations. To the extent we issue additional equity
securities, our existing stockholders could experience
substantial dilution.
In February 2011, we entered into a loan agreement with GE
Capital, pursuant to which the lenders extended to us an initial
term loan with an aggregate principal amount of
$5.0 million. In addition, we may borrow a second term loan
with an aggregate principal amount of $7.5 million,at our
option and subject to satisfying certain conditions on or before
November 1, 2011. The conditions to borrow the second term
loan include requirements that (1) we have 12 months
of unrestricted cash and cash equivalents (as calculated in the
loan agreement) as of the time of incurrence, (2) the START
trial for Stimuvax is continuing or enrollment has been
discontinued because such trial has met a
-54-
positive efficacy endpoint at an interim analysis as determined
by an independent data safety monitoring board overseeing such
trial and (3) the study of at least one clinical indication
in our PX-866 program is continuing.
The proceeds of the initial term loan, after payment of lender
fees and expenses, were approximately $4.9 million. The net
proceeds will be used for general corporate purposes, including
research and product development, such as funding pre-clinical
studies and clinical trials and otherwise moving product
candidates towards commercialization, or the possible
acquisition or licensing of new product candidates or technology
which could result in other product candidates. Pending
application of the net proceeds, we intend to invest the net
proceeds in short-term, investment-grade, interest-bearing
instruments. See Note 16 to the consolidated financial
statements for additional information regarding the loan
agreement.
Our certificate of incorporation provides for the mandatory
redemption of shares of our Class UA preferred stock if we
realize net profits in any year. See
Note 8 Share Capital of the audited
financial statements included elsewhere in this Annual Report on
Form 10-K.
For this purpose, net profits ... means the after tax
profits determined in accordance with generally accepted
accounting principles, where relevant, consistently
applied.
The certificate of incorporation does not specify the
jurisdiction whose generally accepted accounting principles
would apply for the redemption provision. At the time of the
original issuance of the shares, we were a corporation organized
under the federal laws of Canada, and our principal operations
were located in Canada. In addition, the original purchaser and
current holder of the Class UA preferred stock is a
Canadian entity. In connection with our reincorporation in
Delaware, we disclosed that the rights, preferences and
privileges of the shares would remain unchanged except as
required by Delaware law, and the mandatory redemption
provisions were not changed. In addition, the formula for
determining the price at which such shares would be redeemed is
expressed in Canadian dollars. Therefore, if challenged, we
believe that a Delaware court would determine that net
profits be interpreted in accordance with Canadian GAAP.
As a result of the December 2008 Merck KGaA transaction, we
recognized on a one-time basis all deferred revenue relating to
Stimuvax, under both U.S. GAAP and Canadian GAAP. Under
U.S. GAAP this resulted in net income. However, under
Canadian GAAP we were required to recognize an impairment on
intangible assets which resulted in a net loss for 2008 and
therefore did not redeem any shares of Class UA preferred
stock in 2009. If in the future we recognize net income under
Canadian GAAP, or any successor to such principles, or if the
holder of Class UA preferred stock were to challenge, and
prevail in a dispute involving, the interpretation of the
mandatory redemption provision, we may be required to redeem
such shares which would have an adverse effect on our cash
position. The maximum aggregate amount that we would be required
to pay to redeem such shares is CAN $1.25 million.
Cash Flows
from Operating Activities
Cash used in operating activities is primarily driven by our net
income (loss). However, operating cash flows differ from net
income (loss) as a result of non-cash charges or differences in
the timing of cash flows and earnings recognition.
Net cash used in operating activities totaled $17.7 million
in 2010, compared to $9.1 million in 2009. The increase in
net cash used in operating activities for 2010 as compared to
2009 was primarily due to an increase in research and
development and general and administrative expenses.
In 2009, accounts payable and accrued liabilities decreased by
$0.9 million mainly due to pay downs in accrued
manufacturing and professional fees. Accrued compensation and
-55-
related costs decreased $0.8 million in cash during the
year as we made payments on severance agreements related to the
restructuring in 2008. In addition accounts receivable decreased
by $1.8 million in 2009 principally on the collection of
withheld taxes on the 2008 payment from Merck KGaA for the sale
of our manufacturing rights and know-how.
Cash Flows
from Investing Activities
We had cash outflows of $9.4 million from investing
activities during 2010, a decrease of $6.2 million from the
$15.6 million outflow in 2009. This change was attributable
principally to lower net purchases of short-term investments of
$9.1 million in 2010 compared to $14.2 million in 2009
and lower expenditures on capital assets of $1.1 million.
We had cash outflows of $15.6 million from investing
activities during the year ended December 31, 2009, a
fluctuation of $27.4 million from the $11.8 million
inflows in the year ended December 31, 2008. This change
was attributable principally to net purchases of short term
investments of $14.2 million in 2009 compared to net
redemptions in the prior year of $11.9 million and higher
expenditures on capital assets of $0.7 million.
Cash Flows
from Financing Activities
We generated $13.7 million of net cash during 2010 from the
September 2010 financing, which involved the issuance of common
stock and warrants.
During the year ended December 31, 2009, we generated
$24.6 million of net cash from financings completed in May
and August 2009, each of which involved the issuance of common
stock and warrants.
Contractual
Obligations and Contingencies
In our continuing operations, we have entered into long-term
contractual arrangements from time to time for our facilities,
debt financing, the provision of goods and services, and
acquisition of technology access rights, among others. The
following table presents contractual obligations arising from
these arrangements as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Less than
|
|
1 3
|
|
4 5
|
|
After 5
|
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
|
(In thousands)
|
|
Operating leases
|
|
$
|
4,640
|
|
|
$
|
446
|
|
|
$
|
1,164
|
|
|
$
|
1,199
|
|
|
$
|
1,831
|
|
In May 2008, we entered into a sublease for an office and
laboratory facility in Seattle, Washington totaling
approximately 17,000 square feet where we have consolidated
our operations. The sublease expires on December 17, 2011.
The sublease provides for a base monthly rent of $33,324
increasing to $36,354. In May 2008 we also entered into a lease
directly with the landlord of such facility which will have a
six year term beginning at the expiration of the sublease. The
lease provides for a base monthly rent of $47,715 increasing to
$52,259 in 2018. We also have entered into operating lease
obligations through September 2015 for certain office equipment.
In connection with the acquisition of ProlX, we assumed two loan
agreements under which approximately $199,000 was outstanding at
December 31, 2010. We are required to repay such loans if
we commercialize or sell the product that was the subject of
such agreements. In February 2011, we provided notice to the
counterparty to such agreements that we do not intend to
commercialize such product. As a result, such agreements will be
terminated March 2011 and we do not expect to be required to
repay such loans. In connection with the acquisition of ProlX,
we may become obligated to issue additional shares of our common
stock to the former stockholders of ProlX upon satisfaction of
certain milestones. We may become obligated to issue shares of
our common stock with a fair market value of $5.0 million
(determined based on a weighted average trading price at the
time of issuance) upon the initiation of the first Phase 3
clinical trial for a ProlX
-56-
product. We may become obligated to issue shares of our common
stock with a fair market value of $10.0 million (determined
based on a weighted average trading price at the time of
issuance) upon regulatory approval of a ProlX product in a major
market.
Under certain licensing arrangements for technologies
incorporated into our product candidates, we are contractually
committed to payment of ongoing licensing fees and royalties, as
well as contingent payments when certain milestones as defined
in the agreements have been achieved.
Guarantees and
Indemnification
In the ordinary course of our business, we have entered into
agreements with our collaboration partners, vendors, and other
persons and entities that include guarantees or indemnity
provisions. For example, our agreements with Merck KGaA and the
former stockholders of ProlX contain certain tax indemnification
provisions, and we have entered into indemnification agreements
with our officers and directors. Based on information known to
us as of December 31, 2010, we believe that our exposure
related to these guarantees and indemnification obligations is
not material.
Off-Balance Sheet Arrangements
During the period presented, we did not have any relationships
with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or for
another contractually narrow or limited purpose.
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ITEM 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Foreign Currency
Exchange Risk
As of December 31, 2010 and 2009, approximately $68,809 and
$17,644 respectively, of our cash and cash equivalents were
denominated in Canadian dollars. As a result, we are not exposed
to any significant foreign exchange risk.
Interest Rate
Sensitivity
We had cash, cash equivalents, and short-term investments
totaling $28.9 million and $33.2 million as of
December 31, 2010 and 2009, respectively. We do not enter
into investments for trading or speculative purposes. We believe
that we do not have any material exposure to changes in the fair
value of these assets as a result of changes in interest rates
due to the short term nature of our cash, cash equivalents, and
short-term investments. Declines in interest rates, however,
would reduce future investment income. A 100 basis point
decline in interest rates, occurring January 1, 2010 and
sustained throughout the period ended December 31, 2010,
would have resulted in a decline in investment income of
approximately $0.3 million for that same period.
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ITEM 8.
|
Financial
Statements and Supplementary Data
|
See Financial Statements beginning on
page F-1.
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ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
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|
ITEM 9A.
|
Controls
and Procedures
|
Background
As of December 31, 2009, our management identified two
deficiencies in our internal controls over financial reporting
that constituted material weaknesses under standards established
by the Public Company Accounting Oversight Board, or PCAOB.
Specifically,
-57-
we did not have adequately designed controls in place to ensure
the appropriate accounting for and disclosure of complex
transactions in accordance with U.S. GAAP, and we did not
have an adequately designed and implemented risk assessment
process to identify complex transactions requiring specialized
knowledge in the application of U.S. GAAP. This lack of
adequate controls and an adequate risk assessment process
resulted in our failure to identify and disclose a change in
accounting policy related to license revenues in December 2008.
Due to this error, we concluded that material weaknesses in
internal control over financial reporting existed as of
December 31, 2009 because there was a reasonable
possibility that a material misstatement related to a future
complex transaction may occur again
and/or not
be detected on a timely basis. As a result of these material
weaknesses, management concluded that we did not maintain
effective internal control over financial reporting as of
December 31, 2009, based on the criteria forth in the
Internal Control Integrated Framework
developed by the Committee of Sponsoring Organizations of
the Treadway Commission, or COSO and consequently we did not
maintain effective internal control over reporting.
As noted below, we believe these material weaknesses have been
corrected and remediated as of December 31, 2010. A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material
misstatement of the annual or interim financial statement will
not be prevented or detected on a timely basis.
Evaluation of
Disclosure Controls and Procedures
Under the supervision and with the participation of our
management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the
effectiveness, as of December 31, 2010, of our disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. The purpose of this evaluation was to determine
whether as of the evaluation date our disclosure controls and
procedures were effective to provide reasonable assurance that
the information we are required to disclose in our filings with
the Securities and Exchange Commission, or SEC, under the
Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms and (ii) accumulated and communicated to
our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions
regarding required disclosure. Based on that evaluation,
management has concluded that as of December 31, 2010, our
disclosure controls and procedures were effective over our
internal controls described below in Managements Report on
Internal Control over Financial Reporting.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act. We have designed our internal controls to
provide reasonable assurance that our financial statements are
prepared in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP, and include
those policies and procedures that:
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pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and disposition
of our assets;
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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 are being made only in accordance
with authorization of our management and directors; and
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-58-
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|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
|
Our management conducted an evaluation of the effectiveness of
our internal controls based on the COSO criteria as of
December 31, 2010.
Based on our evaluation, our management concluded that our
internal control over financial reporting was effective as of
December 31, 2010. The effectiveness of our internal
control over financial reporting as of December 31, 2010
has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report
thereto, appearing in Part II Item 8 in this Annual
Report on
Form 10-K.
Inherent
Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over
financial reporting, including ours, is subject to inherent
limitations, including the exercise of judgment in designing,
implementing, operating, and evaluating the controls and
procedures, and the inability to eliminate misconduct
completely. Accordingly, any system of internal control over
financial reporting, including ours, no matter how well designed
and operated, can only provide reasonable, not absolute
assurances. In addition, 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. We intend to continue to monitor and upgrade
our internal controls as necessary or appropriate for our
business, but cannot assure you that such improvements will be
sufficient to provide us with effective internal control over
financial reporting.
Changes in
Internal Control over Financial Reporting
During the year ended December 31, 2010, we implemented
significant changes to our internal controls over financial
reporting to fully remediate the material weaknesses identified
in our 2009 evaluation of the effectiveness of our internal
controls based on the criteria set forth in the Internal
Control Integrated Framework developed by the
Committee of Sponsoring Organizations of the Treadway
Commission, or COSO.
The plan to remediate the material weaknesses was described in
detail in our 2009 Annual Report on
Form 10-K,
and we executed our plan throughout 2010. The remediation plan
consisted of the following modifications and improvements in our
internal controls. We retained outside consultants to assist us
with the design and implementation of an adequate risk
assessment process to identify future complex transactions
requiring specialized knowledge to ensure the appropriate
accounting for and disclosure of such transactions, and we
retained personnel with the appropriate technical expertise to
assist us in accounting for complex transactions in accordance
with U.S. GAAP.
Our efforts to remediate the material weaknesses identified in
our 2009 Annual Report on
Form 10-K
and to enhance our overall control environment have been
regularly reviewed with, and monitored by, our Audit Committee.
We believe the remediation measures described above have been
successful in correcting and remediating the material weaknesses
previously identified and have strengthened and enhanced our
internal control over financial reporting.
-59-
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Oncothyreon Inc.
We have audited Oncothyreon Inc.s 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). Oncothyreon
Inc.s 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, Oncothyreon Inc. 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
consolidated balance sheet of Oncothyreon Inc. as of
December 31, 2010, and the related consolidated statement
of operations, stockholders equity, and cash flows for the
year ended December 31, 2010 and our report dated
March 14, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
March 14, 2011
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ITEM 9B.
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Other
Information
|
None.
-60-
PART III
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ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
Executive
Officers and Key Employees
The names, ages as of March 15, 2011 and positions of each
of our executive officers and key employees in 2010 are set
forth below.
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Name
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Age
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Office
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Executive Officers
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ROBERT KIRKMAN, M.D.
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62
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President, Chief Executive Officer and Director
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JULIA M. EASTLAND
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46
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Chief Financial Officer, Secretary and Vice President, Corporate
Development
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GARY CHRISTIANSON
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56
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Chief Operating Officer
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Key Employees
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DIANA HAUSMAN, M.D.
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47
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Vice President, Clinical Development
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SCOTT PETERSON, Ph.D.
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49
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Vice President, Research and Development
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Robert Kirkman, M.D. See Directors, Executive
Officers and Corporate Governance Our
Directors included elsewhere in this Annual Report on
Form 10-K
for Dr. Kirkmans biographical information.
Julia M. Eastland was appointed as our chief financial
officer and vice president, corporate development in August 2010
and was appointed as our secretary in October 2010. From
February 2006 to 2010, Ms. Eastland served as chief
financial officer and vice president Finance and Operations of
VLST Corporation, a privately held biotechnology company. From
2000 to 2005, Ms. Eastland held various finance positions
at Dendreon Corporation, a publicly-traded biotechnology
company, most recently as the vice president of strategic
planning. Prior to Dendreon, Ms. Eastland worked for Amgen,
Inc. as area finance manager and assistant controller for its
Colorado operations. Ms. Eastland has also worked as
director of finance and planning for Encore Media Group,
international finance and business manager and senior financial
analyst for SCIENCE Magazine and financial manager for the
Discovery Channel. Ms. Eastland received an M.B.A. from
Edinburgh University Management School and a B.S. in finance
from Colorado State University.
Gary Christianson was appointed as our chief operating
officer in July 2007. From 2005 to 2007, Mr. Christianson
was site director for the Biologics Unit of GlaxoSmithKline plc,
a global healthcare company. From 1999 to 2003,
Mr. Christianson was vice president, technical operations
at Corixa Corp., a biopharmaceutical and biotechnology company,
and from 2003 to 2005, he was promoted to general manager of the
Hamilton, Montana site in addition to his duties as vice
president. From 1987 to 1999, Mr. Christianson held various
positions at RIBI ImmunoChem Research, Inc., a
biopharmaceuticals company. Mr. Christianson received a
B.S. in mechanical engineering technology from Montana State
University and is a licensed and board certified professional
engineer.
Diana Hausman, M.D. was appointed vice president,
clinical development in August 2009. From 2005 to 2009,
Dr. Hausman served in a variety of positions at
Zymogenetics, Inc., a biopharmaceutical company, most recently
as senior director, clinical research. From 2002 until 2009,
Dr. Hausman served as senior associated medical director at
Berlex Inc., a biopharmaceutical company. Dr. Hausman
received her A.B. in Biology from Princeton University, and her
M.D. from the University of Pennsylvania School of Medicine. She
was trained in internal medicine and hematology/oncology at the
University of Washington and is board certified in medical
oncology.
Scott Peterson, Ph.D. was appointed vice president,
research and development in June 2009. From 2007 until 2009
Dr. Peterson served as director and department head,
Oncology Research at Zymogenetics, Inc., a biopharmaceutical
company. From 1999 to
-61-
2007, Dr. Peterson held a variety of positions at
ICOS Corporation, a biopharmaceutical company.
Dr. Peterson received his Ph.D. in chemistry (biochemistry)
from the University of Colorado, Boulder and holds a B.S. in
biology from Washington State University.
Our
Directors
The name, age, position(s), term, board committee membership and
biographical information for each member of our Board of
Directors is set forth below as of March 15, 2011:
Directors
Continuing in Office Until the 2011 Annual Meeting of
Stockholders
Daniel Spiegelman, M.B.A., age 52, has been a member
of our board of directors since June 2008.
Mr. Spiegelman is the chairman of our audit committee and a
member of our corporate governance and nominating committee.
Mr. Spiegelman is the chief executive officer of Filtini
Inc., a
start-up
company developing next generation circulating tumor cell
capture and analysis technology. Mr. Spiegelman is also a
co-founder and the chief financial officer of Rapidscan Pharma
Solutions, Inc., a
start-up
company that has licensed the rights to sell regadenoson in
Europe and other select territories. From 1998 to 2009,
Mr. Spiegelman was employed at CV Therapeutics, Inc., a
biopharmaceutical company acquired in 2009 by Gilead, most
recently as senior vice president and chief financial officer.
From 1992 to 1998, Mr. Spiegelman was an employee at
Genentech, Inc., a biotechnology company, serving most recently
as its treasurer. Mr. Spiegelman also serves as a member of
the board of directors of Affymax, Inc., a biopharmaceuticals
company, Cyclacel Pharmaceuticals, Inc., a development-stage
biopharmaceuticals company, Omeros Corporation, a clinical-stage
biopharmaceutical company, Anthera Pharmaceuticals, Inc., a
development-stage biopharmaceutical company, and several private
biopharmaceutical companies. Our corporate governance and
nominating committee believes that Mr. Spiegelmans
qualifications for membership on the board of directors include
his extensive background in the financial and commercial issues
facing growing biotechnology companies. Additionally, as chief
financial officer of CV Therapeutics prior to its sale to Gilead
Sciences, Mr. Spiegelman was involved in transitioning the
company from a research and development focus to a commercial
entity with two approved products. This experience allows
Mr. Spiegelman to provide our board of directors with
significant insights into financial strategy and organizational
development. Mr. Spiegelman received his B.A. and M.B.A.
from Stanford University.
Douglas Williams, Ph.D., age 53, has been a
member of our board of directors since October 2009.
Dr. Williams serves as a member of our audit committee.
Since January 2011, Dr. Williams has served as the
executive vice president of research and development at Biogen
IDEC Inc., a publicly-traded biotechnology company.
Dr. Williams joined ZymoGenetics, Inc. in 2004 and served
as a director and chief executive officer from January 2009
until October 2010, when ZymoGenetics was acquired by
Bristol-Myers Squibb. He has held senior level positions at a
number of prominent biotechnology companies, including Biogen
Idec, Seattle Genetics, Inc., Immunex Corporation, and Amgen,
Inc. As executive vice president and chief technology officer at
Immunex, Dr. Williams played a significant role in the
discovery and early development of Enbrel, the first biologic
approved for the treatment of rheumatoid arthritis. Our
corporate governance and nominating committee believes that
Dr. Williams qualifications for membership on the
board of directors include over 20 years of experience in
the biotechnology industry. During his career, Dr. Williams
has been involved in the approval of three new protein
therapeutics and in several label expansions. Further, through
his experience as chief executive officer of ZymoGenetics, Inc.,
Dr. Williams provides our board of directors with
significant insights into the strategic and operational issues
facing our company. Dr. Williams currently serves as a
director of Array BioPharma Inc., a biopharmaceutical company,
and Aerovance, Inc., a privately-held biopharmaceutical company,
and was a
-62-
director of Anadys Pharmaceuticals, Inc., a biopharmaceutical
company, and Seattle Genetics, a clinical stage biotechnology
company, until 2009 and 2005, respectively. Dr. Williams
received a B.S. (magna cum laude) in Biological Sciences from
the University of Massachusetts, Lowell and a Ph.D. in
Physiology from the State University of New York at Buffalo,
Roswell Park Cancer Institute Division.
Directors
Continuing in Office Until the 2012 Annual Meeting of
Stockholders
Christopher Henney, Ph.D., age 70, has served
as the chairman of our board of directors since September 2006
and as a member of our board of directors since March 2005.
Dr. Henney is a member of our compensation and corporate
governance and nominating committees. From 1995 to 2003,
Dr. Henney was chairman and chief executive officer of
Dendreon Corporation, a publicly-traded biotechnology company
that he co-founded and from 2003 to 2005 continued as executive
chairman. Dr. Henney was also a co-founder of Immunex
Corporation and ICOS Corporation, both publicly-traded
biotechnology companies. Our corporate governance and nominating
committee believes that Dr. Henneys qualifications
for membership on the board of directors include his roles as
co-founder of Dendreon, Immunex and ICOS, as well as his
membership on the boards of directors of several
development-stage biotechnology companies. Through his
experience in working with biotechnology companies from founding
until commercialization of their product candidates,
Dr. Henney provides our board of directors with significant
insights into the strategic, operational and clinical
development aspects of the company. Dr. Henney currently
serves as vice-chairman of the board of directors of Cyclacel
Pharmaceuticals, Inc., a development-stage biopharmaceuticals
company, and chairman of the board of directors of Anthera
Pharmaceuticals, Inc., a biopharmaceutical company.
Dr. Henney was the chairman of SGX Pharmaceuticals, Inc., a
biotechnology company acquired by Eli Lilly in 2008, and a
member of the board of directors of AVI BioPharma, Inc., a
biopharmaceuticals company, until June 2010. Dr. Henney
received a Ph.D. in experimental pathology from the University
of Birmingham, England, where he also obtained his D.Sc. for
contributions in the field of immunology. Dr. Henney is a
former professor of immunology and microbiology and has held
faculty positions at Johns Hopkins University, the
University of Washington and the Fred Hutchinson Cancer Research
Center.
W. Vickery Stoughton, age 65, has been a member
of our board of directors since June 1997.
Mr. Stoughton is a member of our audit and compensation
committees. From August 2006 until September 2007,
Mr. Stoughton served as president and chief executive
officer of MagneVu Corporation, a medical devices company, which
filed for bankruptcy in September 2007. From 1996 to 2002,
Mr. Stoughton was chairman and chief executive officer of
Careside Inc., a research and development medical devices
company, which filed for bankruptcy in October 2002. From
October 1995 to July 1996, Mr. Stoughton was president of
SmithKline Beecham Diagnostics Systems Co., a diagnostic
services and product company, and prior to October 1995 he
served as president of SmithKline Beecham Clinical Laboratories,
Inc., a clinical laboratory company. From 1988 until May 2008,
Mr. Stoughton was a member of the board of directors of Sun
Life Financial Inc., a financial services company. Our corporate
governance and nominating committee believes that
Mr. Stoughtons qualifications for membership on the
board of directors include his involvement in several medical
device companies, his role as president of SmithKline Beecham
Clinical Laboratories, and his broader business background.
Through this experience, Mr. Stoughton provides our board
of directors with significant insights into the operational
aspects of the company. Mr. Stoughton received his B.S. in
chemistry from St. Louis University and his M.B.A. from the
University of Chicago.
-63-
Directors
Continuing in Office Until the 2013 Annual Meeting of
Stockholders
Richard Jackson, Ph.D., age 71, has been a
member of our board of directors since May 2003.
Dr. Jackson is the chairman of our compensation committee
and a member of our corporate governance and nominating
committee. Dr. Jackson is president of Jackson Associates,
LLC, a biotechnology and pharmaceutical consulting company.
Since September 2006, Dr. Jackson has also been president
and chief executive officer of Ausio Pharmaceuticals, LLC, a
drug development company. From May 2002 to May 2003,
Dr. Jackson was president, chief executive officer and
chairman of the board of directors of EmerGen, Inc., a
biotechnology company. From November 1998 to January 2002,
Dr. Jackson served as senior vice president, research and
development for Atrix Laboratories, Inc., a biotechnology
company. From January 1993 to July 1998, Dr. Jackson served
as senior vice president, discovery research, at Wyeth Ayerst
Laboratories, the pharmaceuticals division of American Home
Products Corporation. Our corporate governance and nominating
committee believes that Dr. Jacksons qualifications
for membership on the board of directors include over
20 years of experience in academic medicine and over
25 years of experience at several pharmaceutical and
biotechnology companies, with positions in both research and
development and senior management. This experience allows
Dr. Jackson to provide our board of directors with
significant insights into the clinical development of our
product candidates. Dr. Jackson served as a director of
Inflazyme Pharmaceuticals Ltd. until 2007. Dr. Jackson
received his Ph.D. in microbiology and his B.S. in chemistry
from the University of Illinois.
Robert Kirkman, M.D., age 62, has served as a
member of our board of directors and as our president and chief
executive officer since September 2006. From 2005 to 2006,
Dr. Kirkman was acting president and chief executive
officer of Xcyte Therapies, Inc., which concluded a merger with
Cyclacel Pharmaceuticals, Inc., both development stage
biopharmaceuticals companies, in March of 2006. From 2004 to
2005, Dr. Kirkman was chief business officer and vice
president of Xcyte. From 1998 to 2003, Dr. Kirkman was vice
president, business development and corporate communications of
Protein Design Labs, Inc., a biopharmaceuticals company. Our
corporate governance and nominating committee believes that
Dr. Kirkmans qualifications for membership on the
board of directors include his previous experience at
development stage biotechnology companies and his position as
our president and chief executive officer.
Dr. Kirkmans scientific understanding along with his
corporate vision and operational knowledge provide strategic
guidance to our management team and our board of directors.
Dr. Kirkman holds an M.D. degree from Harvard Medical
School and a B.A. in economics from Yale University.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors
and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file
reports of ownership of, and transactions in, our securities
with the Securities and Exchange Commission and NASDAQ. Such
directors, executive officers, and ten percent stockholders are
also required to furnish us with copies of all
Section 16(a) forms that they file.
Based solely on a review of the copies of such forms received by
us, or written representations from certain reporting persons,
we believe that during 2010, our directors, executive officers,
and ten percent stockholders complied with all
Section 16(a) filing requirements applicable to them.
Code of
Conduct
Our board of directors adopted a Code of Business Conduct and
Ethics (the Code of Conduct) for all our officers,
directors, and employees in December 2003, which was last
amended on March 13, 2008, and a Code of Ethics for the
President and Chief Executive
-64-
Officer, the Chief Financial Officer and Corporate Controller on
March 25, 2003, which was subsequently amended on
March 13, 2008, (the Code of Ethics). The Code
of Conduct details the responsibilities of all our officers,
directors, and employees to conduct our affairs in an honest and
ethical manner and to comply with all applicable laws, rules,
and regulations. The Code of Conduct addresses issues such as
general standards of conduct, avoiding conflicts of interest,
communications, financial reporting, safeguarding our assets,
responsibilities to our customers, suppliers, and competitors,
and dealing with governments. The Code of Ethics imposes
additional requirements on our senior executive, financial and
accounting officers with respect to conflicts of interest,
accuracy of accounting records and periodic reports and
compliance with laws. Each of the Code of Conduct and Code of
Ethics is available on our website at www.oncothyreon.com.
Stockholder
Nominations and Recommendations for Director
Candidates
We have not made any material changes to the procedures by which
our stockholders may recommend nominees to our board of
directors since we last disclosed the procedures by which
stockholders may nominate director candidates under the caption
Corporate Governance and Board Matters
Committees of the Board of Directors Corporate
Governance and Nominating Committee in our proxy statement
for the 2010 annual meeting of Oncothyreon stockholders filed
with the SEC on May 13, 2010.
Audit
Committee
We have a standing audit committee, which reviews with our
independent registered public accounting firm the scope,
results, and costs of the annual audit and our accounting
policies and financial reporting. Our audit committee has
(i) direct responsibility for the appointment,
compensation, retention, and oversight of our independent
registered public accounting firm, (ii) establishes
procedures for handling complaints regarding our accounting
practices, (iii) authority to engage any independent
advisors it deems necessary to carry out its duties, and
(iv) appropriate funding to engage any necessary outside
advisors. The current members of the audit committee are Daniel
Spiegelman (Chairman), W. Vickery Stoughton and Douglas
Williams. The board of directors has determined that
Mr. Spiegelman, the chairman of the audit committee, is an
audit committee financial expert as that term is
defined in Item 407(d)(5) of
Regulation S-K
promulgated by the SEC. The audit committee reviews and
reassesses the adequacy of its charter on an annual basis.
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ITEM 11.
|
Executive
Compensation
|
Compensation
Discussion and Analysis
Compensation
Philosophy and Objectives
The principal objectives of the compensation policies and
programs of Oncothyreon has been to attract and retain senior
executive management, to motivate their performance toward
clearly defined corporate goals, and to align their long term
interests with those of our stockholders. In addition, our
compensation committee believes that maintaining and improving
the quality and skills of our management and appropriately
incentivizing their performance are critical factors affecting
our stockholders realization of long-term value.
Our compensation programs have reflected, and for the
foreseeable future should continue to reflect, the fact that we
are a biopharmaceutical company whose principal compounds are
still in clinical trials and subject to regulatory approval. As
a result, our revenues have been and will continue to be
limited, and we expect to continue to incur net losses for at
least the next several years. In an effort to preserve cash
resources, our historical compensation programs have focused
heavily on long-term equity incentives relative to cash
compensation. With a relatively larger equity weighting, this
approach seeks to place a substantial portion of executive
compensation at risk by rewarding our executive officers,
-65-
in a manner comparable to our stockholders, for achieving our
business and financial objectives.
In addition to long-term equity incentives, we have also
implemented a performance-based cash bonus program for our
executive officers and employees. Payments under this
performance-based cash bonus program have been based on
achievement of pre-established corporate and individual
performance goals, with the relative weighting among goals
individualized to reflect each persons unique
contributions. With respect to our executive officers, 100% of
their goals are tied to corporate objectives to reflect the fact
that our executive officers make key strategic decisions
influencing our company as a whole and thus, it is more
appropriate to reward performance against corporate objectives.
We design and implement compensation programs that combine both
long-term equity elements and cash incentive elements based on
annual performance objectives. Our compensation committee has
not, however, adopted any formal or informal policies or
guidelines for allocating compensation between cash and equity
compensation or among different forms of non-cash compensation.
The compensation committees philosophy is that a
substantial portion of an executive officers compensation
should be performance-based, whether in the form of equity or
cash compensation. In that regard, we expect to continue to use
options or other equity incentives as a significant component of
compensation because we believe that they align individual
compensation with the creation of stockholder value, and we
expect any payments under cash incentive plans to be tied to
annual performance targets.
Role of Our
Compensation Committee
Our compensation committee is comprised of three non-employee
members of our board of directors, Dr. Henney,
Dr. Jackson and Mr. Stoughton, each of whom is an
independent director under the rules of The NASDAQ Global
Market, an outside director for purposes of
Section 162(m) of the United States Internal Revenue Code
of 1986, as amended, which we call Section 162(m), and a
non-employee director for purposes of
Rule 16b-3
under the Exchange Act.
Our compensation committee approves, administers, and interprets
our executive compensation and benefit policies. Our
compensation committee acts exclusively as the administrator of
our equity incentive plans and approves all grants to employees,
including our executive officers. Our compensation committee
operates pursuant to a written charter under which our board of
directors has delegated specific authority with respect to
compensation determinations. Among the responsibilities of our
compensation committee are the following:
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evaluating our compensation practices and assisting in
developing and implementing our executive compensation program
and philosophy;
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establishing a practice, in accordance with the rules of The
NASDAQ Global Market, of determining the compensation earned,
paid, or awarded to our chief executive officer independent of
input from him; and
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establishing a policy, in accordance with the rules of The
NASDAQ Global Market, of reviewing on an annual basis the
performance of our other executive officers with assistance from
our chief executive officer and determining what we believe to
be appropriate compensation levels for such officers.
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The compensation committees charter allows the committee
to form subcommittees for any purpose that the committee deems
appropriate and may delegate to such subcommittees such power
and authority as the committee deems appropriate. For example,
the compensation committee has delegated certain powers and
authority to the
-66-
new employee option committee as set forth in
Share Option Plan included elsewhere in
this Annual Report on
Form 10-K.
Our chief executive officer actively supports the compensation
committees work by providing information relating to our
financial plans, performance assessments of our executive
officers, and other personnel related data. In particular, our
chief executive officer, as the person to whom our other
executive officers report, is responsible for evaluating
individual officers contributions to corporate objectives
as well as their performance relative to divisional and
individual objectives. Our chief executive officer, on an annual
basis at or shortly after the end of each year, makes
recommendations to the compensation committee with respect to
merit salary increases, cash bonuses, and stock option grants or
other equity incentives for our other executive officers. Our
compensation committee meets to evaluate, discuss, modify or
approve these recommendations. Without the participation of the
chief executive officer, the compensation committee as part of
the annual review process conducts a similar evaluation of the
chief executive officers contribution and performance and
makes determinations, at or shortly after the end of each year,
with respect to merit salary increases, bonus payments, stock
option grants, or other forms of compensation for our chief
executive officer.
Our compensation committee has the authority under its charter
to engage the services of outside advisors, experts, and others
for assistance. The compensation committee did not rely on any
outside advisors for purposes of structuring our 2010
compensation plan but did rely on the survey data described
below.
Competitive
Market Review for 2010
The market for experienced management is highly competitive in
the life sciences and biopharmaceutical industries. We seek to
attract and retain the most highly qualified executives to
manage each of our business functions, and we face substantial
competition in recruiting and retaining management from
companies ranging from large and established pharmaceutical
companies to entrepreneurial early stage companies. We expect
competition for appropriate technical, commercial, and
management skills to remain strong for the foreseeable future.
In making our executive compensation determinations for 2010, we
benchmarked our compensation levels using U.S. professional
salary surveys. These include:
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Radford Global Life Sciences Salary Survey 2010; and
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WorldatWork Salary Survey 2010
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In evaluating the survey data, our compensation committee
compared our compensation practices and levels for each
compensation component including base salary, annual
performance-based bonuses, and equity compensation with the
salary survey data. This information was used to determine
appropriate levels of compensation based on market benchmarks
for various functional titles. Based on this data, our
compensation committee believes that our levels of total
compensation for our executive officers generally fell at about
the 50th percentile.
Peer Group
Companies for 2010
In analyzing our executive compensation program for 2010, the
compensation committee compared certain aspects of compensation,
including base salary and equity incentives, to those provided
by our peer group. This peer group included small biotechnology
companies with which we compete for executive talent. For 2010,
our peer group consisted of:
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Cell Therapeutics, Inc.;
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Omeros Corporation;
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Seattle Genetics, Inc.; and
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Trubion Pharmaceuticals Inc.
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Principal
Elements of Executive Compensation
Our executive compensation program consists of five components:
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base salary;
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annual performance-based cash bonuses;
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equity-based incentives;
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benefits; and
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severance/termination protection.
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We believe that each of these components, combining both short
and long-term incentives, offers a useful element in achieving
our compensation objectives and that collectively these
components have been effective in achieving our corporate goals.
Annual Review
Process
Our compensation committee reviews data and makes executive
compensation decisions on an annual basis, typically during the
last quarter of the year or the first quarter of the new year.
In connection with that process, executive officers are
responsible for establishing and submitting for review to our
chief executive officer (and in the case of our chief executive
officer, directly to the compensation committee) their
departmental goals and financial objectives. Our chief executive
officer then compiles the information submitted and provides it,
along with information relating to his own personal goals and
objectives, to our compensation committee for review. Our
compensation committee, including our chief executive officer
with respect to all officers other than himself and excluding
our chief executive officer with respect to discussions of his
own compensation, reviews, considers, and may amend the terms
and conditions proposed by management.
As part of the annual review process, our compensation committee
makes its determinations of changes in annual base compensation
for executive officers based on numerous factors, including
performance over the prior year, both individually and relative
to corporate or divisional objectives, established corporate and
divisional objectives for the next year, our operating budgets,
and a review of survey data relating to base compensation for
the position at companies we have identified within our peer
group. During the annual review process, our compensation
committee also considered each executives equity incentive
position, including the extent to which he or she was vested or
unvested in his or her equity awards and the executives
aggregate equity incentive position.
From time to time, our compensation committee may make off-cycle
adjustments in executive compensation as it determines
appropriate. For example, in March 2009, our compensation
committee considered and approved a special cash bonus for each
of our chief executive officer and chief operating officer in
connection with the successful completion of the 2008
transaction with Merck KGaA.
Weighting of
Compensation Elements
Our compensation committees determination of the
appropriate use and weight of each element of executive
compensation is subjective, based on its view of the relative
importance of each element in meeting our overall objectives and
factors relevant to the individual executive. Like many
biopharmaceutical companies with clinical-stage products, we
seek to place a significant amount of each executives
total potential compensation at risk based on
performance.
-68-
Base
Salary
Base salary for our chief executive officer and other officers
reflects the scope of their respective responsibilities, their
relative seniority and experience, and competitive market
factors. Salary adjustments are typically based on competitive
conditions, individual performance, changes in job duties, and
our budget requirements.
In our offer letter with Dr. Kirkman, we agreed to pay him
an initial base salary at $320,000. Our compensation committee
set Dr. Kirkmans base salary based on his experience
and our compensation committees view of market
compensation for chief executive officers of public, early stage
biopharmaceutical companies. For 2007, Dr. Kirkmans
base salary remained at $320,000. On January 14, 2008,
Dr. Kirkmans base salary was increased to $375,000
for 2008. Dr. Kirkmans base salary remained at
$375,000 for 2009, but was increased to $386,250 for 2010. On
January 3, 2011, the compensation committee increased
Dr. Kirkmans salary to $398,000 for 2011.
For a discussion of the base salaries of our other executive
officers, see Employment Agreements and Offer
Letters included elsewhere in this Annual Report on
Form 10-K.
Variable Cash
Compensation Incentive Bonuses
We pay performance-based bonuses to our executive officers and
other employees pursuant to our performance review policy, which
we believe enhances each individual employees incentive to
contribute to corporate objectives and aligns their interests
with our stockholders.
Under the performance review policy, our executive officers and
employees are eligible to receive bonuses based on achievement
of pre-established corporate and individual performance goals,
but the weighting among the goals is individualized to each
person to reflect his or her unique contributions to the
company. Each goal is assigned a percentage for each person
based on the importance to us that the goal be achieved with
respect to that person. Generally, achievement of a particular
goal will result in the payment of the expected level of
incentive compensation associated with such goal. Partial
achievement can result in the payment of less or no incentive
compensation and likewise, superior achievement of any
performance goal may result in the payment in excess of the
target level of incentive compensation; however, there is not a
fixed formula for determining the amount of incentive
compensation for partial or above target achievement. Rather, in
all cases, the compensation committee, with respect to executive
officers, and our chief executive officer, with respect to other
employees, retains discretion to increase or decrease variable
cash incentive compensation as it or he determines appropriate,
based on actual achievement against the goals, whether
performance is at, above or below the target for the goal.
Typically, the maximum incentive compensation to which an
executive officer or employee is entitled is based on a
percentage of such individuals base salary. For example,
if (i) an executives base salary is $100,000,
(ii) he is eligible to receive a bonus up to 50% of his
base salary, or $50,000, (iii) the compensation committee
has established four performance goals, each weighted at 25% and
(iv) the compensation committee determines that the
executive has achieved two of the four performance goals, then,
the executive would be eligible to receive, subject to the
discretion of the compensation committee, a bonus of $25,000.
Performance goals may be both qualitative and quantitative and
are designed to be specific, measurable, relevant to our
company, completed within a fixed period of time and defined by
significant achievements that go beyond an individuals job
responsibilities. Although performance goals are intended to be
achievable with significant effort, we do not expect that every
goal will be actually attained in any given year.
-69-
Performance goals are generally split between corporate and
personalized individual performance objectives. With respect to
our executive officers, 100% of their goals are tied to
corporate objectives to reflect the fact that our executive
officers make key strategic decisions influencing the company as
a whole and thus, it is more appropriate to reward performance
against corporate objectives. Reflective of the decreasing level
of influence within our company as a whole, with respect to our
director-level and senior director-level employees, at least 60%
of the performance objectives must be linked to corporate
objectives and with respect to non-executive management and
senior non-executive management employees, at least 40% of the
performance objectives must be linked to corporate objectives.
In each case the remaining performance objectives will be linked
to personalized individual performance goals based on the nature
of the individuals role within our company. We designed
the performance review policy in this manner based on our belief
that more senior personnel are in a greater position to
influence the achievement of corporate objectives, and
therefore, a greater number of their performance goals should be
tied to corporate rather than personalized individual objectives.
Our compensation committee is responsible for setting
performance goals, assessing whether such goals have been
achieved and determining the amount of bonuses (if any) to be
paid with respect to our executive officers, while the chief
executive officer bears such responsibility for other employees.
Performance goals for the upcoming year are typically
established at or shortly after the end of the prior year.
Assuming that a determination is made that a bonus has been
earned, we will typically pay bonuses to employees shortly after
the end of each year and to executive officers shortly after the
first scheduled meeting of the compensation committee each year.
An individual must remain actively employed by the company
through the actual date of payment to receive a bonus.
The weighting of bonuses between the performance goals varies
from executive officer to executive officer based on an analysis
of each executive officers role and position within the
company. For example, because Dr. Hausman holds a key
position as our vice president, clinical development, we felt it
appropriate to more heavily weight her bonus on achievement of
certain clinical development milestones. As Ms. Eastland
was a new employee hired in 2010 and not involved in the goal
setting for 2010, she is not reflected in the table below. The
allocation between the corporate performance goals for each
executive officer for 2010 is set forth in the following table:
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Market
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Capitalization
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Cash
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/Investor
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Clinical
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Pre-Clinical
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Technical
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Business
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Position
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Perception
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Assessment
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Assessment
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Operations
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Development
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Named Executive
Officer(7)
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(1)
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(2)
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(3)
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(4)
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(5)
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(6)
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Robert Kirkman
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30
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%
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20
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%
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10
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%
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10
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%
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10
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%
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20
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%
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Gary Christianson
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10
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5
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10
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10
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60
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5
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Diana Hausman
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10
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5
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60
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10
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10
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5
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Scott Peterson
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10
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5
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10
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50
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10
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15
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(1) |
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As of December 31, 2010, have sufficient cash and
short-term investments to fund our operations at least through
December 31, 2011, as determined in the discretion of our
board of directors. |
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Improved investor perception and increased market capitalization. |
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Timely completion of Phase 1 trial in PX-866 and timely
initiation of Phase 2 trials of PX-866. |
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(4) |
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Timely completion of evaluations of PX-866 and other
pre-clinical drug candidates. |
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Timely completion of supply, formulation and manufacturing goals. |
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In-license or acquisition of a drug development candidate. |
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(7) |
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Shashi Karan separated from employment on October 5, 2010,
and did not receive an incentive bonus for 2010. |
-70-
The target and actual bonus amounts for 2010 for our named
executive officers were as follows, based on achievement against
the corporate performance goals (as discussed above):
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2010 Incentive
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Base
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Annual Target as
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Target
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Target
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Bonus Actually
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Salary
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Percentage of Base
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Bonus
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Goals
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Paid
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Named Executive
Officer(6)
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($)
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Salary
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($)
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Achieved
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($)
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Robert Kirkman
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$
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386,250
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50
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%
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$
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193,125
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70.0
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%(1)
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$
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135,188
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Julia Eastland
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250,000
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30
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75,000
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100.0
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(2)
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25,000
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(2)
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Gary Christianson
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275,000
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35
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96,250
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77.8
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(3)
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74,883
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Diana Hausman
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298,700
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30
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89,610
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75.3
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(4)
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67,476
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Scott Peterson
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180,250
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25
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45,063
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82.8
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(5)
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37,312
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(1) |
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Dr. Kirkmans achievement level of 70% was based on
achievement of the goals involving market capitalization and
investor perception and pre-clinical assessment, and partial
achievement of the goals involving cash position, clinical
assessment, technical operations and business development. |
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(2) |
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As Ms. Eastland was a new employee hired in 2010 and not
involved in the goal setting for 2010, the compensation
committee approved that her bonus be paid at target for her high
level of performance during 2010, pro-rated for her length of
service during 2010. Specifically, when deciding to pay her
bonus at target, the compensation committee took note of
Ms. Eastlands substantial contributions relating to
the September 2010 financing and the negotiation and closing of
the loan facility with General Electric Capital Corporation. |
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(3) |
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Mr. Christiansons achievement level of 77.8% was
based on achievement of the goals involving market
capitalization and investor perception and pre-clinical
assessment, and partial achievement of the goals involving cash
position, clinical assessment, technical operations and business
development. |
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Dr. Hausmans achievement level of 75.3% was based on
achievement of the goals involving market capitalization and
investor perception and pre-clinical assessment, and partial
achievement of the goals involving cash position, clinical
assessment, technical operations and business development. |
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(5) |
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Dr. Petersons achievement level of 82.8% was based on
achievement of the goals involving market capitalization and
investor perception and pre-clinical assessment, and partial
achievement of the goals involving cash position, clinical
assessment, technical operations and business development. |
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Shashi Karan separated from employment on October 5, 2010,
and did not receive an incentive bonus for 2010. |
In January 2011, the compensation committee approved target
percentages for 2011. Dr. Kirkman, Ms. Eastland,
Mr. Christianson, Dr. Hausman and Dr. Peterson
are eligible to receive in 2011 incentive bonuses under our
performance review policy of up to 50%, 30%, 35%, 30%, 30%,
respectively, of their base salary. The 2011 performance goals
for our executive officers are related to various corporate
objectives, including objectives related to our financial
condition, stock price performance, development of our product
candidates, technical operations, regulatory filings and certain
business development activities (although the weighting for such
performance goals will differ between such executive officers).
Equity-based
Incentives
We grant equity-based incentives to employees, including our
executive officers, in order to create a corporate culture that
aligns employee interests with stockholder interests. We have
not adopted any specific stock ownership guidelines, and our
equity incentive plans
-71-
have provided the principal method for our executive officers to
acquire an equity position in our company.
Historically, we have granted options to our executive officers
under our share option plan. Our share option plan permits the
grant of stock options for shares of common stock. All equity
incentive programs are administered by our compensation
committee (other than grants of restricted share units to
non-employee directors, which are overseen by the corporate
governance and nominating committee and grants of stock options
to certain new employees, which are overseen by the new employee
option committee). To date, our equity incentive grants have
consisted of options under the share option plan.
The size and terms of any initial option grants to new
employees, including executive officers, at the time they join
us is based largely on competitive conditions applicable to the
specific position. For non-executive officer grants, our
compensation committee has pre-approved a matrix showing
appropriate levels of option grants for use in making offers to
new employees.
In making its determination of the size of initial option grants
for our current executive officers, our board of directors
relied in part on survey data and peer group comparisons. In
accordance with the offer letter of August 29, 2006,
Dr. Kirkman, our chief executive officer, was granted an
option to purchase 450,000 shares of our common stock at a
price of Cdn.$7.38 per share. On May 3, 2007,
Dr. Kirkman received an option to purchase
137,537 shares of our common stock at an exercise price per
share of Cdn.$8.04, in connection with the terms of his offer
letter, under which he was eligible to receive an additional
option award to purchase a number of shares equal to 3% of any
shares issued during his first year of employment with us. Such
grant has vested, or will vest, in four equal annual
installments of 34,384 shares on May 3, 2008, 2009,
2010, and 2011. Consistent with the provisions of our share
option plan as in effect at the time of grant, the option was
priced at the closing price of our shares of common stock on the
Toronto Stock Exchange on the day immediately prior to the date
of board approval. The exercise prices of all outstanding
options granted to Dr. Kirkman prior to April 2008 were
based on the Toronto Stock Exchange trading price and were
priced in Canadian dollars. Beginning in April 2008, the
exercise price of option grants were based on The NASDAQ Global
Market trading price and were priced in U.S. dollars. On
June 4, 2008, Dr. Kirkman received an additional
option to purchase 45,000 shares of our common stock at an
exercise price per share of $3.43. This grant has vested, or
will vest, in four equal annual installments of
11,250 shares on June 4, 2009, 2010, 2011 and 2012. On
March 11, 2009, Dr. Kirkman also received an
additional option to purchase 100,000 shares of our common
stock at an exercise price per share of $1.10. This grant has
vested, or will vest, in four equal annual installments of
25,000 shares on March 11, 2010, 2011, 2012 and 2013.
On December 3, 2009, Dr. Kirkman received an
additional option to purchase 200,000 shares of our common
stock at an exercise price per share of $4.71. This grant has
vested, or will vest, in four equal annual installments of
50,000 shares on December 3, 2010, 2011, 2012 and
2013. Also, on December 1, 2010, Dr. Kirkman received
an additional option to purchase 100,000 shares of our
common stock at an exercise price per share of $3.32. This grant
will vest as to 25,000 shares on December 1, 2011,
with the balance vesting in monthly increments for
36 months following December 1, 2011, such that the
option will be fully exercisable on December 1, 2014. Our
compensation committee believes that the size and terms of
Dr. Kirkmans stock option grants were reasonable
given our early stage of product development and skill
requirements for senior management, Dr. Kirkmans
industry experience and background, and equity compensation
arrangements for experienced chief executive officers at
comparably situated companies.
In addition, our practice has been to grant refresher options to
employees, including executive officers, when our board of
directors or compensation committee believes additional unvested
equity incentives are appropriate as a retention incentive. For
example,
-72-
in March 2009, December 2009 and December 2010, we granted
refresher options to some of our employees (including our
executive officers) pursuant to the standard vesting and other
terms of our share option plan. We expect to continue this
practice in the future in connection with the compensation
committees annual performance review, generally conducted
at the beginning of each year. In making its determination
concerning additional option grants, our compensation committee
will also consider, among other factors, prior individual
performance in his or her role as an executive officer, or
employee, of our company, and the size of the individuals
equity grants in the then-current competitive environment. Where
our compensation committee has approved option grants for
executive officers or other employees during a regular quarterly
closed trading window under our insider trading policy, we have
priced the options based on the closing sales price of our
common stock on the first trading day after the window opened.
To date, our equity incentives have been granted with time-based
vesting. Prior to May 2010, most option grants approved by the
compensation committee vest and become exercisable in four equal
annual installments beginning on the first anniversary of the
grant date. Beginning in May 2010, our compensation committee
approved changes to our standard option grant vesting schedule.
The revised vesting schedule provides that twenty-five percent
of the shares of common stock underlying an option vest and
become exercisable on the first anniversary of the grant date
and 1/48th of the shares of common stock underlying such
option vest and become exercisable on each monthly anniversary
of the grant date, such that the option will be fully
exercisable on the fourth anniversary of the grant date. We
expect that additional option grants to continuing employees
will typically vest over this same schedule. Although our
practice in recent years has been to provide equity incentives
principally in the form of stock option grants that vest over
time, our compensation committee may consider alternative forms
of equity in the future, such as performance shares, restricted
share units or restricted stock awards with alternative vesting
strategies based on the achievement of performance milestones or
financial metrics.
As noted above, consistent with the terms of the share option
plan and subject to the policy against pricing options during
regularly scheduled closed quarterly trading windows, we have
historically priced option grants based on the closing sales
price of our shares of common stock trading on the Toronto Stock
Exchange. On April 3, 2008 our board of directors amended
our share option plan to provide that each option granted
pursuant to the plan be priced at the closing price of our
shares of common stock on The NASDAQ Global Market on the day of
the option grant.
During 2010, we granted, in the aggregate, the following options
to our executive officers as follows:
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Named Executive
Officer(1)
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Options (#)
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Robert Kirkman
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100,000
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Julia Eastland
|
|
|
90,000
|
|
Gary Christianson
|
|
|
50,000
|
|
Diana Hausman
|
|
|
50,000
|
|
Scott Peterson
|
|
|
50,000
|
|
|
|
|
(1) |
|
Shashi Karan separated from employment on October 5, 2010,
and was not granted any options in 2010. |
Benefits
We provide the following benefits to our named executive
officers, generally on the same basis provided to all of our
employees:
|
|
|
health, dental insurance and vision (for the employee and
eligible dependents);
|
-73-
|
|
|
flexible spending accounts for medical and dependent care;
|
|
|
life insurance;
|
|
|
employee assistance plan (for the employee and eligible
dependents);
|
|
|
short- and long-term disability, accidental death and
dismemberment; and
|
|
|
a 401(k) plan with an employer match into the plan.
|
Severance/Termination
Protection
We entered into offer letters with our named executive officers
when each was recruited for his or her current position. These
offer letters provide for general employment terms and, in some
cases, benefits payable in connection with the termination of
employment or a change in control. The compensation committee
considers such benefits in order to be competitive in the hiring
and retention of employees, including executive officers.
In addition, these benefits are intended to incentivize and
retain our officers during the pendency of a proposed change in
control transaction and align the interests of our officers with
our stockholders in the event of a change in control. The
compensation committee believes that proposed or actual change
in control transactions can adversely impact the morale of
officers and create uncertainty regarding their continued
employment. Without these benefits, officers may be tempted to
leave the company prior to the closing of the change in control,
especially if they do not wish to remain with the entity after
the transaction closes. Such departures could jeopardize the
consummation of the transaction or our interests if the
transaction does not close and we remain independent.
All arrangements with the named executive officers and the
potential payments that each of the named executive officers
would have received if a change in control or termination of
employment would have occurred on December 31, 2010, are
described in Employment Agreements and Offer
Letters and Potential Payments on
Termination or Change in Control included elsewhere in
this Annual Report on
Form 10-K.
Accounting and
Tax Considerations
Section 162(m) limits the amount that we may deduct for
compensation paid to our chief executive officer and to each of
our four most highly compensated officers to $1,000,000 per
person, unless certain exemption requirements are met.
Exemptions to this deductibility limit may be made for various
forms of performance-based compensation. In addition
to salary and bonus compensation, upon the exercise of stock
options that are not treated as incentive stock options, the
excess of the current market price over the option price, or
option spread, is treated as compensation and accordingly, in
any year, such exercise may cause an officers total
compensation to exceed $1,000,000. Under certain regulations,
option spread compensation from options that meet certain
requirements will not be subject to the $1,000,000 cap on
deductibility. While the compensation committee cannot determine
with certainty how the deductibility limit may impact our
compensation program in future years, the compensation committee
intends to maintain an approach to executive compensation that
strongly links pay to performance. While the compensation
committee has not adopted a formal policy regarding tax
deductibility of compensation paid to our chief executive
officer and our four most highly compensated officers, the
compensation committee intends to consider tax deductibility
under Section 162(m) as a factor in compensation decisions.
Compensation
Committee Interlocks and Insider Participation
During 2010, Richard Jackson, Christopher Henney and W. Vickery
Stoughton served on our compensation committee. During 2010, no
member of our compensation committee was an officer or employee
or formerly an officer of our company, and no member had any
-74-
relationship that would require disclosure under Item 404
of
Regulation S-K
of the Securities Exchange Act of 1934. None of our executive
officers has served on the board of directors or the
compensation committee (or other board committee performing
equivalent functions) of any other entity, one of whose
executive officers served on our board of directors or on our
compensation committee.
Compensation
Committee Report
The information contained in this report will not be deemed
to be soliciting material or to be filed
with the SEC, nor will such information be incorporated by
reference into any future filing under the Securities Act or the
Exchange Act, except to the extent that we specifically
incorporate it by reference in such filing.
In reliance on the reviews and discussions referred to above and
the review and discussion of the section captioned
Compensation Discussion and Analysis with our
management, the compensation committee has recommended to the
board of directors and the board of directors has approved, that
the section captioned Compensation Discussion and
Analysis be included in this Annual Report on
Form 10-K
and the proxy statement for our annual meeting of stockholders.
COMPENSATION COMMITTEE
Richard Jackson, Chairman
Christopher Henney
W. Vickery Stoughton
Summary
Compensation Table 2010, 2009, and 2008
The following table sets forth the compensation earned by or
awarded to, as applicable, our principal executive officer,
principal financial officer and other executive officers during
each of 2008, 2009 and 2010. We refer to these officers in this
Annual Report on
Form 10-K
as the named executive officers.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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Non-Equity
|
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|
|
|
|
|
|
|
|
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|
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|
Incentive Plan
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All Other
|
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|
|
|
|
|
|
|
Salary
|
|
|
Option Awards
|
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|
Compensation
|
|
|
Compensation
|
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|
Total
|
|
Name and Principal
Position
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
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|
Robert Kirkman(4)
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2010
|
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|
$
|
386,250
|
|
|
$
|
246,000
|
|
|
$
|
135,188
|
|
|
$
|
11,923
|
|
|
$
|
779,361
|
|
|
President, Chief Executive
|
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2009
|
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|
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375,000
|
|
|
|
796,412
|
|
|
|
131,250
|
|
|
|
11,586
|
|
|
|
1,314,248
|
|
|
Officer and Director
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2008
|
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375,000
|
|
|
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131,737
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|
|
|
176,250
|
|
|
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15,066
|
|
|
|
698,053
|
|
|
Julia Eastland(5)
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2010
|
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79,647
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|
|
|
220,600
|
|
|
|
25,000
|
|
|
|
106
|
|
|
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325,353
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|
|
Chief Financial Officer, Secretary and Vice President, Corporate
Development
|
|
|
|
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|
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|
|
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|
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Shashi Karan(6)
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2010
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|
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144,058
|
|
|
|
|
|
|
|
|
|
|
|
48,327
|
|
|
|
192,385
|
|
|
Corporate Controller and
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|
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2009
|
|
|
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165,000
|
|
|
|
183,932
|
|
|
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29,700
|
|
|
|
5,961
|
|
|
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384,593
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|
|
Secretary
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2008
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112,500
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|
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29,275
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22,500
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|
|
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3,575
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|
|
|
167,850
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Gary Christianson(7)
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2010
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275,000
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|
|
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123,000
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|
|
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74,883
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|
|
|
8,586
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|
|
|
481,469
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Chief Operating Officer
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2009
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250,000
|
|
|
|
380,868
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|
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70,000
|
|
|
|
7,836
|
|
|
|
708,704
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|
|
|
|
|
2008
|
|
|
|
247,200
|
|
|
|
43,912
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|
|
|
93,500
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|
|
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31,198
|
|
|
|
415,810
|
|
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Diana Hausman(8)
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2010
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|
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298,700
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|
|
|
123,000
|
|
|
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67,476
|
|
|
|
9,297
|
|
|
|
498,473
|
|
|
Vice President, Clinical Development
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2009
|
|
|
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96,667
|
|
|
|
289,222
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|
|
|
29,000
|
|
|
|
3,012
|
|
|
|
417,501
|
|
|
Scott Peterson(9)
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2010
|
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|
|
180,250
|
|
|
|
123,000
|
|
|
|
37,312
|
|
|
|
5,743
|
|
|
|
346,305
|
|
|
Vice President, Research and
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2009
|
|
|
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72,917
|
|
|
|
287,250
|
|
|
|
18,229
|
|
|
|
2,109
|
|
|
|
380,505
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
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|
(1) |
|
These amounts represent the aggregate grant date fair value of
option awards for fiscal years 2008, 2009 and 2010. These
amounts do not represent the actual amounts paid to or realized
by the named executive officer for these awards during fiscal
years 2008, 2009 or 2010. The value as of the grant date for
stock options is recognized over the number of days of service
required for the grant to become vested. For a |
-75-
|
|
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|
|
more detailed description of the assumptions used for purposes
of determining grant date fair value, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Critical Accounting
Policies and Significant Judgments and Estimates
Stock-Based Compensation and Note 9
Stock-Based Compensation of the audited financial
statements included elsewhere in this Annual Report on
Form 10-K. |
|
(2) |
|
The amounts in this column represent total performance-based
bonuses earned for services rendered during the year under our
performance review policy, for 2008, 2009 and 2010, for
executive officers, in which all employees were eligible to
participate. Under the applicable bonus plan for each year, each
executive was eligible to receive a cash bonus based on
achievement of a combination of corporate or divisional
objectives. Please see Compensation Discussion
and Analysis Variable Cash Compensation
Incentive Bonuses included elsewhere in this Annual Report
on
Form 10-K
for additional information regarding our variable cash
compensation policies for executive officers. |
|
(3) |
|
Except as disclosed in the other footnotes, the amounts in this
column consist of contributions made by us pursuant to our
401(k) plan. |
|
(4) |
|
Amounts listed in All Other Compensation include
life insurance premiums of $336 for each of 2008, 2009 and 2010. |
|
(5) |
|
Ms. Eastlands employment with the Company began on
September 7, 2010. Amounts listed in All Other
Compensation include life insurance premiums of $106. |
|
(6) |
|
Mr. Karans employment with the Company began on
April 1, 2008 and he separated from employment on
October 5, 2010. Amounts listed in All Other
Compensation include life insurance premiums of $252, $336
and $255 for 2008, 2009 and 2010, respectively, and a severance
payment made in accordance with a separation agreement by and
between us and Mr. Karan of $43,750, equivalent to three
months of his base salary for 2010. |
|
(7) |
|
Amounts listed in All Other Compensation include
life insurance premiums of $336 for each of 2008, 2009 and 2010
and $22,246 for relocation costs in 2008. |
|
(8) |
|
Dr. Hausmans employment with the Company began on
September 1, 2009. Amounts listed in All Other
Compensation include life insurance premiums of $112 and
$336 for 2009 and 2010, respectively. |
|
(9) |
|
Dr. Petersons employment with the Company began on
August 1, 2009. Amounts listed in All Other
Compensation include life insurance premiums of $140 and
$336 for 2009 and 2010, respectively. |
-76-
Grants of
Plan-Based Awards
The following table sets forth each grant of an award made to a
named executive officer during 2010 under any of our incentive
plans or equity plans.
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Estimated Future
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Payouts
|
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|
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|
|
|
|
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|
Under Non-Equity
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|
All Other Option
|
|
|
|
|
|
|
|
|
Incentive
|
|
Awards: Number of
|
|
Exercise or Base
|
|
Grant Date Fair
|
|
|
|
|
Plan Awards
|
|
Securities Underlying
|
|
Price of Option
|
|
Value of Stock and
|
|
|
Grant Date
|
|
Target
|
|
Options
|
|
Awards
|
|
Option Awards
|
Name(1)
|
|
(2)
|
|
($)(3)(4)
|
|
(#)
|
|
($/Sh)(2)
|
|
($)(5)
|
|
Robert L. Kirkman(6)
|
|
December 1, 2010
|
|
$
|
193,125
|
|
|
|
100,000
|
|
|
$
|
3
|
.32
|
|
|
$
|
246,000
|
|
Julia Eastland(7)
|
|
November 10, 2010
|
|
|
|
|
|
|
40,000
|
|
|
|
3
|
.31
|
|
|
|
97,600
|
|
|
|
December 1, 2010
|
|
|
75,000
|
|
|
|
50,000
|
|
|
|
3
|
.32
|
|
|
|
123,000
|
|
Gary Christianson(8)
|
|
December 1, 2010
|
|
|
96,250
|
|
|
|
50,000
|
|
|
|
3
|
.32
|
|
|
|
123,000
|
|
Diana Hausman(9)
|
|
December 1, 2010
|
|
|
89,610
|
|
|
|
50,000
|
|
|
|
3
|
.32
|
|
|
|
123,000
|
|
Scott Peterson(10)
|
|
December 1, 2010
|
|
|
45,063
|
|
|
|
50,000
|
|
|
|
3
|
.32
|
|
|
|
123,000
|
|
|
|
|
(1) |
|
Shashi Karan separated from employment on October 5, 2010.
Table does not reflect $35,000 estimated future payout with
respect to a performance bonus he would have been eligible to
receive had he remained employed with us. |
|
(2) |
|
Except as otherwise noted below and consistent with the
provisions of our share option plan in effect at the date of
grant, options were priced at the closing sales price of our
shares of common stock in trading on The NASDAQ Global Market on
the grant date. |
|
(3) |
|
Performance bonuses were earned in 2010. The actual amounts paid
to each of the named executive officers for 2010 are set forth
in the individual footnotes below. |
|
(4) |
|
There was no set Threshold or Maximum
performance bonus amounts established with respect to our 2010
non-equity incentive plan awards, pursuant to the description
set forth under the heading Compensation
Discussion and Analysis Variable Cash
Compensation Incentive Bonuses included
elsewhere in this Annual Report on
Form 10-K. |
|
(5) |
|
These amounts represent the grant date fair value of option
awards granted in 2010. These amounts do not represent the
actual amounts paid to or realized by the named executive
officer for these awards during fiscal year 2010. The value as
of the grant date for stock options is recognized over the
number of days of service required for the grant to become
vested. For a more detailed description of the assumptions used
for purposes of determining grant date fair value, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Critical Accounting
Policies and Significant Judgments and Estimates
Stock-Based Compensation and Note 9
Stock-Based Compensation of the audited financial
statements included elsewhere in this Annual Report on
Form 10-K. |
|
(6) |
|
On January 3, 2011, the compensation committee approved a
performance bonus of $135,188 under the performance review
policy. |
|
(7) |
|
On January 3, 2011, the compensation committee approved a
performance bonus of $25,000 under the performance review
policy, which represents a bonus paid at target and pro-rated
for her length of service during 2010. |
|
(8) |
|
On January 3, 2011, the compensation committee approved a
performance bonus of $74,883 under the performance review policy. |
|
(9) |
|
On January 3, 2011, the compensation committee approved a
performance bonus of $67,476 under the performance review policy. |
|
(10) |
|
On January 3, 2011, the compensation committee approved a
performance bonus of $37,312 under the performance review policy. |
-77-
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table sets forth the equity awards outstanding at
December 31, 2010 for each of the named executive officers.
Except as set forth in the footnotes to the following table,
each stock option is fully vested.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option Exercise
|
|
|
|
|
|
|
Unexercised Options
|
|
|
Unexercised Options
|
|
|
Price ($Cdn. or
|
|
|
Option Expiration
|
|
Name
|
|
(#) Exercisable
|
|
|
(#) Unexercisable
|
|
|
$U.S.)(1)
|
|
|
Date
|
|
|
Robert Kirkman
|
|
|
450,000
|
|
|
|
|
(2)
|
|
Cdn. $
|
7.38
|
|
|
|
August 29, 2014
|
|
|
|
|
103,153
|
|
|
|
34,384
|
(3)
|
|
Cdn. $
|
8.04
|
|
|
|
May 3, 2015
|
|
|
|
|
22,500
|
|
|
|
22,500
|
(4)
|
|
$
|
3.43
|
|
|
|
June 4, 2016
|
|
|
|
|
25,000
|
|
|
|
75,000
|
(5)
|
|
$
|
1.10
|
|
|
|
March 11, 2017
|
|
|
|
|
50,000
|
|
|
|
150,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
|
|
|
|
|
|
|
100,000
|
(7)
|
|
$
|
3.32
|
|
|
|
December 1, 2018
|
|
Julia Eastland
|
|
|
|
|
|
|
40,000
|
(8)
|
|
$
|
3.31
|
|
|
|
November 10, 2018
|
|
|
|
|
|
|
|
|
50,000
|
(7)
|
|
$
|
3.32
|
|
|
|
December 1, 2018
|
|
Shashi Karan(12)
|
|
|
5,000
|
|
|
|
5,000
|
(4)
|
|
$
|
3.43
|
|
|
|
April 3, 2011
|
|
|
|
|
1,875
|
|
|
|
5,625
|
(5)
|
|
$
|
1.10
|
|
|
|
April 3, 2011
|
|
|
|
|
|
|
|
|
50,000
|
(6)
|
|
$
|
4.71
|
|
|
|
April 3, 2011
|
|
Gary Christianson
|
|
|
12,500
|
|
|
|
4,166
|
(9)
|
|
Cdn. $
|
6.72
|
|
|
|
June 29, 2015
|
|
|
|
|
7,500
|
|
|
|
7,500
|
(4)
|
|
$
|
3.43
|
|
|
|
June 4, 2016
|
|
|
|
|
7,500
|
|
|
|
22,500
|
(5)
|
|
$
|
1.10
|
|
|
|
March 11, 2017
|
|
|
|
|
25,000
|
|
|
|
75,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
|
|
|
|
|
|
|
50,000
|
(7)
|
|
$
|
3.32
|
|
|
|
December 1, 2018
|
|
Diana Hausman
|
|
|
7,500
|
|
|
|
22,500
|
(10)
|
|
$
|
4.96
|
|
|
|
September 1, 2017
|
|
|
|
|
12,500
|
|
|
|
37,500
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
|
|
|
|
|
|
|
50,000
|
(7)
|
|
$
|
3.32
|
|
|
|
December 1, 2018
|
|
Scott Peterson
|
|
|
6,250
|
|
|
|
18,750
|
(11)
|
|
$
|
6.56
|
|
|
|
August 1, 2017
|
|
|
|
|
12,500
|
|
|
|
37,500
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
|
|
|
|
|
|
|
50,000
|
(7)
|
|
$
|
3.32
|
|
|
|
December 1, 2018
|
|
|
|
|
(1) |
|
In April 2008, the board of directors approved an amendment to
the Companys amended and restated share option plan, which
provided that the exercise price of any future grants would
equal the closing price of the Companys common stock
traded on The NASDAQ Global Market on the date of grant. Unless
otherwise indicated, all exercise prices are denominated in U.S.
dollars. |
|
(2) |
|
This stock option fully vests on August 29, 2009, and vests
at a rate of 1/3 annually on the anniversary of grant. |
|
(3) |
|
This stock option fully vests on May 3, 2011, and vests at
a rate of 1/4 annually on the anniversary of grant. |
|
(4) |
|
Except for Mr. Karans option, which ceased to vest on
October 5, 2010 (the date of his separation from
employment), this stock option fully vests on June 4, 2012,
and vests at a rate of 1/4 annually on the anniversary of grant. |
|
(5) |
|
Except for Mr. Karans option, which ceased to vest on
October 5, 2010 (the date of his separation from
employment), this stock option fully vests on March 11,
2013, and vests at a rate of 1/4 annually on the anniversary of
grant. |
|
(6) |
|
Except for Mr. Karans option, which ceased to vest on
October 5, 2010 (the date of his separation from
employment), this stock option fully vests on December 3,
2013, and vests at a rate of 1/4 annually on the anniversary of
grant. |
|
(7) |
|
This stock option fully vests on December 1, 2014, and 1/4
vests on the first anniversary of grant, with the balance
vesting in monthly increments for 36 months following the
first anniversary of grant. |
|
(8) |
|
This stock option fully vests on September 7, 2014, and 1/4
vests on September 7, 2011, with the balance vesting in
monthly increments for 36 months following
September 7, 2011. |
-78-
|
|
|
(9) |
|
This stock option fully vests on June 29, 2011, and vests
at a rate of 1/4 annually on the anniversary of grant. |
|
(10) |
|
This stock option fully vests on September 1, 2013, and
vests at a rate of 1/4 annually on the anniversary of grant. |
|
(11) |
|
This stock option fully vests on August 1, 2013, and vests
at a rate of 1/4 annually on the anniversary of grant. |
|
(12) |
|
Separated from employment on October 5, 2010. In accordance
with the separation agreement by and between us and
Mr. Karan, only options vested as of October 5, 2010
were exercisable as of December 31, 2010, and options may
only be exercised for up to 180 days from the separation
date, or April 3, 2011. |
Option Exercises
and Stock Vested
None of our named executive officers exercised stock options
during 2010. We have not granted any stock awards to date.
Employment
Agreements and Offer Letters
Unless stated otherwise, all compensation data in the section
below are expressed in U.S. dollars.
Employee
Benefit Plans
Our share option plan, in which our employees and officers
participate, provides for the acceleration of vesting of awards
in connection with or following a change in control of the
company. A change in control shall be deemed to have
occurred if (i) our board of directors passes a resolution
to the effect that, for purposes of the share option plan, a
change in control has occurred or (ii) any person or any
group of two or more persons acting jointly or in concert
becomes the beneficial owner, directly or indirectly, or
acquires the right to control or direct, twenty-five (25)% per
cent or more of our outstanding voting securities or any
successor entity in any manner, including without limitation as
a result of a takeover bid or an amalgamation with any other
corporation or any other business combination or reorganization.
See Share Option Plan included elsewhere
in this Annual Report on
Form 10-K.
Robert
Kirkman
On August 29, 2006, we entered into an offer letter with
Robert Kirkman, M.D., our president and chief executive
officer. In consideration for his services, Dr. Kirkman was
initially entitled to receive a base salary of $320,000 per
year, subject to increases as may be approved by the
compensation committee. In January 2008, Dr. Kirkmans
base salary was increased to $375,000 for 2008.
Dr. Kirkmans base salary remained at $375,000 for
2009, but was increased to $386,250 for 2010. On January 3,
2011, the compensation committee increased
Dr. Kirkmans salary to $398,000 for 2011.
Dr. Kirkman is also entitled to receive a performance bonus
of up to 50% of his base salary based on his achievement of
predetermined objectives and on January 3, 2010,
Dr. Kirkman received a performance bonus of $135,188. In
addition, the compensation committee may award, in its sole
discretion, Dr. Kirkman additional performance bonuses in
recognition of his performance and on March 6, 2009,
Dr. Kirkman received a special bonus of $120,000 for the
successful completion of our December 2008 transaction with
Merck KGaA.
In accordance with the offer letter of August 29, 2006,
Dr. Kirkman was granted an option to purchase
450,000 shares of our common stock at a price of Cdn.$7.38
per share. As a result of the ProlX acquisition, which we
completed in October 2006, and the financing we completed in
December 2006, on May 3, 2007, Dr. Kirkman was granted
an additional option to purchase 137,537 shares of our
common stock on May 3, 2007 at an exercise price of
Cdn.$8.04, in connection with the terms of his offer letter,
under which he was
-79-
eligible to receive an additional option award to purchase a
number of shares equal to 3% of any shares issued during his
first year of employment with us and all of his options will
vest if there is a change of control transaction.
In December 2009, we entered into an amendment to
Dr. Kirkmans offer letter. Pursuant to the terms of
the amendment, Dr. Kirkman will receive the following
benefits if we undergo a change of control transaction (as
defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of two years base salary, less required
withholding; and
|
|
|
lump sum payment of two years equivalent of performance
review bonus at target, less required withholding.
|
Additionally, if Dr. Kirkman is terminated without cause
(as defined in the December 2009 amendment), he will receive the
following benefits:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Shashi
Karan
We entered into an offer letter dated March 24, 2008 with
Shashi Karan, our former corporate controller and corporate
secretary. In consideration for his services, Mr. Karan was
initially entitled to receive a base salary of $150,000 per
year, subject to increases as may be approved by the
compensation committee. In March 2009 and December 2009,
Mr. Karans base salary was increased to $165,000 for
2009 and $175,000 for 2010, respectively. Mr. Karan was
also entitled to receive a performance bonus of up to 20% of his
base salary based on his achievement of predetermined
objectives. On October 5, 2010, Mr. Karan resigned as
our corporate controller and corporate secretary and, thus, he
did not receive a performance bonus for 2010.
Under the terms of a separation agreement dated October 5,
2010, which we entered into with Mr. Karan, Mr. Karan
was paid a lump sum payment of $43,750, which is equivalent to
three months base salary, less required withholding.
Julia
Eastland
We are parties to an offer letter dated August 17, 2010
with Julia Eastland, our chief financial officer, secretary and
vice president, corporate development. In consideration for her
services, Ms. Eastland was initially entitled to receive a
base salary of $250,000 per year, subject to increases as may be
approved by the compensation committee. In January 2011, Ms
Eastlands base salary was increased to $252,500 for 2011.
Ms. Eastland is also entitled to receive a performance
bonus of up to 30% of her base salary based on her achievement
of predetermined objectives and on January 3, 2011,
Ms. Eastland received a performance bonus of $25,000, which
represented a bonus paid at target and pro-rated for her length
of service during 2010.
In accordance with the offer letter, Ms. Eastland was
granted an option to purchase 40,000 shares of our common
stock at a price of $3.31 per share and 100% of these shares
will vest if there is a change of control transaction.
Pursuant to the terms of the offer letter, Ms. Eastland
will receive the following benefits if we undergo a change of
control transaction (as defined in the share option plan), in
addition to the stock option vesting acceleration described
above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
-80-
Additionally, if Ms. Eastland is terminated without cause
(as defined in the offer letter), she will receive the following
benefits:
|
|
|
lump sum payment of nine months base salary, less required
withholding; and
|
|
|
lump sum payment of nine months equivalent of performance
review bonus at target, less required withholding.
|
Gary
Christianson
We are parties to an offer letter dated June 29, 2007 with
Gary Christianson, our chief operating officer. In consideration
for his services, Mr. Christianson was initially entitled
to receive a base salary of $240,000 per year, subject to
increases as may be approved by the compensation committee. In
January 2008, March 2009 and December 2009,
Mr. Christiansons base salary was increased to
$247,200 for 2008, $250,000 for 2009 and $275,000 for 2010,
respectively. In January 2011, Mr. Christiansons base
salary was increased to $283,250 for 2011. Mr. Christianson
is also entitled to receive a performance bonus of up to 35% of
his base salary based on his achievement of predetermined
objectives and on January 3, 2011, Mr. Christianson
received a performance bonus of $74,883. In addition, the
compensation committee may award, in its sole discretion,
Mr. Christianson additional performance bonuses in
recognition of his performance and on March 6, 2009,
Mr. Christianson received a special bonus of $20,000 for
the successful completion of our December 2008 transaction with
Merck KGaA.
In accordance with the offer letter of June 29, 2007,
Mr. Christianson was granted an option to purchase
16,666 shares of our common stock at a price of Cdn.$6.72
per share and 100% of these shares will vest if there is a
change of control transaction.
In December 2009, we entered into an amendment to
Mr. Christiansons offer letter. Pursuant to the terms
of the amendment, Mr. Christianson will receive the
following benefits if we undergo a change of control transaction
(as defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Additionally, if Mr. Christianson is terminated without
cause (as defined in the June 2007 offer letter), he will
receive the following benefits:
|
|
|
lump sum payment of nine months base salary, less required
withholding;
|
|
|
lump sum payment of nine months equivalent of performance
review bonus at target, less required withholding; and
|
|
|
health insurance coverage for a period of nine months.
|
Diana
Hausman
We are parties to an offer letter dated July 6, 2009 with
Diana Hausman, M.D., our vice president of clinical
development. In consideration for her services, Dr. Hausman
was initially entitled to receive a base salary of $290,000 per
year, subject to increases as may be approved by the
compensation committee. In December 2009,
Dr. Hausmans base salary was increased to $298,700
for 2010. In January 2011, Dr. Hausmans base salary
was increased to $307,750 for 2011. Dr. Hausman is also
entitled to receive a performance bonus of up to 30% of her base
salary based on her achievement of predetermined objectives and
on January 3, 2011, Dr. Hausman received a performance
bonus of $67,476.
In accordance with the offer letter of July 6, 2009,
Dr. Hausman was granted an option to purchase
30,000 shares of our common stock at a price of $4.96 per
share and 100% of these shares will vest if there is a change of
control transaction.
-81-
In December 2009, we entered into an amendment to
Dr. Hausmans offer letter. Pursuant to the terms of
the amendment, Dr. Hausman will receive the following
benefits if we undergo a change of control transaction (as
defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Additionally, if Dr. Hausman is terminated without cause
(as defined in the July 2009 offer letter), she will receive the
following benefits:
|
|
|
lump sum payment of six months base salary, less required
withholding; and
|
|
|
lump sum payment of six months equivalent of performance
review bonus at target, less required withholding.
|
Scott
Peterson
We are parties to an offer letter dated June 4, 2009 with
Scott Peterson, Ph.D., our vice president of research and
development. In consideration for his services,
Dr. Peterson was initially entitled to receive a base
salary of $175,000 per year, subject to increases as may be
approved by the compensation committee. In December 2009,
Dr. Petersons base salary was increased to $180,250
for 2010. In January 2011, Dr. Petersons base salary
was increased to $200,000 for 2011. Dr. Peterson is also
entitled to receive a performance bonus of up to 25% of his base
salary based on his achievement of predetermined objectives and
on January 3, 2011, Dr. Peterson received a
performance bonus of $37,312. In January 2011, the compensation
committee increased Dr. Petersons target performance
bonus percentage from 25% to 30% for 2011.
In accordance with the offer letter of June 4, 2009,
Dr. Peterson was granted an option to purchase
25,000 shares of our common stock at a price of $6.56 per
share and 100% of these shares will vest if there is a change of
control transaction.
In December 2009, we entered into an amendment to
Dr. Petersons offer letter. Pursuant to the terms of
the amendment, Dr. Peterson will receive the following
benefits if we undergo a change of control transaction (as
defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Potential
Payments Upon Termination or Change in Control
The tables below describe the payments and benefits our named
executive officers would be entitled to receive assuming the
occurrence on December 31, 2010 of either a change of
control transaction or termination of their employment without
cause (as defined below). For additional details
regarding the payments and benefits our named executive officers
are entitled to, please see Employment
Agreements and Offer Letters included elsewhere in this
Annual Report on
Form 10-K.
Robert L.
Kirkman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Robert L. Kirkman
|
|
$
|
162,000
|
|
|
$
|
1,158,750
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
579,375
|
|
|
$
|
|
|
-82-
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Dr. Kirkman on
December 31, 2010, assuming a stock price of $3.26 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2010. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
two times Dr. Kirkmans base salary for 2010 plus two
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Dr. Kirkman signs a separation agreement
in a form reasonably satisfactory to us, which shall include a
general release of all claims against us. |
|
(3) |
|
For purposes of Dr. Kirkmans offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of him at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform his duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Dr. Kirkman is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
Dr. Kirkmans base salary for 2010 plus one
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
termination other than for cause, subject to any payment delay
in order to comply with Section 409A of the Internal
Revenue Code. |
Shashi
Karan
Mr. Karan separated from employment in October 2010. Under
the terms of a separation and release agreement, we made a lump
sum payment to Mr. Karan in an amount equal to three
months base salary, or $43,750. We also continued to pay
Mr. Karans COBRA premiums through December 31,
2010, or an aggregate amount of $511. Under the agreement, all
of Mr. Karans options ceased to vest as of
October 5, 2010, and remain exercisable for up to
180 days following the date of separation.
Julia
Eastland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Julia Eastland
|
|
$
|
|
|
|
$
|
325,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
243,750
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Ms. Eastland on
December 31, 2010, assuming a stock price of $3.26 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2010. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Ms. Eastlands base salary for 2010 plus one
years equivalent of her performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Ms. Eastland signs a separation
agreement in a form reasonably satisfactory to us, which shall
include a general release of all claims against us. |
-83-
|
|
|
(3) |
|
For purposes of Ms. Eastlands offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of her at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform her duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Ms. Eastland is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
nine months of Ms. Eastlands base salary for 2010
plus nine months equivalent of her performance review
bonus at target. |
Gary
Christianson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Gary Christianson
|
|
$
|
48,600
|
|
|
$
|
371,250
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
278,437
|
|
|
$
|
9,196
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by
Mr. Christianson on December 31, 2010, assuming a
stock price of $3.26 per share, the last reported sale price of
our common stock on The NASDAQ Global Market on
December 31, 2010. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Mr. Christiansons base salary for 2010 plus one
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Mr. Christianson signs a separation
agreement in a form reasonably satisfactory to us, which shall
include a general release of all claims against us. |
|
(3) |
|
For purposes of Mr. Christiansons offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of him at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform his duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Mr. Christianson is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
nine months of Mr. Christiansons base salary for 2010
plus nine months equivalent of his performance review
bonus at target. If Mr. Christianson is a specified
employee within the meaning of Section 409A of the
Internal Revenue Code and any final regulations and official
guidance promulgated thereunder, at the time of his separation
from service, then, if required, the amounts shown in this
column, which are otherwise due on or within the six-month
period following the separation from service will accrue, to the
extent required, during such six-month period and will become
payable in a lump sum payment six months and one day following
the date of separation from service. |
-84-
Diana
Hausman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Diana Hausman
|
|
$
|
|
|
|
$
|
388,310
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
194,155
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Dr. Hausman on
December 31, 2010, assuming a stock price of $3.26 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2010. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Dr. Hausmans base salary for 2010 plus one
years equivalent of her performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Dr. Hausman signs a separation agreement
in a form reasonably satisfactory to us, which shall include a
general release of all claims against us. |
|
(3) |
|
For purposes of Dr. Hausmans offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of her at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform her duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Dr. Hausman is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
six months of Dr. Hausmans base salary for 2010 plus
six months equivalent of her performance review bonus at
target. |
Scott
Peterson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
Name
|
|
Equity Acceleration(1)
|
|
Salary(2)
|
|
Insurance Benefits
|
|
Scott Peterson
|
|
$
|
|
|
|
$
|
225,313
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Dr. Peterson on
December 31, 2010, assuming a stock price of $3.26 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2010. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Dr. Petersons base salary for 2010 plus one
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Dr. Peterson signs a separation
agreement in a form reasonably satisfactory to us, which shall
include a general release of all claims against us. |
Share Option
Plan
Our board of directors adopted our share option plan on
December 9, 1992 and our stockholders approved it on
May 26, 1993. Our share option plan was amended and
restated as of May 3, 2007, April 3, 2008 and
October 22, 2009. Unless further amended by our
stockholders, our share option plan will terminate on
May 3, 2017. Our share option
-85-
plan provides for the grant of nonstatutory stock options to
selected employees, directors and persons or companies engaged
to provide ongoing management or consulting services for us, or
any entity controlled by us. The employees, directors and
consultants who have been selected to participate in our share
option plan are referred to below as participants.
Share
Reserve
The total number of shares of common stock issuable pursuant to
options granted under our share option plan shall, at any time,
be 10% of our issued and outstanding shares of common stock. We
had reserved a total of 3,008,862 shares of our common
stock for issuance pursuant to our share option plan as of
December 31, 2010. As of December 31, 2010, options to
purchase 2,075,025 shares of our common stock were
outstanding and 933,837 shares of our common stock were
available for future grant under our share option plan.
Administration
The compensation committee of our board of directors administers
our share option plan. Under our share option plan, the plan
administrator has the power, subject to certain enumerated
restrictions in our share option plan, to determine the terms of
the awards, including the employees, directors and consultants
who will receive awards, the exercise price of the award, the
number of shares subject to each award, the vesting schedule and
exercisability of each award and the form of consideration
payable upon exercise.
In addition, the compensation committee has delegated to the new
employee option committee the authority to approve grants of
stock options to newly hired employees who are not our chief
executive officer, president, chief financial officer (or
principal financial officer, if no person holds the office of
chief financial officer), vice president or a Section 16
officer (as determined pursuant to the rules promulgated under
the Securities Exchange Act of 1934). The new employee option
committee is composed of our chief executive officer, our
principal financial officer and our head of human resources. The
new employee option committee meets during the last full week of
each month and may only grant stock option awards. The stock
options granted by the new employee option committee must have
an exercise price equal to the closing sales price of our common
stock as reported by The NASDAQ Global Market on the last
trading day of the month in which such grants were approved.
These grants must fall within a predetermined range approved by
the compensation committee and may not deviate from the standard
vesting terms (i.e., awards vest over a four year period, with
25% of the shares subject to an award vesting on the first
anniversary of the optionees commencement of employment
and the balance vesting in equal monthly increments for
36 months following the first anniversary of the
commencement of employment).
Share
Options
The exercise price of the shares subject to options granted
under our share option plan shall be determined by our
compensation committee or board of directors, but shall not be
less than the fair market value of the shares. Generally, the
exercise price will be the closing price of our common stock on
the day of the option grant. Until April 3, 2008, for
purposes of our share option plan, the fair market value meant
the closing price of our common stock as reported by the Toronto
Stock Exchange on the day preceding the day on which the option
is granted. If no trade of shares of our common stock was
reported on the Toronto Stock Exchange that day, then the fair
market value was not less than the mean of the bid and ask
quotations for our common stock on the Toronto Stock Exchange at
the close of business on such preceding day. On April 3,
2008, our board of directors amended our option plan to provide
that options granted pursuant to the plan be priced at the
closing price of our shares of common stock on The NASDAQ Global
Market on the day of
-86-
the option grant. If the grant date would otherwise occur during
a closed quarterly trading window under our insider trading
policy, the compensation committee or board of directors will
identify a future date as the grant date (which typically will
be the first day the trading window opens after a closed
quarterly trading window). Effective October 22, 2009, in
connection with our voluntary delisting from the Toronto Stock
Exchange, the share option plan was amended and restated to
remove references to the Toronto Stock Exchange and to make
certain other housekeeping changes necessitated by the voluntary
delisting.
Termination of
Service Provider Relationship
Upon the termination without cause of a participants
employment or service with us (or any of our subsidiaries),
other than a termination due to death or retirement (as such
terms are defined in our share option plan), the
participants option will continue to vest and may be
exercised at any time up to and including, but not after, the
date which is 180 days after the date of the termination or
the date prior to the close of the business on the expiry date
of the option, whichever is the earlier. If termination is for
cause, the option will immediately terminate in its entirety. An
option may never be exercised after the expiration of its term.
For our president or any of our vice presidents, in the event of
a termination of the participants service or employment
with us (or any of our subsidiaries) without cause, any option
granted to the participant will continue to vest and may be
exercised at any time up to and including, but not after, the
date which is the second anniversary of the date of his or her
termination or the date before the close of business on the
expiry date of his or her option, whichever is the earlier.
In the event of the retirement, as such term is defined in our
share option plan, of the participant while in the employment of
us (or any of our subsidiaries), any option granted to the
participant will continue to vest and may be exercised by the
participant in accordance with the terms of the option at any
time up to and including, but not after, the expiry date of the
option.
In the event of the death of the participant while in the
employment or service of us (or any of our subsidiaries), the
option will continue to vest and may be exercised by a legal
representative of the participant at any time up to and
including, but not after, the date which is 180 days after
the date of the death of the optionee or before the close of
business on the expiry date of the option, whichever is earlier.
Effect of a
Change in Control
Our share option plan provides that, if a change in control
occurs, as such term is defined in our share option plan,
including our merger with or into another corporation or the
sale of all or substantially all of our assets, or if there is
an offer to purchase, a solicitation of an offer to sell, or an
acceptance of an offer to sell our shares of common stock made
to all or substantially all of the holders of shares of common
stock, a participant, who at the time of the change of control
is an employee, director or service provider, shall have the
right to immediately exercise his or her option as to all shares
of common stock subject to such option, including as to those
shares of common stock with respect to which such option cannot
be exercised immediately prior to the occurrence of the change
of control, and the participant shall have 90 days from the
date of the change of control to exercise his or her option
(unless the option expires prior to such date).
Transferability
Unless otherwise determined by the plan administrator, our share
option plan generally does not allow for the sale or transfer of
awards under our share option plan other than by will or the
laws of descent and distribution, and awards may be exercised
only during the
-87-
lifetime of the participant and only by that participant or by
the participants legal representative for up to
180 days following the participants death.
Additional
Provisions
Our board of directors has the authority to amend (subject to
stockholder approval in some circumstances) or discontinue our
share option plan, so long as that action does not materially
and adversely affect any option rights granted to a participant
without the written consent of that participant.
During the period January 1 to December 31, 2010, options
to purchase 449,500 shares of common stock were granted
under our share option plan at a weighted average exercise price
of $3.36 per share.
Restricted Share
Unit Plan
Our board of directors adopted our restricted share unit plan on
May 18, 2005 and our stockholders approved it on
May 18, 2005. Our restricted share unit plan was amended
and restated as of June 12, 2009 to add additional shares
to the plan and again as of October 22, 2009 to remove
references to the Toronto Stock Exchange and make certain other
housekeeping changes necessitated by our voluntary delisting
from the TSX. Our restricted share unit plan provides for the
grant of restricted share units to non-employee members of our
board of directors. The directors who receive restricted share
units under our restricted share unit plan are referred to below
as participants.
Share
Reserve
We have reserved a total of 466,666 of our shares of common
stock for issuance pursuant to our restricted share unit plan.
As of December 31, 2010, grants covering
217,198 shares of our common stock were outstanding,
220,341 shares of our common stock were available for
future grant under our restricted share unit plan and
29,127 shares had been issued upon conversion of RSUs.
Administration
The corporate governance and nominating committee of our board
of directors administers our restricted share unit plan. Under
our restricted share unit plan, the plan administrator has the
power, subject to certain enumerated restrictions in our
restricted share unit plan, to determine the terms of the
grants, including the directors who will receive grants, the
grant period (as such term is defined in our restricted share
unit plan) of any awards, and any applicable vesting terms in
order for the restricted share units to be issued, and such
other terms and conditions as the board of directors deems
appropriate.
Each grant of restricted share units will be evidenced by a
written notice, which we call the notice of grant, with such
notice, in connection with our restricted share unit plan,
governing the terms and conditions of the grant. Each notice of
grant will state the number of restricted share units granted to
the participant and state that each restricted share unit,
subject to and in accordance with the terms of our restricted
share unit plan, will entitle the participant to receive one
share of our common stock in settlement of a restricted share
unit granted pursuant to our restricted share unit plan.
Right to
Restricted Share Units in the event of Death, Retirement, or
Resignation
In the event of the death of a participant while a director of
us, and with respect to each grant of restricted share units for
which the grant period has not ended and for which the
restricted share units have not been otherwise issued prior to
the date of death, all unvested restricted share units will
immediately vest and the shares of our common stock subject to
such restricted share units will be issued by the later of the
end of the calendar
-88-
year of the date of death, or by the 15th day of the third
calendar month following the participants date of death.
In the event the participants service as a director
terminates for any reason other than death, and provided such
participant is not a specified employee (as such term is defined
in our restricted share unit plan) on the date of his or
termination, with respect to the restricted share units as to
which the release date (as such term is defined in our
restricted share unit plan) has not occurred, and for which
shares of our common stock have not been issued, the participant
will receive such shares as if the grant period had ended and
such shares will be issued by the later of the end of the
calendar year of the date of termination or by the 15th day
of the third calendar month following the date of the
termination. If the participant is a specified employee on the
date of his or her termination, and if such termination is for
any reason other than death, with respect to the restricted
share units as to which the release date has not occurred, and
for which shares of our common stock have not been issued, the
participant will receive such shares as if the grant period had
ended and such shares will be delivered by the 30th day of
the date following the date which is six months following the
participants date of termination.
Effect of a
Change in Control
In the event of a change in control (as such term is defined in
our restricted share unit plan), with respect to all grants of
restricted share units that are outstanding as of the date of
such change in control, all unvested restricted share units will
immediately vest and each participant who has received any such
grants will be entitled to receive, on the date that is ten
business days following the change in control date, an amount in
full settlement of each restricted share unit covered by the
grant. Such amount will be either one share of our common stock
for each restricted share unit, or if so specified in a written
election by the participant, a cash payment equal to the special
value (as such term is defined in our restricted share unit
plan) for each covered restricted share unit.
Transferability
The rights or interests of a participant under our restricted
share unit plan will not be assignable or transferable, other
than by will or the laws governing the devolution of property in
the event of death and such rights or interests will not be
encumbered.
Additional
Provisions
Our board of directors has the authority to amend (subject to
stockholder approval in some circumstances), suspend or
terminate our restricted share unit plan in whole or in part
from time to time.
Risk Analysis of
Compensation Plans
The mix and design of the elements of executive compensation do
not encourage management to assume excessive risks. Any risks
arising from our compensation policies and practices for our
employees are not reasonably likely to have a material adverse
effect on the company.
The compensation committee extensively reviewed the elements of
executive compensation to determine whether any portion of
executive compensation encouraged excessive risk taking and
concluded:
|
|
|
significant weighting towards long-term incentive compensation
discourages short-term risk taking; and
|
|
|
several categories of goals generally apply, so that if any
particular goal is not achieved, then a disproportionate amount
of total compensation is not forfeited.
|
-89-
Compensation of
Directors
We pay our non-employee directors an annual cash fee of $50,000
for their service on our board of directors and its committees.
We also pay the chairman of our board an additional annual fee
of $50,000, the Chairman of our audit committee an additional
annual fee of $25,000, and the Chairmen of our other standing
committees of the board of directors an additional annual fee of
$5,000 each. In addition, each non-employee member of our board
is entitled to an annual restricted share unit grant equal to
$30,000 divided by the closing price of our common stock on The
NASDAQ Global Market on the date of grant. On March 11,
2009 and June 12, 2009, each board member (excluding
Dr. Williams who did not join the board of directors until
October 2009) received 19,352 RSUs and 2,076 RSUs,
respectively, for fiscal year 2008. On December 4, 2009
each board member was awarded 6,185 RSUs for fiscal year 2009.
On June 3, 2010 each board member was awarded 8,086 RSUs
for fiscal year 2010. Board members receive cash compensation in
U.S. dollars. We also reimburse our directors for travel
and other necessary business expenses incurred in the
performance of their services for us.
Fiscal Year
2010 Director Compensation
The following table sets forth compensation information for our
non-employee directors for the year ended December 31,
2010. The table excludes Dr. Kirkman who did not receive
any compensation from us in his role as director in the year
ended December 31, 2010. All compensation numbers are
expressed in U.S. dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
Stock
|
|
|
|
|
|
|
or Paid in
|
|
|
Awards ($)
|
|
|
|
|
Name
|
|
Cash ($)
|
|
|
(1)(2)(3)
|
|
|
Total ($)
|
|
|
Christopher Henney
|
|
$
|
105,000
|
|
|
$
|
30,000
|
|
|
$
|
135,000
|
|
Richard Jackson
|
|
|
55,000
|
|
|
|
30,000
|
|
|
|
85,000
|
|
Daniel Spiegelman
|
|
|
75,000
|
|
|
|
30,000
|
|
|
|
105,000
|
|
W. Vickery Stoughton
|
|
|
50,000
|
|
|
|
30,000
|
|
|
|
80,000
|
|
Douglas Williams
|
|
|
50,000
|
|
|
|
30,000
|
|
|
|
80,000
|
|
|
|
|
(1) |
|
These amounts represent the aggregate grant date fair value of
RSUs granted in 2010. |
|
(2) |
|
As of December 31, 2010, our non-employee directors held
RSUs and outstanding options to purchase the number of shares of
common stock as follows: Dr. Henney (53,602 options, 89,076
RSUs); Dr. Jackson (9,359 options, 39,076 RSUs);
Mr. Stoughton (12,136 options, 39,076 RSUs);
Mr. Spiegelman (zero options, 35,699 RSUs);
Dr. Williams (zero options, 14,271 RSUs). |
|
(3) |
|
Each RSU may be converted into one share of our common stock at
the end of the grant period, which is five years for each of the
RSUs granted prior to June 12, 2009 and two years for each
of the RSUs granted on or after June 12, 2009. |
-90-
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Equity
Compensation Plan Information as of December 31,
2010
The following table sets forth the securities authorized for
issuance under Oncothyreons equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C)
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Available for
|
|
|
(A)
|
|
|
|
Future Issuance
|
|
|
Number of
|
|
(B)
|
|
Under Equity
|
|
|
Securities to be
|
|
Weighted
|
|
Compensation
|
|
|
Issued Upon
|
|
Average
|
|
Plans
|
|
|
Exercise of
|
|
Exercise Price
|
|
(Excluding
|
|
|
Outstanding
|
|
of Outstanding
|
|
Securities
|
|
|
Options,
|
|
Options,
|
|
Reflected in
|
|
|
Warrants and
|
|
Warrants and
|
|
Column
|
Plan Category
|
|
Rights
|
|
Rights
|
|
(A))(1)
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share option plan ($Cdn.)(2)
|
|
|
815,275
|
|
|
$
|
8.24
|
|
|
|
|
|
Share option plan ($U.S.)(2)
|
|
|
1,259,750
|
|
|
$
|
3.71
|
|
|
|
933,837
|
|
RSU plan
|
|
|
217,198
|
|
|
|
N.A.
|
|
|
|
220,341
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
N.A.
|
|
|
|
|
|
Total
|
|
|
2,292,223
|
|
|
|
N.A.
|
|
|
|
1,154,178
|
|
|
|
|
(1) |
|
All of these are available for grants of restricted stock,
restricted share units and other full-value awards, as well as
for grants of stock options and stock appreciation rights. |
|
(2) |
|
Under the terms of the Amended and Restated Share Option Plan,
the total number of shares issuable pursuant to options under
the plan is 10% of the issued and outstanding shares. Shares
issued upon the exercise of options do not reduce the percentage
of shares which may be issuable pursuant to options under the
Plan. |
-91-
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding
beneficial ownership of our capital stock as of
February 28, 2011 by (i) each person known by us to be
the beneficial owner of more than 5% of any class of our voting
securities, (ii) each of our directors, (iii) each of
our named executive officers and (iv) our
directors and executive officers as a group, including shares
they had the right to acquire within 60 days after
February 28, 2011.
|
|
|
|
|
|
|
|
|
|
|
Common Stock Beneficially
Owned
|
|
Name of Beneficial
Owner(1)
|
|
Number of Shares(2)
|
|
|
Percent of Class(3)
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
Ayer Capital Management, LP(4)
|
|
|
1,617,059
|
|
|
|
5.37
|
%
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
Christopher Henney(5)
|
|
|
81,768
|
|
|
|
*
|
|
Richard Jackson(6)
|
|
|
17,525
|
|
|
|
*
|
|
W. Vickery Stoughton(7)
|
|
|
19,468
|
|
|
|
*
|
|
Daniel Spiegelman(8)
|
|
|
|
|
|
|
*
|
|
Douglas Williams(9)
|
|
|
|
|
|
|
*
|
|
Robert Kirkman(10)
|
|
|
683,986
|
|
|
|
2.22
|
%
|
Gary Christianson(11)
|
|
|
61,461
|
|
|
|
*
|
|
Shashi Karan(12)
|
|
|
16,975
|
|
|
|
*
|
|
Julia Eastland
|
|
|
|
|
|
|
*
|
|
Diana Hausman(13)
|
|
|
20,000
|
|
|
|
*
|
|
Scott Peterson(14)
|
|
|
22,109
|
|
|
|
*
|
|
All directors and executive officers as a group
(11 persons)(15)
|
|
|
923,292
|
|
|
|
2.98
|
%
|
|
|
|
* |
|
Represents less than 1% of class or combined classes. |
|
(1) |
|
Except as otherwise indicated, the address of each stockholder
identified is
c/o Oncothyreon
Inc., 2601 Fourth Avenue, Suite 500, Seattle, Washington
98121. Except as indicated in the other footnotes to this table,
each person named in this table has sole voting and investment
power with respect to all shares of stock beneficially owned by
that person. |
|
(2) |
|
Options and warrants exercisable within 60 days after
February 28, 2011 are deemed outstanding for the purposes
of computing the percentage of shares owned by that person, but
are not deemed outstanding for purposes of computing the
percentage of shares owned by any other person. |
|
(3) |
|
Based on 30,088,628 shares of common stock issued and
outstanding as of February 28, 2011. |
|
(4) |
|
Based on information of beneficial ownership as of
December 31, 2010, included in a Schedule 13G/A filed with
the SEC on February 15, 2011. The address of the Ayer
Capital Management, LP is 230 California St., Suite 600,
San Francisco, CA 94111. |
|
(5) |
|
Includes 53,602 shares of common stock that Dr. Henney
has the right to acquire under outstanding options exercisable
within 60 days after February 28, 2011. Shares
attributable to restricted stock units owned are not reflected
as none of the shares underlying the restricted stock units have
vested or will vest within 60 days after February 28,
2011. |
|
(6) |
|
Includes 9,359 shares of common stock that Dr. Jackson
has the right to acquire under outstanding options exercisable
within 60 days after February 28, 2011. Shares
attributable to restricted stock units owned are not reflected
as none of the shares |
-92-
|
|
|
|
|
underlying the restricted stock units have vested or will vest
within 60 days after February 28, 2011. |
|
(7) |
|
Includes 12,136 shares of common stock that
Mr. Stoughton has the right to acquire under outstanding
options exercisable within 60 days after February 28,
2011. Shares attributable to restricted stock units owned are
not reflected as none of the shares underlying the restricted
stock units have vested or will vest within 60 days after
February 28, 2011. |
|
(8) |
|
Shares attributable to restricted stock units owned are not
reflected as none of the shares underlying the restricted stock
units have vested or will vest within 60 days after
February 28, 2011. |
|
(9) |
|
Shares attributable to restricted stock units owned are not
reflected as none of the shares underlying the restricted stock
units have vested or will vest within 60 days after
February 28, 2011. |
|
(10) |
|
Includes 675,653 shares of common stock that
Dr. Kirkman has the right to acquire under outstanding
options exercisable within 60 days after February 28,
2011. |
|
(11) |
|
Includes 60,000 shares of common stock that
Mr. Christianson has the right to acquire under outstanding
options exercisable within 60 days after February 28,
2011. |
|
(12) |
|
Includes 6,875 shares of common stock that Mr. Karan
has the right to acquire under outstanding options exercisable
within 60 days after February 28, 2011. In accordance
with the separation agreement by and between us and
Mr. Karan, only options vested as of October 5, 2010
are exercisable, and options may only be exercised for up to
180 days from the separation date, or April 3, 2011. |
|
(13) |
|
Includes 20,000 shares of common stock that
Dr. Hausman has the right to acquire under outstanding
options exercisable within 60 days after February 28,
2011. |
|
(14) |
|
Includes 18,750 shares of common stock that
Dr. Peterson has the right to acquire under outstanding
options exercisable within 60 days after February 28,
2011. |
|
(15) |
|
Includes 856,375 shares of common stock that can be
acquired under outstanding options exercisable within
60 days after February 28, 2011. |
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
Certain
Relationships and Related Transactions
In addition to the arrangements described below, we have also
entered into the arrangements which are described where required
under the heading titled Part III
Item 11 Executive Compensation
Employment Agreements and Offer Letters and
Part III Item 11
Executive Compensation Potential Payments Upon
Termination or Change in Control included elsewhere in
this Annual Report on
Form 10-K.
Approval of
Related Party Transactions
We have adopted a formal, written policy that our executive
officers, directors (including director nominees), holders of
more than 5% of any class of our voting securities, or any
member of the immediate family of or any entities affiliated
with any of the foregoing persons, are not permitted to enter
into a related party transaction with us without the prior
approval or, in the case of pending or ongoing related party
transactions, ratification of our audit committee. For purposes
of our policy, a related party transaction is a transaction,
arrangement or relationship where the company was, is or will be
involved and in which a related party had, has or will have a
direct or indirect material interest. Certain transactions with
related parties, however, are excluded from the definition of a
related party transaction including, but not limited to
(i) transactions involving the purchase or sale of products
or services in the ordinary course of business, not exceeding
$20,000, (ii) transactions where a related partys
interest derives solely from his or her service as a director of
another entity that is a party to the transaction,
(iii) transactions where a
-93-
related partys interest derives solely from his or her
ownership of less than 10% of the equity interest in another
entity that is a party to the transaction, and
(iv) transactions where a related partys interest
derives solely from his or her ownership of a class of our
equity securities and all holders of that class received the
same benefit on a pro rata basis. No member of the audit
committee may participate in any review, consideration or
approval of any related party transaction where such member or
any of his or her immediate family members is the related party.
In approving or rejecting the proposed agreement, our audit
committee shall consider the relevant facts and circumstances
available and deemed relevant to the audit committee, including,
but not limited to (i) the benefits and perceived benefits
to the company, (ii) the materiality and character of the
related partys direct and indirect interest,
(iii) the availability of other sources for comparable
products or services, (iv) the terms of the transaction,
and (v) the terms available to unrelated third parties
under the same or similar circumstances. In reviewing proposed
related party transactions, the audit committee will only
approve or ratify related party transactions that are in, or not
inconsistent with, the best interests of the company and our
stockholders. We have determined that there were no new related
party transactions to disclose in 2010.
Indebtedness
of Directors and Officers
None of our or any of our subsidiaries current or former
directors or executive officers is indebted to us or any our
subsidiaries, nor are any of these individuals indebted to
another entity which indebtedness is the subject of a guarantee,
support agreement, letter of credit or other similar arrangement
or understanding provided by us, or any of our subsidiaries. One
non-executive employee is indebted to us for approximately
$127,000 (excluding accrued and unpaid interest). As of
December 31, 2010, an allowance for the remaining balance
on the loan was recorded. For more information, see
Note 4 Notes Receivable, Employees.
None of our directors, executive officers, or associates of any
of them, is, or, at any time since the beginning of the most
recently completed financial year has been, indebted to us or
any of our subsidiaries, to another entity which indebtedness is
the subject of a guarantee, support agreement, letter of credit
or other similar arrangement or understanding provided by us or
any of our subsidiaries, or pursuant to any stock purchase
program or any other program.
Determinations
Regarding Director Independence
The board of directors has determined that each of our current
directors, except Dr. Kirkman, is an independent
director as that term is defined in NASDAQ Marketplace
Rule 5605(a)(2). The independent directors generally meet
in executive session at each quarterly board of directors
meeting.
The board of directors has also determined that each member of
the audit committee, the compensation committee, and the
corporate governance and nominating committee meets the
independence standards applicable to those committees prescribed
by the NASDAQ, the SEC, and the Internal Revenue Service.
Finally, the board of directors has determined that
Mr. Spiegelman, the chairman of the audit committee, is an
audit committee financial expert as that term is
defined in Item 407(d)(5) of
Regulation S-K
promulgated by the SEC.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services
|
In November 2010, we transitioned services from
Deloitte & Touche LLP, the independent registered
public accounting firm previously engaged to audit the
Companys consolidated financial statements and engaged
Ernst & Young LLP as the Companys registered
independent public accounting firm.
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Fees Billed to Us
by Ernst & Young LLP and Deloitte & Touche
LLP during Fiscal 2010
Audit
Fees
Fees and related expenses for the 2010 integrated audit by
Ernst & Young LLP totaled $257,000, of which $82,000
was billed to us in 2010.
Fees and related expenses for the 2009 audit by
Deloitte & Touche LLP of our annual financial
statements, its review of the financial statements included in
our 2010 and 2009 quarterly reports and other services that are
provided in connection with statutory and regulatory filings
totaled $243,325 and $412,407, respectively.
Audit-Related
Fees
For the years 2010 and 2009, Deloitte & Touche LLP
billed us $250,684 and $66,272, respectively, for its services
related to financings, acquisitions, consultations on accounting
issues, and other audit-related matters.
Tax
Fees
For the years 2010 and 2009, Deloitte & Touche LLP
billed us $50,430 and $230,381, respectively, for professional
services related to preparation of our tax returns and tax
consulting.
All Other
Fees
For the years 2010 and 2009, Deloitte & Touche LLP
billed us $219,907 and $126,572, respectively, for other
services related primarily to our efforts to monetize the tax
losses in our Canadian subsidiary, Oncothyreon Canada Inc.
Policy on Audit
Committee Pre Approval of Fees
In its pre-approval policy, the audit committee has authorized
our chief executive officer or our chief financial officer to
engage the services of Ernst & Young LLP with respect
to items one through three and Deloitte & Touche LLP
with respect to item four below:
|
|
|
audit related services that are outside the scope of our annual
audit and generally are (i) required on a project,
recurring, or on a one-time basis, (ii) requested by one of
our business partners (e.g., a review or audit of royalty
payments), or (iii) needed by us to assess the impact of a
proposed accounting standard;
|
|
|
audits of the annual statutory financial statements required by
the
non-U.S. governmental
agencies for our overseas subsidiaries;
|
|
|
accounting services related to potential or actual acquisitions
or investment transactions that if consummated would be
reflected in our financial results or tax returns (this does not
include any due diligence engagements, which must be
pre-approved by the audit committee separately); and
|
|
|
other accounting and tax services, such as routine consultations
on accounting
and/or tax
treatments for contemplated transactions.
|
Notwithstanding this delegation of authorization, the audit
committee pre-approves all audit and non-audit related services
performed by Ernst & Young LLP and
Deloitte & Touche LLP. On an annual basis prior to the
completion of the audit, the audit committee will review a
listing prepared by management of all proposed non-audit
services to be performed by the external auditor for the
upcoming fiscal year, such listing to include scope of activity
and estimated budget amount. The audit committee, if satisfied
with the appropriateness of the services, will provide
pre-approval of such services. If non-audit services are
required subsequent to the annual pre-approval of services,
management will seek approval of such services at the next
regularly scheduled audit committee meeting. If such services
are required prior to the next audit committee meeting,
management will
-95-
confer with the audit committee chairman regarding either
conditional approval subject to full audit committee
ratification or the necessity to reconvene a meeting. The audit
committee has considered the non-audit services provided to us
by our independent registered public accountants and has
determined that the provision of such services is compatible
with their independence.
All audit-related, tax and other fees were approved by the audit
committee.
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of this
Annual Report on
Form 10-K:
1. Financial Statements:
The consolidated financial statements of the Company are
contained in Item 8 of this annual report on
Form 10-K.
2. Financial Statement Schedules:
All financial statement schedules have been omitted because the
required information is either included in the financial
statements or notes thereto, or is not applicable.
3. Exhibits:
The exhibits required by Item 601 of
Regulation S-K
are listed in paragraph (b) below.
(b) Exhibits:
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the SEC:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1(a)
|
|
Agreement and Plan of Reorganization among ProlX Pharmaceuticals
Corporation, D. Lynn Kirkpatrick, Garth Powis and Biomira Inc.,
dated October 30, 2006 (incorporated by reference from
Exhibit 2.1 to Registration Statement on
Form S-4/A
filed on October 29, 2007).
|
|
2
|
.1(b)
|
|
Amendment No. 1 to Agreement and Plan of Reorganization
dated November 7, 2007 (incorporated by reference from
Exhibit 2.1(b) to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 filed on
May 6, 2010).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Oncothyreon
Inc. (incorporated by reference from Exhibit 3.1 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
|
3
|
.2
|
|
Bylaws of Oncothyreon Inc. (incorporated by reference from
Exhibit 3.1 to Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2009 filed on
August 14, 2009).
|
|
4
|
.1
|
|
Form of registrants common stock certificate.
(incorporated by reference from Exhibit 4.1 to Registration
Statement on
Form S-4/A
filed on September 27, 2007).
|
|
4
|
.2
|
|
Registration Rights Agreement, dated July 6, 2010 between
Oncothyreon Inc. and Small Cap Biotech Value, Ltd (incorporated
by reference from Exhibit 4.1 to Current Report on
Form 8-K
filed on July 7, 2010).
|
|
4
|
.3
|
|
Registration Rights Agreement, dated September 28, 2010 by
and among Oncothyreon Inc. and the signatories thereto
(incorporated by reference to Exhibit 4.1 to Current Report
on
Form 8-K,
filed on September 27, 2010).
|
|
10
|
.1*
|
|
Form of Indemnification Agreement (incorporated by reference
from Exhibit 10.1 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
-96-
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.2
|
|
License Agreement between Biomira Inc. and the Dana-Farber
Cancer Institute, Inc., dated November 22, 1996
(incorporated by reference from Exhibit 10.6 to
Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.3
|
|
Amended and Restated License Agreement between Imperial Cancer
Research Technology Limited and Biomira Inc., dated
November 14, 2000 (incorporated by reference from
Exhibit 10.11 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
|
10
|
.4
|
|
Consent and Acknowledgement among Biomira Inc., Biomira
International Inc., Biomira Europe B.V., Imperial Cancer
Research Technology Limited and Merck KGaA, dated
February 5, 2002 (incorporated by reference from
Exhibit 10.13 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.5
|
|
License Agreement between the Governors of the University of
Alberta and Biomira Inc., dated December 1, 2001
(incorporated by reference from Exhibit 10.14 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
|
10
|
.6
|
|
Letter Agreement between Biomira Inc. and Cancer Research
Technology Limited (formerly Imperial Cancer Research Technology
Limited), dated March 9, 2004 (incorporated by reference
from Exhibit 10.16 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
|
10
|
.7
|
|
Exclusive License Agreement between the University of Arizona
and ProlX Pharmaceuticals Corporation, dated July 29, 2004
(incorporated by reference from Exhibit 10.18 to
Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.7(a)
|
|
First Amendment to Exclusive License Agreement between
University of Arizona and Oncothyreon Inc., dated
September 27, 2010.
|
|
10
|
.8
|
|
Adjuvant License Agreement between Biomira International Inc.
and Corixa Corporation, dated October 20, 2004
(incorporated by reference from Exhibit 10.19 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
|
10
|
.9
|
|
Adjuvant Supply Agreement between Biomira International Inc. and
Corixa Corporation, dated October 20, 2004 (incorporated by
reference from Exhibit 10.20 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
|
10
|
.10
|
|
Exclusive Patent License Agreement between the University of
Arizona and ProlX Pharmaceuticals Corporation, dated
September 15, 2005 (incorporated by reference from
Exhibit 10.21 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.10(a)
|
|
First Amendment to Exclusive Patent License Agreement between
the University of Arizona and Oncothyreon Inc., dated
November 28, 2008.
|
|
10
|
.10(b)
|
|
Second Amendment to Exclusive Patent License Agreement between
the University of Arizona and Oncothyreon Inc., dated
August 13, 2010.
|
|
10
|
.11*
|
|
Offer letter with Robert Kirkman, dated August 29, 2006
(incorporated by reference from Exhibit 10.27 to
Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.11(a)*
|
|
Amendment to Robert Kirkman Offer Letter dated December 31,
2008 (incorporated by reference from Exhibit 10.18(a) to
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
|
|
10
|
.11(b)*
|
|
Amendment to Robert Kirkman Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.1 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
-97-
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.12
|
|
Letter Agreement between the University of Arizona and Biomira
Inc., dated October 6, 2006 (incorporated by reference from
Exhibit 10.28 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.13
|
|
Security Agreement between Jeffrey Millard and Biomira Inc.,
dated November 8, 2006 (incorporated by reference from
Exhibit 10.43 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.14
|
|
General Security Agreement between Jeffrey Millard and Biomira
Inc., dated November 8, 2006 (incorporated by reference
from Exhibit 10.44 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.15
|
|
Promissory Note between Jeffrey Millard and Biomira Inc., dated
November 8, 2006 (incorporated by reference from
Exhibit 10.49 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
|
10
|
.15(a)
|
|
Note Amendment Agreement by and between Oncothyreon Inc. and
Jeffrey Millard, dated April 20, 2008 (incorporated by
reference from Exhibit 10.36(a) to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
|
|
10
|
.16*
|
|
Offer Letter with Gary Christianson, dated June 29, 2007
(incorporated by reference from Exhibit 10.1 to Quarterly
Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.16(a)*
|
|
Amendment to Gary Christianson Offer Letter dated
December 31, 2008 (incorporated by reference from
Exhibit 10.40(a) to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
|
|
10
|
.16(b)*
|
|
Amendment to Gary Christianson Offer Letter dated
December 3, 2009 (incorporated by reference from
Exhibit 10.2 to Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.17
|
|
Sublease Agreement between Muze Inc. and Oncothyreon Inc., dated
May 9, 2008 (incorporated by reference from
Exhibit 10.2 to Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.18
|
|
Lease Agreement between Selig Holdings Company and Oncothyreon
Inc., dated May 9, 2008 (incorporated by reference from
Exhibit 10.3 to Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.19
|
|
Amendment Number 1 to Adjuvant License Agreement and Adjuvant
Supply Agreement between Corixa Corporation, d/b/a
GlaxoSmithKline Biologicals N.A. and Biomira Management Inc.,
dated August 8, 2008 (incorporated by reference from
Exhibit 10.4 to Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.20
|
|
Amended and Restated License Agreement between Biomira
Management, Inc. and Merck KGaA, dated December 18, 2008
(incorporated by reference from Exhibit 10.1 to Quarterly
Report on
Form 10-Q
for the quarterly period ended March 31, 2009 filed on
May 15, 2009).
|
|
10
|
.21*
|
|
Offer Letter dated March 24, 2008 between Oncothyreon Inc.
and Shashi Karan (incorporated by reference from
Exhibit 99.1 to Current Report on
Form 8-K
filed on March 11, 2009).
|
|
10
|
.21(a)*
|
|
Amendment to Shashi Karan Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.5 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.22
|
|
Form of Warrant (incorporated by reference from Annex A to
the Companys free writing prospectus, dated as of
May 19, 2009, and filed on May 20, 2009).
|
-98-
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.23*
|
|
Offer Letter dated June 9, 2009 between Oncothyreon Inc.
and Scott Peterson, Ph.D. (incorporated by reference from
Exhibit 10.2 to Current Report on
Form 8-K
filed on June 15, 2009).
|
|
10
|
.23(a)*
|
|
Amendment to Scott Peterson Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.4 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.24*
|
|
Offer Letter dated July 6, 2009 between Oncothyreon Inc.
and Diana Hausman, M.D. (incorporated by reference from
Exhibit 10.1 to Current Report on
Form 8-K
filed on August 4, 2009).
|
|
10
|
.24(a)*
|
|
Amendment to Diana Hausman Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.3 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.25
|
|
Form of Warrant (incorporated by reference from Annex A to
the Companys free writing prospectus, dated as of
August 4, 2009, and filed on August 5, 2009).
|
|
10
|
.26*
|
|
Amended and Restated Share Option Plan (incorporated by
reference from Exhibit 10.2 to Current Report on
Form 8-K
filed on October 14, 2009).
|
|
10
|
.27*
|
|
Form of Stock Option Agreement under the Amended and Restated
Share Option Plan (incorporated by reference from
Exhibit 10.3 to Current Report on
Form 8-K
filed on October 14, 2009).
|
|
10
|
.28*
|
|
Amended and Restated Restricted Share Unit Plan (incorporated by
reference from Exhibit 10.1 to Current Report on
Form 8-K
filed on October 14, 2009).
|
|
10
|
.29*
|
|
Form of Restricted Share Unit Agreement under the Amended and
Restated Restricted Share Unit Plan (incorporated by reference
from Exhibit 10 to Current Report on
Form 8-K
filed on June 15, 2009).
|
|
10
|
.30
|
|
Common Stock Purchase Agreement by and among Biomira Inc.,
Biomira International Inc. and Merck KGaA dated May 2, 2001
(incorporated by reference from Exhibit 10.41 to Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2009 filed on
May 6, 2010).
|
|
10
|
.31
|
|
Tax Indemnity Agreement by and between Biomira International
Inc. and Merck KGaA dated May 3, 2001 (incorporated by
reference from Exhibit 10.42 to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 filed on
May 6, 2010).
|
|
10
|
.32
|
|
Common Stock Purchase Agreement, dated July 6, 2010 between
Oncothyreon Inc. and Small Cap Biotech Value, Ltd (incorporated
by reference from Exhibit 10.1 to Current Report on
Form 8-K
filed on July 7, 2010).
|
|
10
|
.33
|
|
Engagement Letter, dated as of July 6, 2010 between
Oncothyreon Inc. and Reedland Capital Partners, an Institutional
Division of Financial West Group (incorporated by reference from
Exhibit 10.2 to Current Report on
Form 8-K
filed on July 7, 2010).
|
|
10
|
.34*
|
|
2010 Employee Stock Purchase Plan (incorporated by reference
from Exhibit 10.1 to Current Report on
Form 8-K
filed on June 8, 2010).
|
|
10
|
.35*
|
|
Form of Subscription Agreement and Notice of Withdrawal under
the 2010 Employee Stock Purchase Plan (incorporated by reference
from Exhibit 10.2 to Current Report on
Form 8-K
filed on June 8, 2010).
|
|
10
|
.36*
|
|
Offer letter with Julia M. Eastland, dated August 17, 2010
(incorporated by reference from Exhibit 10.1 to Current
Report on
Form 8-K
filed on August 31, 2010).
|
|
10
|
.37
|
|
Securities Purchase Agreement, dated September 23, 2010, by
and among Oncothyreon Inc. and the signatories thereto
(incorporated by reference to Exhibit 10.1 to Current
Report on
Form 8-K,
filed on September 27, 2010).
|
-99-
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.37(a)
|
|
Amendment No. 1 to the Securities Purchase Agreement, dated
September 28, 2010 (incorporated by reference from
Exhibit 10.1 to Current Report on
Form 8-K
filed on September 30, 2010).
|
|
10
|
.38
|
|
Form of Warrant issued pursuant to the terms of the Securities
Purchase Agreement, dated September 23, 2010, by and among
Oncothyreon Inc. and the signatories thereto, as amended
(incorporated by reference from Exhibit 10.49 to
Registration Statement on
Form S-1
filed on October 4, 2010).
|
|
10
|
.39
|
|
Loan and Security Agreement between Oncothyreon Inc. and General
Electric Capital Corporation dated February 8, 2011
(incorporated by reference from Exhibit 10.1 to Current
Report on
Form 8-K
filed on February 9, 2011).
|
|
10
|
.40
|
|
Promissory Note issued by Oncothyreon Inc. to General Electric
Capital Corporation dated February 8, 2011 (incorporated by
reference from Exhibit 10.2 to Current Report on
Form 8-K
filed on February 9, 2011).
|
|
10
|
.41
|
|
Form of Warrant to Purchase Common Stock issued by Oncothyreon
Inc. to the Lenders pursuant to the terms of the Loan and
Security Agreement (incorporated by reference from
Exhibit 10.3 to Current Report on
Form 8-K
filed on February 9, 2011).
|
|
16
|
.1
|
|
Letter to Securities and Exchange Commission from
Deloitte & Touche LLP, dated November 19, 2010
(incorporated by reference from Exhibit 16.1 to Current
Report on
Form 8-K/A
filed November 19, 2010).
|
|
21
|
.1
|
|
Subsidiaries of Oncothyreon Inc.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm.
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
24
|
.1
|
|
Power of Attorney (included on signature page).
|
|
31
|
.1
|
|
Certification of Robert L. Kirkman, M.D., President and
Chief Executive Officer, pursuant to Exchange Act
Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Julie Eastland, Chief Financial Officer,
pursuant to Exchange Act
Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Robert L. Kirkman, M.D., President and
Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Julie Eastland, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Executive Compensation Plan or Agreement. |
|
|
|
Confidential treatment has been granted for portions of this
exhibit. |
-100-
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 in the City of Seattle, County of
King, State of Washington on March 14, 2011.
ONCOTHYREON INC
|
|
|
|
By:
|
/s/ Robert
L. Kirkman
|
Robert L. Kirkman
President, CEO and Director
POWER OF
ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Robert L. Kirkman and Julia M. Eastland and each of
them, his or her true and lawful attorneys-in-fact and agents,
with full power to act without the other and with full power of
substitution and resubstitution, to execute in his or her name
and on his or her behalf, individually and in each capacity
stated below, any and all amendments and supplements to this
Report, and any and all other instruments necessary or
incidental in connection herewith, and to file the same with the
Commission.
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/ Robert
L. Kirkman
Robert
L. Kirkman
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Julia
M. Eastland
Julia
M. Eastland
|
|
Chief Financial Officer, Secretary and Vice President of
Corporate Development (Principal Financial and Accounting
Officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Christopher
S. Henney
Christopher
S. Henney
|
|
Chairman and Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Richard
L. Jackson
Richard
L. Jackson
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Daniel
K. Spiegelman
Daniel
K. Spiegelman
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ W.
Vickery Stoughton
W.
Vickery Stoughton
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Douglas
Williams
Douglas
Williams
|
|
Director
|
|
March 14, 2011
|
-101-
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Oncothyreon Inc.
We have audited the accompanying consolidated balance sheet of
Oncothyreon Inc. as of December 31, 2010, and the related
consolidated statements of operations, stockholders
equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements 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 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 audit 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 Oncothyreon Inc. at December 31,
2010, and the consolidated results of its operations and its
cash flows for the year ended December 31, 2010, in
conformity with U.S. generally accepted accounting
principles.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Oncothyreon Inc.s 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 14, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Seattle, Washington
March 14, 2011
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Oncothyreon Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheet of
Oncothyreon Inc. and subsidiaries (the Company) as
of December 31, 2009, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the two years in the period ended
December 31, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedules 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Oncothyreon Inc. and subsidiaries as of December 31, 2009,
and the results of their operations and their cash flows for
each of the two years in the period ended December 31,
2009, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Seattle, Washington
May 5, 2010
F-3
ONCOTHYREON
INC.
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except
|
|
|
|
share and per share
amounts)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,514
|
|
|
$
|
18,974
|
|
Short-term investments
|
|
|
23,363
|
|
|
|
14,244
|
|
Accounts and other receivables
|
|
|
131
|
|
|
|
41
|
|
Government grant receivable
|
|
|
489
|
|
|
|
|
|
Notes receivable from employees, net
|
|
|
|
|
|
|
36
|
|
Prepaid expenses
|
|
|
583
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,080
|
|
|
|
33,528
|
|
Property and equipment, net
|
|
|
1,958
|
|
|
|
2,076
|
|
Lease deposits
|
|
|
206
|
|
|
|
354
|
|
Notes receivable from employees
|
|
|
|
|
|
|
150
|
|
Other assets
|
|
|
84
|
|
|
|
|
|
Goodwill
|
|
|
2,117
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
34,445
|
|
|
$
|
38,225
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
624
|
|
|
$
|
600
|
|
Accrued liabilities
|
|
|
533
|
|
|
|
653
|
|
Accrued compensation and related liabilities
|
|
|
686
|
|
|
|
804
|
|
Current portion of deferred revenue
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,861
|
|
|
|
2,075
|
|
Notes payable
|
|
|
199
|
|
|
|
199
|
|
Noncurrent portion of deferred revenue
|
|
|
127
|
|
|
|
149
|
|
Deferred rent
|
|
|
388
|
|
|
|
295
|
|
Warrant liability
|
|
|
12,983
|
|
|
|
10,059
|
|
Class UA preferred stock, 12,500 shares authorized,
12,500 shares issued and outstanding
|
|
|
30
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,588
|
|
|
|
12,807
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 shares
authorized, no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 30,088,628 and 25,753,405 shares issued and
outstanding
|
|
|
353,850
|
|
|
|
345,836
|
|
Additional paid-in capital
|
|
|
17,328
|
|
|
|
16,285
|
|
Accumulated deficit
|
|
|
(347,255
|
)
|
|
|
(331,637
|
)
|
Accumulated other comprehensive loss
|
|
|
(5,066
|
)
|
|
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
18,857
|
|
|
|
25,418
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
34,445
|
|
|
$
|
38,225
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-4
ONCOTHYREON
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and
per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
$
|
18
|
|
|
$
|
2,051
|
|
|
$
|
24,713
|
|
Contract manufacturing
|
|
|
|
|
|
|
|
|
|
|
15,582
|
|
Licensing, royalties, and other revenue
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
18
|
|
|
|
2,078
|
|
|
|
40,295
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
11,241
|
|
|
|
6,081
|
|
|
|
8,783
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
13,675
|
|
General and administrative
|
|
|
7,799
|
|
|
|
6,589
|
|
|
|
10,284
|
|
Depreciation and amortization
|
|
|
462
|
|
|
|
269
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,502
|
|
|
|
12,939
|
|
|
|
33,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(19,484
|
)
|
|
|
(10,861
|
)
|
|
|
7,131
|
|
Investment and other (income) expense, net
|
|
|
(636
|
)
|
|
|
8
|
|
|
|
(298
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Change in fair value of warrant liability
|
|
|
(3,030
|
)
|
|
|
6,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(15,818
|
)
|
|
|
(17,019
|
)
|
|
|
7,422
|
|
Income tax (benefit) provision
|
|
|
(200
|
)
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(15,618
|
)
|
|
|
(17,219
|
)
|
|
|
7,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$
|
(0.58
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$
|
(0.58
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic earnings (loss) per share
|
|
|
26,888,588
|
|
|
|
22,739,138
|
|
|
|
19,490,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted earnings (loss) per share
|
|
|
26,888,588
|
|
|
|
22,739,138
|
|
|
|
19,570,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-5
ONCOTHYREON
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Number
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss)/Income
|
|
|
Equity
|
|
|
|
(In thousands, except share
amounts)
|
|
|
Balance at January 1, 2008
|
|
|
19,485,889
|
|
|
$
|
324,992
|
|
|
$
|
13,636
|
|
|
$
|
(321,840
|
)
|
|
$
|
(5,066
|
)
|
|
$
|
11,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units converted
|
|
|
6,543
|
|
|
|
51
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based employee compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
1,509
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,422
|
|
|
|
|
|
|
|
7,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
19,492,432
|
|
|
|
325,043
|
|
|
|
15,094
|
|
|
|
(314,418
|
)
|
|
|
(5,066
|
)
|
|
|
20,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued, net of offering costs of $0.4 million
|
|
|
6,159,495
|
|
|
|
20,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,013
|
|
Warrant exercises
|
|
|
91,558
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668
|
|
Warrants expiration
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Restricted stock units converted
|
|
|
9,920
|
|
|
|
75
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units expense
|
|
|
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
257
|
|
Share-based employee compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,219
|
)
|
|
|
|
|
|
|
(17,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
25,753,405
|
|
|
|
345,836
|
|
|
|
16,285
|
|
|
|
(331,637
|
)
|
|
|
(5,066
|
)
|
|
|
25,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued, net of offering costs of $1.2 million
|
|
|
4,302,791
|
|
|
|
7,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,849
|
|
Employee stock purchase plan
|
|
|
20,434
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Restricted stock units converted
|
|
|
9,498
|
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units expense
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Share-based employee compensation expense
|
|
|
|
|
|
|
|
|
|
|
973
|
|
|
|
|
|
|
|
|
|
|
|
973
|
|
Stock option exercise
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants expiration
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,618
|
)
|
|
|
|
|
|
|
(15,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
30,088,628
|
|
|
$
|
353,850
|
|
|
$
|
17,328
|
|
|
$
|
(347,255
|
)
|
|
$
|
(5,066
|
)
|
|
$
|
18,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(15,618
|
)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
Adjustment to reconcile net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
462
|
|
|
|
269
|
|
|
|
422
|
|
Share-based equity facility structuring fee
|
|
|
200
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,123
|
|
|
|
1,266
|
|
|
|
1,509
|
|
Provision for notes receivable, employees
|
|
|
154
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
|
(3,030
|
)
|
|
|
6,150
|
|
|
|
|
|
Loss (gain) on disposal of property and equipment
|
|
|
6
|
|
|
|
7
|
|
|
|
(48
|
)
|
Proceeds from collaborative agreements
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
Proceeds from contract manufacturing
|
|
|
|
|
|
|
|
|
|
|
4,060
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and other receivable
|
|
|
(58
|
)
|
|
|
1,782
|
|
|
|
194
|
|
Government grants receivable
|
|
|
(489
|
)
|
|
|
40
|
|
|
|
512
|
|
Prepaid expenses
|
|
|
(350
|
)
|
|
|
151
|
|
|
|
144
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
5,069
|
|
Long term deposits
|
|
|
148
|
|
|
|
|
|
|
|
(354
|
)
|
Other assets
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(2
|
)
|
|
|
147
|
|
|
|
166
|
|
Accrued liabilities
|
|
|
(120
|
)
|
|
|
(997
|
)
|
|
|
(1,808
|
)
|
Accrued compensation and related liabilities
|
|
|
(118
|
)
|
|
|
(803
|
)
|
|
|
(216
|
)
|
Noncurrent portion of deferred revenue
|
|
|
(22
|
)
|
|
|
(15
|
)
|
|
|
(25,143
|
)
|
Deferred rent
|
|
|
93
|
|
|
|
110
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(17,705
|
)
|
|
|
(9,112
|
)
|
|
|
(4,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
(29,331
|
)
|
|
|
(16,127
|
)
|
|
|
(22,376
|
)
|
Redemption of short-term investments
|
|
|
20,212
|
|
|
|
1,883
|
|
|
|
34,246
|
|
Purchases of property and equipment
|
|
|
(324
|
)
|
|
|
(1,433
|
)
|
|
|
(744
|
)
|
Proceeds from sale of plant and equipment
|
|
|
|
|
|
|
|
|
|
|
548
|
|
Payments received on notes receivable from employees
|
|
|
|
|
|
|
34
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(9,443
|
)
|
|
|
(15,643
|
)
|
|
|
11,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants, net of
issuance costs
|
|
|
13,688
|
|
|
|
24,563
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
13,688
|
|
|
|
24,563
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
|
|
|
(13,460
|
)
|
|
|
(192
|
)
|
|
|
6,846
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(13,460
|
)
|
|
|
(192
|
)
|
|
|
7,131
|
|
Cash and cash equivalents, beginning of year
|
|
|
18,974
|
|
|
|
19,166
|
|
|
|
12,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
5,514
|
|
|
$
|
18,974
|
|
|
$
|
19,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
|
|
|
$
|
200
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-7
ONCOTHYREON
INC.
Notes to the
Consolidated Financial Statements
Years ended December 31, 2010, 2009 and 2008
|
|
1.
|
DESCRIPTION OF
BUSINESS
|
Oncothyreon Inc. (the Company or
Oncothyreon) is a clinical-stage biopharmaceutical
company incorporated in the State of Delaware on
September 7, 2007. Oncothyreon is focused primarily on the
development of therapeutic products for the treatment of cancer.
Oncothyreons goal is to develop and commercialize novel
synthetic vaccines and targeted small molecules that have the
potential to improve the lives and outcomes of cancer patients.
Oncothyreons operations are not subject to any seasonality
or cyclicality factors.
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of
presentation
These consolidated financial statements have been prepared using
accounting principles generally accepted in the United States of
America (U.S. GAAP) and reflect the following
significant accounting policies.
Basis of
consolidation
The Companys consolidated financial statements include the
accounts of the company and its wholly-owned subsidiaries,
including Oncothyreon Canada Inc., Biomira Management Inc.,
ProlX Pharmaceuticals Corporation, Biomira BV and Oncothyreon
Luxembourg. All intercompany balances and transactions have been
eliminated upon consolidation.
Accounting
estimates
The preparation of financial statements in accordance with
U.S. GAAP requires management to make complex and
subjective judgments and estimates that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. By their nature, these judgments are subject
to an inherent degree of uncertainty and as a consequence actual
results may differ from those estimates.
Cash and cash
equivalents
Cash equivalents include short-term, highly liquid investments
that are readily convertible to known amounts of cash with
original maturities of 90 days or less at the time of
purchase. At December 31, 2010, cash and cash equivalents
was comprised of $4.3 million in cash and $1.2 million
in certificates of deposit. As of December 31, 2009, cash
and cash equivalents was comprised of $9.6 million in cash,
$8.0 million in money market investments, and
$1.4 million in certificates of deposit. The carrying value
of cash equivalents approximates their fair value.
Investments
Investments are classified as available for sale securities and
are carried at market value with unrealized temporary holding
gains and losses, where applicable, excluded from income and
reported in other comprehensive income (loss) and also as a net
amount in accumulated other comprehensive income until realized.
Available-for-sale
securities are written down to fair value through income
whenever it is necessary to reflect an
other-than-temporary
impairment. As of December 31, 2010 and 2009, short term
investments consisted of certificates of deposits denominated at
or below $250,000 issued by banks insured by the Federal Deposit
Insurance Corporation. All asset classes
F-8
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
purchased are limited to a final maturity from purchase date of
twelve months. Due to the nature of the short term investments
there were no unrealized gains or losses recorded in any of the
periods presented. The Company is exposed to credit risk on its
cash equivalents and short-term investments in the event of
non-performance by counterparties, but does not anticipate such
non-performance and mitigates exposure to concentration of
credit risk through the nature of its portfolio holdings.
Derivative
financial instruments
The Company does not utilize derivative financial instruments.
Warrants issued in connection with the Companys May 2009
and September 2010 financings are recorded as liabilities as
both have the potential for cash settlement upon the occurrence
of a fundamental transaction (as defined in the warrant, see
Note 8 Share Capital). Changes in
the fair value of the warrants are recognized in the
consolidated statements of operations.
Accounts and
other receivables
Accounts and other receivables are reviewed whenever
circumstances indicate that the carrying amount of the
receivable may not be recoverable. At this time, the Company
does not deem an allowance to be necessary.
Property and
equipment, depreciation and amortization
Property and equipment are recorded at cost and depreciated over
their estimated useful lives on a straight-line basis, as
follows:
|
|
|
|
|
Scientific and office equipment
|
|
|
5 years
|
|
Computer software and equipment
|
|
|
3 years
|
|
Leased equipment
|
|
|
Shorter of useful life or the term of the lease
|
|
Leasehold improvements
|
|
|
Shorter of useful life or the term of the lease
|
|
Long-lived
assets
Long-lived assets, such as property and equipment are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. If circumstances require a long-lived asset be
tested for impairment, the Company first compares the
undiscounted cash flows expected to be generated by the asset to
the carrying value of the asset. If the carrying value of the
long-lived asset is not recoverable on an undiscounted cash flow
basis, an impairment is recognized to the extent that the
carrying value exceeds its estimated fair value. Fair value is
determined by management through various valuation techniques,
including discounted cash flow models, quoted market values and
third-party independent appraisals, as considered necessary.
There were no impairment charges recorded for any of the periods
presented.
Goodwill
Goodwill is carried at cost and is not amortized, but is
reviewed annually for impairment on October 1 of each year
or more frequently when events or changes in circumstances
indicate that the asset may be impaired. In the event that the
carrying value of goodwill exceeds its fair value, an impairment
loss would be recognized. There were no impairment charges
recorded for any of the periods presented.
F-9
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Deferred
rent
Rent expense is recognized on a straight-line basis over the
term of the lease. Lease incentives, including rent holidays
provided by lessors, and rent escalation provisions are accrued
as deferred rent.
Revenue
recognition
The Company recognizes revenue when there is persuasive evidence
that an arrangement exists, delivery has occurred, the price is
fixed and determinable, and collection is reasonably assured. In
accordance with ASC Topic
605-25, the
Company evaluates revenue from arrangements with multiple
deliverables to determine whether the deliverables represent one
or more units of accounting. A delivered item is considered a
separate unit of accounting if the following separation criteria
are met: (1) the delivered item has stand-alone value to
the customer; (2) there is objective and reliable evidence
of the fair value of any undelivered items; and (3) if the
arrangement includes a general right of return relative to the
delivered item, the delivery of undelivered items is probable
and substantially in the Companys control. The relevant
revenue recognition accounting policy is then applied to each
unit of accounting.
The Company has historically generated revenue from the
following activities:
Licensing revenue from collaborative and license
agreements. Revenue from collaborative and
license agreements consists of (1) up-front cash payments
for initial technology access or licensing fees and
(2) contingent payments triggered by the occurrence of
specified events or other contingencies derived from the
Companys collaborative and license agreements. Royalties
from the commercial sale of products derived from the
Companys collaborative and license agreements are reported
as licensing, royalties, and other revenue.
If the Company has continuing obligations under a collaborative
agreement and the deliverables within the collaboration cannot
be separated into their own respective units of accounting, the
Company utilizes a Multiple Attribution Model for revenue
recognition as the revenue related to each deliverable within
the arrangement should be recognized upon the culmination of the
separate earnings processes and in such a manner that the
accounting matches the economic substance of the deliverables
included in the unit of accounting. As such, (1) up-front
cash payments are recorded as deferred revenue and recognized as
revenue ratably over the period of performance under the
applicable agreement and (2) contingent payments are
recorded as deferred revenue when receivable and recognized as
revenue ratably over the estimated period of the Companys
ongoing obligations. Royalties based on reported sales of
licensed products, if any, are recognized based on the terms of
the applicable agreement when and if reported sales are reliably
measurable and collectibility is reasonably assured.
Contract manufacturing. Revenue from contract
manufacturing consists of payments received under the terms of
supply agreements for the manufacturing of clinical trial
material. Such payments compensate the Company for the cost of
manufacturing clinical trial material and are recognized after
shipment of the clinical trial material and upon the earlier of
the expiration of a specified return period, as returns cannot
be reasonably estimated, and formal acceptance of the clinical
trial material by the customer.
Licensing, royalties, and other
revenue. Licensing, royalties, and other revenue
consists of revenue from sales of compounds and processes from
patented technologies to third parties and royalties received
pursuant to collaborative agreements and license
F-10
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
agreements. Royalties based on reported sales, if any, of
licensed products are recognized based on the terms of the
applicable agreement when and if reported sales are reliably
measurable and collectibility is reasonably assured.
If the Company has no continuing obligations under a license
agreement, or a license deliverable qualifies as a separate unit
of accounting included in a collaborative arrangement, license
payments that are allocated to the license deliverable are
recognized as revenue upon commencement of the license term and
contingent payments are recognized as revenue upon the
occurrence of the events or contingencies provided for in such
agreement, assuming collectibility is reasonably assured.
Government
grants
Funds received pursuant to government grants are is recognized
when the related research and development expenditures that
qualify for grants are made and the Company has complied with
the conditions for the receipt of the government grants.
Government grants are recorded as other income or applied to
reduce eligible expenses incurred, depending upon the
circumstances surrounding timing of grant funding. Prior to
2010, the Company credited funding received from government
research and development grants against research and development
expenses since the grants were received in the same period as
expenditures were incurred. In 2010, the Company was awarded a
federal grant for $0.5 million under the
U.S. Governments Qualifying Therapeutic Discovery
Project (QTDP) program for expenses incurred in 2009
and 2010, and recorded the funding received as other income in
2010.
Research and
development costs
Research and development expenses include personnel and facility
related expenses, outside contract services including clinical
trial costs, manufacturing and process development costs,
research costs and other consulting services. Research and
development costs are expensed as incurred. In instances where
the Company enters into agreements with third parties for
clinical trials, manufacturing and process development, research
and other consulting activities, costs are expensed as services
are performed. Amounts due under such arrangements may be either
fixed fee or fee for service, and may include upfront payments,
monthly payments, and payments upon the completion of milestones
or receipt of deliverables.
The Companys accruals for clinical trials are based on
estimates of the services received and pursuant to contracts
with numerous clinical trial centers and clinical research
organizations. In the normal course of business the Company
contracts with third parties to perform various clinical trial
activities in the ongoing development of potential products. The
financial terms of these agreements are subject to negotiation
and variation from contract to contract and may result in uneven
payment flows. Payments under the contracts depend on factors
such as the achievement of certain events, the successful
accrual of patients, and the completion of portions of the
clinical trial or similar conditions. The objective of the
Companys accrual policy is to match the recording of
expenses in its consolidated financial statements to the actual
services received. As such, expense accruals related to clinical
trials are recognized based on its estimate of the degree of
completion of the event or events specified in the specific
clinical study or trial contract.
Foreign
exchange
The Companys consolidated financial statements are
reported in U.S. dollars.
F-11
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Effective January 1, 2008, the Company changed its
functional currency to the U.S. dollar from the Canadian
dollar in order to more accurately represent the currency of the
economic environment in which it operates as a result of the
Companys redomicile into the United States effective
December 10, 2007 (See Note 1
Description of Business) and increasing U.S. dollar
denominated revenues and expenditures. For periods subsequent to
January 1, 2008, the Companys foreign subsidiaries
are considered to be integrated foreign operations and,
accordingly, have the same functional currency as the parent,
the U.S. dollar.
Accumulated other comprehensive loss consists of cumulative
translation adjustments related to the consolidation of the
Companys investments in foreign subsidiaries arising in
periods prior to the change in functional currency. Should the
Company liquidate or substantially liquidate its investments in
its foreign subsidiaries, the Company would be required to
recognize the related cumulative translation adjustments
pertaining to the liquidated or substantially liquidated
subsidiaries, currently included as a component of other
comprehensive loss, as a charge to earnings in the
Companys consolidated statement of operations and
comprehensive income (loss).
Historically, the Company has purchased goods and services
denominated primarily in U.S. and Canadian currencies and,
to a lesser extent, in certain European currencies. Since the
Company disposed of its Canadian operations in 2008,
expenditures have been incurred primarily in U.S. dollars.
The Company does not utilize derivative instruments. At
December 31, 2010, the Company had a minimal amount of
Canadian dollar denominated cash and cash equivalents.
Earnings per
share
Basic earnings (loss) per common share were calculated using the
weighted average number of common shares outstanding during the
year.
In 2008, diluted earnings (loss) per common share were
calculated on the basis of the weighted average number of shares
outstanding during the period, plus the additional common shares
that would have been outstanding if potentially dilutive common
shares underlying stock options, restricted share units and
warrants had been issued using the treasury stock method. In
2010 and 2009, 9,111,864 and 5,861,841 shares,
respectively, were excluded from the calculations as they would
be anti-dilutive.
Income
taxes
The Company follows the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future income tax
consequences attributable to differences between the carrying
amounts and tax bases of assets and liabilities and losses
carried forward and tax credits. Deferred tax assets and
liabilities are measured using enacted tax rates and laws
applicable to the years in which the differences are expected to
reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is provided
to the extent that it is more likely than not that deferred tax
assets will not be realized.
The Company recognizes the financial statement effects of a tax
position when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination.
The Company does not believe any uncertain tax positions
currently pending will have a material adverse effect on its
consolidated financial statements nor expects any material
change in its position in the next 12 months. Penalties and
interest, of which there are none, would be reflected in income
tax expense.
F-12
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Accumulated
other comprehensive loss
Comprehensive income (loss) is comprised of net income (loss)
and other comprehensive income (loss). Accumulated other
comprehensive income (loss) primarily consists of foreign
currency translation adjustments which arose from the conversion
of the Canadian dollar functional currency consolidated
financial statements to the U.S. dollar reporting currency
consolidated financial statements prior to January 1, 2008.
Stock-based
compensation
The Company recognizes in the statements of operations the
estimated grant date fair value of share-based compensation
awards granted to employees over the requisite service period.
Stock-based compensation expense in the consolidated statements
of operations is recorded on a straight-line basis over the
requisite service period for the entire award, which is
generally the vesting period, with the offset to additional
paid-in capital. The Company uses the Black-Scholes option
pricing model to estimate the fair value of stock options
granted to employees. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
|
|
3.
|
FAIR VALUE
MEASUREMENTS
|
The Company measures at fair value certain financial assets and
liabilities in accordance with a hierarchy which requires an
entity to maximize the use of observable inputs which reflect
market data obtained from independent sources and minimize the
use of unobservable inputs which reflect the Companys
market assumptions when measuring fair value. There are three
levels of inputs that may be used to measure fair value:
|
|
|
Level 1 quoted prices in active markets for
identical assets or liabilities;
|
|
|
Level 2 observable inputs other than
Level 1 prices such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities; and
|
|
|
Level 3 unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
|
The Companys financial assets and liabilities measured at
fair value consisted of the following as of December 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market funds (asset)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,039
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,039
|
|
Certificates of deposits (asset)
|
|
|
|
|
|
|
23,363
|
|
|
|
|
|
|
|
23,363
|
|
|
|
|
|
|
|
14,244
|
|
|
|
|
|
|
|
14,244
|
|
Warrants (liability)
|
|
|
|
|
|
|
|
|
|
|
12,983
|
|
|
|
12,983
|
|
|
|
|
|
|
|
|
|
|
|
10,059
|
|
|
|
10,059
|
|
If quoted market prices in active markets for identical assets
are not available to determine fair value, then the Company uses
quoted prices from similar assets or inputs other than
F-13
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
the quoted prices that are observable either directly or
indirectly. These investments are included in Level 2 and
consist of certificates of deposits denominated at or below
$250,000 issued by banks insured by the Federal Deposit
Insurance Corporation.
The estimated fair value of warrants accounted for as
liabilities was determined on the issuance date and subsequently
marked to market at each financial reporting date. The change in
fair value of the warrants is recorded in the statement of
operations as a gain (loss) estimated using the Black-Scholes
option-pricing model with the following inputs:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2010
|
|
|
|
May 2009
|
|
|
September 2010
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Exercise price
|
|
$
|
3.74
|
|
|
$
|
4.24
|
|
Market value of stock at end of period
|
|
$
|
3.26
|
|
|
$
|
3.26
|
|
Expected dividend rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
102.7
|
%
|
|
|
92.2
|
%
|
Risk-free interest rate
|
|
|
1.2
|
%
|
|
|
1.9
|
%
|
Expected life (in years)
|
|
|
3.40
|
|
|
|
4.75
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
May 2009
|
|
|
|
Warrants
|
|
|
Exercise price
|
|
$
|
3.92
|
|
Market value of stock at end of period
|
|
$
|
5.39
|
|
Expected dividend rate
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
76.0
|
%
|
Risk-free interest rate
|
|
|
2.4
|
%
|
Expected life (in years)
|
|
|
4.40
|
|
The change in fair value of the warrants during the year ended
December 31, 2010 was as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2010
|
|
$
|
10,059
|
|
Issuance of warrants
|
|
|
5,954
|
|
Change in fair value recorded in earnings
|
|
|
(3,030
|
)
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
12,983
|
|
|
|
|
|
|
On December 31, 2010, the Company changed the way it
estimates volatility when determining the fair value of the
warrants using the Black-Scholes model. Prior to
December 31, 2010, the volatility was calculated using the
Companys historical stock price, and discounting it by 15%
to give effect to estimated lowered volatility expected by
warrant holders. Before estimating the fair value of the
warrants on December 31, 2010, the Company commissioned a
study on volatility, and determined that the most appropriate
volatility to use as of December 31, 2010, and for the
foreseeable future, is the unadjusted volatility calculated
using the Companys historical stock price. This change in
estimate, included in the change in fair value recorded in
earnings above, resulted in a $1.7 million increase in the
fair value of the warrants as of December 31, 2010.
F-14
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
4.
|
NOTES RECEIVABLE,
EMPLOYEES
|
Pursuant to the acquisition of ProlX, the Company advanced cash
of $0.3 million to certain employees of ProlX and a former
director of ProlX. The principal amount of the loans, together
with interest accrued at the rate of 5.0% per annum to the date
of payment, was due and payable on April 28, 2009. The
former director repaid his loan in 2008 and one former employee
repaid $38,635 of interest and principal during 2009 and $39,200
was forgiven in 2010 subject to meeting certain conditions
outlined in a subsequent consulting agreement. The original due
date for the remaining loan was extended to April 28, 2011.
Interest income of $7,000 and $9,000 related to these loans has
been recorded in the consolidated statements of operations in
2010 and 2009, respectively.
Notes receivable, employees is reviewed whenever circumstances
indicate that the carrying amount of the receivable may not be
recoverable. As of December 31, 2010, the Company intends
to forgive the remaining loan in 2011 and therefore recorded an
allowance of $153,720 for the remaining balance.
|
|
5.
|
PROPERTY AND
EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Net
|
|
|
|
|
|
|
and
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Scientific equipment
|
|
$
|
1,321
|
|
|
$
|
702
|
|
|
$
|
619
|
|
Office equipment
|
|
|
27
|
|
|
|
8
|
|
|
|
19
|
|
Computer software and equipment
|
|
|
300
|
|
|
|
263
|
|
|
|
37
|
|
Leasehold improvements
|
|
|
1,510
|
|
|
|
227
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,158
|
|
|
$
|
1,200
|
|
|
$
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Net
|
|
|
|
|
|
|
and
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Scientific equipment
|
|
$
|
968
|
|
|
$
|
515
|
|
|
$
|
453
|
|
Office equipment
|
|
|
100
|
|
|
|
80
|
|
|
|
20
|
|
Computer software and equipment
|
|
|
308
|
|
|
|
183
|
|
|
|
125
|
|
Leasehold improvements
|
|
|
1,527
|
|
|
|
49
|
|
|
|
1,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,903
|
|
|
$
|
827
|
|
|
$
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Operating
leases
The Company is committed to annual minimum payments under
operating lease agreements for its office and laboratory space
and equipment) as follows (in thousands):
|
|
|
|
|
Year Ending
December 31,
|
|
|
|
|
2011
|
|
$
|
446
|
|
2012
|
|
|
577
|
|
2013
|
|
|
587
|
|
2014
|
|
|
596
|
|
2015
|
|
|
604
|
|
Thereafter
|
|
|
1,830
|
|
|
|
|
|
|
|
|
$
|
4,640
|
|
|
|
|
|
|
Rental expense for operating leases in the amount of
$0.6 million, $0.7 million and $0.7 million have
been recorded in the consolidated statements of operations in
2010, 2009 and 2008 respectively. In May 2008, the Company
entered into a sublease agreement for an office and laboratory
headquarters in Seattle, Washington totaling approximately
17,000 square feet. The sublease expires on
December 17, 2011. The sublease provides for a monthly base
rent of $33,000 increasing to $36,000. In May 2008, the Company
also entered into a lease agreement directly with the landlord
beginning on December 18, 2011 for a period of
84 months to December 18, 2017. The lease provides for
a monthly base rent of $48,000 increasing to $0.1 million
in 2017. The Company has also entered into operating lease
obligations through September 2015 for certain office equipment,
which are included in the table above.
In connection with the acquisition of ProlX, the Company assumed
two loan agreements under which approximately $199,000 was
outstanding at December 31, 2010. The Company is required
to repay such loans if it commercializes or sells the product
that was the subject of such agreement. In February 2011, the
Company provided notice to the counterparty to such agreements
that we do not intend to commercialize such product. As a
result, such agreements will be terminated March 2011 and the
Company does not expect incur any repayment obligations of such
loans.
Class UA
preferred stock
As of December 31, 2010 and 2009, the Company had
12,500 shares of Class UA preferred stock authorized,
issued and outstanding. The Class UA preferred stock has
the following rights, privileges, and limitations:
Voting. Each share of Class UA preferred
stock will not be entitled to receive notice of, or to attend
and vote at, any Stockholder meeting unless the meeting is
called to consider any matter in respect of which the holders of
the shares of Class UA preferred stock would be entitled to
vote separately as a class, in which case the holders of the
shares of Class UA preferred stock shall be entitled to
receive notice of and to attend and vote at such meeting.
Amendments to the certificate of incorporation of Oncothyreon
that would increase or decrease the par value of the
Class UA preferred stock or alter or change the
F-16
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
powers, preferences or special rights of the Class UA
preferred stock so as to affect them adversely would require the
approval of the holders of the Class UA preferred stock.
Conversion. The Class UA preferred stock
is not convertible into shares of any other class of Oncothyreon
capital stock.
Dividends. The holders of the shares of
Class UA preferred stock will not be entitled to receive
dividends.
Liquidation preference. In the event of any
liquidation, dissolution or winding up of the Company, the
holders of the Class UA preferred stock will be entitled to
receive, in preference to the holders of the Companys
common stock, an amount equal to the lesser of (1) 20% of
the after tax profits (net profits), determined in
accordance with Canadian generally accepted accounting
principles, where relevant, consistently applied, for the period
commencing at the end of the last completed financial year of
the Company and ending on the date of the distribution of assets
of the Company to its stockholders together with 20% of the net
profits of the Company for the last completed financial year and
(2) CDN $100 per share.
Holders of Class UA preferred stock are entitled to
mandatory redemption of their shares if the Company realizes
net profits in any year. For this purpose, net
profits . . . means the after tax profits determined in
accordance with generally accepted accounting principles, where
relevant, consistently applied. The Company has taken the
position that this applies to Canadian GAAP and accordingly
there have been no redemptions to date.
Redemption. The Company may, at its option and
subject to the requirements of applicable law, redeem at any
time the whole or from time to time any part of the
then-outstanding shares of Class UA preferred stock for CDN
$100 per share. The Company is required each year to redeem at
CDN $100 per share that number of shares of Class UA
preferred stock as is determined by dividing 20% of the net
profits by CDN $100.
The difference between the redemption value and the book value
of the Class UA preferred stock will be recorded at the
time that the fair value of the shares increases to redemption
value based on the Company becoming profitable as measured using
Canadian GAAP.
Preferred
stock
As of December 31, 2010 and 2009, the Company had
10,000,000 shares of undesignated preferred stock,
$0.0001 par value per share, authorized, with none
outstanding. Shares of preferred stock may be issued in one or
more series from time to time by the Board of Directors of the
Company, and the Board of Directors is expressly authorized to
fix by resolution or resolutions the designations and the
powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, of the shares of each
series of preferred stock. Subject to the determination of the
Board of Directors of the Company, the preferred stock would
generally have preferences over common stock with respect to the
payment of dividends and the distribution of assets in the event
of the liquidation, dissolution or winding up of the Company.
Common
stock
As of December 31, 2010, the Company had
100,000,000 shares of common stock, $0.0001 par value
per share, authorized. The holders of common stock are entitled
to receive such dividends or distributions as are lawfully
declared on the Companys common stock, to have notice of
any authorized meeting of stockholders, and to exercise one vote
F-17
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
for each share of common stock on all matters which are properly
submitted to a vote of the Companys stockholders. As a
Delaware corporation, the Company is subject to statutory
limitations on the declaration and payment of dividends. In the
event of a liquidation, dissolution or winding up of the
Company, holders of common stock have the right to a ratable
portion of assets remaining after satisfaction in full of the
prior rights of creditors, including holders of the
Companys indebtedness, all liabilities and the aggregate
liquidation preferences of any outstanding shares of preferred
stock. The holders of common stock have no conversion,
redemption, preemptive or cumulative voting rights.
Amounts pertaining to issuances of common stock are classified
as common stock on the consolidated balance sheet, approximately
$3,000 of which represents par value of common stock as of
December 31, 2010 and 2009. Additional paid-in capital
primarily relates to amounts for share-based compensation (see
Note 9).
Equity
Financings and Warrants
On May 26, 2009, the Company closed the sale of
3,878,993 shares of its common stock and warrants to
purchase an additional 2,909,244 shares of common stock for
gross proceeds of approximately $11.1 million. The purchase
price per unit, consisting of one share of common stock and a
warrant to purchase 0.75 shares of common stock, was $2.85.
The exercise price of the warrants is $3.92 per share. The
warrants are exercisable at any time on or prior to May 26,
2014. Upon exercise, holders of the warrants are required to
deliver the aggregate exercise price with respect to the number
of underlying shares; provided that if a registration statement
is not available with respect to the issuance of such shares
upon exercise, under certain circumstances, holders may exercise
warrants on a net basis. If holders exercise
warrants on a net basis, the Company would not
receive any cash in respect of the shares issued upon exercise.
At the election of the warrant holder, upon certain
transactions, including a merger, tender offer or sale of
substantially all of the assets of the Company, the holder may
receive cash in exchange for the warrant, in an amount
determined by application of the Black-Scholes option valuation
model.
The warrants issued in May 2009 were subject to certain
adjustments if the Company issued or sold shares below the
original exercise price. A September 2010 equity financing,
discussed below, triggered such adjustment provisions and, as a
result, the aggregate number of shares underlying such
unexercised warrants increased by 135,600 to 2,953,344 as of
December 31, 2010 and the per share exercise price
decreased from $3.92 to $3.74. Pursuant to the terms of the
warrant agreement, the terms of the warrants issued in May 2009
will not be further adjusted for any future transactions.
On August 7, 2009, the Company closed the sale of
2,280,502 shares of its common stock and warrants to
purchase an additional 684,150 shares of common stock for
gross proceeds of approximately $15.0 million. The purchase
price per unit, consisting of one share of common stock and a
warrant to purchase 0.30 shares of common stock, was $6.58.
The exercise price of the warrants is $6.58 per share. The
warrants are exercisable at any time on or prior to
August 7, 2011. Upon exercise, holders of the warrants are
required to deliver the aggregate exercise price with respect to
the number of underlying shares; provided that if a registration
statement is not available with respect to the issuance of such
shares upon exercise, under certain circumstances, holders may
exercise warrants on a net basis. If holders
exercise warrants on a net basis, the Company would
not receive any cash in respect of the shares issued upon
exercise.
On September 28, 2010, the Company closed the sale of
4,242,870 units, with each unit consisting of one share of
Company common stock and a warrant to purchase 0.75 shares
F-18
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
of common stock, at $3.50 per unit for proceeds of approximately
$13.6 million, net of $1.2 million in issuance costs
associated with the offering. A total of 3,182,147 shares
of common stock are issuable upon the exercise of such warrants.
The exercise price of the warrants is $4.24 per share. These
warrants are exercisable at any time on or after the six-month
anniversary of the closing through and including the five year
anniversary of the earlier of (i) the date on which the
shares of common stock underlying the warrants may be freely
resold pursuant to a resale registration statement and
(ii) the date on which the shares of common stock
underlying the warrants may be sold under Rule 144,
promulgated under the Securities Act of 1933, as amended,
without any restriction or limitation and without the
requirement to be in compliance with Rule 144(c)(1). Upon
exercise, holders of the warrants are required to deliver an
executed exercise notice, the aggregate exercise price with
respect to the number of underlying shares as to which the
warrant is being exercised and, if the warrant is exercised in
full, the original warrant. If, on the date the exercise notice
is delivered to the Company, there is not an effective
registration statement registering, or no current prospectus
available for the resale by the holder of the shares underlying
the warrant, then the holder may exercise the warrants on a
net basis. If a holder exercises the warrant on a
net basis, the Company would not receive any cash in
respect of the shares issued upon exercise. By delivery to the
Company of a written request before the 30th day after the
consummation of certain transactions, including a merger, tender
offer or sale of substantially all of the assets of the Company,
a holder may receive cash in exchange for the warrant, in an
amount determined by application of the Black-Scholes option
valuation model to the unexercised portion of the warrant on the
date of such transaction.
The warrants issued in May 2009 and September 2010 have been
classified as liabilities, as opposed to equity, due to the
potential cash settlement upon the occurrence of certain
transactions as noted above. Holders of warrants issued in the
August 2009 financing are not entitled to receive cash under any
circumstance and, therefore, are reported in stockholders
equity.
A summary of outstanding warrants as of December 31, 2010
and 2009 and changes during the years then ended is presented
below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Balance, beginning of year
|
|
|
3,838,918
|
|
|
|
795,150
|
|
Equity placements
|
|
|
3,317,747
|
|
|
|
3,593,394
|
|
Exercise of warrants
|
|
|
|
|
|
|
(91,500
|
)
|
Expiration of warrants
|
|
|
(337,024
|
)
|
|
|
(458,126
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
6,819,641
|
|
|
|
3,838,918
|
|
|
|
|
|
|
|
|
|
|
F-19
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The following table summarizes information regarding warrants
outstanding at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
Exercise Prices
|
|
Warrants
|
|
|
Expiry Date
|
|
|
$3.74
|
|
|
2,953,344
|
|
|
|
May 26, 2014
|
|
$4.24
|
|
|
3,182,147
|
|
|
|
September 28, 2015
|
|
$6.58
|
|
|
684,150
|
|
|
|
August 7, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,819,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Shares underlying warrants outstanding classified as liabilities
|
|
|
6,135,491
|
|
|
|
2,817,744
|
|
Shares underlying warrants outstanding classified as equity
|
|
|
684,150
|
|
|
|
1,021,174
|
|
Conversion of
restricted share units
Restricted share units of 9,498, 9,920 and 6,543 with a weighted
average fair value of $8.46, $7.56 and $7.81 were converted into
9,498, 9,920 and 6,543 shares of common stock during 2010,
2009 and 2008 respectively.
Earnings (loss)
per share
The following is a reconciliation of the numerators and
denominators of basic and diluted earnings (loss) per share
computations (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(15,618
|
)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute earnings per
share basic
|
|
|
26,888,588
|
|
|
|
22,739,138
|
|
|
|
19,490,621
|
|
Effect of dilutive RSUs
|
|
|
|
|
|
|
|
|
|
|
79,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding and dilutive securities used
to compute earnings per share diluted
|
|
|
26,888,588
|
|
|
|
22,739,138
|
|
|
|
19,570,170
|
|
Shares potentially issuable upon the exercise or conversion of
director and employee stock options of 2,075,025, 1,836,657 and
1,223,386; non-employee director restricted share units of
217,198, 186,266 and 0; and warrants of 6,819,641, 3,838,918 and
795,150 have been excluded from the calculation of diluted loss
per share in the years ended December 31, 2010 and 2009
respectively because their effect was anti-dilutive.
For all periods presented, shares contingently issuable in
connection with the May 2, 2001 Merck KGaA agreement
(discussed below), contingently issuable shares in connection
with the October 30, 2006 ProlX acquisition, have been
excluded from the calculation of diluted (loss) per share
because the effect would have been anti-dilutive.
F-20
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
In May 2001, under the terms of a common stock purchase
agreement, the Company issued to Merck KGaA 318,702 shares
of Company common stock for proceeds of $15.0 million net
of issuance costs of $9,000. Upon the first submission of a
biologics license application, or BLA for Stimuvax, if any, the
Company is required to sell and Merck KGaA is required to
purchase from the Company a number of shares of Company common
stock equal to (1) $1.5 million divided by
(2) 115% of the
90-day
weighted average per share price of such shares immediately
prior to such submission date. During periods presented, no
additional common shares were issued to Merck KGaA under such
agreement.
|
|
9.
|
STOCK-BASED
COMPENSATION
|
Stock option
plan
The Company sponsors a stock option plan (the Option
Plan) under which a maximum fixed reloading percentage of
10% of the issued and outstanding common shares of the Company
may be granted to employees, directors, and service providers.
Prior to April 1, 2008, options were granted with a per
share exercise price, in Canadian dollars, equal to the closing
market price of the Companys shares of common stock on the
Toronto Stock Exchange on the date immediately preceding the
date of the grant. After April 1, 2008, options were
granted with a per share exercise price, in U.S. dollars,
equal to the closing price of the Companys shares of
common stock on The NASDAQ Global Market on the date of grant.
Canadian dollar amounts reflected in the tables below, which
approximates their U.S. dollar equivalents as differences
between the U.S. dollar and Canadian dollar exchange rates
for the periods reflected below are not material. In general,
options granted under the Option Plan begin to vest after one
year from the date of the grant, are exercisable in equal
amounts over four years on the anniversary date of the grant,
and expire eight years following the date of grant. The current
maximum number of shares of common stock reserved for issuance
under the Option Plan is 3,008,862. As of December 31,
2010, 933,837 shares of common stock remain available for
future grant under the Option Plan.
A summary of the status of the Option Plan as of
December 31, 2010, and changes during such year is
presented below. As described above, prior to April 1,
2008, exercise prices were denominated in Canadian dollars and
in U.S. dollars thereafter. The weighted average exercise
prices listed below are in their respective dollar denominations.
F-21
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding, beginning of year $CDN
|
|
|
947,032
|
|
|
$
|
8.59
|
|
Outstanding, beginning of year $US
|
|
|
889,625
|
|
|
|
3.92
|
|
Granted $US
|
|
|
449,500
|
|
|
|
3.36
|
|
Exercised $US
|
|
|
(2,500
|
)
|
|
|
3.43
|
|
Forfeited $CDN
|
|
|
(105,093
|
)
|
|
|
9.92
|
|
Forfeited $US
|
|
|
(76,875
|
)
|
|
|
4.08
|
|
Expired $CDN
|
|
|
(26,664
|
)
|
|
|
14.00
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year $CDN
|
|
|
815,275
|
|
|
|
8.24
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year $US
|
|
|
1,259,750
|
|
|
|
3.71
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year $CDN
|
|
|
769,767
|
|
|
$
|
8.27
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year $US
|
|
|
229,500
|
|
|
$
|
3.84
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, there were 1,179,547
U.S. dollar denominated options vested and expected to vest
with a weighted-average exercise price of $3.71, a
weighted-average remaining contractual term of 6.96 years
and an aggregate intrinsic value of $0.4 million. For the
same period, there were 781,519 Canadian dollar denominated
options vested and expected to vest with a weighted-average
exercise price of CDN $8.11, a weighted-average remaining
contractual term of 3.58 years and an aggregate intrinsic
value of zero.
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
quoted price of the Companys common stock for all options
that were
in-the-money
at December 31, 2010. The aggregate intrinsic value at
December 31, 2010 for options outstanding was
$0.4 million and for options exercisable was
$0.1 million. The aggregate intrinsic value of options
exercised under the Option Plan was immaterial during 2010 and
2009. No options were exercised in 2008.
There were 2,500, 250 and zero stock options exercised in 2010,
2009 and 2008, respectively. As of December 31, 2010, there
were 43,000 exercisable,
in-the-money
options based on the Companys closing share price of $3.26
on The NASDAQ Global Market.
F-22
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The following table summarizes information on stock options
outstanding and exercisable at December 31, 2010. The range
of exercise prices and weighted average exercise prices are
listed in their respective dollar denominations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
Outstanding
|
|
|
Stock Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
Range of Exercise Prices
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
($CDN per share)
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
$4.60
|
|
|
|
7.50
|
|
|
|
|
471,665
|
|
|
|
3.71
|
|
|
$
|
7.33
|
|
|
|
465,124
|
|
|
|
3.69
|
|
|
$
|
7.35
|
|
7.51
|
|
|
|
10.00
|
|
|
|
|
239,914
|
|
|
|
3.96
|
|
|
|
8.10
|
|
|
|
200,947
|
|
|
|
3.90
|
|
|
|
8.11
|
|
10.01
|
|
|
|
16.02
|
|
|
|
|
103,696
|
|
|
|
1.25
|
|
|
|
12.72
|
|
|
|
103,696
|
|
|
|
1.25
|
|
|
|
12.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
815,275
|
|
|
|
3.47
|
|
|
$
|
8.24
|
|
|
|
769,767
|
|
|
|
3.42
|
|
|
$
|
8.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Prices ($USD
per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.10
|
|
|
|
3.00
|
|
|
|
|
166,375
|
|
|
|
6.13
|
|
|
$
|
1.11
|
|
|
|
43,000
|
|
|
|
5.94
|
|
|
$
|
1.11
|
|
3.01
|
|
|
|
4.00
|
|
|
|
|
535,375
|
|
|
|
7.38
|
|
|
|
3.37
|
|
|
|
47,000
|
|
|
|
4.75
|
|
|
|
3.43
|
|
4.01
|
|
|
|
5.00
|
|
|
|
|
530,500
|
|
|
|
6.91
|
|
|
|
4.73
|
|
|
|
132,625
|
|
|
|
6.91
|
|
|
|
4.73
|
|
5.01
|
|
|
|
6.56
|
|
|
|
|
27,500
|
|
|
|
6.62
|
|
|
|
6.45
|
|
|
|
6,875
|
|
|
|
6.62
|
|
|
|
6.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,259,750
|
|
|
|
7.00
|
|
|
$
|
3.71
|
|
|
|
229,500
|
|
|
|
6.28
|
|
|
$
|
3.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of non-vested stock options as of
December 31, 2010 and changes during 2010 is presented
below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Non-Vested
|
|
|
Grant Date
|
|
|
|
Options
|
|
|
Fair Value $
|
|
|
Balance at December 31, 2009 $CDN
|
|
|
103,479
|
|
|
$
|
6.29
|
|
Balance at December 31, 2009 $US
|
|
|
862,375
|
|
|
|
3.03
|
|
Granted $US
|
|
|
449,500
|
|
|
|
2.49
|
|
Vested $CDN
|
|
|
(54,847
|
)
|
|
|
6.29
|
|
Vested $US
|
|
|
(210,375
|
)
|
|
|
2.96
|
|
Forfeited $US
|
|
|
(63,750
|
)
|
|
|
3.21
|
|
Expired $CDN
|
|
|
(3,124
|
)
|
|
|
6.56
|
|
Expired $USD
|
|
|
(7,500
|
)
|
|
|
2.93
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 $CDN
|
|
|
45,508
|
|
|
$
|
6.16
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 $US
|
|
|
1,030,250
|
|
|
$
|
2.78
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense related to the stock option
plan of $0.9 million, $1.0 million and
$1.5 million was recognized in 2010, 2009 and 2008,
respectively. Total compensation cost related to non-vested
stock options not yet recognized was $2.3 million as of
December 31, 2010, which will be recognized over the next
37 months on a weighted-average basis.
F-23
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The Company uses the Black-Scholes option pricing model to value
options upon grant date, under the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average grant-date fair value per stock option $CDN
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.84
|
|
Weighted average grant-date fair value per stock option $US
|
|
$
|
2.49
|
|
|
$
|
3.03
|
|
|
$
|
2.93
|
|
Expected dividend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
89.11
|
%
|
|
|
92.46
|
%
|
|
|
114.19
|
%
|
Risk-free interest rate
|
|
|
2.00
|
%
|
|
|
2.47
|
%
|
|
|
3.09
|
%
|
Expected life of options in years
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
Until April 1, 2008 the risk-free interest rate for the
expected term of the option was based on the yield available on
Government of Canada benchmark bonds with an equivalent expected
term. Subsequent to April 1, 2008 the Company uses the
yield at the time of grant of a U.S. Treasury security. The
expected life of options in years is determined utilizing the
simplified method, which calculates the expected
life as the average of the vesting term and the contractual term
of the option. The expected volatility is based on the
historical volatility of the Companys common stock for a
period equal to the stock options expected life. The
amounts estimated according to the Black-Scholes option pricing
model may not be indicative of the actual values realized upon
the exercise of these options by the holders.
Stock-based compensation guidance requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from estimates.
The Company estimates forfeitures based on its historical
experience.
Restricted
share unit plan
The Company also sponsors a Restricted Share Unit Plan (the
RSU Plan) for non-employee directors that was
established in 2005. The RSU Plan provides for grants to be made
from time to time by the Board of Directors or a committee
thereof. Each grant will be made in accordance with the RSU Plan
and terms specific to that grant and will be converted into one
common share of common stock at the end of the grant period (not
to exceed five years) without any further consideration payable
to the Company in respect thereof. The current maximum number of
common shares of the Company reserved for issuance pursuant to
the RSU Plan is 466,666. As of December 31, 2010,
220,341 shares of common stock remain available for future
grant under the RSU Plan.
A summary of the status of the Companys RSU Plan as of
December 31, 2010, and changes during such year is
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average
|
|
|
|
Share
|
|
|
Fair Value
|
|
|
|
Units
|
|
|
per Unit
|
|
|
Outstanding, beginning of year
|
|
|
186,266
|
|
|
$
|
4.07
|
|
Granted
|
|
|
40,430
|
|
|
|
3.71
|
|
Converted
|
|
|
(9,498
|
)
|
|
|
8.46
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
217,198
|
|
|
|
3.81
|
|
|
|
|
|
|
|
|
|
|
Restricted share units convertible, end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Stock based compensation expense of $0.1 million,
$0.3 million and $0 were recognized on the RSU Plan in
2010, 2009 and 2008 respectively, representing the fair value of
restricted share units granted.
Prior to June 12, 2009 stockholder approval, the fair value
of the restricted share units has been determined to be the
equivalent of the Companys common shares closing trading
price on the date immediately prior to the grant as quoted in
Canadian dollars on the Toronto Stock Exchange. Subsequent to
June 12, 2009 stockholder approval, the fair value of the
restricted share units has been determined to be the equivalent
of the Companys common shares closing trading price in
U.S. dollars on the date immediately prior to the grant as
quoted on The NASDAQ Global Market.
Employee Stock
Purchase Plan
The Company adopted an Employee Stock Purchase Plan
(ESPP) on June 3, 2010, pursuant to which a
total of 900,000 shares of common stock were reserved for
sale to employees of the Company. The ESPP is administered by
the compensation committee of the board of directors and is open
to all eligible employees of the Company. Under the terms of the
ESPP, eligible employees may purchase shares of the
Companys common stock at six month intervals during
18-month
offering periods through their periodic payroll deductions,
which may not exceed 15% of any employees compensation and
may not exceed a value of $25,000 in any calendar year, at a
price not less than the lesser of an amount equal to 85% of the
fair market value of the Companys common stock at the
beginning of the offering period or an amount equal to 85% of
the fair market value of the Companys common stock on each
purchase date. The maximum aggregate number of shares that may
be purchased by each eligible employee during each offering
period is 15,000 shares of the Companys common stock.
For the year ended December 31, 2010 expense related to
this plan was $54,000. Under the Purchase Plan, the Company
issued 20,434 shares to employees in 2010 at a purchase
price of $2.82 per share. There are 879,566 are reserved for
future purchases as of December 31,2010.
|
|
10.
|
COLLABORATIVE AND
LICENSE AGREEMENTS
|
2001 Merck
KGaA Agreements
On May 3, 2001, the Company entered into a collaborative
arrangement with Merck KGaA to pursue joint global product
research, clinical development, and commercialization of two of
the Companys product candidates, Stimuvax and Theratope.
The collaboration covered the entire field of oncology for these
two product candidates and was documented in collaboration and
supply agreements (the 2001 Agreements). The
Companys deliverables under the 2001 Agreements included
(1) the license of rights to the product candidates,
(2) collaboration with Merck KGaA, including shared
responsibilities for the clinical development and
post-commercialization promotion of the product candidates,
(3) participation in a joint steering committee,
(4) participation in a manufacturing/CMC Project team,
(5) delivery of any improvements of Stimuvax to Merck and
(6) manufacturing of the product candidates.
Pursuant to the 2001 collaboration agreement, the Company
granted a co-exclusive license to Merck KGaA with respect to the
clinical development and commercialization of such product
candidates in North America and an exclusive license with
respect to the clinical development and commercialization of
such product candidates in the rest of the world. Merck KGaA did
not obtain the right to sublicense the rights licensed to it
pursuant to the 2001 collaboration agreement. The license term
commenced as of the effective date of the
F-25
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
2001 collaboration agreement. The exclusivity provisions of such
license were to remain in effect during the period beginning on
the effective date of such license agreement and ending, on a
product-by-product
and
country-by-country
basis, on the latter of (1) the expiration of patent rights
with respect to the applicable product candidate and
(2) the 15th anniversary of the product launch. After
the expiration of such period, such license would be perpetual
and non-exclusive.
Under the 2001 Agreements, the parties agreed to collaborate in
substantially all aspects of the clinical development and
commercialization of the product candidates and coordinate their
activities through a joint steering committee. Pursuant to the
2001 collaboration agreement, the parties agreed to share the
responsibilities and obligations, for the clinical development
and commercialization of the product candidates in North America
(other than with respect to the right to promote product
candidates in Canada, which was retained by the Company). In the
rest of the world, Merck KGaA was responsible for the clinical
development of the product candidates (although the Company
agreed to reimburse Merck KGaA for 50% of the clinical
development and regulatory costs) and commercialization of the
product candidates. The 2001 collaboration agreements term
corresponded with the exclusivity period of the Companys
license to the product candidates. Additionally, Merck KGaA was,
and is, entitled to terminate the agreements with the Company
with respect to a particular product candidate upon 30 days
prior written notice to the Company, if, in the exercise of
Merck KGaAs reasonable judgment, it determined that there
were issues concerning the safety or efficacy of such product
candidate that would materially adversely affect the
candidates medical, competitive or economic viability. If
the agreements are terminated by Merck KGaA in accordance with
their terms, the Company does not have legal recourse against
Merck KGaA with respect to contingent or other future payments.
Pursuant to the 2001 supply agreement, the Company was
responsible for the manufacturing of the clinical and commercial
supply of the product candidates for which Merck KGaA agreed to
reimburse the Company for its manufacturing costs. The 2001
supply agreements term corresponded to the exclusivity
period of the Companys license to the product candidates.
In connection with the execution of the 2001 collaboration
agreement and supply agreement, the Company received up-front
cash payments of $2.8 million ($1.0 million for
executing the agreement and $1.8 million as reimbursement
of pre-agreement clinical development expenses incurred by the
Company) and $4.0 million, respectively. In addition, under
the 2001 Agreements the Company was entitled to receive
(1) a $5.0 million payment contingent upon enrollment
of the first patient in a Phase 3 clinical trial,
(2) various additional contingent payments, up to a maximum
of $90.0 million in the aggregate (excluding payments
payable with respect to Theratope, the development of which was
discontinued in 2004), tied to BLA submission for first and
second cancer indications, for regulatory approval for first and
second cancer indications, and for various sales milestones, and
(3) royalties in the low twenties based on net sales
outside of North America. Under the 2001 supply agreement, the
Company was entitled to receive reimbursements from Merck KGaA
for a portion of the Stimuvax manufacturing costs.
The Company recorded the payments received in connection with
the execution of the 2001 Agreements as deferred revenue and
initially recognized such revenue ratably over the period from
the date of the 2001 Agreements to 2011. The Company determined
that the estimated useful life of the products and estimated
period of its ongoing obligations corresponded to the estimated
life of the issued patents for such products. The Company
F-26
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
chose that amortization period because, at the time, the Company
believed it reflected an anticipated period of market
exclusivity based upon the Companys expectation of
the life of the patent protection, after which the market entry
of competitive products would likely occur. The Company did not
receive any contingent payments or royalties under the 2001
Agreements. For more information regarding the Companys
revenue recognition policies, see Note 2
Significant Accounting Policies Revenue
Recognition.
In June 2004, following the failure of Theratope in a Phase 3
clinical trial, Merck KGaA returned to the Company all rights to
Theratope and development of Theratope was discontinued;
however, the parties continued to collaborate under the terms of
the 2001 Agreements with respect to the development of Stimuvax,
which in 2004 had shown positive results in a Phase 2 clinical
trial. In connection with the discontinuation of Theratope, the
Company accelerated recognition of approximately
$4.5 million in previously deferred revenue, which
corresponded to the portion of the up-front cash payments under
the 2001 Agreements that was allocated to Theratope. The
remaining deferred revenue related to Stimuvax was then
amortized over a period to end in 2018, the period estimated by
management to represent the estimated useful life of the product
and estimated period of its ongoing obligations, which
corresponded to the estimated life of the issued patents for
Stimuvax.
2006 Merck
KGaA LOI
On January 26, 2006, the parties entered into a binding
letter of intent (the LOI) pursuant to which the
2001 Agreements were amended in part and the parties agreed to
negotiate in good faith to amend and restate the 2001
collaboration and supply agreements, as necessary, to implement
the provisions contemplated by the LOI. The Companys
deliverables under the 2001 Agreements, as amended by the LOI,
remained (1) the license of rights to Stimuvax,
(2) participation in a joint steering committee,
(3) participation in a manufacturing/CMC Project team,
(4) delivery of any improvements of Stimuvax to Merck and
(5) manufacturing of the product candidate.
Pursuant to the LOI, in addition to the rights granted pursuant
to the 2001 Collaboration Agreement, the Company granted to
Merck KGaA an exclusive license with respect to the clinical
development and commercialization of Stimuvax in the United
States and, subject to certain conditions, to act as a secondary
manufacturer of Stimuvax. The Companys right to
commercialize Stimuvax in Canada remained unchanged. The license
grant was effective as of March 1, 2006. The exclusivity
period of such license corresponded to that under the 2001
collaboration agreement.
Pursuant to the LOI, the joint steering committee continued to
meet and served as the vehicle through which Merck KGaA provided
updates and shared information regarding clinical development
and marketing; however, it ceased to be a decision-making body.
The Company continued to have responsibility for manufacturing.
Further, the parties collaboration, including the term of
the 2001 collaboration agreement, was not otherwise affected.
Pursuant to the LOI, the Company continued to be responsible for
the manufacturing of the clinical supply of Stimuvax for which
Merck KGaA agreed to pay the Company its cost of manufacturing.
The 2001 supply agreements term was not modified by the
LOI.
Further, under the LOI, the $5.0 million contingent payment
payable to the Company under the 2001 Agreements upon enrollment
of the first patient in a Phase 3 clinical trial was amended
such that the Company was entitled to receive a
$2.5 million contingent payment upon the execution of the
amended and restated collaboration and supply
F-27
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
agreements contemplated by the LOI and a $2.5 million
contingent payment upon enrollment of the first patient in such
Phase 3 clinical trial. In addition, under the LOI the Company
was entitled to receive (1) various additional contingent
payments tied to the same events and up to the same maximum
amounts as under the 2001 Agreements, (2) royalties based
on net sales outside of North America at the same rates as under
the 2001 Agreements and (3) royalties based on net sales
inside of the North America ranging from a percentage in the
high-twenties to the mid-twenties, depending on the territory in
which the net sales occur. The royalty rate was higher in North
America than in the rest of the world in return for the Company
relinquishing its rights to Stimuvax in the United States. In
February 2007, the Company announced that the first patient had
been enrolled in the global Phase 3 Stimuvax clinical trial for
NSCLC, triggering the contingent payment by Merck KGaA to the
Company of $2.5 million. This payment was received in March
2007.
The Company assessed whether objective and reliable evidence of
fair value of the undelivered elements under the 2001
Agreements, as amended by the LOI, existed as the manufacturing
deliverable was shipped, and concluded such evidence did not
exist. As a result, it was concluded that all deliverables in
the arrangement were to be considered a single unit of
accounting.
The Company recorded the payments received under the LOI as
deferred revenue and recognized such revenue ratably over the
remaining estimated product life of Stimuvax, which was until
2018. The Company did not receive any royalties under the LOI.
For more information regarding the Companys revenue
recognition policies, see Note 2
Significant Accounting Policies Revenue
Recognition.
2007 Merck
KGaA Agreements
On August 8, 2007, the parties amended and restated the
collaboration and supply agreements (as amended and restated,
the 2007 Agreements), which restructured the 2001
Agreements and formalized the terms set forth in the LOI. The
Companys deliverables under the 2007 Agreements remained
(1) the license of rights to Stimuvax,
(2) participation in a joint steering committee,
(3) participation in a manufacturing/CMC Project team,
(4) delivery of any improvements of Stimuvax to Merck and
(5) manufacturing of the product candidates.
Under the 2007 collaboration agreement, in addition to the
rights granted pursuant to the 2001 collaboration agreement (as
modified by the LOI), the Company granted to Merck KGaA an
exclusive license to develop and commercialize Stimuvax in
Canada. For accounting purposes, the license grant to develop
Stimuvax in Canada was effective as of the date of the 2007
collaboration agreement. As a result, Merck KGaA obtained an
exclusive world-wide license with respect to the development and
commercialization of Stimuvax. The exclusivity period of such
license corresponded to that under the 2001 collaboration
agreement; however, whereas the license was perpetual and was
subject to termination by Merck KGaA the Company believed that
the appropriate amortization period, and therefore the period of
performance under the agreements, for amounts arising under the
contract corresponds to the estimated product life of Stimuvax,
or until 2018.
Under the 2007 collaboration agreement, the joint steering
committee continued to meet and serve as the vehicle through
which Merck KGaA provided updates and shared information
regarding clinical development and marketing; however, it ceased
to be a decision-making body. The Company continued to have
responsibility for the development of the manufacturing process
and plans for the
scale-up for
commercial manufacturing and
F-28
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
the parties collaboration was not otherwise materially
affected from the LOI. The 2007 collaboration agreements
term corresponded to that under the 2001 collaboration agreement.
Under the 2007 supply agreement, the Company continued to be
responsible for the manufacturing of the clinical and commercial
supply of Stimuvax for which Merck KGaA agreed to pay the
Company its cost of goods (which included amounts owed to third
parties) and provisions for certain contingent payments to the
Company related to manufacturing
scale-up and
process transfer were added. The 2007 supply agreements
term corresponded to that under the 2001 collaboration agreement.
The entry into the 2007 Agreements triggered a payment to the
Company of $2.5 million. Such payment was received in
September 2007 and recorded as deferred revenue and recognized
ratably over the remaining estimated product life of Stimuvax,
which was until 2018. In addition, under the 2007 Agreements,
the Company was entitled to receive (1) a $5.0 million
payment tied to the transfer of certain assays and methodology
related to the manufacturing of Stimuvax, a $3.0 million
payment tied to the transfer of certain Stimuvax manufacturing
technology and a $2.0 million payment tied to the receipt
of the first manufacturing run at commercial scale of Stimuvax
(provided that, in each case, such payments would have been
payable by December 31, 2009, regardless of whether the
applicable triggering event had been met), (2) various
additional contingent payments tied to the same events and up to
the same maximum amounts as under the 2001 Agreements,
(3) royalties based on net sales outside of North America
at the same rates as under the 2001 Agreements and
(4) royalties based on net sales inside of North America
with percentages in the mid-twenties, depending on the territory
in which the net sales occur. If the manufacturing process
payments due by December 31, 2009 were paid in full, the
royalty rates would be reduced in all territories by 1.25%,
relative to the 2001 Agreements and the LOI. In December 2007
and May 2008, the Company received from Merck KGaA a
$5.0 million and a $3.0 million payment, respectively,
related to the transfer of certain manufacturing information and
technology.
The Company assessed whether objective and reliable evidence of
fair value of the undelivered elements under the 2007 Agreements
existed as the manufacturing deliverable was shipped, and
concluded such evidence did not exist. As a result, it was
concluded that all deliverables in the arrangement was to be
considered a single unit of accounting.
The Company recorded the manufacturing process transfer payments
received under the 2007 Agreements as deferred revenue and
recognized such revenue ratably over the remaining estimated
product life of Stimuvax. After execution of the 2007 supply
agreement, the Company reported revenue and associated clinical
trial material costs related to the supply of Stimuvax
separately in the consolidated statements of operations as
contract manufacturing revenue and manufacturing expense,
respectively. Under the 2007 supply agreement, the Company was
entitled to invoice and receive a specified upfront payment on
the contractual purchase price for Stimuvax clinical trial
material after the receipt of Merck KGaAs quarterly
12-month
rolling forecast requirements. The Company invoiced the
remaining balance of the contractual purchase price after
shipment of the clinical trial material to Merck KGaA. The
upfront entitlements were recorded as deferred revenue and such
entitlements and the remaining balance of the purchase price
were recognized as contract manufacturing revenue after shipment
to Merck KGaA upon the earlier of (1) the expiration of a
60-day
return period (since returns could not be reasonably estimated)
and (2) formal acceptance of the clinical trial material by
Merck
F-29
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
KGaA. Concurrently, the associated costs of the clinical trial
material was removed from inventory and recorded as
manufacturing expense. The Company did not receive any royalties
under the 2007 Agreements. For more information regarding the
Companys revenue recognition policies, see
Note 2 Significant Accounting
Policies Revenue Recognition.
2008 Merck
KGaA Agreements
On December 18, 2008, the Company entered into a license
agreement with Merck KGaA which replaced the 2007 Agreements.
Pursuant to the 2008 license agreement, in addition to the
rights granted pursuant to the 2007 collaboration agreement, the
Company granted to Merck KGaA the exclusive right to manufacture
Stimuvax and the right to sublicense to other persons all such
rights licensed to Merck KGaA. The license grant was effective
as of the date of the 2008 license agreement. The exclusivity
period of such license corresponded to that under the 2007
collaboration agreement.
In addition, (1) the joint steering committee was
abolished, (2) the Company transferred certain
manufacturing know-how to Merck KGaA, (3) the Company
agreed not to develop any product that is competitive with
Stimuvax, other than its product candidate ONT-10, (4) the
Company granted to Merck KGaA a right of first negotiation in
connection with any contemplated collaboration or license
agreement with respect to the development or commercialization
of ONT-10 and (5) the Company sold other Stimuvax-related
assets as described in further detail below.
The only deliverable under the 2008 license agreement was the
license grant. Upon the execution of the agreements with Merck
KGaA in December 2008, all future Company performance
obligations related to the collaboration for the clinical
development and development of the manufacturing process of
Stimuvax were removed and continuing involvement by the Company
in the development and manufacturing of Stimuvax ceased
(although the Company continues to be entitled to certain
information rights with respect to clinical testing, development
and manufacture of Stimuvax).
In return for the license of manufacturing rights and transfer
of manufacturing know-how under the 2008 license agreement, the
Company received an up-front cash payment of approximately
$10.5 million. In addition, under the 2008 license
agreement (1) the provisions with respect to contingent
payments under the 2007 Agreements remained unchanged and
(2) the Company is entitled to receive royalties based on
net sales of Stimuvax ranging from a percentage in mid-teens to
high single digits, depending on the territory in which the net
sales occur. The royalties rates under the 2008 license
agreement were reduced by a specified amount which management
believes is consistent with the estimated costs of goods,
manufacturing scale up costs and certain other expenses assumed
by Merck KGaA. Since the Company had no further deliverables
under the 2008 License Agreement, the Company
(1) recognized as revenue the balance of all previously
deferred revenue of $13.2 million relating to the Merck
KGaA collaboration and (2) the final $2.0 million
manufacturing process transfer payment was recognized as revenue
when received in December 2009. For more information regarding
the Companys revenue recognition policies, see
Note 2 Significant Accounting
Policies Revenue Recognition.
F-30
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The table below presents the roll-forward of the deferred
revenue balances resulting from the payments received from Merck
KGaA (in thousands):
|
|
|
|
|
|
|
2008
|
|
|
Deferred revenue balance, beginning of year
|
|
$
|
18,067
|
|
Additional revenues deferred in the year:
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
|
3,000
|
|
Contract manufacturing
|
|
|
4,060
|
|
Less revenue recognized in the year:
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
|
(25,009
|
)
|
Effect of changes in foreign exchange rates
|
|
|
(118
|
)
|
|
|
|
|
|
Deferred revenue long term
|
|
$
|
|
|
|
|
|
|
|
Manufacturing process transfer payment received and recognized
currently
|
|
|
|
|
In connection with the entry into the 2008 license agreement,
the Company also entered into an asset purchase agreement
pursuant to which the Company sold to Merck KGaA certain assets
related to the manufacture of, and inventory of, Stimuvax,
placebo and raw materials, and Merck KGaA agreed to assume
certain liabilities related to the manufacturing of Stimuvax and
the Companys obligations related to the lease of the
Companys Edmonton, Alberta, Canada facility.
The plant and equipment in the Edmonton facility and inventory
of raw materials,
work-in-process
and finished goods were sold for a purchase price of
$0.6 million (including the assumption of lease obligation
of $0.1 million) and $11.2 million, respectively. The
purchase price of the inventory was first offset against
advances made in prior periods resulting in net cash to the
company of $2.0 million. The Company recorded the net gain
from the sale of the plant and equipment of $0.1 million in
other income and $11.2 million as contract manufacturing
revenue in 2008.
As result of the December 2008 transactions, 43 persons who
had previously been employed by the Company in its Edmonton
facility were transferred to Merck KGaA.
|
|
11.
|
WORKFORCE
REDUCTION COSTS
|
In 2008, as a result of the sale of the manufacturing rights and
know-how to Merck KGaA, the Company reduced its workforce by
eight employees (which does not take into account
43 employees who became employed by Merck KGaA as a result
of December 2008 transactions described above, for which there
were no workforce reduction costs). During 2008, the Company
recorded workforce reduction costs of $0.8 million, of
which $0.3 million was reported as research and development
expenses, and $0.5 million as general and administrative
expenses.
F-31
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The following table provides details of the workforce reduction
costs for 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
Reduction
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
|
Costs at
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
Costs at
|
|
|
|
Beginning
|
|
|
Reduction
|
|
|
Payments
|
|
|
End of
|
|
|
|
of Year
|
|
|
Costs
|
|
|
Cash
|
|
|
Non-Cash
|
|
|
Year
|
|
|
|
(In thousands)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
682
|
|
|
$
|
777
|
|
|
$
|
(567
|
)
|
|
$
|
|
|
|
$
|
892
|
|
Stock compensation expense
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
Effect of changes in foreign exchange rates
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
682
|
|
|
$
|
832
|
|
|
$
|
(569
|
)
|
|
$
|
(53
|
)
|
|
$
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
892
|
|
|
$
|
|
|
|
$
|
(591
|
)
|
|
$
|
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
301
|
|
|
$
|
|
|
|
$
|
(301
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrued workforce reduction costs at December 31, 2009
and December 31, 2008 have been recorded in accounts
payable and accrued liabilities in the consolidated balance
sheets. The accrued workforce reduction costs at
December 31, 2009 were fully paid by the end of June 2010.
|
|
12.
|
INVESTMENT AND
OTHER (INCOME) EXPENSE, NET
|
Investment and other (income) expense, net includes the
following components for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Government grant
|
|
$
|
(489
|
)
|
|
$
|
|
|
|
$
|
|
|
Investment (income) loss
|
|
|
(177
|
)
|
|
|
(82
|
)
|
|
|
(303
|
)
|
Net Foreign Exchange (income) loss
|
|
|
27
|
|
|
|
83
|
|
|
|
53
|
|
Sale of equipment (gain) loss
|
|
|
6
|
|
|
|
7
|
|
|
|
(48
|
)
|
Other Revenue
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment and other (income) expense, net
|
|
$
|
(636
|
)
|
|
$
|
8
|
|
|
$
|
(298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The income tax provision (benefit) consists of the following for
year ended December 31, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(200
|
)
|
|
$
|
200
|
|
|
$
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
(200
|
)
|
|
$
|
200
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2010, the Company recorded a tax benefit of $0.2 million
for the year ended December 31, 2010, which consists of
recovery of federal alternative minimum tax previously paid.
In 2009, the Company recorded a tax provision of
$0.2 million for the year ended December 31, 2009,
which consists of federal alternative minimum tax due to
limitations on net operating loss usage.
The provision (benefit) for income taxes is different from
applying the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Tax expense (benefit) at statutory rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
Previously recognized revenue
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
63.5
|
|
Research and development credits
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
1.3
|
|
Change in fair value of warrant liability
|
|
|
(6.8
|
)
|
|
|
12.7
|
|
|
|
0.0
|
|
Deferred tax adjustment
|
|
|
(15.0
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
Other
|
|
|
(4.0
|
)
|
|
|
0.8
|
|
|
|
0.0
|
|
Change in valuation allowance
|
|
|
50.2
|
|
|
|
22.9
|
|
|
|
(29.8
|
)
|
Expiration of loss carryforwards and credits
|
|
|
9.2
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
(1.4
|
)%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The Companys worldwide net deferred tax assets consists of
the following items at the end of the year:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Net deferred tax assets/(liabilities)
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
$
|
(41
|
)
|
|
$
|
(49
|
)
|
Intangible assets
|
|
|
1,409
|
|
|
|
1,520
|
|
Other
|
|
|
1,355
|
|
|
|
1,083
|
|
Tax benefits from losses carried forward and tax credits
|
|
|
134,820
|
|
|
|
121,944
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset before allowance
|
|
|
137,543
|
|
|
|
124,498
|
|
Less valuation allowance
|
|
|
(137,543
|
)
|
|
|
(124,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Based on the available evidence, the Company has recorded a full
valuation allowance against its net deferred income tax assets
as it is more likely than not that the benefit of these deferred
tax assets will not be realized. The valuation allowance
increased by $13.0 million and $25.7 million during
the year ended December 31, 2010 and 2009, respectively.
United
States
The Company has accumulated net operating losses in the United
States of $82.5 million and $58.4 million for United
States federal tax purposes at December 31, 2010 and 2009
respectively, some of which are restricted pursuant to
Section 382 of the Internal Revenue Code, and which may not
be available entirely for use in future years. These losses
expire in fiscal years 2011 through 2028. The Company has
federal research and development tax credit carry forwards of
$0.8 million that will expire in fiscal years 2011 through
2022, if not utilized.
Canada
The Company has unclaimed Canada federal investment tax credits
of $20.6 million and $19.6 million at
December 31, 2010 and 2009, respectively that expire in
fiscal years 2011 through 2019. The Company has scientific
research & experimental development expenditures of
$137.9 million and $131.5 million for Canada federal
purposes and $60.1 million and $56.0 million for
provincial purposes at December 31, 2010 and 2009
respectively. These expenditures may be utilized in any period
and may be carried forward indefinitely. The Company also has
Canada federal capital losses of $186.4 million and
$177.2 million and provincial capital losses of
$186.5 million and $177.3 million at December 31,
2010 and 2009 respectively that can be carried forward
indefinitely to offset future capital gains. The Company has
accumulated net operating losses of $6.2 million and
$5.5 million at December 31, 2010 and 2009 for Canada
federal tax purposes and $3.9 million for provincial
purposes which expire between 2017 and 2019.
F-34
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Other
The Company files federal, state and foreign income tax returns
in many jurisdictions in the United States and abroad. For
U.S. federal income tax purposes, the statute of
limitations is open for 1994 and onward for the United States
and Canada due to NOLs carried forward.
|
|
14.
|
CONTINGENCIES,
COMMITMENTS, AND GUARANTEES
|
Royalties
In connection with the issuance of the Class UA preferred
stock (See Note 8 Share Capital),
the Company has agreed to pay a royalty in the amount of 3% of
the net proceeds of sale of any products sold by the Company
employing technology acquired in exchange for the shares. None
of the Companys products currently under development
employ the technology acquired.
Pursuant to various license agreements, the Company is obligated
to pay royalties based both on the achievement of certain
milestones and a percentage of revenues derived from the
licensed technology.
Employee
benefit plan
Under a defined contribution plan available to permanent
employees, the Company is committed to matching employee
contributions up to limits set by the terms of the plan, as well
as limits set by U.S. tax authorities. The Companys
matching contributions to the plan totaled $0.1 million,
$0.1 million and $0.2 million in 2010, 2009 and 2008,
respectively. There were no changes to the plan during the year
ended December 31, 2010.
Guarantees
The Company is contingently liable under a mutual undertaking of
indemnification with Merck KGaA for any withholding tax
liability that may arise from payments under the license
agreement (See Note 13 Income Tax).
In the normal course of operations, the Company provides
indemnities to counterparties in transactions such as purchase
and sale contracts for assets or shares, service agreements,
director/officer contracts and leasing transactions. These
indemnification agreements may require the Company to compensate
the counterparties for costs incurred as a result of various
events, including environmental liabilities, changes in (or in
the interpretation of) laws and regulations, or as a result of
litigation claims or statutory sanctions that may be suffered by
the counterparties as a consequence of the transaction. The
terms of these indemnification agreements vary based upon the
contract, the nature of which prevents the Company from making a
reasonable estimate of the maximum potential amount that could
be required to pay to counterparties. Historically, the Company
has not made any significant payments under such indemnities and
no amounts have been accrued in the accompanying consolidated
financial statements with respect to these indemnities.
Under the agreement pursuant to which the Company acquired ProlX
the Company agreed to indemnify the former ProlX stockholders
with respect to certain tax liabilities that may arise as a
result of actions taken by the Company through 2011. The Company
estimates that the maximum potential amount of future payments
to satisfy hypothetical, future claims under such indemnities is
$15 million. The Company believes the probability of having
to make any payments pursuant to such indemnities to be remote
and therefore no amounts have been recorded thereon.
F-35
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The Company operates in a single business segment,
research and development of therapeutic products for the
treatment of cancer. Operations and long-lived assets by
geographic region for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenue from operations in
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
18
|
|
|
$
|
16
|
|
|
$
|
16
|
|
United States
|
|
|
|
|
|
|
2,062
|
|
|
|
39,747
|
|
Barbados
|
|
|
|
|
|
|
|
|
|
|
509
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18
|
|
|
$
|
2,078
|
|
|
$
|
40,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
|
|
|
$
|
|
|
|
$
|
280
|
|
United States
|
|
|
462
|
|
|
|
269
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
462
|
|
|
$
|
269
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
|
|
|
$
|
|
|
|
$
|
99
|
|
United States
|
|
|
4,075
|
|
|
|
4,193
|
|
|
|
2,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,075
|
|
|
$
|
4,193
|
|
|
$
|
2,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entry into a
Loan and Security Agreement with General Electric Capital
Corporation
On February 8, 2011, the Company entered into a Loan and
Security Agreement (the Loan Agreement) with General
Electric Capital Corporation (GECC and together with
the other financial institutions that may become parties to the
Loan Agreement, the Lenders), pursuant to which the
Lenders agreed to extend a term loan (the Initial Term
Loan) to the Company with an aggregate principal amount of
$5.0 million. In addition, the Company may borrow a second
term loan with an aggregate principal amount of
$7.5 million, at its option and subject to satisfying
certain conditions on or before November 1, 2011. The
conditions to borrow the second term loan include requirements
that (1) the Company has 12 months of unrestricted
cash and cash equivalents (as calculated in the loan agreement)
as of the time of incurrence, (2) the START trial for
Stimuvax is continuing or enrollment has been discontinued
because such trial has met a positive efficacy endpoint at an
interim analysis as determined by an independent data safety
monitoring board overseeing such trial and (3) the study of
at least one clinical indication in the Companys PX-866
program is continuing.
On February 8, 2011, GECC funded the Initial Term Loan and
the Company made a one-time, non-refundable facility fee to GECC
of $31,250 concurrently with the incurrence of the Initial Term
Loan. The Company may prepay each term loan in full, but not in
part. If
F-36
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
prepaid, a prepayment premium will apply equal to: (i) 3.0%
of the outstanding principal amount of such term loan, if such
prepayment is made on or before November 1, 2012, except if
the Initial Term Loan is prepaid on or before November 1,
2011, no prepayment premium will apply (ii) 2.0% of the
outstanding principal amount of such term loan, if such
prepayment is made after November 1, 2012 but on or before
September 1, 2013, and (iii) 1.0% of the outstanding
principal amount of such term loan, if such prepayment is made
after September 1, 2013 but before the Scheduled Maturity
Date. Upon satisfaction in full of each term loan (whether by
prepayment or at the Scheduled Maturity Date), the Company will
owe a fee equal to 1.50% of the original principal amount of the
applicable term loan.
The proceeds of the Initial Term Loan, after payment of lender
fees and expenses, are approximately $4.9 million. The net
proceeds will be used for general corporate purposes, including
research and product development, such as funding pre-clinical
studies and clinical trials and otherwise moving product
candidates towards commercialization, or the possible
acquisition or licensing of new product candidates or technology
which could result in other product candidates. Pending
application of the net proceeds, the Company intends to invest
the net proceeds in short-term, investment-grade,
interest-bearing instruments.
Pursuant to the terms of the Loan Agreement, the Company is
required to issue to the Lenders warrants equal to 3.0% of the
principal amount of term loan borrowings actually incurred. On
February 8, 2011, pursuant to the terms and conditions of
the Loan Agreement, the Company issued to an affiliate of GECC a
warrant to purchase up to 48,701 shares of the
Companys common stock at an exercise price equal to $3.08
per share (the Initial Warrant). The Warrants are
immediately exercisable and will expire seven years from their
respective dates of issue.
|
|
17.
|
CONDENSED
QUARTERLY FINANCIAL DATA (unaudited)
|
The following table contains selected unaudited statement of
operations information for each quarter of 2010 and 2009. The
unaudited information should be read in conjunction with the
Companys audited financial statements and related notes
included elsewhere in this report. The Company believes that the
following unaudited information reflects all normal recurring
adjustments necessary for a fair presentation of the information
for the
F-37
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
Quarterly
Financial Data (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
5
|
|
Operating expenses
|
|
|
5,438
|
|
|
|
4,722
|
|
|
|
4,345
|
|
|
|
4,997
|
|
Net loss
|
|
|
(772
|
)
|
|
|
(4,340
|
)
|
|
|
(4,352
|
)
|
|
|
(6,154
|
)(1)
|
Net loss per share basic and diluted
|
|
|
(0.03
|
)
|
|
|
(0.17
|
)
|
|
|
(0.17
|
)
|
|
|
(0.20
|
)
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4
|
|
|
$
|
31
|
|
|
$
|
4
|
|
|
$
|
2,039
|
|
Operating expenses
|
|
|
2,496
|
|
|
|
3,807
|
|
|
|
2,764
|
|
|
|
3,872
|
|
Net income (loss)
|
|
|
(2,472
|
)
|
|
|
(6,332
|
)
|
|
|
(5,945
|
)
|
|
|
(2,470
|
)
|
Net income (loss) per share basic and diluted
|
|
|
(0.13
|
)
|
|
|
(0.30
|
)
|
|
|
(0.24
|
)
|
|
|
(0.10
|
)
|
|
|
|
(1) |
|
Net loss for the three months ended December 31, 2010
includes change in fair value of warrants of approximately
$1.7 million (see Note 3). |
F-38