Attached files
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EX-31.1 - EX-31.1 - Cascadian Therapeutics, Inc. | v59159exv31w1.htm |
EX-32.2 - EX-32.2 - Cascadian Therapeutics, Inc. | v59159exv32w2.htm |
EX-32.1 - EX-32.1 - Cascadian Therapeutics, Inc. | v59159exv32w1.htm |
EX-31.2 - EX-31.2 - Cascadian Therapeutics, Inc. | v59159exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-33882
ONCOTHYREON INC.
(Exact name of registrant as specified in its charter)
Delaware | 26-0868560 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
2601 Fourth Ave., Suite 500 | ||
Seattle, Washington | 98121 | |
(Address of principal executive offices) | (Zip Code) |
(206) 801-2100
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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, as amended, 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 (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(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
As of May 9, 2011, the number of outstanding shares of the registrants common stock, par value $0.0001 per share, was 41,595,503.
ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2011
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2011
INDEX
In this Quarterly Report on Form 10-Q, unless otherwise specified, all monetary amounts are in
United States dollars, all references to $ and U.S. dollars mean U.S. dollars and all
references to Cdn. $ mean Canadian dollars.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ONCOTHYREON INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current: |
||||||||
Cash and cash equivalents |
$ | 11,008 | $ | 5,514 | ||||
Short-term investments |
17,990 | 23,363 | ||||||
Government grant receivable |
| 489 | ||||||
Prepaid expenses |
460 | 583 | ||||||
Other current assets |
363 | 131 | ||||||
29,821 | 30,080 | |||||||
Property and equipment, net |
1,888 | 1,958 | ||||||
Other assets |
306 | 290 | ||||||
Goodwill |
2,117 | 2,117 | ||||||
Total assets |
$ | 34,132 | $ | 34,445 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current: |
||||||||
Accounts payable |
$ | 939 | $ | 624 | ||||
Accrued liabilities |
865 | 533 | ||||||
Accrued compensation and related liabilities |
412 | 686 | ||||||
Current portion of notes payable |
758 | | ||||||
Current portion of deferred revenue |
| 18 | ||||||
Total
current liabilities |
2,974 | 1,861 | ||||||
Notes payable |
4,139 | 199 | ||||||
Noncurrent portion of deferred revenue |
| 127 | ||||||
Deferred rent |
400 | 388 | ||||||
Warrant liability |
14,441 | 12,983 | ||||||
Class UA preferred stock, 12,500 shares
authorized, 12,500 shares issued and
outstanding |
30 | 30 | ||||||
Commitments and contingencies |
||||||||
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, 30,095,503 and 30,088,628
shares issued and outstanding |
353,851 | 353,850 | ||||||
Additional paid-in capital |
17,784 | 17,328 | ||||||
Accumulated deficit |
(354,371 | ) | (347,255 | ) | ||||
Accumulated other comprehensive loss |
(5,116 | ) | (5,066 | ) | ||||
Total
stockholders equity |
12,148 | 18,857 | ||||||
Total liabilities and stockholders equity |
$ | 34,132 | $ | 34,445 | ||||
See accompanying notes to the condensed consolidated financial statements
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ONCOTHYREON INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(In thousands, except share and per share amounts)
Three months | ||||||||
ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Revenue |
||||||||
Licensing revenue from collaborative and license agreements |
$ | 145 | $ | 5 | ||||
Operating expenses |
||||||||
Research and development |
4,188 | 2,606 | ||||||
General and administrative |
1,829 | 2,832 | ||||||
Total operating expenses |
6,017 | 5,438 | ||||||
Loss from operations |
(5,872 | ) | (5,433 | ) | ||||
Other income (expenses) |
||||||||
Investment and other income (expense), net |
313 | 40 | ||||||
Interest expense |
(99 | ) | | |||||
Change in fair value of warrant liability |
(1,458 | ) | 4,621 | |||||
Total other income (expenses), net |
(1,244 | ) | 4,661 | |||||
Net loss |
$ | (7,116 | ) | $ | (772 | ) | ||
Net loss per share basic and diluted |
$ | (0.24 | ) | $ | (0.03 | ) | ||
Shares
used to compute basic and diluted loss per share |
30,088,781 | 25,753,405 | ||||||
See accompanying notes to the condensed consolidated financial statements
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ONCOTHYREON INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(In thousands)
Three months | ||||||||
ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (7,116 | ) | $ | (772 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
116 | 112 | ||||||
Amortization of discount on notes payable |
11 | | ||||||
Stock-based compensation expense |
314 | 225 | ||||||
Change in fair value of warrant liability |
1,458 | (4,621 | ) | |||||
Loss on disposal of property and equipment |
| 4 | ||||||
Extinguishment of debt |
(199 | ) | | |||||
Changes in assets and liabilities: |
||||||||
Government grants receivable |
489 | 93 | ||||||
Prepaid expenses |
123 | | ||||||
Other current assets |
(147 | ) | (22 | ) | ||||
Other long term assets |
95 | | ||||||
Accounts payable |
315 | (280 | ) | |||||
Accrued liabilities |
332 | 1,402 | ||||||
Accrued compensation and related liabilities |
(274 | ) | (409 | ) | ||||
Noncurrent portion of deferred revenue |
(145 | ) | (8 | ) | ||||
Deferred rent |
12 | 24 | ||||||
Net cash used in operating activities |
(4,616 | ) | (4,252 | ) | ||||
Cash flows from investing activities |
||||||||
Purchases of short-term investments |
(4,259 | ) | (9,342 | ) | ||||
Redemption of short-term investments |
9,582 | 2,363 | ||||||
Purchases of property and equipment |
(46 | ) | (141 | ) | ||||
Net cash provided by (used in) investing activities |
5,277 | (7,120 | ) | |||||
Cash flows from financing activities |
||||||||
Proceeds from stock options exercised |
29 | | ||||||
Proceeds from debt financing, net of issuance cost |
4,804 | | ||||||
Net cash provided by financing activities |
4,833 | | ||||||
Increase (decrease) in cash and cash equivalents |
5,494 | (11,372 | ) | |||||
Cash and cash equivalents, beginning of period |
5,514 | 18,974 | ||||||
Cash and cash equivalents, end of period |
$ | 11,008 | $ | 7,602 | ||||
See accompanying notes to the condensed consolidated financial statements
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ONCOTHYREON INC.
Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2011 and 2010
(Unaudited)
Three months ended March 31, 2011 and 2010
(Unaudited)
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. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by
the Company in accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP) for interim financial statements. The accounting principles and methods of
computation adopted in these condensed consolidated financial statements are the same as those of
the audited consolidated financial statements contained in the Companys Annual Report on Form 10-K
for the year ended December 31, 2010.
Omitted from these statements are certain information and note disclosures normally included
in the audited consolidated financial statements prepared in accordance with U.S. GAAP. The
Company believes all adjustments necessary for a fair statement of the results for the periods
presented have been made, and such adjustments are normal and recurring in nature. The financial
results for the three months ended March 31, 2011 are not necessarily indicative of financial
results for the full year. The unaudited condensed consolidated financial statements and notes
presented should be read in conjunction with the audited consolidated financial statements for the
year ended December 31, 2010 included in the Companys Annual Report on Form 10-K, filed with the
U.S. Securities and Exchange Commission.
Comprehensive Loss
Comprehensive
loss, which is comprised of net loss and other comprehensive income
or loss, amounted to $7.2 million and $0.8 million for the
three months ended March 31, 2011 and 2010, respectively. Our other comprehensive income or loss includes unrealized gains and losses on our
short-term investments available-for-sale and certain 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.
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
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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 all the criteria for
revenue recognition are met 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 collectability is reasonably assured.
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, 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 collectability is reasonably
assured.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2010, the Financial Accounting Standards Board (FASB) issued additional guidance
on when to perform Step 2 of the goodwill impairment test for reporting units with zero or negative
carrying amounts. The criteria for evaluating Step 1 of the goodwill impairment test and
proceeding to Step 2 was amended for reporting units with zero or negative carrying amounts and
requires performing Step 2 if qualitative factors indicate that it is more likely than not that a
goodwill impairment exists. For public entities, this guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2010. Upon adoption of the
amended guidance, any impairment will be recorded as an adjustment to beginning retained earnings.
The adoption of this new accounting pronouncement has no impact on our condensed consolidated
financial statements for the three months ended March 31, 2011.
In April 2010, FASB issued new guidance for recognizing revenue under the milestone method.
This new guidance allows an entity to make a policy election to recognize a substantive milestone
in its entirety in the period in which the milestone is achieved. This guidance is effective on a
prospective basis for milestones achieved in fiscal years and interim periods within those years,
beginning on or after June 15, 2010 with early adoption permitted. The adoption of this new
accounting pronouncement on January 1, 2011 had no impact on our condensed consolidated financial
statements for the three months ended March 31, 2011.
In October 2009, FASB issued new standards for revenue recognition with multiple deliverables.
These new standards impact the determination of when the individual deliverables included in a
multiple-element arrangement may be treated as separate units of accounting. Additionally, these
new standards modify the manner in which the transaction consideration is allocated across the
separately identified deliverables by no longer permitting the residual method of allocating
arrangement consideration. This guidance is effective on a prospective basis for multiple-element
arrangements entered or materially modified in fiscal years, and interim periods within those
years, beginning on or after June 15, 2010 with early adoption
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permitted. The adoption of this new accounting pronouncement on January 1, 2011 had no impact
on our condensed consolidated financial statements for the three months ended March 31, 2011.
4. 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 March 31, 2011 and December 31, 2010 (in thousands):
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Certificates of
deposits (asset) |
$ | | $ | 17,990 | $ | | $ | 17,990 | $ | | $ | 23,363 | $ | | $ | 23,363 | ||||||||||||||||
Warrants (liability) |
| | 14,441 | 14,441 | | | 12,983 | 12,983 |
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
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.
There were no transfers between Levels 1 and 2 during the three months ended March 31, 2011.
The change in fair value of warrants, classified in Level 3, of $1.5 million from December 31, 2010
to March 31, 2011 is recognized in the condensed consolidated statements of operations.
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. A discussion of
the valuation techniques and inputs to determine fair value of these instruments is included in
Note 9.
5. FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, short-term investments and
accounts receivable that will result in future cash receipts, as well as accounts payable accrued
liabilities and notes payable that require future cash outlays.
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Short-term Investments
Short-term 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). 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 March 31, 2011 and 2010, short-term investments consisted
of certificates of deposit denominated at or below $250,000 issued by banks insured by the Federal
Deposit Insurance Corporation. All asset classes purchased are limited to a final maturity from
purchase date of twelve months.
The amortized cost, unrealized losses and fair value for the periods presented are summarized
below (in thousands):
As of March 31, | As of December 31, | |||||||
2011 | 2010 | |||||||
Amortized cost |
$ | 18,040 | $ | 23,363 | ||||
Unrealized losses |
(50 | ) | | |||||
Fair value |
$ | 17,990 | $ | 23,363 | ||||
Accounts Receivable, Government Grant Receivable, Accounts Payable and Accrued
Liabilities
The carrying amounts of accounts receivable, government grant receivable and accounts payable
and accrued liabilities approximate their fair values due to the short-term nature of these
financial instruments.
Class UA Preferred Stock
The fair value of class UA preferred stock is assumed to be equal to its carrying value as the
amounts that will be paid and the timing of the payments cannot be determined with any certainty.
Notes Payable
The Company utilizes quoted market prices to estimate the fair value of its fixed rate debt,
when available. If quoted market prices are not available, the Company uses an approach that
reflects the proceeds that it would receive if it were to issue an identical liability as of the
measurement date with the same remaining term and the same remaining cash flows. As of March 31,
2011, the fair value of the term loan approximated the carrying value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment; therefore, they cannot be
determined with precision. Changes in assumptions could significantly affect the estimates.
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6. NOTES PAYABLE
(a) Notes payable assumed in connection with the acquisition of ProlX
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 was required to
repay such loans if it commercialized or sold the product that was the subject of such agreement.
In February 2011, the Company provided notice to the counterparty to such agreements that it does
not intend to commercialize such product. As a result, the agreements terminated in March 2011 and
the Company is no longer required to repay such loans. Accordingly, the Company derecognized the
notes payable in March 2011 and recognized $199,000 in other income.
(b) Notes payable General Electric Capital Corporation
On February 8, 2011, the Company entered into a Loan and Security Agreement with General
Electric Capital Corporation (GECC, and together with the other financial institutions that may
become parties to the Loan and Security Agreement, the Lenders), pursuant to which the Lenders
agreed to make a term loan in an aggregate principal amount of $5.0 million (the Term Loan),
subject to the terms and conditions set forth in the Term Loan. On February 8, 2011, the Lenders
funded a Term Loan in the principal amount of $5.0 million. The Term Loan accrues interest at a
fixed rate of 10.64% per annum and is payable over a 42-month period. The Company is required to
make monthly payments of interest only, through November 1, 2011, and is required to repay the
principal amount of the Term Loan over a period of 32 consecutive equal monthly installments of
principal of $151,515 plus accrued interest, commencing on December 1, 2011. At maturity of the
Term Loan, the Company is also required to make a final payment equal to 1.5% ($75,000) of the Term
Loan, which has been treated as a discount to the loan. The Company may incur additional fees if
it elects to prepay the Term Loan. In connection with the Term Loan, on February 8, 2011, the
Company issued to an affiliate of GECC a warrant to purchase up to an aggregate of 48,701 shares of
common stock at an exercise price of $3.08 per share. This warrant is classified as equity, is
immediately exercisable and will expire on February 8, 2018.
The Company allocated the aggregate proceeds of the Term Loan between the warrant and the debt
obligations based on their relative fair values. The fair value of the warrant issued to the
affiliate of GECC was calculated utilizing the Black-Scholes option-pricing model. The Company is
amortizing the relative fair value of the warrants of $114,447 together with the final payment of
$75,000 as a discount over the term of the loan through maturity date using the effective interest
method, with an effective interest rate of 14.89%. As of March 31, 2011, the unamortized Term Loan
discount was $178,382. If the maturity of the debt is accelerated due to an event of default, then
the amortization would also be accelerated.
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. As security for its obligations under the Loan agreement,
the Company granted the Lenders a lien on substantially all of its assets, excluding intellectual
property. The Company was in compliance with our financial and non-financial covenants as of March
31, 2011.
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Deferred financing costs of $196,039 were capitalized as other assets and are being amortized
to interest expense over the term of the Term Loan. As of March 31, 2011, the unamortized Term Loan
deferred financing costs were $184,588.
As of March 31, 2011, the future contractual principal payments on the Term Loan are as
follows:
2011 |
$ | 303,030 | ||
2012 |
1,818,182 | |||
2013 |
1,818,182 | |||
2014 |
1,060,606 | |||
Total |
$ | 5,000,000 | ||
A reconciliation of the face value of the Term Loan to the carrying value of the Term
Loan as of March 31, 2011 is as follows:
Total Term Loan, including final payment fee (face value) |
$ | 5,075,000 | ||
Less: Term Loan discount balance |
(178,382 | ) | ||
Total Term Loan carrying value |
4,896,618 | |||
Less: current portion of notes payable |
(757,576 | ) | ||
Long-term notes payable |
$ | 4,139,042 | ||
Interest expense for the three months ended March 31, 2011 and 2010, all of which related
to the Term Loan, was $99,361 and zero, respectively. Interest expense is calculated using the
effective interest method and includes non-cash amortization of debt discount and capitalized loan
fees in the amount of $22,516.
7. LOSS PER SHARE
Basic net loss per common share is calculated based on the net loss divided by the weighted average number of shares outstanding for the period excluding
any dilutive effects of options, warrants and unvested restricted share units. The
weighted average shares outstanding used to compute loss per share on a basic and diluted basis
were 30,088,781 and 25,573,405 for the three months ended March 31, 2011 and 2010 respectively. Basic net loss per
share equaled the diluted loss per share for the three months ended March 31, 2011 and 2010, since
shares potentially issuable upon the exercise or conversion of the following securities have been
excluded from the calculation of diluted loss per share because their effect was anti-dilutive:
As of March 31, | ||||||||
2011 | 2010 | |||||||
Director and employee stock options |
2,066,848 | 1,834,991 | ||||||
Non-employee director restricted share units |
217,198 | 186,266 | ||||||
Warrants |
6,868,342 | 3,838,918 |
8. EQUITY BASED TRANSACTIONS
Equity Line Financing
On July 6, 2010, the Company entered into a common stock purchase agreement (Purchase
Agreement) with Small Cap Biotech Value Fund, Ltd. (SCBV) providing for a committed equity line
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financing facility. The Purchase Agreement provides that, upon the terms and subject to the
conditions in the Purchase Agreement, SCBV is committed to purchase up to $20.0 million of shares
of the Companys common stock over the 24-month term of the Purchase Agreement under certain
specified conditions and limitations, provided that in no event may the Company sell under the
Purchase Agreement more than 5,090,759 shares of common stock. Furthermore, in no event may SCBV
purchase any shares of the Companys common stock which, when aggregated with all other shares of
common stock then beneficially owned by SCBV, would result in the beneficial ownership by SCBV of
more than 9.9% of the then outstanding shares of the Companys common stock. These maximum share
and beneficial ownership limitations may not be waived by the parties.
From time to time over the term of the Purchase Agreement, and in the Companys sole
discretion, the Company may present SCBV with draw down notices requiring SCBV to purchase a
specified dollar amount of shares of the Companys common stock, based on the price per share over
10 consecutive trading days (the Draw Down Period) with the total dollar amount of each draw down
subject to certain agreed-upon limitations based on the market price of the Companys common stock
at the time of the draw down (which may not be waived or modified). In addition, in the Companys
sole discretion, but subject to certain limitations, the Company may require SCBV to purchase a
percentage of the daily trading volume of the Companys common stock for each trading day during
the Draw Down Period. The Company is allowed to present SCBV with up to 24 draw down notices
during the term of the Purchase Agreement, with only one such draw down notice allowed per Draw
Down Period and a minimum of five trading days required between each Draw Down Period. As of March
31, 2011, no draw downs have taken place.
Before SCBV is obligated to purchase any shares of the Companys common stock pursuant to a
draw down notice, certain conditions specified in the Purchase Agreement, none of which are in
SCBVs control, must be satisfied. One such condition is that the registration statement
registering the resale of any shares issued to SCBV pursuant to the Purchase Agreement (the
Registration Statement) must be effective under the Securities Act of 1933, as amended (the
Securities Act). In connection with the execution of the Purchase Agreement, the Company entered
into a registration rights agreement with SCBV, pursuant to which the Company agreed to use its
commercially reasonable efforts to prepare and file the Registration Statement.
Once presented with a draw down notice, SCBV is required to purchase a pro rata portion of the
shares on each trading day during the trading period on which the daily volume weighted average
price for the Companys common stock exceeds a threshold price determined by the Company for such
draw down. The per share purchase price for these shares equals the daily volume weighted average
price of the Companys common stock on each date during the Draw Down Period on which shares are
purchased, less a discount ranging from 5.00% to 7.00% (which range may not be modified), based on
a minimum price the Company specifies. If the daily volume weighted average price of the Companys
common stock falls below the threshold price on any trading day during a Draw Down Period, the
Purchase Agreement provides that SCBV will not be required to purchase the pro-rata portion of
shares of common stock allocated to that trading day. The obligations of SCBV under the Purchase
Agreement to purchase shares of the Companys common stock may not be transferred to any other
party.
If the Company issues a draw down notice and fails to deliver the shares to SCBV on the
applicable settlement date, and such failure continues for 10 trading days, the Company agreed to
pay SCBV, in addition to all other remedies available to SCBV under the Purchase Agreement, an
amount in cash equal to 2.0% of the purchase price of such shares for each 30-day period the shares
are not delivered, plus accrued interest.
Reedland Capital Partners, an Institutional Division of Financial West Group, member
FINRA/SIPC, served as the Companys placement agent in connection with the financing arrangement
contemplated by the
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Purchase Agreement. The Company agreed to pay Reedland, upon each sale of its common stock to
SCBV under the Purchase Agreement, a fee equal to 1.0% of the aggregate dollar amount of common
stock purchased by SCBV upon settlement of each such sale.
In partial consideration for SCBVs execution and delivery of the Purchase Agreement, the
Company issued to SCBV upon the execution and delivery of the Purchase Agreement 59,921 shares of
the Companys common stock (the Commitment Shares), which is equal to the sum of $200,000 divided
by the volume weighted average price of the Companys common stock for each trading day during the
10 trading day period ending July 6, 2010. The average price per Commitment Share was
approximately $3.34. The Company recorded the fair value of the Commitment Shares issued to SCBV
as an expense during the three months ended September 30, 2010.
9. WARRANT LIABILITY
In September 2010, the Company closed the sale of 4,242,870 units, with each unit consisting
of one share of common stock and a warrant to purchase 0.75 shares of common stock, and in May 2009
the Company closed the sale of 3,878,993 units, with each unit consisting of one share of common
stock and a warrant to purchase 0.75 shares of common stock. The warrants issued in May 2009 and
September 2010 have been classified as a liabilities, as opposed to equity, due to potential cash
settlement upon the occurrence of certain transactions specified in the warrant agreement related
to the warrants. As of March 31, 2011, the outstanding warrants for the May 2009 and September
2010 financings were 2,953,344 and 3,182,147 respectively.
The estimated fair value of outstanding warrants accounted for as liabilities is determined as
of the balance sheet date and recorded in the consolidated balance sheet at each financial
reporting period. The change in fair value of such warrants is recorded in the consolidated
statement of operations as a gain (loss). The fair value of the warrants is estimated using the
Black-Scholes option-pricing model with the following inputs for the warrants issued in May 2009
and September 2010, respectively:
For the Three Months Ended | ||||||||
March 31, 2011 | ||||||||
May 2009 | September 2010 | |||||||
Warrants | Warrants | |||||||
Exercise price |
$ | 3.74 | $ | 4.24 | ||||
Market value of stock at end of period |
$ | 3.87 | $ | 3.87 | ||||
Expected dividend rate |
0.0 | % | 0.0 | % | ||||
Expected volatility |
88 | % | 85 | % | ||||
Risk-free interest rate |
1.4 | % | 2.0 | % | ||||
Expected life (in years) |
3.16 | 4.50 |
Three months ended | ||||
March 31, 2010 | ||||
May 2009 Warrants | ||||
Exercise price |
$ | 3.92 | ||
Market value of stock at end of period |
$ | 3.45 | ||
Expected dividend rate |
0.0 | % | ||
Expected volatility |
77 | % | ||
Risk-free interest rate |
2.2 | % | ||
Expected life in years |
4.15 |
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The changes in fair value of the warrant liability during the three-month period ended
March 31, 2011, were as follows (in thousands):
Warrant liability at January 1, 2011 |
$ | 12,983 | ||
Change in fair value recorded in earnings |
1,458 | |||
Balance at March 31, 2011 |
$ | 14,441 | ||
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
March 31, 2011, and for the foreseeable future, is the unadjusted volatility calculated using the
Companys historical stock price.
10. STOCK-BASED COMPENSATION
Share Option Plan
The Company sponsors a Share Option Plan under which a maximum fixed reloading percentage of
10% of the issued and outstanding common stock of the Company may be granted to employees,
directors, and service providers. In general, options granted under the 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. As of March 31,
2011, the maximum number of shares of common stock reserved for issuance under the Share Option
Plan was 3,009,550, and 942,702 shares of common stock remained available for future grant under
the Share Option Plan.
The Company granted 7,750 and zero stock options during the three months ended March 31, 2011
and 2010, respectively, and 6,875 and zero stock options were exercised during the three months
ended March 31, 2011 and 2010, respectively.
The Company uses the Black-Scholes option pricing model to value the options at each grant
date, using the following weighted average assumptions:
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Weighted average grant-date fair value for stock options granted |
$ | 2.18 | N/A | |||||
Expected dividend rate |
0.00 | % | N/A | |||||
Expected volatility |
82.35 | % | N/A | |||||
Risk-free interest rate |
2.32 | % | N/A | |||||
Expected life of options in years |
6.0 | N/A |
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.
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
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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 three
months ended March 31, 2011 expense related to this plan was $30,000. Under the ESPP, the Company
did not issue shares to employees during the three months ended March 31, 2011. There are 879,566
shares reserved for future issuances under the ESPP as of March 31, 2011.
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 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. As of March 31, 2011, maximum number of common shares of the
Company reserved for issuance pursuant to the RSU Plan was 466,666. As of March 31, 2011, 220,341
shares of common stock remain available for future grant under the RSU Plan. The Company did not
grant any restricted share units during the three months ended March 31, 2011 or 2010. 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 of grant as quoted in NASDAQ Global Market.
11. STOCKHOLDERS EQUITY
Changes in common shares were as follows:
Common Shares Issued | ||||
Balance at January 1, 2010 |
25,753,405 | |||
Common stock issued |
4,302,791 | |||
Restricted stock units converted |
9,498 | |||
Employee stock purchase plan |
20,434 | |||
Stock options exercised |
2,500 | |||
Balance at December 31, 2010 |
30,088,628 | |||
Stock options exercised |
6,875 | |||
Balance at March 31, 2011 |
30,095,503 |
The weighted average exercise price of stock options exercised in the three months ended
March 31, 2011 was $2.79.
12. CONTINGENCIES, COMMITMENTS AND GUARANTEES
Royalties
In connection with the issuance of the Class UA preferred stock, 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
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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 make payments based both
on the achievement of certain milestones and a percentage of revenues derived from the sublicensed
technology and royalties on net sales.
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 Companys agreements
with them.
In the normal course of operations, the Company indemnifies 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 indemnification agreements and no amounts have been
accrued in the accompanying condensed consolidated financial statements with respect to these
indemnification guarantees.
Under the Agreement and Plan of Reorganization between Oncothyreon, Biomira Acquisition
Corporation, ProlX and two of the principal stockholders of ProlX, the Company has indemnified the
former ProlX stockholders against certain liabilities, including with respect to certain tax
liabilities that may arise as a result of actions taken by the Company through 2011. The estimated
maximum potential amount of future payments that could potentially result from hypothetical future
claims is $15 million. The Company believes the risk of having to make any payments under this
agreement to be remote and therefore no amounts have been recorded thereon.
13.
COLLABORATIVE AND LICENCE AGREEMENTS
We have granted an
exclusive, worldwide license to Merck KGaA of Darmstadt, Germany, or Merck KGaA, for the development,
manufacture and commercialization of Stimuvax. The Company has no
continuing involvement in the ongoing development, manufacturing or
commercialization of Stimuvax. Under the 2008 license agreement, the Company may
receive milestones of up to $90 million upon the occurrence of
certain specified events. These contingent payments would be
recognized as revenue upon the occurrence of such events.
The Company is 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.
The Company has (1) agreed not to develop any product, other than ONT-10, that is competitive with Stimuvax
and (2) granted to Merck KGaA a right of first negotiation in connection with any contemplated collaboration
or license agreement with respect to the development of commercialization of ONT-10.
No amounts were recognized in connection with this agreement in either 2011 or 2010.
14. SUBSEQUENT EVENTS
On May 4, 2011, the Company closed an underwritten public offering of 11,500,000 shares of its
common stock at a price to the public of $4.00 per share for gross proceeds of $46.0 million. The
net proceeds from the sale of the shares, after deducting the underwriters discounts and other
estimated offering expenses payable by the Company were approximately $43.0 million.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The information in this Item 2 Managements Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our condensed consolidated financial
statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements based on current expectations that involve
risks and uncertainties, such as our plans, objectives, expectations and intentions. These
forward-looking statements include, but are not limited to, the following: our expectations
regarding future expenses and our ability to effectively manage them; clinical and pre-clinical
development activities, including our plans for the pre-clinical development of
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ONT-10 in 2011 and our decision to initiate additional planned Phase 2 trial for PX-866 in
2011; our expectations regarding the timing and results of the Phase 3 trials for Stimuvax; the
outcome of the suspension of the clinical trials of Stimuvax; our ability to secure collaboration
arrangements with pharmaceutical companies to complete the development and commercialization of our
product candidates; our ability to obtain suitable financing to support our operations, clinical
trials and commercialization of our products; and the use and adequacy of cash resources. These
forward-looking statements 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 this
quarterly report in Part II, Item 1A Risk Factors, and elsewhere in this quarterly report.
These statements, like all statements in this quarterly report, speak only as of their date, and we
undertake no obligation to update or revise these statements in light of future developments.
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 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, one Phase 2 trial in the first half of 2011, and plan to initiate a second
Phase 2 trial in the second quarter 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.
In May 2001, we entered into a collaborative arrangement with Merck KGaA to pursue joint
global product research, clinical development and commercialization of Stimuvax. In December 2008,
we entered into a license agreement with Merck KGaA which replaced our pre-existing agreements with
them. 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. Pursuant to the 2008 license agreement, we received an up-front
cash payment of approximately $10.5 million. The provisions with respect to contingent payments
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
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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 addition, pursuant to the terms of the
2008 license agreement we (1) agreed not to develop any product, other than ONT-10, that is
competitive with Stimuvax and (2) granted to Merck KGaA a right of first negotiation in connection
with any contemplated collaboration or license agreement with respect to the development of
commercialization of ONT-10.
For additional information regarding our relationship with Merck KGaA, see Note 10
Collaborative and License Agreements of the audited financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2010.
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.
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 current Good
Manufacturing Practices, or 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 March 31, 2011, our
accumulated deficit totaled $354.4 million. We incurred a net loss of $7.1 million for the three
months ended March 31, 2011 compared to a net loss of $0.8 million for the same period in 2010. 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 a financing in September 2010, in which we raised approximately $14.9
million in gross proceeds. 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. In addition, in May 2011 we completed a
financing, in which we issued an aggregate of 11.5 million shares and generated net proceeds of
approximately $43.0 million. See the section captioned Liquidity and Capital Resources and Note
6(b) Notes payable General Electric Capital Corporation of the unaudited financial
statements included in this report for additional information. Because we have limited revenues
and substantial research and development and operating expenses, we
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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
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 all the criteria for
revenue recognition are met 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 collectability is reasonably assured.
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, 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 collectability is reasonably
assured.
Expenses
Research and Development. Research and development expense consists of costs associated with
research activities as well as costs associated with our product development efforts, conducting
preclinical studies, and sale of clinical trial material. 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; third party supplier expenses and an allocation of facility costs. To date,
we have recognized research and development expenses, including those paid to third parties, as
they have been incurred.
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, Merck KGaA cancelled our collaboration relating
to Theratope only after receiving Phase 3 clinical trial results. We had made substantial
investments over several years in the development of Theratope and terminated all development
activities following the cancellation of our collaboration. 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,
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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 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.
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 professional fees for legal, consulting, and accounting
services and an allocation of our facility costs.
Investment and Other Income (Expense), net. Investment and other income (expense), net
consists of interest and other income on our cash and short-term investments, foreign exchange
gains and losses and other non-operating income. Our short term investments consist of
certificates of deposit issued by U.S. banks and insured by the Federal Deposit Insurance
Corporation.
Interest Expense. Interest expense consists of interest paid and accrued and includes
non-cash amortization of the debt discount and capitalized loan fees.
Change in Fair Value of Warrants. Warrants issued in connection with our securities offerings
in May 2009 and September 2010 are classified as a liability due to their settlement and other
terms 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 9Warrant Liability of the unaudited financial statements included in this report for more
information.
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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 condensed consolidated financial statements, which have been included
elsewhere in this report and which have been prepared in accordance with generally accepted
accounting principles in the United States. These accounting principles require us to make
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. Some of these judgments can be subjective and complex, and,
consequently, actual results may differ from these estimates. For any given individual estimate or
assumption we make, there may also be other estimates or assumptions that are reasonable. 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. Although we believe that our judgments and
estimates are appropriate, actual results may differ from these estimates.
Our critical accounting policies and significant estimates are detailed in our Annual Report
on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange
Commission, or SEC, on March 14, 2011. There have been no material changes in our critical
accounting policies and judgments since that date.
Results of Operations for the Three Month Periods Ended March 31, 2011 and March 31, 2010
The following table sets forth selected consolidated statements of operations data for each of
the periods indicated.
Overview
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions, except per share | ||||||||
amounts) | ||||||||
Revenue |
$ | 0.1 | $ | | ||||
Expense |
5.8 | 5.4 | ||||||
Change in fair value of warrant liability loss (gain) |
1.4 | (4.6 | ) | |||||
Net loss |
(7.1 | ) | (0.8 | ) | ||||
Loss per share basic and diluted |
(0.24 | ) | (0.03 | ) |
As discussed in more detail below, the increase in our net loss for the three months
ended March 31, 2011 compared to the three months ended March 31, 2010 was primarily due to the
increase in fair value of our warrant liability, which was attributable principally to the increase
in the price of our common stock. In addition, research and development expenses were higher due
to the development of PX-866 and ONT-10. This increase was partially offset by a decrease in
general and administrative expenses.
Revenue
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Licensing revenues from collaborative and license agreements |
$ | 0.1 | $ | |
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During the three months ended March 31, 2011 we recognized $0.1 million of previously
deferred revenue relating to an agreement with Prima Biomed Limited as we have no continuing
performance obligations related to such agreement. We do not expect revenue from the license of
Stimuvax until the submission, if any, by Merck KGaA, of the biologics license application, or BLA,
for the first indication, which would trigger a contingent payment from them to us under the 2008
license agreement.
Research and Development
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Research and development |
$ | 4.2 | $ | 2.6 |
Research and development was higher by $1.6 million, or 61.5%, for the three months ended
March 31, 2011 compared to the three months ended March 31, 2010, principally due to an increase of
expenses for preclinical and manufacturing development of $0.8 million, clinical trial expenses of
$0.5 million, salaries and benefits of $0.2 million and license fees of $0.1 million. Preclinical,
clinical and manufacturing development expenses increased due to greater activity related to the
development of PX-866 and ONT-10 compared to the prior year period. The increase in employee
related expense was attributable to the higher headcount.
We expect that our periodic research and development costs will increase slightly from current
levels for the rest of 2011.
General and Administrative Expense
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
General and administrative |
$ | 1.8 | $ | 2.8 |
The $1.0 million, or 35.7%, decrease in general and administrative expense for the three
months ended March 31, 2011 compared to the three months ended March 31, 2010 was attributable to a
$1.3 decrease in professional fees. The professional fees incurred in the three months ended March
31, 2010 primarily related to regulatory compliance activities. The decrease in general and
administrative expense was offset in part by an increase in insurance and patent related expenses
of $0.2 million and an increase in employee-related costs of $0.1 million due to higher headcount.
We expect our periodic general and administration expense to be at a slightly lower level than
current for the rest of 2011.
Investment and other income (expense), net
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Investment and other income , net |
$ | 0.3 | $ | |
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Investment and other income, net increased by $0.3 million for the three months ended
March 31, 2011 compared to the three months ended March 31, 2010 primarily due to the derecognition
of notes payable of $199,000 assumed in connection with the acquisition of ProlX, which we are no
longer required to repay. For more information, see Note 6(a) Notes payable assumed in
connection with the acquisition of ProlX to the unaudited financial statements included in this
report. The increase was also partially due to higher yields on investments.
Interest expense
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Interest expense |
$ | 0.1 | $ | |
Interest expense was $0.1 million for the three months ended March 31, 2011. There was
no interest expense for the three months ended March 31, 2010. Interest incurred included non-cash
amortization of debt issuance costs and debt discount associated with a term loan entered into with
General Electric Capital Corporation. For more information, see Note 6(b) Notes payable
General Electric Capital Corporation to the unaudited financial statements included in this
report.
Change in Fair Value of Warrant Liability
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Change in fair value of warrant liability (loss)/income |
$ | (1.5 | ) | $ | 4.6 |
The $1.5 million loss recorded in the three months ended March 31, 2011 was due to the
increase in fair value of warrant liability during that period. Such increase was attributable
principally to the increase 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 in our Annual Report on Form 10-K for the year ended December 31, 2010. If the
fair value of the warrant liability as of March 31, 2010 was calculated using the current method,
the change in fair value warrant liability income would have decreased $0.7 million from $4.6
million to $3.9 million.
Liquidity and Capital Resources
Cash, Cash Equivalents, Short-Term Investments and Working Capital
As of March 31, 2011, our principal sources of liquidity consisted of cash and cash
equivalents of $11.0 and short-term investments of $18.0 million. Our cash equivalents consist of
certificates of deposit issued by institutions insured by the Federal Deposit Insurance Corporation
with an initial maturity of less than 90 days. Our short-term investments are invested in
certificates of deposit insured by the Federal Deposit Insurance Corporation with maturities not
exceeding 12 months. 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.
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Our cash and cash equivalents were $11.0 million as of March 31, 2011 compared to $5.5 million
as of December 31, 2010, an increase of $5.5 million, or 100%. The increase reflects net
redemption of short-term investments of $5.3 million and $4.8 million received from a term loan
from General Electric Capital Corporation, or GECC, in February 2011, offset by net cash used in
operations of $4.6 million.
As of March 31, 2011, our working capital (defined as current assets less current liabilities)
was $26.8 million compared to $28.2 million as of December 31, 2010, a decrease of $1.4 million, or
5.0%. The decrease in working capital was primarily attributable to a $0.6 million increase of
accounts payable and accrued liabilities and a $0.6 million decrease in government grants
receivable and prepaid expenses.
In February 2011, we entered into a loan and security agreement, or the loan agreement, with
GECC, 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 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 $4.8 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 6(b) Notes payable
General Electric Capital Corporation to the unaudited financial statements included in this report
for additional information regarding the loan agreement.
On May 4, 2011, the Company closed an underwritten public offering of 11,500,000 shares of its
common stock at a price to the public of $4.00 per share for gross proceeds of $46.0 million. The
net proceeds from the sale of the shares, after deducting the underwriters discounts and other
estimated offering expenses payable by the Company were approximately $43.0 million.
We believe that our currently available cash and cash equivalents, together with the loan
agreement, and our financing which closed in May 2011 will be 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, but 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 shareholders could experience substantial dilution.
Cash Flows from Operating Activities
We used $4.6 million of cash in operating activities for the three months ended March 31,
2011, an increase of $0.3 million compared to $4.3 million of cash in operating activities for the
three months ended
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March 31, 2010. The increase in cash used in operations was primarily due to an increase in
research and development expenses.
Cash Flows from Investing Activities
We had cash inflows of $5.3 million from investing activities for the three months ended March
31, 2011, compared to cash outflows from investing activities of $7.1 million for the three months
ended March 31, 2010. This change was attributable primarily to lower purchases of short-term
investments and higher redemption of short-term investments in the three months ended March 31,
2011.
Cash Flows from Financing Activities
Cash provided by financing activities for the three months ended March 31, 2011 was $4.8
million, which consisted primarily of proceeds received pursuant to the loan agreement. For the
three months ended March 31, 2010, cash provided by financing activities was zero.
Contractual Obligations and Contingencies
In our 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 March 31, 2011:
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating leases |
$ | 4,530 | $ | 480 | $ | 1,168 | $ | 1,203 | $ | 1,679 | ||||||||||
Notes payable |
5,075 | 758 | 4,317 | | | |||||||||||||||
Interest commitment on notes payable |
1,080 | 527 | 553 | | | |||||||||||||||
Total |
$ | 10,685 | $ | 1,765 | $ | 6,038 | $ | 1,203 | $ | 1,679 | ||||||||||
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 2010. 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.
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 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.
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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 March 31, 2011, we believe that our
exposure related to these guarantees and indemnification obligations is not material.
Off-Balance Sheet Arrangements
During the periods 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.
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board, or FASB, issued additional
guidance on when to perform Step 2 of the goodwill impairment test for reporting units with zero or
negative carrying amounts. The criteria for evaluating Step 1 of the goodwill impairment test and
proceeding to Step 2 was amended for reporting units with zero or negative carrying amounts and
requires performing Step 2 if qualitative factors indicate that it is more likely than not that a
goodwill impairment exists. For public entities, this guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2010. Upon adoption of the
amended guidance, any impairment will be recorded as an adjustment to beginning retained earnings.
This update has no impact on our financial position, operating results or disclosures for the three
months ended March 31, 2011.
In April 2010, FASB issued new guidance for recognizing revenue under the milestone method.
This new guidance allows an entity to make a policy election to recognize a substantive milestone
in its entirety in the period in which the milestone is achieved. This guidance is effective on a
prospective basis for milestones achieved in fiscal years and interim periods within those years,
beginning on or after June 15, 2010 with early adoption permitted. The adoption of this new
accounting pronouncement on January 1, 2011 had no impact on our condensed consolidated financial
statements for the three months ended March 31, 2011.
In October 2009, FASB issued new standards for revenue recognition with multiple deliverables.
These new standards impact the determination of when the individual deliverables included in a
multiple-element arrangement may be treated as separate units of accounting. Additionally, these
new standards modify the manner in which the transaction consideration is allocated across the
separately identified deliverables by no longer permitting the residual method of allocating
arrangement consideration. This guidance is effective on a prospective basis for multiple-element
arrangements entered or materially modified in fiscal years, and interim periods within those
years, beginning on or after June 15, 2010 with early adoption permitted. The adoption of this new
accounting pronouncement on January 1, 2011 had no impact on our condensed consolidated financial
statements for the three months ended March 31, 2011.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
We had cash, cash equivalents and short-term investments totaling $29.0 million and $28.9
million as of March 31, 2011 and December 31, 2010, 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 points decline in interest rates,
occurring January 1, 2011 and sustained throughout the period ended March 31, 2011, would result in
a decline in investment income of approximately $0.1 million for that same period.
Item 4. Controls and Procedures
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 the end of the period covered by this report, 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. Based on this evaluation, our chief executive officer and chief financial
officer have concluded that, as of the end of the period covered by this report, 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.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting
during the quarter ended March 31, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings with respect to us, our subsidiaries, or
any of our material properties. From time to time, we may become involved in legal proceedings in
the ordinary course of our business.
Item 1A. Risk Factors
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
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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 Merck 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 March 31, 2011, 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 FDA and the Special Protocol Agreement
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.
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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 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:
| activities and arrangements related to the commercialization of our product candidates; |
| the progress of our research and development programs; |
| 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; |
| the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property; |
| the effect of competing technological and market developments; |
| the effect of changes and developments in our existing licensing and other relationships; and |
| the terms of any new collaborative, licensing and other arrangements that we may establish. |
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.
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 March 31, 2011, our accumulated deficit was
approximately $354.4 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, one Phase
2 trial in the first half of 2011, and plan to initiate a second Phase 2 trial in the second
quarter 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 manner,
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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:
| safety issues or side effects; |
| delays in patient enrollment and variability in the number and types of patients available for clinical trials; |
| poor effectiveness of product candidates during clinical trials; |
| governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; |
| our or our collaborators ability to obtain regulatory approval to commence a clinical trial; |
| our or our collaborators ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials; and |
| varying interpretation of data by the FDA and similar foreign regulatory agencies. |
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
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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 the Phase 3
breast cancer trial 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. For example, the
suspension of the Stimuvax trials resulted in Merck KGaA enrolling 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; |
| fines; |
| product recalls; |
| withdrawal of regulatory approval; |
| operating restrictions; |
| disgorgement of profits; |
| injunctions; and |
| criminal prosecution. |
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.
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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:
| our ability to provide acceptable evidence of safety and efficacy; |
| the prevalence and severity of adverse side effects; |
| availability, relative cost and relative efficacy of alternative and competing treatments; |
| the effectiveness of our marketing and distribution strategy; |
| publicity concerning our products or competing products and treatments; and |
| our ability to obtain sufficient third party insurance coverage or reimbursement. |
If our product candidates do not become widely accepted by physicians, patients, third party
payers 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:
| obtain patent and other proprietary protection for our technology, processes and product candidates; |
| defend patents once issued; |
| preserve trade secrets; and |
| operate without infringing the patents and proprietary rights of third parties. |
As of March 31, 2011, 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; |
| we might not have been the first to file patent applications for these inventions; |
| others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products; |
| 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; |
| 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; |
| if issued, the patents under which we hold rights may not be valid or enforceable; or |
| 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. |
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 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
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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 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.
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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 payers 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 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:
| decreased demand for our product candidates; |
| impairment of our business reputation; |
| withdrawal of clinical trial participants; |
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| costs of related litigation; |
| substantial monetary awards to patients or other claimants; |
| loss of revenues; and |
| the inability to commercialize our product candidates. |
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. 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
Gilead Sciences, Inc. (Phase 2). There are also several approved targeted therapies for cancer and
in development against which PX-866 might compete.
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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:
| design and develop products that are superior to other products in the market; |
| attract qualified scientific, medical, sales and marketing and commercial personnel; |
| obtain patent and/or other proprietary protection for our processes and product candidates; |
| obtain required regulatory approvals; and |
| successfully collaborate with others in the design, development and commercialization of new products. |
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:
| our inability to recruit and retain adequate numbers of effective sales and marketing personnel; |
| the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products; |
| the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and |
| unforeseen costs and expenses associated with creating 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.
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
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Form 10-K for the year ended December 31, 2009. Remediation of the material weaknesses was
fully completed on December 31, 2010; however, we can provide no assurances that these 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. 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 in our
Annual Report on Form 10-K for the year ended December 31, 2010. 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. 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.
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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.
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 March 31, 2011, 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:
| substantial cash expenditures; |
| potentially dilutive issuance of equity securities; |
| incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition; |
| difficulties in assimilating the operations of the acquired companies; |
| diverting our managements attention away from other business concerns; |
| entering markets in which we have limited or no direct experience; and |
| potential loss of our key employees or key employees of the acquired companies or businesses. |
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
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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.
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:
| 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); |
| technological innovations or new therapeutic products; |
| governmental regulations; |
| developments in patent or other proprietary rights; |
| litigation; |
| comments by securities analysts; |
| 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; |
| the perception that shares of our common stock may be delisted from The NASDAQ Stock Market; |
| the incurrence of debt; |
| general market conditions in our industry or in the economy as a whole; and |
| political instability, natural disasters, war and/or events of terrorism. |
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.
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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.
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.
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.
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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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Pursuant to the terms of the loan agreement, we are 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, in connection with the initial term loan made pursuant to the loan agreement, we issued to an
affiliate of GECC a warrant to
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purchase up to 48,701 shares of our common stock at an exercise price equal to $3.08 per
share. The warrants was offered and sold to accredited investors in reliance upon exemptions from
registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
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Item 6. Exhibits
Exhibit | ||||
Number | Description | |||
10.1 | 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). |
|||
10.2 | 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). |
|||
10.3 | 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). |
|||
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 Julia M. 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 Julia M. 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. |
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SIGNATURES
Pursuant to the requirements 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.
ONCOTHYREON INC. |
||||
Date: May 10, 2011 | /s/ Julia M. Eastland | |||
Chief Financial Officer | ||||
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INDEX OF EXHIBITS
Exhibit | ||||
Number | Description | |||
10.1 | 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). |
|||
10.2 | 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). |
|||
10.3 | 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). |
|||
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 Julia M. 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 Julia M. 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. |
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