Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - ALLOS THERAPEUTICS INCFinancial_Report.xls
EX-31.1 - EX-31.1 - ALLOS THERAPEUTICS INCa12-1119_7ex31d1.htm
EX-31.2 - EX-31.2 - ALLOS THERAPEUTICS INCa12-1119_7ex31d2.htm
EX-32.1 - EX-32.1 - ALLOS THERAPEUTICS INCa12-1119_7ex32d1.htm

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

 

Amendment No. 1

 

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the quarterly period ended September 30, 2011.

 

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
000-29815

 

Allos Therapeutics, Inc.
(Exact name of Registrant as specified in its charter)

 

Delaware

 

54-1655029

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

11080 CirclePoint Road, Suite 200
Westminster, Colorado  80020
(303) 426-6262
(Address, including zip code, and telephone number,
including area code, of principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No 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 x    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 x

 

 

 

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 x

 

As of November 1, 2011, there were 105,926,068 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

 

 

 



Table of Contents

 

Explanatory Note — Restatement of Previously Issued Financial Statements

 

This Amendment No. 1 to the quarterly report of Allos Therapeutics, Inc. on Form 10—Q/A (“Form 10—Q/A”) amends our quarterly report on Form 10—Q for the period ended September 30, 2011, which was originally filed on November 3, 2011 (“Original Form 10—Q”). This Form 10-Q/A is being filed for the purpose of amending certain disclosure and restating certain amounts in the Financial Statements in Part I, Item 1, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2, Controls and Procedures in Part 1, Item 4, and Risk Factors in Part II, Item 1A, as well as to include currently dated certifications from our principal executive officer and principal financial officer as required by Section 302 and 906 of the Sarbanes-Oxley Act of 2002. For the convenience of the reader, this Form 10-Q/A sets forth the Original Form 10-Q, as modified and superseded where necessary to reflect the amendments and restatement. The certifications of our principal executive officer and principal financial officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2 and 32.1.

 

Certain unaudited quarterly financial information including license and other revenue, operating loss, loss before income taxes, net loss, net loss per share and deferred revenue have been restated from amounts previously reported in the Original Form 10-Q. The restatements were due to a change in our accounting treatment related to the Mundipharma Agreements described herein. For the nine months ended September 30, 2011 we overstated the amount of allocable arrangement consideration under the Mundipharma Agreements. Accordingly, the adjustment for the three months ended June 30, 2011 and the three months ended September 30, 2011 was to reduce license and other revenue and increase deferred revenue and other liabilities by $4.7 million and $0.1 million, respectively. The restatement is more fully described in Note 1 to the Notes to the Financial Statements.

 

In connection with the restatement of our financial statements described herein, our management reassessed the effectiveness of our internal controls and procedures. As a result of that reassessment, our management determined there was a material weakness in our internal control over the evaluation of, and accounting for, complex multiple element revenue arrangements.  Due to this material weakness, management also concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.  For more information, see Item 4 included in this Form 10-Q/A.

 

This Form 10—Q/A does not reflect events occurring after the filing of the Original Form 10—Q other than the amendments and restatement related to the matter discussed above. Such events include, among other things, the events described in our Current Reports on Form 8—K and Quartely Reports on Form 10—Q filed after the date of the Original Form 10—Q. Concurrent with the filing of this Form 10—Q/A, we are filing our Form 10—K for the year ended December 31, 2011.

 

2



Table of Contents

 

ALLOS THERAPEUTICS, INC.

 

FORM 10-Q/A

 

TABLE OF CONTENTS

 

PART I.  Financial Information

4

ITEM 1.

Financial Statements (unaudited)

4

 

Balance Sheets — as of September 30, 2011 and December 31, 2010

4

 

Statements of Operations — for the three and nine months ended September 30, 2011 and 2010

5

 

Statements of Cash Flows — for the nine months ended September 30, 2011 and 2010

6

 

Notes to Financial Statements

7

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

45

ITEM 4.

Controls and Procedures

45

PART II.  Other Information

46

ITEM 1.

Legal Proceedings

46

ITEM 1A.

Risk Factors

48

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

ITEM 3.

Defaults Upon Senior Securities

66

ITEM 4.

Removed and Reserved

67

ITEM 5.

Other Information

67

ITEM 6.

Exhibits

67

SIGNATURES

 

68

 

NOTE:

 

Allos Therapeutics, Inc., the Allos Therapeutics, Inc. logo,  FOLOTYN, the FOLOTYN logo and all other Allos names are trademarks of Allos Therapeutics, Inc. in the United States and in other selected countries. All other brand names or trademarks appearing in this report are the property of their respective holders. Unless the context requires otherwise, references in this report to “Allos,” the “Company,” “we,” “us,” and “our” refer to Allos Therapeutics, Inc.

 

3



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

ALLOS THERAPEUTICS, INC.
BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(restated)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

69,643

 

$

48,164

 

Short-term investments

 

30,752

 

50,334

 

Restricted cash

 

238

 

238

 

Accounts receivable

 

15,606

 

12,076

 

Inventory

 

330

 

178

 

Prepaid expenses and other assets

 

3,179

 

2,180

 

Total current assets

 

119,748

 

113,170

 

Property and equipment, net

 

1,706

 

2,245

 

Long-term investments

 

 

67

 

Intangible asset, net

 

4,885

 

5,225

 

Other assets

 

 

49

 

Total assets

 

$

126,339

 

$

120,756

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

 

$

2,488

 

$

4,931

 

Deferred revenue

 

4,272

 

 

Accrued liabilities

 

19,047

 

17,627

 

Total current liabilities

 

25,807

 

22,558

 

Long-term deferred revenue and other liabilities

 

21,883

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding

 

 

 

Series A Junior Participating Preferred Stock, $0.001 par value; 1,500,000 shares designated from authorized preferred stock; no shares issued or outstanding

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 105,679,986 and 105,493,546 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

 

106

 

105

 

Additional paid-in capital

 

558,276

 

548,722

 

Accumulated deficit

 

(479,733

)

(450,629

)

Total stockholders’ equity

 

78,649

 

98,198

 

Total liabilities and stockholders’ equity

 

$

126,339

 

$

120,756

 

 

The accompanying notes are an integral part of these financial statements.

 

4



Table of Contents

 

ALLOS THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Net product sales

 

$

13,215

 

$

8,230

 

$

35,051

 

$

23,522

 

License and other revenue

 

840

 

 

24,294

 

 

Total revenue

 

14,055

 

8,230

 

59,345

 

23,522

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales, excluding amortization expense

 

1,230

 

889

 

3,217

 

2,330

 

Cost of license and other revenue

 

437

 

 

11,008

 

 

Research and development

 

4,996

 

7,249

 

17,567

 

23,056

 

Selling, general and administrative

 

18,688

 

18,702

 

56,398

 

57,151

 

Amortization of intangible asset

 

113

 

113

 

340

 

340

 

Total operating costs and expenses

 

25,464

 

26,953

 

88,530

 

82,877

 

Operating loss

 

(11,409

)

(18,723

)

(29,185

)

(59,355

)

Interest and other income, net

 

14

 

(129

)

74

 

2

 

Loss before income taxes

 

(11,395

)

(18,852

)

(29,111

)

(59,353

)

Income tax benefit

 

7

 

78

 

7

 

78

 

Net loss

 

$

(11,388

)

$

(18,774

)

$

(29,104

)

$

(59,275

)

 

 

 

 

 

 

 

 

 

 

Net loss per share: basic and diluted

 

$

(0.11

)

$

(0.18

)

$

(0.28

)

$

(0.56

)

Weighted average shares: basic and diluted

 

105,677,687

 

105,320,554

 

105,604,438

 

105,039,263

 

 

The accompanying notes are an integral part of these financial statements.

 

5



Table of Contents

 

ALLOS THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2011

 

2010

 

 

 

(restated)

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net loss

 

$

(29,104

)

$

(59,275

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

614

 

668

 

Stock-based compensation expense

 

9,431

 

7,892

 

Amortization of intangible asset

 

340

 

340

 

Other

 

5

 

226

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(3,530

)

(3,852

)

Prepaid expenses and other assets

 

(950

)

40

 

Interest receivable on investments

 

(24

)

(60

)

Inventory

 

(154

)

(136

)

Trade accounts payable

 

(2,443

)

480

 

Accrued liabilties

 

1,419

 

761

 

Deferred revenue and other long-term liabilities

 

26,155

 

 

Net cash provided by (used in) operating activities

 

1,759

 

(52,916

)

Cash Flows From Investing Activities:

 

 

 

 

 

Acquisition of property and equipment

 

(77

)

(937

)

Purchases of investments

 

(30,299

)

(55,050

)

Proceeds from maturities of investments

 

49,972

 

26,980

 

Net cash provided by (used in) investing activities

 

19,596

 

(29,007

)

Cash Flows From Financing Activities:

 

 

 

 

 

Proceeds from issuance of common stock associated with stock options and employee stock purchase plan

 

124

 

4,138

 

Proceeds from issuance of common stock, net of issuance costs

 

 

32

 

Net cash provided by financing activities

 

124

 

4,170

 

Net increase (decrease) in cash and cash equivalents

 

21,479

 

(77,753

)

Cash and cash equivalents, beginning of period

 

48,164

 

141,185

 

Cash and cash equivalents, end of period

 

$

69,643

 

$

63,432

 

Supplemental Schedule of Cash and Non-cash Activities:

 

 

 

 

 

Deferred revenue in accounts receivable

 

$

 

$

918

 

Assets recorded for which payment has not yet occurred

 

 

142

 

 

The accompanying notes are an integral part of these financial statements.

 

6



Table of Contents

 

ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS

(Dollars shown in tables are in thousands, except per share amounts)

(unaudited)

 

1.                 Basis of Presentation

 

The unaudited financial statements of Allos Therapeutics, Inc. (referred to herein as the “Company,” “Allos,” “we,” “us” or “our”) included herein reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state our financial position, results of operations and cash flows for the periods presented.  Certain information and footnote disclosures normally included in audited financial information prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC.  Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  These financial statements should be read in conjunction with the audited financial statements and notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2010 for a broader discussion of our business and the opportunities and risks inherent in such business.

 

Restatement

 

Certain unaudited quarterly financial information, including license and other revenue, operating loss, loss before income taxes, net loss, net loss per share and deferred revenue, has been restated for the three and nine month periods ended September 30, 2011 from the amounts previously reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2011. The restatement was related to the inclusion in the allocable arrangement consideration of the development cost differential contingent payment for the Mundipharma Collaboration Agreement and other items, as further described in Note 8 below. For the three months ended June 30, 2011 and the three months ended September 30, 2011, we overstated license and other revenue by $4.7 million and $0.1 million, respectively, as a result of our overstatement of the allocable arrangement consideration under the Mundipharma arrangement described herein.

 

The impact of the restatement on our statement of operations for the three and nine month periods ended September 30, 2011 is summarized below (dollars in thousands, except per share amounts):

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

September 30, 2011

 

September 30, 2011

 

 

 

As Originally
Reported

 

As Restated

 

As Originally
Reported

 

As Restated

 

License and other revenue

 

$

980

 

$

840

 

$

29,107

 

$

24,294

 

Net income (loss)

 

$

(11,248

)

$

(11,388

)

$

(24,291

)

$

(29,104

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.11

)

$

(0.11

)

$

(0.23

)

$

(0.28

)

 

The impact of the restatement on our balance sheets as of September 30, 2011 is summarized below (dollars in thousands, except per share amounts):

 

 

 

As of

 

 

 

September 30, 2011

 

 

 

As Originally
Reported

 

As Restated

 

Deferred revenue

 

$

6,084

 

$

4,272

 

Long-term deferred revenue

 

$

15,258

 

$

 

Long-term deferred revenue and other liabilities

 

$

 

$

21,883

 

 

The restatement had no effect on total net cash flows from operating, investing or financing activities in any period.

 

7



Table of Contents

 

Liquidity

 

As of September 30, 2011, we had $100.4 million in cash, cash equivalents, and investments. Based upon the current status of our product development and commercialization plans, we believe that our cash, cash equivalents, and investments as of September 30, 2011, will be adequate to support our operations through the end of 2014, although there can be no assurance that this can, in fact, be accomplished.

 

Our ability to achieve sustained profitability is dependent on our ability, alone or with partners, to significantly increase sales of FOLOTYN for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma, or PTCL, in the United States.  The amount of our future product sales are subject to significant uncertainty.  We may never generate sufficient revenue from product sales to become profitable.

 

We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials and seeking additional regulatory approvals for FOLOTYN.  We also expect to continue to spend substantial amounts on selling, general and administrative expenses to promote FOLOTYN for the treatment of patients with relapsed or refractory PTCL in the United States.  Therefore, we may need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including:

 

·                  the timing and amount of revenue generated from sales of FOLOTYN;

 

·                    the timing and costs associated with our sales and marketing activities for promoting FOLOTYN;

 

·                    the timing and costs associated with manufacturing clinical and commercial supplies of FOLOTYN;

 

·                  the timing and costs associated with conducting preclinical and clinical development of FOLOTYN, including the post-approval clinical studies required by the U.S. Food and Drug Administration, or FDA;

 

·                  the timing and costs associated with our evaluation of, and decisions with respect to, the potential development of FOLOTYN for additional therapeutic indications;

 

·                  the timing, costs and revenue associated with our strategic collaboration with Mundipharma International Corporation Limited, or Mundipharma, for the co-development of FOLOTYN globally and commercialization outside the United States and Canada; and

 

·                  our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

 

We may seek to obtain this additional capital through equity or debt financings, arrangements with corporate partners, or from other sources. Such financings or arrangements, if successfully consummated, may be dilutive to our existing stockholders.  However, there is no assurance that additional financing will be available when needed, or that, if available, we will obtain such financing on terms that are favorable to our stockholders or us.  In the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development, which we might otherwise seek to develop or commercialize ourselves, on terms that are less favorable than might otherwise be available.  If we are unable to significantly increase sales of FOLOTYN or cannot otherwise raise sufficient additional funds to support our operations, we may be required to delay, reduce the scope of or eliminate one or more of our development programs and our future prospects for profitability may be harmed.

 

2.                 Fair Value of Financial Instruments

 

Cash, Cash Equivalents and Investments

 

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.  The carrying values of our cash equivalents and investments approximate their market values based on quoted market prices. Investments are classified as held to maturity and are carried at cost plus accrued interest.  Our cash and cash equivalents are maintained in a financial institution in amounts that, at times, may exceed federally insured limits.  The weighted average duration of the remaining time to maturity for our portfolio of investments as of September 30, 2011 was approximately two

 

8



Table of Contents

 

months.  As of September 30, 2011, our investments were held in a variety of interest-bearing instruments, consisting mainly of U.S. Treasury notes.  We did not hold any derivative instruments, foreign exchange contracts, asset backed securities, mortgage backed securities, auction rate securities, or securities of issuers in bankruptcy in our investment portfolio as of September 30, 2011.

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:

 

Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to us for identical assets or liabilities;

 

Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and

 

Level 3: Unobservable inputs that are supported by little or no market activity.

 

We have no assets or liabilities that were measured using quoted prices for similar assets and liabilities or significant unobservable inputs (Level 2 and Level 3 assets and liabilities, respectively) as of September 30, 2011.  Our financial instruments include cash and cash equivalents, investments, accounts receivable, prepaid expenses, accounts payable and accrued liabilities. The carrying amounts of financial instruments approximate their fair value due to their short maturities. The carrying value of our cash held in money market funds totaling $68.7 million as of September 30, 2011 are included in cash and cash equivalents on our Balance Sheet and approximates market values based on quoted market prices, or Level 1 inputs.

 

The carrying value of investments consisted of the following as of September 30, 2011:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

cost

 

Gains

 

Losses

 

Value

 

Short-term held-to-maturity securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

$

30,135

 

$

 

$

2

 

$

30,133

 

Certificate of deposit

 

584

 

4

 

1

 

587

 

U.S. Government agency securities

 

271

 

 

 

271

 

Sub-total

 

$

30,990

 

$

4

 

$

3

 

$

30,991

 

Less: Amounts classified as restricted cash

 

(238

)

 

 

(238

)

Total due in one year or less

 

$

30,752

 

$

4

 

$

3

 

$

30,753

 

 

The carrying value of investments consisted of the following as of December 31, 2010:

 

9



Table of Contents

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

cost

 

Gains

 

Losses

 

Value

 

Short-term held-to-maturity securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury bills and notes

 

$

50,063

 

$

11

 

$

1

 

$

50,073

 

U.S. Government agency securities

 

271

 

6

 

 

277

 

Total due in one year or less

 

$

50,334

 

$

17

 

$

1

 

$

50,350

 

 

 

 

 

 

 

 

 

 

 

Long-term held-to-maturity securities:

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

305

 

$

11

 

$

 

$

316

 

Less: Amounts classified as restricted cash

 

(238

)

 

 

(238

)

Total due in one to three years

 

$

67

 

$

11

 

$

 

$

78

 

 

We had no realized losses on our investments during the nine months ended September 30, 2011 or 2010.  Market values were determined for each individual security in the investment portfolio.  If a decline in fair value below the amortized cost basis of an investment is judged to be other-than-temporary, the cost basis of the investment is written down to fair value. Additionally, management assesses whether it intends to sell or would more-likely-than-not not be required to sell the investment before the expected recovery of the amortized cost basis. We do not intend to sell and believe it is more-likely-than-not that we will not be required to sell the investment before recovery of its amortized cost basis.  All of the investments as of September 30, 2011 that were in a loss position have been in a continuous unrealized loss position for less than 12 months.  As of September 30, 2011, we had immaterial unrealized losses on two of our U.S. Treasury note investments with aggregate fair values of $10.0 million each.  As of September 30, 2011, no other than temporary impairment has been recorded on any of our investments since these unrealized losses are on U.S. government issued securities maturing within one year. The decline in value of the investments as of September 30, 2011 was caused primarily by changes in interest rates.  All of the investments as of December 31, 2010 that were in a loss position, have been in a continuous unrealized loss position for less than 12 months.  As of December 31, 2010, we have an unrealized loss of $1,000 on one of our U.S. Treasury bill investments with an aggregate fair value of $10.0 million.  As of December 31, 2010, no other than temporary impairment has been recorded on any of our investments since these unrealized losses are on U.S. government issued securities maturing within one year. The decline in value of the investments as of December 31, 2010 was caused primarily by changes in interest rates.  We do not intend to sell and we do not believe that it is more likely than not that we will be required to sell our investments before recovering the cost of securities, nor do we expect not to recover the entire amortized cost basis of our investments as of September 30, 2011.  We have the ability and intent to hold our remaining investments to recover the entire amortized cost basis of the investments as of September 30, 2011.

 

3.                 Inventory

 

Costs associated with the production of FOLOTYN bulk drug substance and formulated drug product by our third party manufacturers are recorded as either research and development expense or inventory.

 

Costs associated with the production of FOLOTYN by our third party manufacturers are expensed to research and development expense at the time of production when the formulated drug product is packaged for clinical trial use.

 

We capitalize the costs for our marketed products at the lower of cost (first-in, first-out method) or market (current replacement cost) with cost determined on the first-in, first-out basis and then expense the sold inventory as a component of cost of goods sold.

 

10



Table of Contents

 

Prior to receiving FDA approval of FOLOTYN, all costs related to purchases of the active pharmaceutical ingredient and the manufacturing of the product were recorded as research and development expense.  As of September 30, 2011, the reduced-cost finished goods inventory has been substantially utilized.  Had this reduced-cost inventory been capitalized, the impact to our research and development expense and cost of sales, excluding amortization expense, would not have been material for the three or nine months ended September 30, 2011 and 2010.

 

Inventory consisted of:

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

Work in process

 

$

247

 

$

254

 

Raw materials

 

148

 

 

Finished goods

 

52

 

38

 

 

 

447

 

292

 

Less reserve

 

(117

)

(114

)

Total inventory

 

$

330

 

$

178

 

 

4.                 Prepaid Expenses and Other Assets

 

Prepaid expenses and other assets are comprised of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

Prepaid sales, marketing and medical affairs expenses

 

$

1,589

 

$

1,308

 

Prepaid expenses and other assets

 

1,299

 

650

 

Prepaid research and development expenses

 

291

 

222

 

 

 

$

3,179

 

$

2,180

 

 

5.                 Intangible asset, net

 

Costs incurred for products or product candidates not yet approved by the FDA and for which no alternative future use exists are recorded as expense. In the event a product or product candidate has been approved by the FDA or an alternative future use exists for a product or product candidate, patent and license costs are capitalized and amortized over the shorter of the expected patent life and the expected life cycle of the related product or product candidate.

 

As a result of the FDA’s approval to market FOLOTYN on September 24, 2009, we met a milestone under our license agreement with Memorial Sloan-Kettering Cancer Center, SRI International and Southern Research Institute, discussed in Note 11, which required us to make a milestone payment of $5.8 million. We capitalized the $5.8 million payment as an intangible asset and began amortizing the asset immediately following the FDA approval of FOLOTYN. Amortization expense is being recorded on a straight line basis over the remaining expected life of the patent for FOLOTYN, which we expect to last until July 16, 2022. This includes the anticipated Hatch-Waxman extension that provides patent protection for drug compounds for a period of up to five years to compensate for time spent in development. This term is our best estimate of the life of the patent. If, however, the Hatch-Waxman extension is not granted, the intangible asset will be amortized over a shorter period. Amortization expense of $113,000 and $340,000 for both the three and nine months ended September 30, 2011 and 2010 was recorded as amortization of intangible asset in the Statement of Operations.  The estimated annual amortization expense for the intangible asset is approximately $454,000 per year during 2011 through 2021 and $234,000 in 2022.

 

The carrying values of intangible assets are periodically reviewed to determine if the facts and circumstances suggest that a potential impairment may have occurred.  No trigger events occurred for the three months ended September 30, 2011 on the $4,885,000 of intangible asset, net.

 

11



Table of Contents

 

6.                 Accrued Liabilities

 

Accrued liabilities are comprised of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

Accrued royalties, government rebates, chargebacks, returns and distribution fees

 

$

4,972

 

$

3,849

 

Accrued personnel costs

 

4,460

 

6,103

 

Accrued sales and marketing expenses

 

3,442

 

3,536

 

Accrued legal costs

 

2,671

 

325

 

Accrued research and development expenses

 

1,634

 

2,762

 

Accrued expenses - other

 

1,868

 

1,052

 

 

 

$

19,047

 

$

17,627

 

 

In January 2011, we implemented a strategic reduction of our workforce by approximately 13%, or 25 employees.  Personnel reductions were primarily focused in research and development and general and administrative functions.  The restructuring was a result of our decision to prioritize our resources on the development and commercialization of FOLOTYN for the treatment of PTCL, cutaneous T-cell lymphoma and other hematologic malignancies, and to manage our operating costs and expenses.  During the first quarter of 2011, we incurred total restructuring charges of approximately $570,000, of which $304,000 and $266,000 were recorded in research and development and sales, general and administrative expenses, respectively, in connection with the restructuring, all in the form of one-time termination benefits.  As of September 30, 2011, all accrued termination benefits related to this restructuring have been paid.

 

Accrued legal costs as of September 30, 2011 primarily relate to costs associated with the terminated Agreement and Plan of Merger and Reorganization, as amended, with AMAG Pharmaceuticals, Inc., or AMAG, discussed further in Note 13.

 

7.                 Product Sales

 

Product Sales

 

We generate revenue from product sales.  We recognize product revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) our price to the buyer is fixed and determinable; and (4) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (1) our price to the buyer is substantially fixed or determinable at the date of sale, (2) the buyer has paid us, or the buyer is obligated to pay us and the obligation is not contingent on resale of the product, (3) the buyer’s obligation to us would not be changed in the event of theft or physical destruction or damage of the product, (4) the buyer acquiring the product for resale has economic substance apart from that provided by us, (5) we do not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (6) the amount of future returns can be reasonably estimated.

 

We sell FOLOTYN to a limited number of pharmaceutical wholesale distributors, or distributors, the three largest of which are affiliates under common control of an unrelated party.  Title to the product passes upon delivery to our distributors, when the risks and rewards of ownership are assumed by the distributor (freight on board destination).  These distributors then resell FOLOTYN to the patients’ respective health care providers.  Prior to the fourth quarter of 2010, product sales to distributors were recorded as deferred revenue until the product was sold through from our distributors to health care providers because we did not have sufficient history to be able to reasonably estimate returns.  Beginning in the fourth quarter of 2010, we began recognizing revenue as product is sold to distributors as we established a sufficient history in order to reasonably estimate returns from our distributors.  We monitor inventory levels within our distribution channel and sales to end users, or health care providers, to determine whether deferral of sales is required.  No such deferrals were recorded at September 30, 2011.

 

Net Product Sales

 

We estimate gross to net sales adjustments based upon analysis of third-party information, including information obtained from our primary distributors with respect to their inventory levels and sell-through to the distributors’ customers.

 

Our net product sales represent total product sales less distributor fees and estimated allowances for product returns, government rebates and chargebacks to be incurred on the selling price of FOLOTYN related to the respective product sales. 

 

12



Table of Contents

 

We incur distributor fees related to the management of our product by distributors, which are recorded within net product sales and are based on definitive contractual agreements. Due to estimates and assumptions inherent in determining the amount of returns, rebates and chargebacks, the actual amount of returns and claims for rebates and chargebacks may be different from our estimates, at which time we would adjust our reserves accordingly.  Product sales allowances and accruals are based on definitive contractual agreements or legal requirements (such as Medicaid laws and regulations) related to the purchase and/or utilization of the product by these entities.  Allowances and accruals are recorded in the same period that the related revenue is recognized.

 

Net product sales for the three and nine months ended September 30, 2011 include $3.0 million, or $0.03 per share of common stock, related to the sale of FOLOTYN for use in a clinical trial to be conducted by an unrelated party.  We expect to generate future sales of FOLOTYN for use in this clinical trial.  However, we cannot predict the timing or amount of such future sales.  Since this sale relates to product used for a clinical trial, the sale was not subject to government rebates and chargebacks and no such reserves were recorded on this sale.

 

Product Returns

 

Our distributors’ contractual return rights are limited to defective product or product that was shipped in error.  Returns are not allowed for expired product.  Given these limited contractual return rights, the price of FOLOTYN and the limited number of PTCL patients in the United States, FOLOTYN distributors and their customers generally carry limited inventory.  We estimated product returns for FOLOTYN of 1% of gross product sales based upon actual returns history within our distribution channel, which were consistent with historical trends of product returns for similar companies in the pharmaceutical industry.  The actual returns history within our distribution channel is derived from third-party information obtained from certain distributors with respect to their inventory levels and sell-through to the distributors’ customers.  We will continue to monitor the historical trend of returns, including the impacts on this trend of product expiry dates and may be required to make future adjustments to our estimates.  Through September 30, 2011, product returns have been negligible.  See activity for the three and nine month periods ended September 30, 2011 and 2010 in the tables below.

 

Medicaid Rebates

 

Our product is subject to state government-managed Medicaid programs whereby discounts and rebates are provided to participating state governments. We record estimated rebates payable under governmental programs, including Medicaid, as a reduction of revenue at the time revenues are recorded. Our calculations related to these rebate accruals require estimates, including estimates of customer mix primarily based on a combination of market and clinical research, to determine which sales will be subject to rebates and the amount of such rebates. During the first quarter of 2010, we obtained additional market research and were able to refine our estimated Medicaid utilization, which resulted in a reversal of Medicaid rebate allowances related to 2009 sales totaling $208,000.  Our estimate of utilization is based on market research and information about our expected patient population.  Through September 30, 2011, we have not had sufficient claims from states for rebates with which to update our estimate.  However, when we have sufficient claims history, we will consider such history in our estimate which could result in a change in our estimate.  We also consider any legal interpretations of the applicable laws related to Medicaid and qualifying federal and state government programs and any new information regarding changes in the Medicaid programs’ regulations and guidelines that would impact the amount of the rebates.  In March 2010, the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Affordability Reconciliation Act of 2010, or PPACA, was enacted, which increased the Medicaid rebate percentage from 15.1% to 23.1%, retroactive to January 1, 2010.  In addition, the states’ ability to early adopt portions of PPACA, and any implementing regulations, could impact future estimates related to our Medicaid rebate allowances. We update our estimates and assumptions each period and record any necessary adjustments to our reserves. Although allowances and accruals are recorded at the time of product sale, certain rebates are typically paid out, on average, up to six months or longer after the sale. For reference purposes, a 10% to 20% increase in the Medicaid utilization percentage within our patient population as of September 30, 2011, would result in an approximate $1.3 million to $2.6 million reduction in cumulative net product sales.

 

Government Chargebacks

 

Our products are subject to certain programs with federal government qualified entities whereby pricing on products is discounted below distributor list price to participating entities. These entities purchase products through distributors at the discounted price, and the distributors charge the difference between their acquisition cost and the discounted price back to us. We account for chargebacks by establishing an accrual at the time of product sale in an amount equal to our estimate of chargeback claims to be received from qualified entities.  We do not expect the impact of the 340B program expansion

 

13



Table of Contents

 

included in the PPACA to significantly change our estimated government chargeback accruals because drugs approved under an Orphan Drug designation were specifically excluded from the provisions of the PPACA.  The FDA has awarded orphan drug status to FOLOTYN for the treatment of patients with T-cell lymphoma, which includes patients with relapsed or refractory PTCL. Given our commercial launch in January 2010 and the impact of the PPACA during the first half of 2010, our historical chargeback claims data through September 30, 2011 has not been representative of recent qualified entity utilization.  Therefore, we have not updated our expected utilization of the allowable discounted pricing by qualified entities. We also evaluate previously recorded chargebacks based on data regarding specific entities’ lack of claim activity over time.  As a result of this evaluation, during the three and nine months ended September 30, 2011 we recorded a reversal of government chargeback allowances related to 2010 sales totaling $0 and $301,000, respectively.  Due to estimates and assumptions inherent in determining the amount of government chargebacks, the actual amount of claims for chargebacks may be different from our estimates, at which time we would adjust our reserves accordingly.

 

A reconciliation of gross to net product sales for the three and nine months ended September 30, 2011 and 2010 and balances and activity in the deferred revenue account for the three and nine months ended September 30, 2010 are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Gross product sales

 

$

14,727

 

$

9,274

 

$

39,321

 

$

26,512

 

Gross to Net Sales Adjustments

 

 

 

 

 

 

 

 

 

Government rebates and chargebacks

 

(968

)

(778

)

(2,765

)

(2,212

)

Distribution fees

 

(397

)

(266

)

(1,112

)

(762

)

Product returns allowance

 

(147

)

 

(393

)

(16

)

Net product sales

 

$

13,215

 

$

8,230

 

$

35,051

 

$

23,522

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue, beginning of the period

 

 

 

$

1,153

 

 

 

$

669

 

Gross product sales to distributors

 

 

 

9,708

 

 

 

27,430

 

Less: Gross product sales recognized

 

 

 

(9,274

)

 

 

(26,512

)

Deferred revenue, end of the period

 

 

 

$

1,587

 

 

 

$

1,587

 

 

Balances and activity in the product returns, government rebates and chargebacks and distribution fees payable accounts for the nine months ended September 30, 2011 and 2010 are as follows:

 

 

 

 

 

Government

 

 

 

 

 

Product

 

Rebates and

 

Distribution

 

 

 

Returns

 

Chargebacks

 

Fees

 

Balance at December 31, 2009

 

$

 

$

487

 

$

86

 

Reserve for current period sales

 

 

2,420

 

762

 

Change in estimate for prior period sales

 

 

(208

)

 

Credits/payments made for prior period sales

 

 

(1,054

)

(615

)

Credits/payments made for current period sales

 

 

(126

)

(84

)

Balance at September 30, 2010

 

$

 

$

1,519

 

$

149

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010

 

$

428

 

$

2,224

 

$

263

 

Reserve for current period sales

 

393

 

3,066

 

1,112

 

Change in estimate for prior period sales

 

 

(301

)

 

Credits/payments made for prior period sales

 

 

(425

)

(198

)

Credits/payments made for current period sales

 

 

(1,812

)

(907

)

Balance at September 30, 2011

 

$

821

 

$

2,752

 

$

270

 

 

Major Customers and Concentration of Credit Risk

 

We sell FOLOTYN to a limited number of pharmaceutical wholesale distributors, or distributors, the three largest of which are affiliates under common control of an unrelated party and are detailed below, without requiring collateral.  We periodically assess the financial strength of these customers and establish allowances for anticipated losses, if necessary.  Substantially all of our sales for the three and nine months ended September 30, 2011 and 2010 were made in the United

 

14



Table of Contents

 

States.  Trade accounts receivable totaled $15.3 million and $12.1 million at September 30, 2011 and December 31, 2010, respectively.

 

 

 

% of total trade accounts

 

 

 

receivable at

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

Customer A

 

42.9

%

53.8

%

Customer B

 

35.8

%

23.1

%

Customer C

 

19.2

%

22.3

%

 

 

 

% of total gross product sales

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Customer A

 

44.6

%

49.7

%

50.1

%

50.5

%

Customer B

 

37.3

%

22.4

%

26.7

%

23.9

%

Customer C

 

16.6

%

27.0

%

21.6

%

25.0

%

 

Cost of sales

 

Cost of sales, excluding amortization expense, includes cost of product sold, royalties, inventory packaging and labeling, warehousing and shipping costs associated with FOLOTYN product sales.  See discussion in Note 11 regarding the 8% current royalty rates under our license agreement for FOLOTYN.  Prior to receiving FDA approval of FOLOTYN, all costs related to purchases of the active pharmaceutical ingredient and the manufacturing of the product were recorded as research and development expense.  Accordingly, our cost of sales will be lower with respect to product manufactured prior to FDA approval.  Until we sell these supplies for which the costs were previously expensed, our cost of sales will reflect only incremental costs incurred subsequent to the FDA approval date.

 

8.    Mundipharma Agreements

 

In May 2011, we entered into a strategic collaboration agreement with Mundipharma, or the Mundipharma Collaboration Agreement, pursuant to which we agreed to collaborate in the development of FOLOTYN according to a mutually agreed-upon development plan, as updated by the parties from time to time.  Under the Mundipharma Collaboration Agreement, we retain full commercialization rights for FOLOTYN in the United States and Canada with Mundipharma having exclusive rights to commercialize FOLOTYN in all other countries in the world, or the Mundipharma territories.  We received an upfront payment of $50.0 million upon execution of the Mundipharma Collaboration Agreement and may receive potential regulatory milestone payments of up to $21.5 million and commercial progress- and sales-dependent milestone payments of up to $289.0 million.  Of the $310.5 million in total potential milestone payments, we have determined that any regulatory milestone payments that may become due upon approval of FOLOTYN by regulatory agencies other than in the European Union, and all commercial milestone payments, are contingent consideration and will be accounted for as revenue in the period in which the respective revenue recognition criteria are met.  Included in the $21.5 million of potential regulatory milestone payments is a $14.5 million milestone payment related to obtaining conditional approval of FOLOTYN for the treatment of patients with relapsed or refractory PTCL in the European Union, which is deemed to be a substantive milestone given the ongoing regulatory services we are providing related to the underlying European Marketing Authorisation Application, or MAA, and will be accounted for as revenue in the period in which the milestone is achieved.  The remaining $296.0 million in total potential milestone payments are not deemed to be substantive for accounting purposes and will be recognized when the appropriate revenue recognition criteria have been met.  In the event Mundipharma achieves the first reimbursable commercial sale of FOLOTYN in at least three major market countries in the European Union we would receive a milestone payment from Mundipharma of $10.0 million, which is included in the $289.0 million of commercial milestone payments discussed above.  We are also entitled to receive tiered double-digit royalties based on net sales of FOLOTYN within Mundipharma’s licensed territories.

 

Under the initial development plan for FOLOTYN mutually agreed-upon by Allos and Mundipharma, or the Development Plan, the parties have agreed to conduct and jointly fund the following:

 

·                  all studies required by the FDA as a condition of the accelerated approval of FOLOTYN for relapsed or refractory PTCL, or the FDA Post-Approval Studies, including the ongoing and planned Phase 3 registration

 

15



Table of Contents

 

studies of FOLOTYN in patients with newly diagnosed PTCL and in patients with relapsed or refractory CTCL; and

 

·                  certain clinical studies to assess the safety and efficacy of FOLOTYN in children, or the EMA Pediatric Studies, which we previously agreed to conduct as a condition of the EMA’s acceptance of the MAA for review.

 

Under the Development Plan, we are assigned operational responsibility for the FDA Post-Approval Studies and Mundipharma is assigned operational responsibility for the EMA Pediatric Studies.  The Mundipharma Collaboration Agreement also allows, but does not require, the parties to conduct additional future clinical studies, which may be conducted jointly, in which case one of the parties will be assigned operational responsibility and the costs of such studies will be treated as joint development costs to be shared between the parties, or separately, in which case the party proposing such studies will be solely responsible for the conduct and costs of the studies.

 

Under the Mundipharma Collaboration Agreement, Mundipharma is initially responsible for 40% of the joint development costs incurred by the parties, which increases to 50% (a) in the calendar quarter after Mundipharma receives conditional approval to market FOLOTYN for relapsed or refractory PTCL in the European Union pursuant to the currently pending MAA, which approval must be received no later than December 31, 2012, or (b) if such conditional approval is not obtained, the later of (i) the calendar quarter of the first approval of FOLOTYN in the European Union for relapsed or refractory PTCL (other than pursuant to clause (a) above) or first-line PTCL, and (ii) the first calendar quarter in which the development cost differential equals or exceeds $15.0 million. The “development cost differential” is defined as the cumulative amount of joint development costs that Mundipharma would have incurred if it was responsible for 50% of the joint development costs rather than its initial 40% share.  To the extent that this development cost differential does not meet or exceed $15.0 million by December 31, 2019, and if conditional approval in the European Union has not been obtained, then we are required to pay Mundipharma the difference between $15.0 million and the amount of the development cost differential as of December 31, 2019.

 

The total amount of consideration allocable to the Mundipharma Agreements is limited to the amount that is fixed or determinable other than with respect to the impact of either of the following: (a) any refund rights or other concessions to which the customer may be entitled or (b) performance bonuses to which the vendor may be entitled. Since a portion of the arrangement consideration received by the Company is subject to a contingent payment obligation relating to the development cost differential as described above, we excluded the amount of this contingent payment obligation from the arrangement consideration. As amounts related to the contingent payment obligation become nonrefundable, these amounts are added to the arrangement consideration and reallocated to the deliverables in the period in which the amounts become nonrefundable.

 

As of September 30, 2011, the development cost differential of $112,000 was included in the allocable Mundipharma arrangement consideration, and our contingent payment obligation related to the development cost differential was approximately $14,888,000 and is recorded as an other long-term liability on the Balance Sheet. We record the joint development cost reimbursements received from Mundipharma as license and other revenue in the Statement of Operations; and we record the full amount of our joint development costs as research and development expense.

 

In connection with the Mundipharma Collaboration Agreement, we entered into a separate supply agreement with Mundipharma Medical Company, an affiliate of Mundipharma, pursuant to which we have agreed to supply FOLOTYN for use in clinical trials for which Mundipharma bears operational responsibility and to support Mundipharma’s commercial requirements.  We refer to this as the Mundipharma Supply Agreement, and we refer to the Mundipharma Supply Agreement and the Mundipharma Collaboration Agreement together as the Mundipharma Agreements.

 

Pursuant to the accounting guidance under Accounting Standards Codification 605-25, or ASC 605-25, which governs revenue recognition for multiple element arrangements, we have evaluated the four non-contingent deliverables under the Mundipharma Agreements and determined that they meet the criteria for separation and are therefore treated as separate units of accounting, as follows:

 

·                  Licenses from Allos to commercialize, develop and manufacture FOLOTYN worldwide, outside of the United States and Canada, or the Licenses;

 

·                  Regulatory services provided by Allos related to the MAA through May 10, 2012;

 

16



Table of Contents

 

·                  Research and development services provided by Allos related to jointly agreed-upon clinical development activities through approximately 2022, with cost sharing as discussed above; and

 

·                  Clinical trial supply obligations to supply FOLOTYN for use in the EMA Pediatric Studies.

 

We did not include the obligation to provide clinical trial supplies for any additional future clinical studies for which Mundipharma may bear operational responsibility as a separate deliverable, as there were no such clinical studies included in the initial Development Plan at the inception of the arrangement, and no such clinical studies have been subsequently added.  Under the Mundipharma Agreements, Mundipharma has the option to either order clinical supply for these potential future clinical studies from us or obtain the supplies from other third-party manufacturers.  Further, pursuant to the Mundipharma Collaboration Agreement, we granted Mundipharma a non-exclusive right and license, with the right to sublicense, under our manufacturing know-how and patents, to manufacture FOLOTYN for use in accordance with the Mundipharma Collaboration Agreement.  Both the manufacturing license and Mundipharma’s access to all information necessary or useful for the manufacturing and testing of FOLOTYN were delivered effective upon execution of the Mundipharma Collaboration Agreement.  In addition, pursuant to the Supply Agreement, we have agreed to provide such other reasonable assistance as required to enable Mundipharma or its permitted sublicensee to manufacture FOLOTYN.  However, we have determined that this effort is an inconsequential or perfunctory performance obligation and as a result have not included this as a deliverable in the arrangement.

 

The supply of FOLOTYN for Mundipharma’s commercial requirements is contingent upon the receipt of regulatory approvals to commercialize FOLOTYN in the Mundipharma territories. Because our commercial supply obligation is contingent upon the receipt of future regulatory approvals, and there were no binding commitments or firm purchase orders pending for commercial supply at or near the execution of the agreement, our commercial supply obligation is deemed to be contingent and is not valued as a deliverable under the Mundipharma Agreements.  As of September 30, 2011, no clinical or commercial supply has been delivered under the Mundipharma Supply Agreement.   If Mundipharma orders the supplies from us, the pricing for this supply would equal our third-party manufacturing cost plus a pre-negotiated percentage, which we have determined is not at a significant incremental discount to market rates.

 

Under the Mundipharma Agreements, the parties have agreed to establish and participate on several joint committees to facilitate the governance and oversight of the parties’ activities under the agreements.  We have considered whether our participation on the joint committees may be a deliverable and determined that it was not a deliverable.  Had we considered our participation on the joint committees as a deliverable, it would not have had a material impact on our accounting for the arrangement based on our analysis of the maximum potential estimated selling price of such participation.

 

We allocated the Mundipharma arrangement consideration based on the percentage of the relative selling price of each unit of accounting.  We estimated the selling price of the Licenses using the relief from royalty method income approach, which utilized estimated total FOLOTYN product sales revenue in the Mundipharma territories over the expected patent life.  We estimated the selling prices of the regulatory and research and development services using third party costs and discounted cash flows.  The estimated selling prices utilized assumptions including internal estimates of research and development personnel needed to perform the regulatory and research and development services; and estimates of expected cash outflows to third parties for services and supplies for the respective unit of accounting over the expected period that the services will be performed, which represents one year for the regulatory services and approximately through 2022 for the research and development services, as discussed further below.  We estimated the selling price of the clinical supply obligation using third party costs and estimates of the quantity of product to be required to conduct the EMA Pediatric Studies.

 

The impact of a 1% change in the present value factors on the resulting allocated arrangement consideration, which consists of the upfront payment and the estimated payments for research and development services and clinical supply, less the amount of the contingent payment obligation related to the development cost differential, is as follows:

 

17



Table of Contents

 

 

 

 

 

Impact of change in Present
Value Factor on allocated

 

 

 

 

 

Present Value

 

arrangement consideration

 

Expected

 

 

 

Factor Used

 

1% increase

 

1% decrease

 

Completion

 

Licenses

 

22

%

(560,000

)

550,000

 

Completed

 

Regulatory

 

6

%

90,000

 

(170,000

)

May 10, 2012

 

Research and development

 

10

%

470,000

 

(380,000

)

2022

 

 

The impact of a 1% change in the present value factors on the resulting allocated arrangement consideration allocated to the clinical supply deliverable is not material.

 

Because delivery of the Licenses occurred upon the execution of the Mundipharma Collaboration Agreement in May 2011 and there is no general right of return, all $22,676,000 of allocated arrangement consideration related to the Licenses was recognized as revenue during the nine months ended September 30, 2011.

 

We will perform the regulatory services under the Mundipharma Collaboration Agreement over a period of up to one year, or through May 10, 2012, with no general right of return.  Therefore, all allocated arrangement consideration related to the regulatory services will be recognized using the proportional performance method, by which revenue is recognized in proportion to the costs incurred, during the service period of up to one year.

 

We will perform the research and development services under the Mundipharma Collaboration Agreement over the period required to complete the jointly agreed-upon clinical development activities, which we estimate to be approximately through 2022 based on our projected clinical trial enrollment and patient treatment-related follow up time periods, with no general right of return.  Therefore, all allocated arrangement consideration related to the research and development services will be recognized as the research and development costs that are subject to reimbursement are incurred.

 

As of September 30, 2011, no clinical supply has been delivered under the Mundipharma Supply Agreement, therefore, there was no revenue recognized during the three and nine months ended September 30, 2011 related to this deliverable.

 

Revenues recognized in the Statement of Operations related to the Mundipharma Agreements were as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Licenses

 

$

23

 

$

 

$

22,676

 

$

 

Regulatory

 

468

 

 

1,083

 

 

Research and development

 

349

 

 

535

 

 

License and other revenue

 

$

840

 

$

 

$

24,294

 

$

 

 

License and other revenue for the three and nine months ended September 30, 2011 includes $292,000 and $448,000, respectively, related to the 40% joint development cost reimbursement under the Mundipharma Agreements.

 

As of September 30, 2011, accounts receivable related to the Mundipharma Agreements totaled $293,000. As of September 30, 2011, deferred amounts related to the Mundipharma Agreements consisted of:

 

 

 

September 30,

 

 

 

2011

 

2010

 

 

 

(restated)

 

 

 

Current deferred revenue

 

$

4,272

 

$

 

 

 

 

 

 

 

Long-term deferred revenue

 

$

6,995

 

$

 

Development cost differential contingent payment

 

14,888

 

 

Long-term deferred revenue and other liabilities

 

$

21,883

 

$

 

 

18



Table of Contents

 

Cost of license and other revenue in the Statement of Operations for the three months ended September 30, 2011 was $437,000 and consisted of costs incurred in connection with the regulatory services provided related to the European MAA.

 

Cost of license and other revenue in the Statement of Operations for the nine months ended September 30, 2011 was $11.0 million and and consisted of 20% of the $50.0 million upfront payment, or $10.0 million, which was paid to the licensors of FOLOTYN under the terms of the FOLOTYN license agreement with Sloan-Kettering Institute for Cancer Research, SRI International and Southern Research Institute.  In addition, $1.0 million of costs were incurred in connection with the regulatory services provided related to the European MAA.

 

9.                 Stock-Based Compensation

 

Stock-based compensation expense for the three and nine months ended September 30, 2011 and 2010 has been recognized in the accompanying Statements of Operations as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

833

 

$

873

 

$

2,805

 

$

2,236

 

Selling, general and administrative

 

2,101

 

1,304

 

6,626

 

5,656

 

Total stock-based compensation expense

 

$

2,934

 

$

2,177

 

$

9,431

 

$

7,892

 

 

Effective August 24, 2010, James V. Caruso, our former Executive Vice President and Chief Commercial Officer (CCO), departed the Company.  As a result of Mr. Caruso’s departure, we adjusted the forfeiture rate applied to his equity compensation, which resulted in a one-time $787,000 reversal of selling, general and administrative stock-based compensation expense during the three and nine months ended September 30, 2010, of which $605,000 related to stock option awards and $182,000 related to restricted stock unit awards.

 

We did not recognize a related tax benefit during the nine months ended September 30, 2011 and 2010, as we maintain net operating loss carryforwards and we have established a valuation allowance against the entire tax benefit as of September 30, 2011.  No stock-based compensation expense was capitalized on our Balance Sheet as of September 30, 2011 and December 31, 2010.

 

Stock-based compensation expense by equity award type for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

$

729

 

$

1,840

 

$

3,148

 

$

6,754

 

Restricted stock units

 

2,186

 

274

 

6,223

 

935

 

Restricted stock

 

1

 

6

 

3

 

38

 

Employee stock purchase plan

 

18

 

57

 

57

 

165

 

Total stock-based compensation expense

 

$

2,934

 

$

2,177

 

$

9,431

 

$

7,892

 

 

19



Table of Contents

 

As of September 30, 2011, the unrecorded stock-based compensation balance and estimated weighted-average amortization period by equity award type was as follows:

 

 

 

 

 

Weighted-

 

 

 

Unrecorded

 

average

 

 

 

stock-based

 

remaining

 

 

 

compensation

 

amortization

 

 

 

balance

 

period

 

 

 

 

 

 

 

Stock options

 

$

3,637

 

1.5

 

Restricted stock units

 

8,047

 

1.6

 

Restricted stock

 

3

 

1.0

 

 

Stock Options

 

The following table summarizes activity and related information for stock option awards granted under our equity incentive plans:

 

 

 

Options Outstanding

 

Options Exercisable

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

Weighted

 

 

 

Number of

 

Average

 

Grant-date

 

Number of

 

Average

 

 

 

Shares

 

Exercise Price

 

Fair Value

 

Shares

 

Exercise Price

 

Outstanding at December 31, 2010

 

8,716,829

 

$

6.36

 

 

 

4,539,454

 

$

5.89

 

Granted

 

835,000

 

2.21

 

$

1.23

 

 

 

 

 

Exercised

 

(4,893

)

2.91

 

 

 

 

 

 

 

Forfeited/Expired

 

(2,036,445

)

6.43

 

 

 

 

 

 

 

Outstanding at September 30, 2011

 

7,510,491

 

$

5.89

 

 

 

4,921,406

 

$

6.07

 

 

The following table summarizes information about outstanding stock options that are fully vested and currently exercisable, and outstanding stock options that are expected to vest in the future:

 

 

 

 

 

Weighted Average

 

Weighted

 

 

 

 

 

Number

 

Remaining

 

Average

 

Aggregate

 

 

 

Outstanding

 

Contractual Term

 

Exercise Price

 

Intrinsic Value

 

As of September 30, 2011:

 

 

 

 

 

 

 

 

 

Options fully vested and exercisable

 

4,921,406

 

6.1

 

$

6.07

 

$

 

Options expected to vest, including effects of expected forfeitures

 

2,016,702

 

8.5

 

$

5.62

 

9,000

 

Options fully vested and expected to vest

 

6,938,108

 

6.8

 

$

5.93

 

$

9,000

 

 

The aggregate intrinsic value in the tables above represents the total pretax intrinsic value, based on our closing stock price of $1.83 as of September 30, 2011, which would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date.  There were no in-the-money options exercisable as of September 30, 2011.

 

There were no options exercised during the three months ended September 30, 2011.  The total intrinsic value of options exercised during the three months ended September 30, 2010 was $36,000 determined as of the date of option exercise.  The total intrinsic value of options exercised during the nine months ended September 30, 2011 and 2010 was $1,000 and $3,984,000, respectively, determined as of the date of option exercise.  We settle employee stock option exercises with newly issued common shares.  No tax benefits were realized by us in connection with these exercises during the nine months ended September 30, 2011 and 2010 as we maintain net operating loss carryforwards and we have established a valuation allowance against the entire tax benefit as of September 30, 2011.

 

20



Table of Contents

 

Restricted Stock Awards

 

The following table summarizes activity and related information for restricted stock unit, or RSU, awards:

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Number of

 

Grant-date

 

 

 

Shares

 

Fair Value

 

Nonvested RSU at December 31, 2010

 

2,492,078

 

$

4.97

 

Granted

 

2,384,824

 

3.30

 

Vested

 

(126,404

)

7.36

 

Forfeited

 

(724,363

)

3.88

 

Nonvested RSU at September 30, 2011

 

4,026,135

 

$

4.11

 

 

The shares of RSUs vest in three or four equal annual installments from the date of grant. Upon vesting of the restricted stock unit awards, we issue unrestricted shares of our common stock.  The total fair value of shares vested during the three months ended September 30, 2011 and 2010 was $11,000 and $14,000, respectively.  The total fair value of shares vested during the nine months ended September 30, 2011 and 2010 was $391,000 and $268,000, respectively.

 

The following table summarizes activity and related information for restricted stock, or RS, awards:

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Number of

 

Grant-date

 

 

 

Shares

 

Fair Value

 

Nonvested RS at December 31, 2010

 

12,500

 

$

6.51

 

Granted

 

 

 

Vested

 

(7,500

)

5.85

 

Forfeited

 

(5,000

)

7.49

 

Nonvested RS at September 30, 2011

 

$

 

$

 

 

The shares of RS vest in four equal annual installments from the date of grant.  The total fair value of shares vested during the three months ended September 30, 2011 and 2010 was $0 and $11,000, respectively.  The total fair value of shares vested during the nine months ended September 30, 2011 and 2010 was $35,000 and $806,000, respectively.

 

10.    Net Loss Per Share

 

Basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed by giving effect to all dilutive potential common stock outstanding during the period, including stock options, restricted stock, restricted stock unit awards and shares to be issued under our employee stock purchase plan.

 

Diluted net loss per share is the same as basic net loss per share for all periods presented because any potential dilutive share of common stock were anti-dilutive due to our net loss (as including such shares would decrease our basic net loss per share). Such potentially dilutive shares of common stock are excluded when the effect would be to reduce net loss per share. Because we reported a net loss for each of the three and nine month periods ended September 30, 2011 and 2010, all potentially dilutive shares of common stock have been excluded from the computation of the dilutive net loss per share for all periods presented. Such potentially dilutive shares of common stock consist of the following:

 

 

 

September 30,

 

 

 

2011

 

2010

 

Common stock options

 

7,510,491

 

8,887,973

 

Unvested restricted stock units

 

4,026,135

 

487,997

 

Unvested restricted stock

 

 

12,500

 

 

 

11,536,626

 

9,388,470

 

 

21



Table of Contents

 

11.          Commitments and Contingencies

 

Royalty and License Fee Commitments

 

In December 2002, we entered into a license agreement with Memorial Sloan-Kettering Cancer Center, SRI International and Southern Research Institute, as amended, under which we obtained exclusive worldwide rights to a portfolio of patents and patent applications related to FOLOTYN and its uses.  Under the terms of the agreement, we paid an up-front license fee of $2.0 million upon execution of the agreement and have made aggregate milestone payments of $2.5 million based on the passage of time. Additionally, in May and September 2009, we made milestone payments of $1.5 million based on the FDA accepting our New Drug Application for review and $5.8 million based on the FDA approval to market FOLOTYN, respectively.  The up-front license fee and all milestone payments under the agreement prior to FDA approval to market FOLOTYN were recorded to research and development expense as incurred.  As discussed in Note 5, the $5.8 million milestone payment based on the FDA approval was capitalized as an intangible asset and is being amortized over the expected useful life of the composition of matter patent for FOLOTYN, which we expect to last until July 16, 2022. The only remaining potential milestone payment under the license agreement is for $3.5 million upon regulatory approval to market FOLOTYN in Europe, which, if made would be capitalized and amortized over the expected useful life of the licensed patents. Under the terms of the agreement, we are required to fund all development programs and will have sole responsibility for all commercialization activities.  In addition, we will pay the licensors royalties based on graduated annual levels of net sales of FOLOTYN to our distributors, net of actual rebates and chargebacks, or distributor sales, which may be different than our net product revenue recognized in accordance with U.S. generally accepted accounting principles, or GAAP, or sublicense revenues arising from sublicensing the product, if and when such sales or sublicenses occur.  As discussed in Note 8, during the nine month period ended September 30, 2011, we made a $10.0 million sublicense fee payment under this agreement.  Royalties are 8% of annual distributor sales up to $150.0 million; 9% of annual distributor sales of $150.0 million through $300.0 million; and 11% of annual distributor sales in excess of $300.0 million.  For the nine months ended September 30, 2011 and 2010, our royalties were 8% of our net distributor sales.  As of September 30, 2011, accrued royalties were $1.1 million and are included in accrued liabilities on the Balance Sheet.

 

Lease Amendment

 

In August 2011, we extended our lease on an office in Princeton, New Jersey for one year, through September 30, 2012, at a rate of $380,000 per year.

 

Merger Transaction Class Action Lawsuits

 

On July 19, 2011, we entered into an Agreement and Plan of Merger and Reorganization, or Merger Agreement, with AMAG and Alamo Acquisition Sub, Inc., or Merger Sub, as amended on August 8, 2011.  On October 21, 2011, the Merger Agreement was terminated.

 

On July 26, 2011, a putative class action lawsuit captioned Lam v. Allos Therapeutics, Inc., et al., No. 6714-VCN, was filed in the Delaware Court of Chancery. The complaint names as defendants the members of our board of directors, as well as AMAG and Merger Sub. The plaintiff alleges that our directors breached their fiduciary duties to our stockholders in connection with the proposed merger between the Company and AMAG, and were aided and abetted by AMAG and Merger Sub. The complaint alleges that the merger involves an unfair price and an inadequate sales process, unreasonable deal protection devices, and that defendants entered into the transaction to benefit themselves personally. The complaint seeks injunctive relief, including to enjoin the merger, rescissory damages in the event the merger occurs, attorneys’ and other fees and costs, and other relief.

 

On July 28, 2011, a putative class action lawsuit captioned Mulligan v. Allos Therapeutics, Inc., et al., No. 6724-VCN, was filed in the Delaware Court of Chancery. The complaint names as defendants the Company and the members of our board of directors, as well as AMAG and Merger Sub. The plaintiff alleges that our directors breached their fiduciary duties to our stockholders in connection with the proposed merger between the Company and AMAG, and were aided and abetted by the Company, AMAG and Merger Sub. The complaint alleges that the merger involves an unfair price and an inadequate sales process, unreasonable deal protection devices, and that defendants entered into the transaction to benefit themselves personally. The complaint seeks injunctive relief, including to enjoin the merger, rescissory damages in the event the merger occurs, disgorgement of profits, attorneys’ and other fees and costs, and other relief.

 

22



Table of Contents

 

On August 1, 2011, the Delaware Court of Chancery consolidated the Lam and Mulligan cases into In Re Allos Therapeutics, Inc. Shareholders Litigation, Consolidated C.A. No. 6714.

 

On August 15, 2011, a putative class action lawsuit captioned Gaines v. Narachi, et al., No. 6784-VCN, was filed in the Delaware Court of Chancery.  The complaint names as defendants the Company, AMAG, and the members of AMAG’s board of directors.  The plaintiff alleges that AMAG’s directors breached their fiduciary duties to AMAG’s stockholders in connection with the proposed merger between the Company and AMAG, and were aided and abetted by the Company.  The complaint alleges that the merger involved an inadequate sales process and unreasonable deal protection devices, that the AMAG board of directors improperly rejected an allegedly superior offer by MSMB Capital Management LLC, and that defendants entered into the transaction to benefit themselves personally.  The complaint seeks injunctive relief, including to enjoin the merger, rescissory damages in the even the merger occurs, disgorgement of profits, attorneys’ fees and other fees and costs, and other relief.

 

On September 1, 2011, a Verified Consolidated Amended Class Action Complaint was filed in the consolidated action pending in the Delaware Court of Chancery. The amended complaint names as defendants members of our board of directors, as well as the Company, AMAG and Merger Sub, and alleges that members of our board of directors breached their fiduciary duties to our stockholders in connection with the Merger Agreement and the disclosures related thereto, and further claims that the Company, AMAG and Merger Sub aided and abetted those alleged breaches of fiduciary duty. The amended complaint generally alleges that the Merger Agreement involves an unfair price, a flawed sales process and preclusive deal protection devices and that the defendants agreed to the transaction to benefit themselves personally. The amended complaint further alleges that the joint proxy statement fails to disclose material information relating to the Company’s and AMAG’s financial projections, the fairness opinions of J.P. Morgan and Morgan Stanley and the background of the proposed transaction. The amended complaint seeks damages and injunctive relief, including to enjoin the acquisition of the Company by AMAG, and an award of attorneys’ and other fees and costs, in addition to other relief.

 

On October 13, 2011, the Company and other defendants in the consolidated action pending in the Delaware Court of Chancery entered into a memorandum of understanding (“MOU”), pursuant to which the Company and such parties agreed in principle, and subject to certain conditions, to settle that action.  The settlement contemplated by the MOU was subject to and conditioned upon consummation of the acquisition of the Company by AMAG, which condition has not been satisfied.  No payments were made in connection with the settlement.

 

The Company and other defendants believe the allegations of all the foregoing actions lack merit.  Furthermore, inasmuch as the Merger Agreement has been terminated, the Company and other defendants believe such allegations are moot.  Defendants will continue to vigorously defend these actions as long as they remain pending.

 

12.    Recent Accounting Pronouncements

 

In March 2010, the Financial Accounting Standards Board, or FASB, completed an accounting standards update entitled “Milestone Method of Revenue Recognition.” This standard allows the milestone method to be used in the application of the proportional performance model when applied to revenue arrangements.  Under this pronouncement an accounting policy election can be made to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved.  This standard is effective for us beginning January 1, 2011, and may be applied either prospectively to milestones achieved after the adoption date or retrospectively for all periods presented. See Note 8 above for the impact of this standard with respect to the strategic collaboration with Mundipharma entered into in May 2011.

 

In October 2009, the FASB issued an accounting standards update entitled “Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.” This standard prescribes the accounting treatment for arrangements that contain multiple-deliverable elements and may enable us to account for products or services, or deliverables, separately rather than as a single unit in certain circumstances.  Prior to this standard, only certain types of evidence were acceptable for determining the relative selling price of the deliverables under an arrangement. If that evidence was not available, the deliverables were treated as a single unit of accounting. This updated standard expands the nature of evidence which may be used to determine the relative selling price of separate deliverables to include estimation. This standard is applicable to our arrangements entered into or materially modified after December 31, 2010.  See Note 8 above for the impact of this standard with respect to the strategic collaboration with Mundipharma entered into in May 2011.

 

23



Table of Contents

 

13.    Subsequent Event

 

On October 21, 2011, the Merger Agreement, dated July 19, 2011 and as amended August 8, 2011, by and among the Company, AMAG and Merger Sub was terminated pursuant to Section 8.1(e) of the Merger Agreement and the merger contemplated thereby was not consummated.  The Merger Agreement was terminated by AMAG following the October 21, 2011, special meeting of AMAG stockholders at which AMAG’s stockholders voted against the issuance of shares of AMAG common stock to Allos’ stockholders in the proposed merger contemplated by the Merger Agreement.  In accordance with Section 8.3(c) of the Merger Agreement, AMAG paid Allos $1.8 million on October 25, 2011, consisting of the expense reimbursement equal to $2.0 million in connection with such termination, net of our portion of certain shared costs.

 

Upon the termination of the Merger Agreement, the Amendment, dated as of July 19, 2011, to the Rights Agreement, dated May 6, 2003, as amended on March 4, 2005, January 29, 2007 and July 17, 2009, between Allos and Mellon Investor Services LLC, and the Voting Agreements, dated as of July 19, 2011, between Allos and each of the directors and the then-current named executive officers of AMAG, terminated pursuant to their terms.

 

24



Table of Contents

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Restatement

 

Certain unaudited quarterly financial information, including license and other revenue, operating loss, loss before income taxes, net loss, net loss per share and deferred revenue, has been restated for the three and nine month periods ended September 30, 2011 from the amounts previously reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2011. The restatement was related to the inclusion in the allocable arrangement consideration of the development cost differential contingent payment for the Mundipharma Collaboration Agreement and other items, as further described in Critical Accounting Policies — License and Other Revenue Recognition below. For the three months ended June 30, 2011 and the three months ended September 30, 2011, we overstated license and other revenue by $4.7 million and $0.1 million, respectively, as a result of our overstatement of the allocable arrangement consideration under the Mundipharma arrangement described herein.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained elsewhere in this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements regarding the status and prospects of our commercialization of FOLOTYN for patients with relapsed or refractory peripheral T-cell lymphoma; our Marketing Authorisation Application, or MAA, for FOLOTYN in Europe;  our future product development and regulatory strategies, including our intent to develop or seek regulatory approval for FOLOTYN for additional indications; the status of reimbursement from third party payers; our strategic collaboration with Mundipharma International Corporation Limited, or Mundipharma, including the parties’ intent to co-develop FOLOTYN in additional indications and Mundipharma’s potential commercialization of FOLOTYN outside the United States and Canada;  the ability of our third-party manufacturers to support our requirements for drug supply; any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; and any other statements that are other than statements of historical fact. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties that may cause our, or our industry’s results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among other things, those discussed in Part II, Item 1A of this report under the caption “Risk Factors.” All forward-looking statements included in this report are based on information available to us as of the date hereof and we undertake no obligation to revise any forward-looking statements in order to reflect any subsequent events or circumstances. Forward-looking statements not specifically described above also may be found in these and other sections of this report.

 

Overview

 

We are a biopharmaceutical company committed to the development and commercialization of innovative anti-cancer therapeutics.  Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with one or more strategic partners.  We strive to develop proprietary products that have the potential to improve the standard of care in cancer therapy.

 

We are currently focused on the development and commercialization of FOLOTYN® (pralatrexate injection).  FOLOTYN is a targeted folate inhibitor designed to accumulate preferentially in cancer cells.  FOLOTYN targets the inhibition of dihydrofolate reductase, or DHFR, an enzyme critical in the folate pathway, thereby interfering with DNA and RNA synthesis and triggering cancer cell death.  FOLOTYN can be delivered as a single agent, for which we currently have approval for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma, or PTCL, and has the potential to be used in combination therapy regimens.  We believe that FOLOTYN’s unique mechanism of action offers us the ability to target the drug for development in a variety of hematological malignancies and solid tumor indications.  We may also seek to grow our product portfolio through product acquisition and in-licensing efforts.

 

On September 24, 2009, the U.S. Food and Drug Administration, or FDA, granted accelerated approval of FOLOTYN for use as a single agent for the treatment of patients with relapsed or refractory PTCL. This approval was based on overall

 

25



Table of Contents

 

response rate from our pivotal Phase 2 trial known as PROPEL (Pralatrexate in patients with Relapsed Or refractory PEripheral T-cell Lymphoma). Clinical benefit such as improvement in progression-free survival or overall survival has not been demonstrated.  FOLOTYN represents our first drug approved for marketing in the United States.  In connection with the accelerated approval, we are required to conduct post-approval studies that are intended to confirm FOLOTYN’s clinical benefit in patients with T-cell lymphoma and to determine whether FOLOTYN poses a serious risk of altered drug levels resulting from organ impairment.

 

We began making FOLOTYN available for commercial sale in the United States in October 2009 and commenced our commercial launch of FOLOTYN in January 2010.  We have established a commercial organization, including sales, marketing, supply chain management and reimbursement capabilities, to commercialize FOLOTYN in the United States.  We believe the market for relapsed or refractory PTCL is addressable with a targeted U.S. sales and marketing organization, and we intend to continue promoting FOLOTYN ourselves in the United States.

 

We are also seeking regulatory approval to market FOLOTYN in Europe for the treatment of patients with relapsed or refractory PTCL.  In December 2010, our MAA was accepted by the European Medicines Agency, or EMA.  Acceptance of the MAA by the EMA indicates that the application is complete and initiates the EMA’s regulatory review process.  We expect a Committee for Medicinal Products for Human Use, or CHMP, opinion as early as the fourth quarter of 2011 and a regulatory decision on the MAA in early 2012.  The MAA is based on clinical data from our pivotal PROPEL trial.

 

Termination of Merger Agreement

 

On October 21, 2011, Agreement and Plan of Merger and Reorganization, or Merger Agreement, dated July 19, 2011 and as amended August 8, 2011, by and among the Company, AMAG Pharmaceuticals, Inc., or AMAG, and Alamo Acquisition Sub, Inc., or Merger Sub, was terminated pursuant to Section 8.1(e) of the Merger Agreement and the merger contemplated thereby was not consummated.  The Merger Agreement was terminated by AMAG following the October 21, 2011, special meeting of AMAG stockholders at which AMAG’s stockholders voted against the issuance of shares of AMAG common stock to Allos’ stockholders in the proposed merger contemplated by the Merger Agreement.  In accordance with Section 8.3(c) of the Merger Agreement, AMAG paid Allos $1.8 million on October 25, 2011, consisting of the expense reimbursement equal to $2.0 million in connection with such termination, net of our portion of certain shared costs.

 

Upon the termination of the Merger Agreement, the Amendment, dated as of July 19, 2011, to the Rights Agreement, dated May 6, 2003, as amended on March 4, 2005, January 29, 2007 and July 17, 2009, between Allos and Mellon Investor Services LLC, and the Voting Agreements, dated as of July 19, 2011, between Allos and each of the directors and the then-current named executive officers of AMAG, terminated pursuant to their terms.

 

Strategic Collaboration

 

In May 2011, we entered into a strategic collaboration agreement to co-develop FOLOTYN with Mundipharma, or the Mundipharma Collaboration Agreement.  Under the Mundipharma Collaboration Agreement, we retain full commercialization rights for FOLOTYN in the United States and Canada with Mundipharma having exclusive rights to commercialize FOLOTYN in all other countries in the world, or the Mundipharma territories.  Under the Mundipharma Collaboration Agreement, we received an upfront payment of $50.0 million upon execution of the Mundipharma Collaboration Agreement and may receive potential regulatory milestone payments of up to $21.5 million and commercial progress- and sales-dependent milestone payments of up to $289.0 million.  Included in the $21.5 million of potential regulatory milestone payments is a $14.5 million milestone payment related to obtaining conditional approval of FOLOTYN for the treatment of patients with relapsed or refractory PTCL in the European Union.  In the event Mundipharma achieves the first reimbursable commercial sale of FOLOTYN in at least three major market countries in the European Union we would receive a milestone payment from Mundipharma of $10.0 million, which is included in the $289.0 million of commercial milestone payments discussed above.  Of the $50 million upfront payment, 20%, or $10 million, was paid by Allos to the licensors of FOLOTYN under the terms of our license agreement with Sloan-Kettering Institute for Cancer Research, SRI International and Southern Research Institute.  We are also entitled to receive tiered double-digit royalties based on net sales of FOLOTYN within Mundipharma’s licensed territories.  Allos and Mundipharma will jointly fund worldwide development costs, initially on a 60:40 basis, respectively; which will change to a 50:50 basis if certain pre-defined milestones are achieved, including approval to market FOLOTYN for relapsed or refractory PTCL in the European Union.  The parties’ development funding will support jointly agreed-upon clinical development activities, including, but not limited to, the planned Phase 3 registration studies of FOLOTYN in previously undiagnosed PTCL and in relapsed or refractory cutaneous T-cell lymphoma. Pursuant to a separate supply agreement with Mundipharma Medical Company, an

 

26



Table of Contents

 

affiliate of Mundipharma, we will supply FOLOTYN for Mundipharma’s clinical and commercial uses. We refer to the Mundipharma Collaboration Agreement and the Mundipharma Supply Agreement as the Mundipharma Agreements. During the three and nine months ended September 30, 2011, we recognized $0.8 million and $24.3 million, respectively, of license and other revenue under the Mundipharma Agreements.

 

Development Program

 

We are prioritizing our resources on the development and commercialization of FOLOTYN for the treatment of PTCL, cutaneous T-cell lymphoma and other hematologic malignancies.  The following table summarizes the target indications and clinical development status of the FOLOTYN development program, including our planned post-approval studies:

 

Company Sponsored Studies

 

Phase

 

Status

HEMATOLOGIC MALIGNANCIES

 

 

 

 

Peripheral T-cell Lymphoma

 

 

 

 

1st Line: CHOP Sequential Study*

 

3

 

Enrollment ongoing

Cutaneous T-cell Lymphoma

 

 

 

 

2nd Line+: Single Agent Study

 

1

 

Enrollment completed; results reported Q4 2010

2nd Line+: Bexarotene Combination*

 

1/3

 

Enrollment ongoing in Phase 1 study

Lymphoma

 

 

 

 

2nd line+: Non-Hodgkin Lymphoma combination Pralatrexate + Gemcitabine

 

1/2a

 

Enrollment completed; data expected 1H 2012

2nd Line+: B-cell Non-Hodgkin Lymphoma

 

2

 

Enrollment ongoing

 


*   These studies are required by the FDA as a condition of the accelerated approval of FOLOTYN for the treatment of patients with relapsed or refractory PTCL and must verify the clinical benefit of FOLOTYN. Additionally, these studies are jointly funded under the Mundipharma Agreements discussed above.

 

We recently closed enrollment in our ongoing Phase 2 studies of FOLOTYN in patients with advanced or metastatic relapsed transitional cell carcinoma (TCC) of the urinary bladder and in female patients with advanced or metastatic breast cancer who failed prior chemotherapy.  We intend to report the data from these studies at an appropriate scientific venue in 2012.  We do not plan to make further investments in the development of FOLOTYN for these indications at the present time given our prioritization of resources on the development and commercialization of FOLOTYN for hematologic malignancies.  We will, however, continue to support investigators who are evaluating FOLOTYN in multiple myeloma and solid tumor indications through our ongoing collaboration with the National Comprehensive Cancer Network, or NCCN, Oncology Research Program.

 

Results of Operations

 

We have incurred significant net losses and negative cash flows from operations. We have incurred these losses principally from costs incurred in our research and development programs and from our selling, general and administrative expenses.  Our primary business activities are focused on the development and commercialization of FOLOTYN.

 

Our ability to achieve sustained profitability is dependent on our ability, alone or with partners, to significantly increase sales of FOLOTYN for the treatment of patients with relapsed or refractory PTCL in the United States.  The amount of our future product sales are subject to significant uncertainty.  We may never generate sufficient revenue from product sales to become profitable.

 

We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials and seeking additional regulatory approvals for FOLOTYN.  We also expect to continue to spend substantial amounts on selling, general and administrative expenses to promote FOLOTYN for the treatment of patients with relapsed or refractory PTCL in the United States.  Therefore, we may need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including those discussed under the “Liquidity and Capital Resources” section below.

 

27



Table of Contents

 

If we are unable to significantly increase sales of FOLOTYN or otherwise raise sufficient additional funds to support our operations, we may be required to delay, reduce the scope of or eliminate one or more of our development programs and our future prospects for profitability may be harmed.

 

In January 2011, we implemented a strategic reduction of our workforce by approximately 13%, or 25 employees.  Personnel reductions were primarily focused in research and development and general and administrative functions.  The restructuring was a result of our decision to prioritize our resources on the development and commercialization of FOLOTYN for the treatment of PTCL, cutaneous T-cell lymphoma and other hematologic malignancies, and to manage our operating costs and expenses.  During the first quarter of 2011, we incurred total restructuring charges of approximately $570,000 in connection with the restructuring, all in the form of one-time termination benefits, with no additional charges incurred during 2011.

 

Comparison of three and nine months ended September 30, 2011 and 2010

 

Revenue

 

Our revenues for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Net product sales

 

$

13.2

 

$

8.2

 

$

35.1

 

$

23.5

 

License and other revenue

 

0.8

 

 

24.3

 

 

Total revenue

 

$

14.0

 

$

8.2

 

$

59.4

 

$

23.5

 

 

Net product sales.  Net product sales represent gross product sales less distributor fees and estimated allowances for product returns, government rebates and chargebacks, as further described in the “Critical Accounting Policies” section below.  We began making FOLOTYN available for commercial sale in the United States in October 2009 and commenced our commercial launch of FOLOTYN in January 2010.

 

We sell FOLOTYN to a limited number of pharmaceutical wholesale distributors, or distributors, the three largest of which are affiliates under common control of an unrelated party.  Title to the product passes upon delivery to our distributors, when the risks and rewards of ownership are assumed by the distributor (freight on board destination).  These distributors then resell FOLOTYN to the patients’ respective health care providers.  Prior to the fourth quarter of 2010, product sales to distributors were recorded as deferred revenue until the product was sold through from our distributors to health care providers because we did not have sufficient history to be able to reasonably estimate returns.  Beginning in the fourth quarter of 2010, we began recognizing revenue as product is sold to distributors as we established a sufficient history in order to reasonably estimate returns from our distributors.  Through September 30, 2011, product returns have been negligible.  Our distributors’ contractual return rights are limited to defective product or product that was shipped in error.  Returns are not allowed for expired product.  Given these limited contractual return rights, the price of FOLOTYN and the limited number of PTCL patients in the United States, FOLOTYN distributors and their customers generally carry limited inventory.

 

Net product sales for the three and nine months ended September 30, 2011 include $3.0 million, or $0.03 per share of common stock, related to the sale of FOLOTYN for use in a clinical trial to be conducted by an unrelated party.  We expect to generate future sales of FOLOTYN for use in this clinical trial.  However, we cannot predict the timing or amount of such future sales.  Since this sale relates to product used for a clinical trial, the sale was not subject to government rebates and chargebacks and no such reserves were recorded on this sale.

 

28



Table of Contents

 

A reconciliation of gross to net product sales for the three and nine months ended September 30, 2011 and 2010 and balances and activity in the deferred revenue account for the three and nine months ended September 30, 2010 are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Gross product sales

 

$

14.7

 

$

9.3

 

$

39.3

 

$

26.5

 

Gross to Net Sales Adjustments

 

 

 

 

 

 

 

 

 

Government rebates and chargebacks

 

(1.0

)

(0.8

)

(2.7

)

(2.2

)

Distribution fees

 

(0.4

)

(0.3

)

(1.1

)

(0.8

)

Product returns allowance

 

(0.1

)

 

(0.4

)

 

Net product sales

 

$

13.2

 

$

8.2

 

$

35.1

 

$

23.5

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue, beginning of the period

 

 

 

$

1.2

 

 

 

$

0.7

 

Gross product sales to distributors

 

 

 

9.7

 

 

 

27.4

 

Less: Gross product sales recognized

 

 

 

(9.3

)

 

 

(26.5

)

Deferred revenue, end of the period

 

 

 

$

1.6

 

 

 

$

1.6

 

 

Gross product sales to distributors for the three months ended September 30, 2011 were $14.7 million, a $5.4 million increase as compared to the same period in 2010.  Gross product sales to distributors for the nine months ended September 30, 2011 were $39.3 million, a $12.8 million increase as compared to the same period in 2010.  These increases relate to an increase in the number of units sold, as there have been no price increases to date.

 

Gross to net sales adjustments as a percent of gross product sales were 10.3% and 11.3% for the three months ended September 30, 2011 and 2010, respectively.  Gross to net sales adjustments as a percent of gross product sales were 10.9% and 11.3% for the nine months ended September 30, 2011 and 2010, respectively.  The decrease in gross to net sales adjustments as a percent of gross product sales for both the three and nine months ended September 30, 2011, primarily relates to the $3.0 million of net product sale of FOLOTYN for use in a clinical trial to be conducted by an unrelated party which was not subject to government rebates and chargebacks and no such reserves were recorded on this sale.

 

Balances and activity in the product returns, government rebates and chargebacks and distribution fees payable accounts for the nine months ended September 30, 2011 and 2010 are as follows:

 

 

 

 

 

Government

 

 

 

 

 

Product

 

Rebates and

 

Distribution

 

 

 

Returns

 

Chargebacks

 

Fees

 

Balance at December 31, 2009

 

$

 

$

0.5

 

$

0.1

 

Reserve for current period sales

 

 

2.4

 

0.8

 

Change in estimate for prior period sales

 

 

(0.2

)

 

Credits/payments made for prior period sales

 

 

(1.1

)

(0.6

)

Credits/payments made for current period sales

 

 

(0.1

)

(0.1

)

Balance at September 30, 2010

 

$

 

$

1.5

 

$

0.2

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010

 

$

0.4

 

$

2.2

 

$

0.3

 

Reserve for current period sales

 

0.4

 

3.1

 

1.1

 

Change in estimate for prior period sales

 

 

(0.3

)

 

Credits/payments made for prior period sales

 

 

(0.4

)

(0.2

)

Credits/payments made for current period sales

 

 

(1.8

)

(0.9

)

Balance at September 30, 2011

 

$

0.8

 

$

2.8

 

$

0.3

 

 

During the first quarter of 2010, we obtained additional market research and were able to refine our estimated Medicaid utilization, which resulted in a reversal of Medicaid rebate allowances related to 2009 sales totaling $208,000.  In March 2010, the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Affordability Reconciliation Act of 2010, or PPACA, was enacted, which increased the Medicaid rebate percentage from 15.1% to 23.1%, retroactive to January 1, 2010.

 

Our products are subject to certain programs with federal government qualified entities whereby pricing on products is discounted below distributor list price to participating entities. These entities purchase products through distributors at the discounted price, and the distributors charge the difference between their acquisition cost and the discounted price back to us.

 

29



Table of Contents

 

We account for chargebacks by establishing an accrual at the time of product sale in an amount equal to our estimate of chargeback claims to be received from qualified entities.  We do not expect the impact of the 340B program expansion included in the PPACA to significantly change our estimated government chargeback accruals because drugs approved under an Orphan Drug designation were specifically excluded from the provisions of the PPACA.  The FDA has awarded orphan drug status to FOLOTYN for the treatment of patients with T-cell lymphoma, which includes patients with relapsed or refractory PTCL. Given our commercial launch in January 2010 and the impact of the PPACA during the first half of 2010, our historical chargeback claims data through September 30, 2011 has not been representative of recent qualified entity utilization.  Therefore, we have not updated our expected utilization of the allowable discounted pricing by qualified entities. We also evaluate previously recorded chargebacks based on data regarding specific entities’ lack of claim activity over time. As a result of this evaluation, during the nine months ended September 30, 2011 we recorded a reversal of government chargeback allowances related to 2010 sales totaling $301,000.  Due to estimates and assumptions inherent in determining the amount of government chargebacks, the actual amount of claims for chargebacks may be different from our estimates, at which time we would adjust our reserves accordingly.

 

Product returns, government rebates and chargebacks reflect management estimates which are further discussed in the “Critical Accounting Policies” section below.

 

License and other revenue.  In May 2011, we entered into a strategic collaboration agreement to co-develop FOLOTYN with Mundipharma.  Under the Mundipharma Collaboration Agreement, we received an upfront payment of $50.0 million and may receive potential regulatory and commercial progress- and sales-dependent milestone payments of up to $310.5 million, as further described in the “Critical Accounting Policies” section below.

 

License and other revenue related to the Mundipharma Agreements for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Licenses

 

$

 

$

 

$

22.7

 

$

 

Regulatory

 

0.5

 

 

1.1

 

 

Research and development

 

0.3

 

 

0.5

 

 

License and other revenue

 

$

0.8

 

$

 

$

24.3

 

$

 

 

Pursuant to the accounting guidance under Accounting Standards Codification 605-25, or ASC 605-25, which governs revenue recognition for multiple element arrangements, we have evaluated the four non-contingent deliverables under the Mundipharma Agreements and determined that they meet the criteria for separation and are therefore treated as separate units of accounting, as follows:

 

·                  Licenses from Allos to commercialize, develop and manufacture FOLOTYN worldwide, outside of the United States and Canada, or the Licenses;

 

·                  Regulatory services provided by Allos related to the MAA through May 10, 2012;

 

·                  Research and development services provided by Allos related to jointly agreed-upon clinical development activities through approximately 2022, with cost sharing in the “Strategic Collaboration” section above; and

 

·                  Clinical trial supply obligations to supply FOLOTYN for use in the EMA Pediatric Studies.

 

Because delivery of the Licenses occurred upon the execution of the Mundipharma Collaboration Agreement in May 2011 and there is no general right of return, all $22.7 million of allocated arrangement consideration related to the Licenses was recognized as revenue during the nine months ended September 30, 2011.

 

We will perform the regulatory services under the Mundipharma Collaboration Agreement over a period of up to one year, or through May 10, 2012, with no general right of return.  Therefore, all allocated arrangement consideration related to

 

30



Table of Contents

 

the regulatory services will be recognized using the proportional performance method, by which revenue is recognized in proportion to the costs incurred, during the service period of up to one year.

 

We will perform the research and development services under the Mundipharma Collaboration Agreement over the period required to complete the jointly agreed-upon clinical development activities, which we estimate to be approximately through 2022 based on our projected clinical trial enrollment and patient treatment-related follow up time periods, with no general right of return.  Therefore, all allocated arrangement consideration related to the research and development services will be recognized as the research and development costs that are subject to reimbursement are incurred.

 

As of September 30, 2011, no clinical supply has been delivered under the Mundipharma Supply Agreement, therefore, there was no revenue recognized during the three and nine months ended Septmber 30, 2011 related to this deliverable.

 

The total amount of consideration allocable to the Mundipharma Agreements is limited to the amount that is fixed or determinable other than with respect to the impact of either of the following: (a) any refund rights or other concessions to which the customer may be entitled or (b) performance bonuses to which the vendor may be entitled. Since a portion of the arrangement consideration received by the Company is subject to a contingent payment obligation relating to the development cost differential as described below under Critical Accounting Policies — License and Other Revenue Recognition, we excluded the amount of this contingent payment obligation from the arrangement consideration. As amounts related to the contingent payment obligation become nonrefundable, these amounts are added to the arrangement consideration and reallocated to the deliverables in the period in which the amounts become nonrefundable.

 

As of September 30, 2011, deferred amounts related to the Mundipharma Agreements consisted of:

 

 

 

September 30,

 

 

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

Current deferred revenue

 

$

4.3

 

$

 

 

 

 

 

 

 

Long-term deferred revenue

 

$

7.0

 

$

 

Development cost differential contingent payment

 

$

14.9

 

 

Long-term deferred revenue and other liabilities

 

$

21.9

 

$

 

 

We expect license and other revenue for the fourth quarter 2011 to be consistent with the amount recorded in the third quarter of 2011.

 

Operating costs and expenses

 

Cost of sales, excluding amortization expense. Cost of sales, excluding amortization expense, includes royalties, inventory packaging and labeling, warehousing and shipping costs associated with FOLOTYN product revenue.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Cost of sales, excluding amortization expense.

 

$

1.2

 

$

0.9

 

$

3.2

 

$

2.3

 

 

Prior to receiving FDA approval of FOLOTYN on September 24, 2009, all costs related to purchases of the active pharmaceutical ingredient and manufacturing of the product were recorded as research and development expense.  Until we sell the inventory for which the costs were previously expensed, our cost of sales will reflect only royalties and other incremental costs incurred subsequent to the FDA approval date.  Accordingly, our cost of sales of FOLOTYN will be lower with respect to product that was manufactured prior to FDA approval.  This occurred with respect to the majority of sales of FOLOTYN in the three and nine month periods ended September 30, 2011 and 2010 and is expected to continue to occur for a significant amount of sales of FOLOTYN through the remainder of 2011.

 

31



Table of Contents

 

The $1.2 million and $0.9 million of cost of sales, excluding amortization expense for the three months ended September 30, 2011 and 2010, respectively, and the $3.2 million and $2.3 million of cost of sales, excluding amortization expense for the nine months ended September 30, 2011 and 2010, respectively, was primarily attributable to an 8% royalty on gross product sales payable to the licensors of FOLOTYN under the terms of our license agreement.

 

We expect cost of sales, excluding amortization expense for the fourth quarter of 2011 to approximate 10% of net product sales to distributors, which includes the current 8% royalty on FOLOTYN sales.

 

Cost of license and other revenue. Cost of license and other revenue from the Mundipharma Agreements includes sublicense fee payments to the licensors of FOLOTYN under the terms of our license agreement, and internal and external costs associated with regulatory services provided by Allos related to the MAA.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Cost of license and other revenue

 

$

0.4

 

$

 

$

11.0

 

$

 

 

Cost of license and other revenue for the three months ended September 30, 2011 consisted of $0.4 million of costs incurred in connection with the regulatory services provided related to the MAA.  There were no corresponding costs in 2010.  Cost of license and other revenue for the nine months ended September 30, 2011 consisted of: (i) a $10 million payment to the licensors of FOLOTYN under the terms of our license agreement with Sloan-Kettering Institute for Cancer Research, SRI International and Southern Research Institute, which represented 20% of the $50 million upfront payment received from Mundipharma upon execution of the Mundipharma Agreements, and (ii) $1.0 million of costs incurred in connection with the regulatory services provided related to the MAA.  There were no corresponding costs in 2010.

 

We expect cost of license and other revenue for the fourth quarter of 2011  to be consistent with the amount recorded in the third quarter of 2011.  We do not expect additional cost of revenue related to sublicense fee payments to the licensors of FOLOTYN for the remainder of 2011.

 

Research and Development.  Research and development expenses include the costs of certain personnel, preclinical studies, clinical trials, regulatory affairs, biostatistical data analysis, third-party manufacturing costs for development of drug materials for use in preclinical studies and clinical trials and, manufacturing costs and licensing fees incurred for FOLOTYN prior to receipt of FDA approval.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Research and development

 

$

5.0

 

$

7.2

 

$

17.6

 

$

23.1

 

 

The $2.2 million decrease in research and development expenses in the three months ended September 30, 2011 as compared to the same period in 2010 was primarily due to:

 

·          a $715,000 decrease in personnel costs, mainly attributable to the reduction in force in January 2011, as discussed above;

 

·          a $670,000 decrease in costs related to clinical trials involving FOLOTYN that have closed enrollment;

 

·          a $437,000 decrease related to external costs incurred and internal costs allocated to regulatory services performed under the Mundipharma Agreements, which are included in cost of license and other revenue discussed above; and

 

·          a $238,000 decrease in third-party manufacturing costs for clinical trial material and other manufacturing costs.

 

The $5.5 million decrease in research and development expenses in the nine months ended September 30, 2011 as compared to the same period in 2010 was primarily due to:

 

32



Table of Contents

 

·          a $2.6 million decrease in costs related to clinical trials involving FOLOTYN that have closed enrollment, including decreased costs for our Phase 2b study in NSCLC which completed patient enrollment in July 2009;

 

·          a $1.9 million decrease in third-party manufacturing costs for clinical trial material and other manufacturing costs;

 

·          a $1.0 million decrease related to external costs incurred and internal costs allocated to regulatory services performed under the Mundipharma Agreements, which are included in cost of license and other revenue discussed above;

 

·          a $795,000 decrease in personnel costs, mainly attributable to the reduction in force in January 2011, as discussed above; and

 

·          a $501,000 decrease in consulting and professional fees, primarily related to the preparation for the submission of the MAA in Europe, which was accepted in December 2010.

 

This decrease was partially offset by:

 

·            a $773,000 increase in costs related to clinical trials involving FOLOTYN, including costs for the post-approval studies required by the FDA and other trials with ongoing enrollment; and

 

·            a $569,000 increase in non-cash stock-based compensation, as discussed in more detail in the Stock-based Compensation Expense section below.

 

We expect research and development expenses for the fourth quarter of 2011 to be consistent with the amount recorded in the third quarter of 2011.

 

Selling, General and Administrative.  Selling, general and administrative expenses include costs for sales and marketing activities, corporate development, medical affairs, executive administration, corporate offices and related infrastructure.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Selling, general and administrative

 

$

18.7

 

$

18.7

 

$

56.4

 

$

57.2

 

 

Selling, general and administrative expenses were approximately the same for the three months ended September 30, 2011 and 2010.  The primary changes for the three months ended September 30, 2011 from the same period in 2010 were as follows:

 

·            a $1.4 million decrease in personnel, travel and administrative costs, mainly attributable to reduced headcount;

 

·            a $1.3 million decrease in sales and marketing costs associated with the commercial launch of FOLOTYN that commenced in January 2010, including promotional expenses, advisory boards, market research and costs related to trade shows;

 

·            a $337,000 decrease in non-merger related legal and other professional fees; and

 

·            a $336,000 decrease in contributions and educational grants.

 

These decreases were partially offset by:

 

·            a $2.8 million increase in consulting and professional fees related to the proposed merger with AMAG, which was terminated on October 21, 2011; and

 

·            a $796,000 increase in non-cash stock-based compensation expense, as discussed in more detail in the Stock-based Compensation Expense section below.

 

The $753,000 decrease in selling, general and administrative expenses in the nine months ended September 30, 2011 as compared to the same period in 2010 was primarily due to the following:

 

33



Table of Contents

 

·            a $2.7 million decrease in personnel, travel and administrative costs, mainly attributable to reduced headcount;

 

·            a $2.6 million decrease in sales and marketing costs associated with the commercial launch of FOLOTYN that commenced in January 2010, including promotional expenses, advisory boards, market research and costs related to trade shows;

 

·            a $777,000 decrease in contributions and educational grants; and

 

·            a $369,000 decrease in non-merger related legal and other professional fees.

 

This decrease was partially offset by:

 

·            a $4.6 million increase in consulting and professional fees related to the proposed merger with AMAG, which was terminated on October 21, 2011; and

 

·            a $970,000 increase in non-cash stock-based compensation expense, as discussed in more detail in the Stock-based Compensation Expense section below.

 

As a result of the termination of the Merger Agreement on October 21, 2011, AMAG paid Allos approximately $1.8 million for reimbursement of expenses, which will be recorded in the fourth quarter as an offset to selling, general and administrative expenses.  We expect selling, general and administrative expenses for the fourth quarter of 2011 to decrease compared to the amount recorded in the third quarter of 2011, primarily related to lower merger related expenses and the reimbursement of expenses from AMAG discussed above.

 

Amortization of intangible asset.  Amortization of intangible asset represents amortization expense of capitalized license costs over the expected patent life of the related product.

 

Amortization intangible asset expense for both the three and nine months ended September 30, 2011 and 2010 was $113,000 and $340,000, respectively.  The expense was due to the amortization of the $5.8 million intangible asset resulting from a milestone payment under our license agreement for FOLOTYN in September 2009 discussed further in the “Obligations and Commitments” section below.  Amortization expense is being recorded on a straight line basis over the estimated remaining life of the composition of matter patent for FOLOTYN, which we expect to last until July 16, 2022. This includes the anticipated Hatch-Waxman extension that provides patent protection for drug compounds for a period of up to five years to compensate for time spent in development. This term is our best estimate of the life of the patent.  If, however, the Hatch-Waxman extension is not granted, the intangible asset will be amortized over a shorter period.

 

We expect amortization of intangible asset expense for the full year 2011 to be approximately $454,000.

 

Stock-based Compensation Expense.  Stock-based compensation expense for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Research and development

 

$

0.8

 

$

0.9

 

$

2.8

 

$

2.2

 

Selling, general and administrative

 

2.1

 

1.3

 

6.6

 

5.7

 

Total stock-based compensation expense

 

$

2.9

 

$

2.2

 

$

9.4

 

$

7.9

 

 

34



Table of Contents

 

Stock-based compensation expense, by equity award type for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Stock options

 

$

0.7

 

$

1.8

 

$

3.1

 

$

6.8

 

Restricted stock units

 

2.2

 

0.3

 

6.2

 

0.9

 

Restricted stock

 

0.0

 

0.0

 

0.0

 

0.0

 

Employee stock purchase plan

 

0.0

 

0.1

 

0.1

 

0.2

 

Total stock-based compensation expense

 

$

2.9

 

$

2.2

 

$

9.4

 

$

7.9

 

 

Effective August 24, 2010, James V. Caruso, our former Executive Vice President and Chief Commercial Officer (CCO), departed the Company.  As a result of Mr. Caruso’s departure, we adjusted the forfeiture rate applied to his equity compensation, which resulted in a one-time $0.8 million reversal of selling, general and administrative stock-based compensation expense during the three and nine months ended September 30, 2010, of which $0.6 million related to stock option awards and $0.2 million related to restricted stock unit awards.

 

The $757,000 increase in stock-based compensation expense for the three-month period ended September 30, 2011 as compared to the same period in 2010 was primarily due to the reversal of expense for the CCO discussed above, with no corresponding reversal in 2011.  The $1.5 million increase in stock-based compensation expense for the nine-month period ended September 30, 2011 as compared to the same period in 2010 was due to the reversal of expense for the CCO discussed above, with no corresponding reversal in 2011 and increases in the number of RSUs granted to existing employees pursuant to the grant of additional RSUs to existing employees that occurred in October 2010 and our annual grants that occurred in February 2011.

 

As of September 30, 2011, the unrecorded stock-based compensation balance and estimated weighted-average amortization period by equity award type was as follows:

 

 

 

Unrecorded

 

Weighted-

 

 

 

stock-based

 

average

 

 

 

compensation

 

amortization

 

 

 

balance

 

period

 

 

 

(in millions)

 

 

 

Stock options

 

$

3.6

 

1.5

 

Restricted stock units

 

8.0

 

1.6

 

Restricted stock

 

0.0

 

1.0

 

 

We expect stock-based compensation expense for the full year 2011 to approximate $12 million.

 

Interest and Other Income, Net.  Interest income, net of interest expense, for the three months ended September 30, 2011 and 2010 was $14,000 and $(129,000), respectively.  The $143,000 increase in net interest income in the three months ended September 30, 2011 as compared to the same period in 2010 was primarily due to a $199,000 loss recognized in 2010 related to the disposal of certain software that was no longer in use, with no corresponding amount in 2011; partially offset by lower yields on our cash, cash equivalents and investments in 2011.

 

Interest income, net of interest expense, for the nine months ended September 30, 2011 and 2010 was $74,000 and $2,000, respectively.  The $72,000 increase in net interest income in the nine months ended September 30, 2011 as compared to the same period in 2010 was primarily due to a $199,000 loss recognized in 2010 related to the disposal of certain software that was no longer in use, with no corresponding amount in 2011; partially offset by lower yields on our cash, cash equivalents and investments in 2011.

 

Income Tax Benefit.  Income tax benefit was $7,000 and $78,000 for the both the three and nine months ended September 30, 2011 and 2010, respectively.  The income tax benefit in both the three and nine months ended September 30, 2011 and 2010 was related to a refundable research and experimentation income tax credit received during the respective periods.  We do not expect a significant income tax benefit during the fourth quarter of 2011.  We performed an evaluation of tax periods that

 

35



Table of Contents

 

remain subject to examination by major tax jurisdictions as of September 30, 2011 and we have concluded based on that evaluation that there are no significant uncertain tax positions requiring recognition in our financial statements.  A full valuation allowance has been established for the entire tax benefit as we believe that it is more likely than not that such assets will not be realized.

 

Liquidity and Capital Resources

 

As of September 30, 2011, we had $100.4 million in cash, cash equivalents, and investments.  Of this amount, $69.6 million was held in money market funds and cash accounts and $30.8 million was held in U.S. Treasury notes and high-grade corporate notes with a weighted average duration of the remaining time to maturity of approximately two months.  Until required for use in our business, we invest our cash reserves in bank deposits, money market funds, high-grade corporate notes and U.S. government instruments in accordance with our investment policy.

 

We have financed our operations primarily through public sales of our equity securities.  In addition, we began generating revenue from sales of FOLOTYN in the fourth quarter of 2009.  Net product sales were $35.1 million and $23.5 million for the nine months ended September 30, 2011 and 2010, respectively, which partially offset our operating costs and expenses for the respective periods.

 

Net cash provided by our operating activities for the nine months ended September 30, 2011 was $1.8 million, primarily resulting from the $50 million upfront payment received in May 2011 under the Mundipharma Agreements, net of the 20%, or $10 million sublicense fee payment we made to the licensors of FOLOTYN, offset by cash used for operating activities.  Net cash used to fund our operating activities for the nine months ended September 30, 2010 was $52.9 million.

 

For fiscal 2011, total operating costs and expenses, excluding cost of sales, cost of license and other revenue and non-cash stock-based compensation expense, are expected to approximate $82 to $84 million.  Non-cash stock-based compensation expense is expected to approximate $12 million for 2011.  Actual financial results for 2011 will vary based upon many factors, including the amount of FOLOTYN sales and rate of patient enrollment in ongoing clinical trials of FOLOTYN.

 

Net cash provided by investing activities for the nine months ended September 30, 2011 was $19.6 million and consisted primarily of proceeds from maturities of investments offset by purchases of investments.  Net cash used in investing activities for the nine months ended September 30, 2010 was $29.0 million and consisted primarily of purchases of investments offset by proceeds from maturities of investments.

 

Net cash provided by financing activities for the nine months ended September 30, 2011 and 2010 was $124,000 and $4.2 million, respectively, and consisted primarily of proceeds from the issuance of common stock associated with stock options exercised by our employees and sales of stock under our employee stock purchase plan.

 

Based upon the current status of our product development and commercialization plans, we believe that our $100.4 million of cash, cash equivalents, and investments as of September 30, 2011 will be adequate to support our operations through the end of 2014, although there can be no assurance that this can, in fact, be accomplished. This projection is based on certain assumptions, including: (i) future net product sales levels and cost of sales remaining consistent with our actual results for the first nine months of 2011, and (ii) our annual cash-based operating expenditures, excluding cost of sales and non-cash stock-based compensation and depreciation expense and net of expected reimbursements from Mundipharma for jointly funded clinical trials, approximating $72 to $75 million per year for 2012 through 2014.  We report the expected reimbursements from Mundipharma as License and other revenue in accordance with generally accepted accounting principles.  Growth in U.S. sales and/or potential milestone payments and royalties associated with regulatory approval of FOLOTYN in the European Union have the potential to further extend our cash resources assuming our costs remain consistent with our projections.  Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

 

We anticipate continuing our current development programs and beginning other long-term development projects involving FOLOTYN, including the post-approval clinical studies required for FOLOTYN.  These projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful.  In addition, we expect to incur significant costs relating to the commercialization of FOLOTYN, including costs related to our sales and marketing, medical

 

36



Table of Contents

 

affairs and manufacturing operations.  Therefore, we may need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including:

 

·                  the timing and amount of revenues generated from sales of FOLOTYN;

 

·                  the timing and costs associated with our sales and marketing activities for promoting FOLOTYN;

 

·                  the timing and costs associated with manufacturing clinical and commercial supplies of FOLOTYN;

 

·                  the timing and costs associated with conducting preclinical and clinical development of FOLOTYN, including the post-approval clinical studies required by the FDA;

 

·                  the timing and costs associated with our evaluation of, and decisions with respect to, the potential development of FOLOTYN for additional therapeutic indications;

 

·                  the timing, costs and revenue associated with our strategic collaboration with Mundipharma for the co-development of FOLOTYN globally and commercialization outside the United States and Canada; and

 

·                  our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

 

We may seek to obtain this additional capital through equity or debt financings, arrangements with corporate partners, or from other sources.  Such financings or arrangements, if successfully consummated, may be dilutive to our existing stockholders. However, there is no assurance that additional financing will be available when needed, or that, if available, we will obtain such financing on terms that are favorable to our stockholders or us. In the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development, which we might otherwise seek to develop or commercialize ourselves, on terms that are less favorable than might otherwise be available.  If we are unable to generate meaningful amounts of revenue from future product sales or cannot otherwise raise sufficient additional funds to support our operations, we may be required to delay, reduce the scope of or eliminate one or more of our development programs and our business and future prospects for revenue and profitability may be harmed.

 

Obligations and Commitments

 

Royalty and License Fee Commitments

 

In December 2002, we entered into a license agreement with Memorial Sloan-Kettering Cancer Center, SRI International and Southern Research Institute, as amended, under which we obtained exclusive worldwide rights to a portfolio of patents and patent applications related to FOLOTYN and its uses. Under the terms of the agreement, we paid an up-front license fee of $2.0 million upon execution of the agreement and have made aggregate milestone payments of $2.5 million based on the passage of time. Additionally, in May and September 2009, we made milestone payments of $1.5 million based on the FDA accepting our New Drug Application for review and $5.8 million based on the FDA approval to market FOLOTYN, respectively.  The up-front license fee and all milestone payments under the agreement prior to FDA approval to market FOLOTYN were recorded to research and development expense as incurred.  The $5.8 million milestone payment based on the FDA approval was capitalized as an intangible asset and is being amortized over the expected useful life of the composition of matter patent for FOLOTYN, which we expect to last until July 16, 2022. The only remaining potential milestone payment under the license agreement is for $3.5 million upon regulatory approval to market FOLOTYN in Europe, which, if made would be capitalized and amortized over the expected useful life of the licensed patents. Under the terms of the agreement, we are required to fund all development programs and will have sole responsibility for all commercialization activities. In addition, we will pay the licensors royalties based on graduated annual levels of net sales of FOLOTYN to our distributors, net of actual rebates and chargebacks, or distributor sales, which may be different than our net product revenue recognized in accordance with U.S. generally accepted accounting principles, or GAAP, or sublicense revenues arising from sublicensing the product, if and when such sales or sublicenses occur.  During the nine month period ended September 30, 2011, we made a $10.0 million sublicense fee payment under this agreement related to the Mundipharma Agreements.  Royalties are 8% of annual distributor sales up to $150.0 million; 9% of annual distributor sales of $150.0 million through $300.0 million; and 11% of annual distributor sales in excess of $300.0 million.  For the nine months ended September 30, 2011 and 2010, our royalties were 8% of our net distributor sales.

 

37



Table of Contents

 

Lease Amendment

 

In August 2011, we extended our lease on an office in Princeton, New Jersey for one year, through September 30, 2012, at a rate of $380,000 per year.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses.  We base our estimates on historical experience, available information and assumptions that we believe to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  We have reviewed our critical accounting policies and estimates with the Audit Committee of our Board of Directors. We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and informed management judgments about matters that are inherently uncertain:

 

·          net product sales revenue recognition;

 

·          license and other revenue recognition;

 

·          accounting for research and development expenses;

 

·          accounting for inventory; and

 

·          accounting for stock-based compensation expense.

 

Net Product Sales Revenue Recognition

 

We generate revenue from product sales.  We recognize product revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) our price to the buyer is fixed and determinable; and (4) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (1) our price to the buyer is substantially fixed or determinable at the date of sale, (2) the buyer has paid us, or the buyer is obligated to pay us and the obligation is not contingent on resale of the product, (3) the buyer’s obligation to us would not be changed in the event of theft or physical destruction or damage of the product, (4) the buyer acquiring the product for resale has economic substance apart from that provided by us, (5) we do not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (6) the amount of future returns can be reasonably estimated.

 

We sell FOLOTYN to a limited number of pharmaceutical wholesale distributors, or distributors, the three largest of which are affiliates under common control of an unrelated party.  Title to the product passes upon delivery to our distributors, when the risks and rewards of ownership are assumed by the distributor (freight on board destination).  These distributors then resell FOLOTYN to the patients’ respective health care providers.  Prior to the fourth quarter of 2010, product sales to distributors were recorded as deferred revenue until the product was sold through from our distributors to health care providers because we did not have sufficient history to be able to reasonably estimate returns.  Beginning in the fourth quarter of 2010, we began recognizing revenue as product is sold to distributors as we established a sufficient history in order to reasonably estimate returns from our distributors.  We monitor inventory levels within our distribution channel and sales to end users, or health care providers, to determine whether deferral of sales is required.  No such deferrals were recorded at September 30, 2011.

 

Net Product Sales

 

We estimate gross to net sales adjustments based upon analysis of third-party information, including information obtained from our primary distributors with respect to their inventory levels and sell-through to the distributors’ customers.

 

Our net product sales represent total product sales less distributor fees and estimated allowances for product returns, government rebates and chargebacks to be incurred on the selling price of FOLOTYN related to the respective product sales.  We incur distributor fees related to the management of our product by distributors, which are recorded within net product

 

38



Table of Contents

 

sales and are based on definitive contractual agreements. Due to estimates and assumptions inherent in determining the amount of returns, rebates and chargebacks, the actual amount of returns and claims for rebates and chargebacks may be different from our estimates, at which time we would adjust our reserves accordingly.  Product sales allowances and accruals are based on definitive contractual agreements or legal requirements (such as Medicaid laws and regulations) related to the purchase and/or utilization of the product by these entities.  Allowances and accruals are recorded in the same period that the related revenue is recognized.

 

Net product sales for the three and nine months ended September 30, 2011 include $3.0 million, or $0.03 per share of common stock, related to the sale of FOLOTYN for use in a clinical trial to be conducted by an unrelated party.  We expect to generate future sales of FOLOTYN for use in this clinical trial.  However, we cannot predict the timing or amount of such future sales.  Since this sale relates to product used for a clinical trial, the sale was not subject to government rebates and chargebacks and no such reserves were recorded on this sale.

 

Product Returns

 

Our distributors’ contractual return rights are limited to defective product or product that was shipped in error.  Returns are not allowed for expired product.  Given these limited contractual return rights, the price of FOLOTYN and the limited number of PTCL patients in the United States, FOLOTYN distributors and their customers generally carry limited inventory.  We estimated product returns for FOLOTYN of 1% of gross product sales based upon actual returns history within our distribution channel, which were consistent with historical trends of product returns for similar companies in the pharmaceutical industry.  The actual returns history within our distribution channel is derived from third-party information obtained from certain distributors with respect to their inventory levels and sell-through to the distributors’ customers.  We will continue to monitor the historical trend of returns, including the impacts on this trend of product expiry dates and may be required to make future adjustments to our estimates.  Through September 30, 2011, product returns have been negligible.

 

Medicaid Rebates

 

Our product is subject to state government-managed Medicaid programs whereby discounts and rebates are provided to participating state governments. We record estimated rebates payable under governmental programs, including Medicaid, as a reduction of revenue at the time revenues are recorded. Our calculations related to these rebate accruals require estimates, including estimates of customer mix primarily based on a combination of market and clinical research, to determine which sales will be subject to rebates and the amount of such rebates. During the first quarter of 2010, we obtained additional market research and were able to refine our estimated Medicaid utilization, which resulted in a reversal of Medicaid rebate allowances related to 2009 sales totaling $208,000.  Our estimate of utilization is based on market research and information about our expected patient population.  Through September 30, 2011, we have not had sufficient claims from states for rebates with which to update our estimate.  However, when we have sufficient claims history, we will consider such history in our estimate which could result in a change in our estimate.  We also consider any legal interpretations of the applicable laws related to Medicaid and qualifying federal and state government programs and any new information regarding changes in the Medicaid programs’ regulations and guidelines that would impact the amount of the rebates.  In March 2010, the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Affordability Reconciliation Act of 2010, or PPACA, was enacted, which increased the Medicaid rebate percentage from 15.1% to 23.1%, retroactive to January 1, 2010.  In addition, the states’ ability to early adopt portions of PPACA, and any implementing regulations, could impact future estimates related to our Medicaid rebate allowances. We update our estimates and assumptions each period and record any necessary adjustments to our reserves. Although allowances and accruals are recorded at the time of product sale, certain rebates are typically paid out, on average, up to six months or longer after the sale. For reference purposes, a 10% to 20% increase in the Medicaid utilization percentage within our patient population as of September 30, 2011, would result in an approximate $1.3 million to $2.6 million reduction in cumulative net product sales.

 

Government Chargebacks

 

Our products are subject to certain programs with federal government qualified entities whereby pricing on products is discounted below distributor list price to participating entities. These entities purchase products through distributors at the discounted price, and the distributors charge the difference between their acquisition cost and the discounted price back to us. We account for chargebacks by establishing an accrual at the time of product sale in an amount equal to our estimate of chargeback claims to be received from qualified entities.  We do not expect the impact of the 340B program expansion included in the PPACA to significantly change our estimated government chargeback accruals because drugs approved under an Orphan Drug designation were specifically excluded from the provisions of the PPACA.  The FDA has awarded orphan

 

39



Table of Contents

 

drug status to FOLOTYN for the treatment of patients with T-cell lymphoma, which includes patients with relapsed or refractory PTCL. Given our commercial launch in January 2010 and the impact of the PPACA during the first half of 2010, our historical chargeback claims data through September 30, 2011 has not been representative of recent qualified entity utilization.  Therefore, we have not updated our expected utilization of the allowable discounted pricing by qualified entities. We also evaluate previously recorded chargebacks based on data regarding specific entities’ lack of claim activity over time.  As a result of this evaluation, during the nine months ended September 30, 2011 we recorded a reversal of government chargeback allowances related to 2010 sales totaling $301,000.  Due to estimates and assumptions inherent in determining the amount of government chargebacks, the actual amount of claims for chargebacks may be different from our estimates, at which time we would adjust our reserves accordingly.

 

License and Other Revenue Recognition

 

In May 2011, we entered into a strategic collaboration agreement with Mundipharma, or the Mundipharma Collaboration Agreement, pursuant to which we agreed to collaborate in the development of FOLOTYN according to a mutually agreed-upon development plan, as updated by the parties from time to time.  Under the Mundipharma Collaboration Agreement, we retain full commercialization rights for FOLOTYN in the United States and Canada with Mundipharma having exclusive rights to commercialize FOLOTYN in all other countries in the world, or the Mundipharma territories.  We received an upfront payment of $50.0 million upon execution of the Mundipharma Collaboration Agreement and may receive potential regulatory milestone payments of up to $21.5 million and commercial progress- and sales-dependent milestone payments of up to $289.0 million.  Of the $310.5 million in total potential milestone payments, we have determined that any regulatory milestone payments that may become due upon approval of FOLOTYN by regulatory agencies other than in the European Union, and all commercial milestone payments, are contingent consideration and will be accounted for as revenue in the period in which the respective revenue recognition criteria are met.  Included in the $21.5 million of potential regulatory milestone payments is a $14.5 million milestone payment related to obtaining conditional approval of FOLOTYN for the treatment of patients with relapsed or refractory PTCL in the European Union, which is deemed to be a substantive milestone given the ongoing regulatory services we are providing related to the underlying European Marketing Authorisation Application, or MAA, and will be accounted for as revenue in the period in which the milestone is achieved.  The remaining $296.0 million in total potential milestone payments are not deemed to be substantive for accounting purposes and will be recognized when the appropriate revenue recognition criteria have been met.  In the event Mundipharma achieves the first reimbursable commercial sale of FOLOTYN in at least three major market countries in the European Union we would receive a milestone payment from Mundipharma of $10.0 million, which is included in the $289.0 million of commercial milestone payments discussed above.  We are also entitled to receive tiered double-digit royalties based on net sales of FOLOTYN within Mundipharma’s licensed territories.

 

Under the initial development plan for FOLOTYN mutually agreed-upon by Allos and Mundipharma, or the Development Plan, the parties have agreed to conduct and jointly fund the following:

 

·                  all studies required by the FDA as a condition of the accelerated approval of FOLOTYN for relapsed or refractory PTCL, or the FDA Post-Approval Studies, including the ongoing and planned Phase 3 registration studies of FOLOTYN in patients with newly diagnosed PTCL and in patients with relapsed or refractory CTCL; and

 

·                  certain clinical studies to assess the safety and efficacy of FOLOTYN in children, or the EMA Pediatric Studies, which we previously agreed to conduct as a condition of the EMA’s acceptance of the MAA for review.

 

Under the Development Plan, we are assigned operational responsibility for the FDA Post-Approval Studies and Mundipharma is assigned operational responsibility for the EMA Pediatric Studies.  The Mundipharma Collaboration Agreement also allows, but does not require, the parties to conduct additional future clinical studies, which may be conducted jointly, in which case one of the parties will be assigned operational responsibility and the costs of such studies will be treated as joint development costs to be shared between the parties, or separately, in which case the party proposing such studies will be solely responsible for the conduct and costs of the studies.

 

Under the Mundipharma Collaboration Agreement, Mundipharma is initially responsible for 40% of the joint development costs incurred by the parties, which increases to 50% (a) in the calendar quarter after Mundipharma receives conditional approval to market FOLOTYN for relapsed or refractory PTCL in the European Union pursuant to the currently pending MAA, which approval must be received no later than December 31, 2012, or (b) if such conditional approval is not

 

40



Table of Contents

 

obtained, the later of (i) the calendar quarter of the first approval of FOLOTYN in the European Union for relapsed or refractory PTCL (other than pursuant to clause (a) above) or first-line PTCL, and (ii) the first calendar quarter in which the development cost differential equals or exceeds $15.0 million. The “development cost differential” is defined as the cumulative amount of joint development costs that Mundipharma would have incurred if it was responsible for 50% of the joint development costs rather than its initial 40% share.  To the extent that this development cost differential does not meet or exceed $15.0 million by December 31, 2019, and if conditional approval in the European Union has not been obtained, then we are required to pay Mundipharma the difference between $15.0 million and the amount of the development cost differential as of December 31, 2019.

 

The total amount of consideration allocable to the Mundipharma Agreements is limited to the amount that is fixed or determinable other than with respect to the impact of either of the following: (a) any refund rights or other concessions to which the customer may be entitled or (b) performance bonuses to which the vendor may be entitled. Since a portion of the arrangement consideration received by the Company is subject to a contingent payment obligation relating to the development cost differential as described above, we excluded the amount of this contingent payment obligation from the arrangement consideration. As amounts related to the contingent payment obligation become nonrefundable, these amounts are added to the arrangement consideration and reallocated to the deliverables in the period in which the amounts become nonrefundable.

 

As of September 30, 2011, the development cost differential of $0.1 million was included in the allocable Mundipharma arrangement consideration, and our contingent payment obligation related to the development cost differential was approximately $14.9 million and is recorded as an other long-term liability on the Balance Sheet. We record the joint development cost reimbursements received from Mundipharma as license and other revenue in the Statement of Operations; and we record the full amount of our joint development costs as research and development expense.

 

In connection with the Mundipharma Collaboration Agreement, we entered into a separate supply agreement with Mundipharma Medical Company, an affiliate of Mundipharma, pursuant to which we have agreed to supply FOLOTYN for use in clinical trials for which Mundipharma bears operational responsibility and to support Mundipharma’s commercial requirements.  We refer to this as the Mundipharma Supply Agreement, and we refer to the Mundipharma Supply Agreement and the Mundipharma Collaboration Agreement together as the Mundipharma Agreements.

 

Pursuant to the accounting guidance under Accounting Standards Codification 605-25, or ASC 605-25, which governs revenue recognition for multiple element arrangements, we have evaluated the four non-contingent deliverables under the Mundipharma Agreements and determined that they meet the criteria for separation and are therefore treated as separate units of accounting, as follows:

 

·                  Licenses from Allos to commercialize,  develop and manufacture FOLOTYN worldwide, outside of the United States and Canada, or the Licenses;

 

·                  Regulatory services provided by Allos related to the MAA through May 10, 2012;

 

·                  Research and development services provided by Allos related to jointly agreed-upon clinical development activities through approximately 2022, with cost sharing as discussed above; and

 

·                  Clinical trial supply obligations to supply FOLOTYN for use in the EMA Pediatric Studies.

 

We did not include the obligation to provide clinical trial supplies for any additional future clinical studies for which Mundipharma may bear operational responsibility as a separate deliverable, as there were no such clinical studies included in the initial Development Plan at the inception of the arrangement, and no such clinical studies have been subsequently added.  Under the Mundipharma Agreements, Mundipharma has the option to either order clinical supply for these potential future clinical studies from us or obtain the supplies from other third-party manufacturers.    Further, pursuant to the Mundipharma Collaboration Agreement, we granted Mundipharma a non-exclusive right and license, with the right to sublicense, under our manufacturing know-how and patents, to manufacture FOLOTYN for use in accordance with the Mundipharma Collaboration Agreement.  Both the manufacturing license and Mundipharma’s access to all information necessary or useful for the manufacturing and testing of FOLOTYN were delivered effective upon execution of the Mundipharma Collaboration Agreement.  In addition, pursuant to the Supply Agreement, we have agreed to provide such other reasonable assistance as required to enable Mundipharma or its permitted sublicensee to manufacture FOLOTYN.  However, we have determined that this effort is an inconsequential or perfunctory performance obligation and as a result have not included this as a deliverable

 

41



Table of Contents

 

in the arrangement.

 

The supply of FOLOTYN for Mundipharma’s commercial requirements is contingent upon the receipt of regulatory approvals to commercialize FOLOTYN in the Mundipharma territories. Because our commercial supply obligation is contingent upon the receipt of future regulatory approvals, and there were no binding commitments or firm purchase orders pending for commercial supply at or near the execution of the agreement, our commercial supply obligation is deemed to be contingent and is not valued as a deliverable under the Mundipharma Agreements.  As of September 30, 2011, no clinical or commercial supply has been delivered under the Mundipharma Supply Agreement.   If Mundipharma orders the supplies from us, the pricing for this supply would equal our third-party manufacturing cost plus a pre-negotiated percentage, which we have determined is not at a significant incremental discount to market rates.

 

Under the Mundipharma Agreements, the parties have agreed to establish and participate on several joint committees to facilitate the governance and oversight of the parties’ activities under the agreements.  We have considered whether our participation on the joint committees may be a deliverable and determined that it was not a deliverable.  Had we considered our participation on the joint committees as a deliverable, it would not have had a material impact on our accounting for the arrangement based on our analysis of the maximum potential estimated selling price of such participation.

 

We allocated the Mundipharma arrangement consideration based on the percentage of the relative selling price of each unit of accounting.  We estimated the selling price of the Licenses using the relief from royalty method income approach, which utilized estimated total FOLOTYN product sales revenue in the Mundipharma territories over the expected patent life.  We estimated the selling prices of the regulatory and research and development services using third party costs and discounted cash flows.  The estimated selling prices utilized assumptions including internal estimates of research and development personnel needed to perform the regulatory and research and development services; and estimates of expected cash outflows to third parties for services and supplies for the respective unit of accounting over the expected period that the services will be performed, which represents one year for the regulatory services and approximately through 2022 for the research and development services, as discussed further below.  We estimated the selling price of the clinical supply obligation using third party costs and estimates of the quantity of product to be required to conduct the EMA Pediatric Studies.

 

The impact of a 1% change in the present value factors on the resulting allocated arrangement consideration, which consists of the upfront payment and the estimated payments for research and development services and clinical supply, less the amount of the contingent payment obligation related to the development cost differential, is as follows:

 

 

 

 

 

Impact of change in Present

 

 

 

 

 

 

 

Value Factor on allocated

 

 

 

 

 

Present Value

 

arrangement consideration

 

Expected

 

 

 

Factor Used

 

1% increase

 

1% decrease

 

Completion

 

Licenses

 

22

%

(560,000

)

550,000

 

Completed

 

Regulatory

 

6

%

90,000

 

(170,000

)

May 10, 2012

 

Research and development

 

10

%

470,000

 

(380,000

)

2022

 

 

The impact of a 1% change in the present value factors on the resulting allocated arrangement consideration allocated to the clinical supply deliverable is not material.

 

Because delivery of the Licenses occurred upon the execution of the Mundipharma Collaboration Agreement in May 2011 and there is no general right of return, all $22.7 million of allocated arrangement consideration related to the Licenses was recognized as revenue during the nine months ended September 30, 2011.

 

We will perform the regulatory services under the Mundipharma Collaboration Agreement over a period of up to one year, or through May 10, 2012, with no general right of return.  Therefore, all allocated arrangement consideration related to the regulatory services will be recognized using the proportional performance method, by which revenue is recognized in proportion to the costs incurred, during the service period of up to one year.

 

We will perform the research and development services under the Mundipharma Collaboration Agreement over the period required to complete the jointly agreed-upon clinical development activities, which we estimate to be approximately

 

42



Table of Contents

 

through 2022 based on our projected clinical trial enrollment and patient treatment-related follow up time periods, with no general right of return.  Therefore, all allocated arrangement consideration related to the research and development services will be recognized as the research and development costs that are subject to reimbursement are incurred.

 

As of September 30, 2011, no clinical supply has been delivered under the Mundipharma Supply Agreement, therefore, there was no revenue recognized during the three and nine months ended September 30, 2011 related to this deliverable.

 

Revenues recognized in the Statement of Operations related to the Mundipharma Agreements were as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Licenses

 

$

 

$

 

$

22.7

 

$

 

Regulatory

 

0.5

 

 

1.1

 

 

Research and development

 

0.3

 

 

0.5

 

 

License and other revenue

 

$

0.8

 

$

 

$

24.3

 

$

 

 

License and other revenue for the three and nine months ended September 30, 2011 includes $0.3 million and $0.4 million, respectively, related to the 40% joint development cost reimbursement under the Mundipharma Agreements.

 

As of September 30, 2011, accounts receivable related to the Mundipharma Agreements totaled $0.3 million.  As of September 30, 2011, deferred amounts related to the Mundipharma Agreements consisted of:

 

 

 

September 30,

 

 

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

Current deferred revenue

 

$

4.3

 

$

 

 

 

 

 

 

 

Long-term deferred revenue

 

$

7.0

 

$

 

Development cost differential contingent payment

 

$

14.9

 

 

Long-term deferred revenue and other liabilities

 

$

21.9

 

$

 

 

Cost of license and other revenue in the Statement of Operations for the three months ended September 30, 2011 was $0.4 million and consisted of costs incurred in connection with the regulatory services provided related to the European MAA.

 

Cost of license and other revenue in the Statement of Operations for the nine months ended September 30, 2011 was $11.0 million and and consisted of 20% of the $50.0 million upfront payment, or $10.0 million, which was paid to the licensors of FOLOTYN under the terms of the FOLOTYN license agreement with Sloan-Kettering Institute for Cancer Research, SRI International and Southern Research Institute.  In addition, $1.0 million of costs were incurred in connection with the regulatory services provided related to the European MAA.

 

Research and Development

 

Research and development expenditures are charged to expense as incurred. Research and development expenses include the costs of certain personnel, preclinical studies, clinical trials, regulatory affairs, biostatistical data analysis, third party manufacturing costs for development of drug materials for use in clinical trials and preclinical studies and licensing fees for our product candidates prior to FDA approval.  All finished drug inventory costs associated with production activities in our third party manufacturing facilities prior to receiving FDA approval for such facilities and prior to receiving regulatory approval to market our product are expensed to research and development expenses.  We accrue research and development expenses for activity as incurred during the fiscal year and prior to receiving invoices from clinical sites and third party

 

43



Table of Contents

 

clinical and preclinical research organizations.  We accrue external costs for clinical and preclinical studies based on an evaluation of the following: the progress of the studies, including patient enrollment, dosing levels of patients enrolled, estimated costs to dose patients, invoices received, and contracted costs with clinical sites and third party clinical and preclinical research organizations.  Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period.  Actual results could differ from those estimates.  During the nine months ended September 30, 2011 and 2010, we did not have any changes in estimates that would have resulted in material adjustments to research and development expenses accrued in the prior period.

 

In accordance with certain research and development agreements, we are obligated to make certain upfront payments upon execution of the agreement.  We record these upfront payments as prepaid research and development expenses.  Such payments are recorded to research and development expense as services are performed.  We evaluate on a quarterly basis whether events and circumstances have occurred that may indicate impairment of remaining prepaid research and development expenses.

 

Inventory

 

Costs associated with the production of FOLOTYN bulk drug substance and formulated drug product by our third party manufacturers are recorded as either research and development expense or inventory.

 

Costs associated with the production of FOLOTYN by our third party manufacturers are expensed to research and development expense at the time of production when the formulated drug product is packaged for clinical trial use.

 

We capitalize the costs for our marketed products at the lower of cost (first-in, first-out method) or market (current replacement cost) with cost determined on the first-in, first-out basis and then expense the sold inventory as a component of cost of goods sold.

 

Prior to receiving FDA approval of FOLOTYN, all costs related to purchases of the active pharmaceutical ingredient and the manufacturing of the product were recorded as research and development expense.  We have remaining supplies of FOLOTYN drug substance and drug product that are not recorded as inventory on our balance sheet as of September 30, 2011 because they were purchased prior to FDA approval.   Accordingly, our cost of sales will be lower with respect to product manufactured prior to FDA approval.  Until we sell these supplies for which the costs were previously expensed, our cost of sales will reflect only incremental costs incurred subsequent to the FDA approval date.

 

Stock-based Compensation Expense

 

We have several stock-based compensation plans under which incentive and non-qualified stock options, restricted stock units and restricted shares may be granted, and an employee stock purchase plan.  We measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award.  That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period).  We provide an estimate of forfeitures at initial grant date.

 

During the nine months ended September 30, 2011 and 2010, we recorded stock-based compensation expense of approximately $9.4 million and $7.9 million, respectively, related to stock-based awards, including stock options, restricted stock units, restricted stock and our employee stock purchase plan. As of September 30, 2011, the unrecorded deferred stock-based compensation balance related to these stock-based awards was approximately $11.7 million and will be recognized over the remaining vesting periods of the awards. Judgments and estimates must be made and used in determining the factors used in calculating the fair value of stock-based awards, including the expected forfeiture rate of our stock-based awards, the expected life of our stock-based awards, and the expected volatility of our stock price. For more information on stock-based compensation expense during the nine months ended September 30, 2011, refer to Note 9 “Stock-Based Compensation” of the unaudited September 30, 2011 financial statements included herein.

 

Recent Accounting Pronouncements

 

In March 2010, the Financial Accounting Standards Board (FASB) completed an accounting standards update entitled “Milestone Method of Revenue Recognition.” This standard allows the milestone method to be used in the application of the proportional performance model when applied to revenue arrangements. Under this pronouncement an accounting policy election can be made to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety

 

44



Table of Contents

 

in the period in which the milestone is achieved. This standard is effective for us beginning January 1, 2011, and may be applied either prospectively to milestones achieved after the adoption date or retrospectively for all periods presented. Refer to Note 8 of the unaudited September 30, 2011 financial statement included herein for the impact of this standard with respect to the strategic collaboration with Mundipharma entered into in May 2011.

 

In October 2009, the FASB issued an accounting standards update entitled “Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.” This standard prescribes the accounting treatment for arrangements that contain multiple-deliverable elements and may enable us to account for products or services (deliverables) separately rather than as a single unit in certain circumstances.  Prior to this standard, only certain types of evidence were acceptable for determining the relative selling price of the deliverables under an arrangement. If that evidence was not available, the deliverables were treated as a single unit of accounting. This updated standard expands the nature of evidence which may be used to determine the relative selling price of separate deliverables to include estimation. This standard is applicable to our arrangements entered into or materially modified after December 31, 2010. Refer to Note 8 of the unaudited September 30, 2011 financial statement included herein for the impact of this standard with respect to the strategic collaboration with Mundipharma entered into in May 2011.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our financial instruments as of September 30, 2011 consisted of cash, cash equivalents, investments, accounts receivable, prepaid expenses, accounts payable and accrued liabilities.  All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.  We invest in marketable securities in accordance with our investment policy.  The primary objectives of our investment policy are to preserve principal and maintain proper liquidity to meet operating needs.  Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment.  The weighted average duration of the remaining time to maturity for our portfolio of investments in marketable securities as of September 30, 2011 was approximately two months.  As of September 30, 2011, our investments of $30.8 million were all classified as held-to-maturity and were held in a variety of interest-bearing instruments, consisting mainly of U.S. Treasury notes. We did not hold any derivative instruments, foreign exchange contracts, asset backed securities, mortgage backed securities, auction rate securities, or securities of issuers in bankruptcy in our investment portfolio as of September 30, 2011.  We have the ability and intent to hold our remaining investments to recover the entire amortized cost basis of the investments as of September 30, 2011, although we monitor our investment portfolio with the primary objectives of preserving principal and maintaining proper liquidity to meet our operating needs.

 

Investments in fixed-rate interest-bearing instruments carry varying degrees of interest rate risk.  The fair market value of our fixed-rate securities may be adversely impacted due to a rise in interest rates.  In general, securities with longer maturities are subject to greater interest-rate risk than those with shorter maturities.  Due in part to this factor, our interest income may fall short of expectations or we may suffer losses in principal if securities are sold that have declined in market value due to changes in interest rates.  Due to the short duration of our investment portfolio, we believe an immediate 10% change in interest rates would not be material to our financial condition or results of operations.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As a result of the restatement described in Note 1 to Notes to the financial statements included in this report, a re-evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  Based on that re-evaluation, our management, including our principal executive officer and principal financial officer,  concluded that, as a result of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2011 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

45



Table of Contents

 

A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the  company’s internal controls. Based on its re-evaluation, management determined that as a result of the restatement of the accounting for the Mundipharma arrangement described in Note 1 to the financial statements included in this report, there was a material weakness in our internal control over the evaluation of, and accounting for, complex multiple element revenue arrangements.

 

No Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Remediation of Material Weakness

 

Subsequent to the identification of the material weakness related to the evaluation of, and accounting for, complex multiple element revenue arrangements, the Company is re-evaluating its accounting and financial reporting controls for complex multiple element revenue arrangements, including the application of the provisions of Accounting Standard Codification Topic 605-25 “Revenue Recognition — Multiple-Element Arrangements” to any future agreements that include complex multiple elements.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

Merger Transaction Class Action Lawsuits

 

On July 19, 2011, we entered into an Agreement and Plan of Merger and Reorganization, or Merger Agreement, with AMAG and Alamo Acquisition Sub, Inc., or Merger Sub, as amended on August 8, 2011.  On October 21, 2011, the Merger Agreement was terminated.

 

On July 26, 2011, a putative class action lawsuit captioned Lam v. Allos Therapeutics, Inc., et al., No. 6714-VCN, was filed in the Delaware Court of Chancery. The complaint names as defendants the members of our board of directors, as well as AMAG and Merger Sub. The plaintiff alleges that our directors breached their fiduciary duties to our stockholders in connection with the proposed merger between the Company and AMAG, and were aided and abetted by AMAG and Merger Sub. The complaint alleges that the merger involves an unfair price and an inadequate sales process, unreasonable deal protection devices, and that defendants entered into the transaction to benefit themselves personally. The complaint seeks injunctive relief, including to enjoin the merger, rescissory damages in the event the merger occurs, attorneys’ and other fees and costs, and other relief.

 

On July 28, 2011, a putative class action lawsuit captioned Mulligan v. Allos Therapeutics, Inc., et al., No. 6724-VCN, was filed in the Delaware Court of Chancery. The complaint names as defendants the Company and the members of our board of directors, as well as AMAG and Merger Sub. The plaintiff alleges that our directors breached their fiduciary duties to our stockholders in connection with the proposed merger between the Company and AMAG, and were aided and abetted by the Company, AMAG and Merger Sub. The complaint alleges that the merger involves an unfair price and an inadequate sales process, unreasonable deal protection devices, and that defendants entered into the transaction to benefit themselves personally. The complaint seeks injunctive relief, including to enjoin the merger, rescissory damages in the event the merger occurs, disgorgement of profits, attorneys’ and other fees and costs, and other relief.

 

On August 1, 2011, the Delaware Court of Chancery consolidated the Lam and Mulligan cases into In Re Allos Therapeutics, Inc. Shareholders Litigation, Consolidated C.A. No. 6714.

 

On August 15, 2011, a putative class action lawsuit captioned Gaines v. Narachi, et al., No. 6784-VCN, was filed in the Delaware Court of Chancery.  The complaint names as defendants the Company, AMAG, and the members of AMAG’s board of directors.  The plaintiff alleges that AMAG’s directors breached their fiduciary duties to AMAG’s stockholders in connection with the proposed merger between the Company and AMAG, and were aided and abetted by the Company.  The complaint alleges that the merger involved an inadequate sales process and unreasonable deal protection devices, that the AMAG board of directors improperly rejected an allegedly superior offer by MSMB Capital Management LLC, and that defendants entered into the transaction to benefit themselves personally.  The complaint seeks injunctive relief, including to enjoin the merger, rescissory damages in the even the merger occurs, disgorgement of profits, attorneys’ fees and other fees and costs, and other relief.

 

On September 1, 2011, a Verified Consolidated Amended Class Action Complaint was filed in the consolidated action pending in the Delaware Court of Chancery. The amended complaint names as defendants members of our board of directors, as well as the Company, AMAG and Merger Sub, and alleges that members of our board of directors breached their fiduciary duties to our stockholders in connection with the Merger Agreement and the disclosures related thereto, and further claims

 

46



Table of Contents

 

that the Company, AMAG and Merger Sub aided and abetted those alleged breaches of fiduciary duty. The amended complaint generally alleges that the Merger Agreement involves an unfair price, a flawed sales process and preclusive deal protection devices and that the defendants agreed to the transaction to benefit themselves personally. The amended complaint further alleges that the joint proxy statement fails to disclose material information relating to the Company’s and AMAG’s financial projections, the fairness opinions of J.P. Morgan and Morgan Stanley and the background of the proposed transaction. The amended complaint seeks damages and injunctive relief, including to enjoin the acquisition of the Company by AMAG, and an award of attorneys’ and other fees and costs, in addition to other relief.

 

On October 13, 2011, the Company and other defendants in the consolidated action pending in the Delaware Court of Chancery entered into a memorandum of understanding (“MOU”), pursuant to which the Company and such parties agreed in principle, and subject to certain conditions, to settle that action.  The settlement contemplated by the MOU was subject to and conditioned upon consummation of the acquisition of the Company by AMAG, which condition has not been satisfied.  No payments were made in connection with the settlement.

 

The Company and other defendants believe the allegations of all the foregoing actions lack merit.  Furthermore, inasmuch as the Merger Agreement has been terminated, the Company and other defendants believe such allegations are moot.  Defendants will continue to vigorously defend these actions as long as they remain pending.

 

47



Table of Contents

 

ITEM 1A.  RISK FACTORS

 

Our business faces significant risks. These risks include those described below and may include additional risks of which we are not currently aware or that we currently do not believe are material. If any of the events or circumstances described in the following risk factors actually occurs, they may materially harm our business, financial condition, operating results and cash flow. As a result, the market price of our common stock could decline. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, operating results and financial condition.  Stockholders and potential investors in shares of our common stock should carefully consider the following risk factors, which hereby update those risks contained in the “Risk Factors” section of our Annual Report on Form 10-K  for the year ended December 31, 2010, in addition to other information and risk factors in this report.  We are identifying these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by or on behalf of the Company.  We are relying upon the safe harbor for all forward-looking statements in this report, and any such statements made by or on behalf of the Company are qualified by reference to the following cautionary statements, as well as to those set forth elsewhere in this report. We consistently update and include our risk factors in our Quarterly Reports on Form 10-Q. Risk factors that have been substantively changed from those set forth in our Annual Report on Form 10-K for the period ended December 31, 2010 have been marked with an asterisk immediately following the heading of such risk factor.

 

We have a history of net losses and an accumulated deficit, and we may never generate sufficient revenue to achieve or maintain profitability in the future. *

 

We have incurred significant net losses and negative cash flows from operations.  To date, we have financed our operations primarily through the public and private sale of securities and net product sales.  For the nine months ended September 30, 2011, we had a net loss of $29.1 million.  As of September 30, 2011, we had accumulated a deficit of $479.7 million.  We have incurred these losses principally from costs incurred in our research and development programs and from our selling, general and administrative expenses.

 

On September 24, 2009, we obtained accelerated approval from the FDA for FOLOTYN for use as a single agent for the treatment of patients with relapsed or refractory PTCL.  Our ability to achieve sustained profitability is dependent on our ability, alone or with partners, to significantly increase sales of FOLOTYN for the treatment of patients with relapsed or refractory PTCL.  We are also developing FOLOTYN for use as a single agent and in combination therapy regimens in a range of hematologic malignancies and solid tumor indications, which may or may not lead to obtaining the necessary regulatory approvals to market FOLOTYN for additional indications.  We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials and seeking additional regulatory approvals for FOLOTYN, and commercializing FOLOTYN for the treatment of patients with relapsed or refractory PTCL.  As a result, we may never generate sufficient revenue from product sales to become profitable or generate positive cash flows.

 

Our near-term prospects are dependent on FOLOTYN.  If we are unable to significantly increase sales of FOLOTYN for the treatment of patients with relapsed or refractory PTCL our ability to achieve sustained profitability will be adversely affected. *

 

FOLOTYN is our only product approved for marketing by the FDA and our ability to achieve profitability in the near term is entirely dependent upon sales of FOLOTYN.  We may not be able to significantly increase sales of FOLOTYN for a number of reasons, including:

 

·     we may not be able to continue to manufacture FOLOTYN in commercial quantities or at acceptable costs;

 

·     we may not be able to establish or demonstrate in the medical community the safety and efficacy of FOLOTYN and any potential advantages over existing therapeutics and products currently in clinical development;

 

·     doctors may be hesitant to prescribe FOLOTYN until results from our post-approval studies are available or other long term data regarding efficacy and safety exists;

 

·     results from our Phase 3 post-approval studies may fail to verify the clinical benefit of FOLOTYN for the treatment of T-cell lymphoma;

 

·                  we may not be able to establish FOLOTYN as the second-line standard of care for PTCL;

 

48



Table of Contents

 

·     our limited experience in marketing, selling and distributing FOLOTYN;

 

·     reimbursement and coverage policies of government and private payers such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators;

 

·     the relative price of FOLOTYN as compared to alternative treatment options;

 

·     the relatively low incidence and prevalence rates of relapsed or refractory PTCL, including the reliability of our estimates; and

 

·     we may not have adequate financial or other resources to significantly increase sales of FOLOTYN.

 

If we are unable to significantly increase sales of FOLOTYN for the treatment of patients with relapsed or refractory PTCL, our ability to achieve sustained profitability will be adversely affected and our stock price would likely decline.

 

Our operating results are unpredictable and may fluctuate. If our operating results are below the expectations of securities analysts or investors, the trading price of our stock could decline. *

 

Our operating results to date have fluctuated from quarter to quarter and year to year.  We believe that our quarterly and annual results of operations may continue to fluctuate and will be difficult to predict due to a variety of factors, including:

 

·      the timing and amount of revenue generated from sales of FOLOTYN;

 

·     the timing and costs associated with our sales and marketing activities for promoting FOLOTYN;

 

·     the timing and costs associated with manufacturing clinical and commercial supplies of FOLOTYN;

 

·                  the timing and costs associated with conducting preclinical and clinical development of FOLOTYN, including the post-approval clinical studies required by the FDA;

 

·                  the timing and costs associated with our evaluation of, and decisions with respect to, the potential development of FOLOTYN for additional therapeutic indications;

 

·     the timing, costs and revenue associated with our strategic collaboration with Mundipharma for the co-development of FOLOTYN globally and commercialization outside the United States and Canada; and

 

·     our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

 

In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee’s requisite service period.  As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price, the magnitude of the expense that we must recognize may vary significantly.  Any such variance from one period to the next could cause a significant fluctuation in our operating results.

 

For these reasons, it is difficult for us to accurately forecast future profits or losses.  As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors, which could cause the trading price of our common stock to decline, perhaps substantially.

 

If we are unable to maintain adequate sales, marketing or distribution capabilities or enter into agreements with third parties to perform some of these functions, we will not be able to commercialize FOLOTYN effectively.*

 

The approval of FOLOTYN for the treatment of patients with relapsed or refractory PTCL is our first U.S. approval.  Accordingly, we have limited experience in sales, marketing and distribution of pharmaceutical products.  We may not be able to adequately maintain the necessary sales, marketing, supply chain management and reimbursement capabilities on our

 

49



Table of Contents

 

own or enter into arrangements with third parties to perform these functions in a timely manner or on acceptable terms.  Additionally, maintaining sales, marketing and distribution capabilities may be more expensive than we anticipate, requiring us to divert capital from other intended purposes or preventing us from building our sales, marketing and distribution capabilities to the desired levels.  To be successful we must:

 

·     recruit and retain adequate numbers of effective sales personnel;

 

·     effectively train our sales personnel in the benefits of FOLOTYN;

 

·     establish and maintain successful sales and marketing and education programs that encourage physicians to recommend FOLOTYN to their patients; and

 

·     manage geographically dispersed sales and marketing operations.

 

The commercialization of FOLOTYN requires us to manage relationships with an increasing number of collaborative partners, suppliers and third-party contractors.  If we are unable to successfully establish and maintain the required infrastructure, either internally or through third parties, and successfully manage an increasing number of relationships, we will have difficulty growing our business.  In addition, if we are unable to develop and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to significantly increase sales of FOLOTYN or become profitable.

 

If we enter into additional strategic partnerships, we may be required to relinquish important rights to and control over the development of FOLOTYN or otherwise be subject to unfavorable terms.

 

Our relationship with Mundipharma is, and any other strategic partnerships or collaborations with pharmaceutical or biotechnology companies we may establish will be, subject to a number of risks, including:

 

·      we may be required to undertake the expenditure of substantial operational, financial and management resources in integrating new businesses, technologies and products;

 

·      we may be required to issue equity securities that would dilute our existing stockholders’ percentage ownership;

 

·      we may be required to assume substantial actual or contingent liabilities;

 

·      we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of FOLOTYN;

 

·      strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing;

 

·      strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs;

 

·      strategic partners may not commit adequate resources to the marketing and distribution of FOLOTYN or any other products, limiting our potential revenues from these products;

 

·      disputes may arise between us and our strategic partners that result in the delay or termination of the research, development or commercialization of FOLOTYN or any other product candidate or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;

 

·      strategic partners may experience financial difficulties;

 

·      strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

 

50



Table of Contents

 

·      business combinations or significant changes in a strategic partner’s business strategy may also adversely affect a strategic partner’s willingness or ability to complete its obligations under any arrangement;

 

·      strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors;

 

·     strategic partners could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing FOLOTYN or any other product candidate; and

 

·     we may have obligations to our strategic partners that we prioritize over internal company matters/goals in order to maintain good relationships with our strategic partners and to avoid liabilities that may be associated with breach of such obligations.

 

Even though we have obtained accelerated approval to market FOLOTYN for the treatment of patients with relapsed or refractory PTCL, we are subject to ongoing regulatory obligations and review, including post-approval requirements.

 

FOLOTYN was approved for the treatment of patients with relapsed or refractory PTCL under the FDA’s accelerated approval regulations, which allow the FDA to approve products for cancer or other serious or life threatening diseases based on initial positive data from clinical trials.  Under these provisions, we are subject to certain post-approval requirements pursuant to which we are required to conduct two randomized Phase 3 trials to confirm FOLOTYN’s clinical benefit in patients with T-cell lymphoma.  The FDA has also required that we conduct two Phase 1 trials to assess whether FOLOTYN poses a serious risk of altered drug levels resulting from organ impairment.  Failure to complete the studies or adhere to the timelines established by the FDA could result in penalties, including fines or withdrawal of FOLOTYN from the market.  The FDA may also initiate proceedings to withdraw approval or request that we voluntarily withdraw FOLOTYN from the market if our Phase 3 studies fail to confirm clinical benefit.  Further, the FDA may require us to amend the FOLOTYN package insert, including by strengthening the warnings and precautions section or institute a Risk Evaluation and Mitigation Strategy based on the results of these studies or clinical experience.  We are also subject to additional, continuing post-approval regulatory obligations, including the possibility of additional clinical studies required by the FDA, safety reporting requirements and regulatory oversight of the promotion and marketing of FOLOTYN.

 

In addition, we or our third-party manufacturers are required to adhere to FDA’s current Good Manufacturing Practices, or cGMP. The cGMP regulations cover all aspects of the manufacturing, storage, testing, quality control and record keeping relating to FOLOTYN. Furthermore, we or our third-party manufacturers are subject to periodic inspection by the FDA and foreign regulatory authorities to ensure compliance with cGMP or other applicable government regulations and corresponding foreign standards. We have limited control over a third-party manufacturer’s compliance with these regulations and standards.  If we or our third-party manufacturers fail to comply with applicable regulatory requirements, we may be subject to fines, suspension, modification or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

 

The status of coverage and reimbursement from third-party payers for newly approved health care drugs is uncertain and failure to obtain adequate coverage and reimbursement could limit our ability to generate revenue.

 

Our ability to successfully commercialize FOLOTYN for the treatment of patients with relapsed or refractory PTCL or for other future indications will depend, in part, on the extent to which coverage and reimbursement for FOLOTYN is available from government and health administration authorities, private health insurers, managed care programs and other third-party payers.  Significant uncertainty exists as to the coverage and reimbursement of newly approved health care products.  In addition, in March 2010, the U.S. Congress enacted legislation to reform the health care system that includes cost containment measures that may adversely affect the amount of reimbursement for pharmaceutical products, including FOLOTYN.  These measures include increasing the minimum rebates for products covered by Medicaid programs and extending such rebates to drugs dispensed to Medicaid beneficiaries enrolled in Medicaid managed care organizations as well as expansion of the 340B Public Health Services drug discount program.

 

Healthcare providers and third-party payers use coding systems to identify diagnoses, procedures, services, drugs, pharmaceutical devices, equipment and other health-related items and services.  Proper coding is an integral component to receiving appropriate reimbursement for the administration of FOLOTYN and related services. The majority of payers use nationally recognized code sets to report medical conditions, services and drugs.  We obtained transitional pass-through status that enables FOLOTYN to be reimbursed under the hospital outpatient prospective payment system.  In addition, in

 

51



Table of Contents

 

January 2011 we received a permanent reimbursement J-Code for FOLOTYN, although healthcare providers prescribing FOLOTYN were previously required to submit claims for reimbursement using a temporary J-Code, which may result in payment delays or incorrect payment levels.  We cannot predict at this time whether our customers will receive adequate reimbursement for FOLOTYN.

 

Third-party payers, including Medicare, are challenging the prices charged for medical products and services.  Government and other third-party payers increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease conditions for which the FDA has not granted labeling approval.  Third-party insurance coverage may not be available to patients for FOLOTYN.  If government and other third-party payers do not provide adequate coverage and reimbursement levels for FOLOTYN, FOLOTYN’s market acceptance may be adversely affected.

 

We are dependent upon a small number of customers for a significant portion of our revenue, and the loss of, or significant reduction or cancellation in sales to, any one of these customers could adversely affect our operations and financial condition.*

 

In the United States, we sell FOLOTYN to a small number of distributors who in turn sell-through to patient health care providers.  These distributors also provide multiple logistics services relating to the distribution of FOLOTYN, including transportation, warehousing, cross-docking, inventory management, packaging and freight-forwarding.  We do not promote FOLOTYN to these distributors and they do not set or determine demand for FOLOTYN.  For the nine months ended September 30, 2011 and 2010, three companies affiliated with AmerisourceBergen Corporation accounted for substantially all of our FOLOTYN sales.  We expect significant customer concentration to continue for the foreseeable future.  Our ability to generate sales of FOLOTYN will depend, in part, on the extent to which these distributors are able to provide adequate distribution of FOLOTYN to patient health care providers.  Although we believe we can find alternative distributors on a relatively short notice, our revenue during that period of time may suffer and we may incur additional costs to replace a distributor.  The loss of any large customer, a significant reduction in sales we make to them, any cancellation of orders they have made with us or any failure to pay for the products we have shipped to them could materially and adversely affect our results of operations and financial condition.

 

If the distributors that we rely upon to sell FOLOTYN fail to perform, our business may be adversely affected.

 

Our success depends on the continued customer support efforts of our network of distributors.  The use of distributors involves certain risks, including, but not limited to, risks that these distributors will:

 

·                  not provide us with accurate or timely information regarding their inventories, the number of patients who are using FOLOTYN or complaints about FOLOTYN;

 

·                  not effectively distribute or support FOLOTYN;

 

·                  reduce or discontinue their efforts to sell or support FOLOTYN;

 

·                  be unable to satisfy financial obligations to us or others; and

 

·                  cease operations.

 

Any such failure may result in decreased sales of FOLOTYN, which would harm our business.

 

If we fail to comply with healthcare fraud and abuse laws, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

 

As a biopharmaceutical company, even though we do not and will not control referrals of health care services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse are applicable to our business. These laws and regulations, include, among others:

 

·                  the federal Anti-Kickback statute, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for an item or service or

 

52



Table of Contents

 

the purchasing or ordering of a good or service, for which payment may be made under federal health care programs such as the Medicare and Medicaid programs;

 

·                  federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

 

·                  the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

 

·                  federal self-referral laws, such as STARK, which prohibit a physician from making a referral to a provider of certain health services with which the physician or the physician’s family member has a financial interest; and

 

·                  state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA.

 

Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution under the federal Anti-Kickback statute, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescriptions, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.  Further, the recently enacted health care reform law known as the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Affordability Reconciliation Act of 2010, or PPACA, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes.  A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims laws.  Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

 

Although physicians are permitted to, based on their medical judgment, prescribe products for indications other than those cleared or approved by the FDA, manufacturers are prohibited from promoting their products for such off-label uses.  We market FOLOTYN for the treatment of patients with relapsed or refractory PTCL and provide promotional materials and training programs to physicians regarding the use of FOLOTYN for the treatment of patients with relapsed or refractory PTCL.  Although we believe our marketing, promotional materials and training programs for physicians do not constitute off-label promotion of FOLOTYN, the FDA may disagree.  If the FDA determines that our promotional materials, training or other activities constitute off-label promotion of FOLOTYN, the FDA could request that we modify our training or promotional materials or other activities or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties.  It is also possible that other federal, state or foreign enforcement authorities might take action if they believe that the alleged improper promotion led to the submission and payment of claims for an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.  Even if it is later determined we are not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our position and have to divert significant management resources from other matters.

 

The PPACA imposes new reporting and disclosure requirements for pharmaceutical and device manufacturers with regard to payments or other transfers of value made to physicians and teaching hospitals, effective March 30, 2013.  Such information will be made publicly available in a searchable format beginning September 30, 2013.  In addition, pharmaceutical and device manufacturers will also be required to report and disclose investment interests held by physicians and their immediate family members during the preceding calendar year.  Failure to submit required information may result in civil monetary penalties of up to $150,000 per year (and up to $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission.

 

In recent years, several states and localities, including California, the District of Columbia, Maine, Massachusetts, Minnesota, Nevada, Vermont, and West Virginia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, and file periodic reports with the state or make periodic public disclosures on sales,

 

53



Table of Contents

 

marketing, pricing, clinical trials, and other activities. Similar legislation is being considered in other states. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear. Nonetheless, if we are found not to be in full compliance with these laws, we could face enforcement action and fines and other penalties, and could receive adverse publicity.

 

If our operations are found to be in violation of any of the healthcare fraud and abuse laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with all applicable federal and state fraud and abuse laws may be costly.

 

If our competitors develop and market products that are more effective than FOLOTYN, our commercial opportunity will be reduced or eliminated.

 

Even though we have obtained approval to market FOLOTYN for the treatment of patients with relapsed or refractory PTCL, our commercial opportunity will be reduced or eliminated if our competitors develop and market products that are more effective, have fewer side effects or are less expensive than FOLOTYN for this or any other potential indication.  Our potential competitors include large, fully-integrated pharmaceutical companies and more established biotechnology companies, each of which have significant resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals and marketing. Academic institutions, government agencies, and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing.  It is possible that competitors will succeed in developing technologies that are more effective than those being developed by us or that would render our technologies obsolete or noncompetitive.

 

We cannot predict when or if we will obtain regulatory approval to market FOLOTYN in the United States for any additional indications or in any other countries.

 

We are subject to stringent regulations with respect to product safety and efficacy by various international, federal, state and local authorities. FOLOTYN has not been approved for marketing in the United States for any indication other than the treatment of patients with relapsed or refractory PTCL.  In addition, FOLOTYN has not been approved for marketing for this or any other indication in any other country.  A pharmaceutical product cannot be marketed for a particular indication in the United States or most other countries until it has completed a rigorous and extensive regulatory review and approval process for that indication.  Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources.  Of particular significance are the requirements covering research and development, preclinical and clinical testing, manufacturing, quality control, labeling and promotion of drugs for human use.  We may not obtain the necessary regulatory approvals to market FOLOTYN in the United States for any additional indications or in any other countries.  If we fail to obtain or maintain regulatory approvals to market FOLOTYN in the United States for any additional indications or in any other countries, our ability to generate significant revenue or achieve profitability may be adversely affected.

 

Reports of adverse events or safety concerns involving FOLOTYN or similar small molecule chemotherapeutic agents could delay or prevent us from obtaining or maintaining regulatory approval or negatively impact sales of FOLOTYN.

 

FOLOTYN may cause serious adverse events.  These adverse events could interrupt, delay or halt clinical trials of FOLOTYN, including the FDA-required post-approval studies, and could result in the FDA or other regulatory authorities denying or withdrawing approval of FOLOTYN for any or all indications, including for the treatment of patients with relapsed or refractory PTCL.  Adverse events may also negatively impact the sales of FOLOTYN.  The FDA, other regulatory authorities or we may suspend or terminate clinical trials at any time. We may also be required to update the FOLOTYN package insert based on reports of adverse events or safety concerns or implement a Risk Evaluation and Mitigation Strategy, which could adversely affect FOLOTYN’s acceptance in the market.  We cannot assure you that FOLOTYN will be safe for human use.

 

At present, there are a number of clinical trials being conducted by other pharmaceutical companies involving small molecule chemotherapeutic agents.  If other pharmaceutical companies announce that they observed frequent adverse events

 

54



Table of Contents

 

or unknown safety issues in their trials involving compounds similar to, or competitive with, FOLOTYN, we could encounter delays in the timing of our clinical trials or difficulties in obtaining or maintaining the necessary regulatory approvals for FOLOTYN.  In addition, the public perception of FOLOTYN might be adversely affected, which could harm our business and results of operations and cause the market price of our common stock to decline, even if the concern relates to another company’s product or product candidate.

 

If FOLOTYN fails to meet safety or efficacy endpoints in clinical trials for additional indications, it will not receive regulatory approval and we will be unable to market FOLOTYN for those indications studied.

 

We have ongoing clinical trials involving FOLOTYN and plan to initiate additional trials to evaluate FOLOTYN’s potential clinical utility in other hematologic malignancies.  FOLOTYN may not prove to be safe and efficacious in clinical trials for other indications and may not meet all of the applicable regulatory requirements needed to receive regulatory approval for those indications.  The clinical development and regulatory approval process is expensive and takes many years.  Failure can occur at any stage of development, and the timing of any regulatory approval cannot be accurately predicted. In addition, failure to comply with the FDA and other applicable U.S. and foreign regulatory requirements applicable to clinical trials may subject us to administrative or judicially imposed sanctions.

 

As part of the regulatory approval process, we must conduct clinical trials for FOLOTYN and any other product candidate to demonstrate safety and efficacy to the satisfaction of the FDA and other regulatory authorities abroad.  The number and design of clinical trials that will be required varies depending on the product candidate, the condition being evaluated, the trial results and regulations applicable to any particular product candidate.  The designs of our clinical trials for FOLOTYN are based on many assumptions about the expected effect of FOLOTYN, and if those assumptions prove incorrect, the clinical trials may not demonstrate the safety or efficacy of FOLOTYN.  Preliminary results may not be confirmed upon full analysis of the detailed results of a trial, and prior clinical trial program designs and results may not be predictive of future clinical trial designs or results.  Product candidates in later stage clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials with acceptable results.  For example, we terminated the development of EFAPROXYN, one of our former product candidates, when it failed to demonstrate statistically significant improvement in overall survival in the targeted patients in a Phase 3 clinical trial.  If FOLOTYN fails to show clinically significant benefits in any clinical trial or for any particular indication, it may not be approved for marketing for such indication.  Additionally, if FOLOTYN is demonstrated to be unsafe in clinical trials for other indications, such demonstration could negatively impact FOLOTYN’s existing approval for the treatment of patients with relapsed or refractory PTCL.

 

Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials.  Data obtained from preclinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory clearances, and the FDA can request that we conduct additional clinical trials.  A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. In addition, negative or inconclusive results or adverse safety events during a clinical trial could cause a clinical trial to be repeated or terminated.  Also, failure to design clinical trial protocols to enroll appropriate patients could result in excessive adverse events or failure to meet efficacy objectives and could cause a clinical trial to be repeated or terminated.  If we have to conduct additional clinical trials for FOLOTYN for any particular indication, it will significantly increase our expenses and may delay marketing of FOLOTYN for such indication.

 

Even if FOLOTYN meets safety and efficacy endpoints in clinical trials for additional indications, regulatory authorities may not approve FOLOTYN, or we may face post-approval problems that require withdrawal of FOLOTYN from the market.

 

We will not be able to market FOLOTYN in the United States for any additional indications or in any other countries for any indications until we have obtained the necessary regulatory approvals.  Our receipt of approval of FOLOTYN in the United States for the treatment of patients with relapsed or refractory PTCL does not guarantee that we will obtain regulatory approval to market FOLOTYN in the United States for any additional indications or in any other countries.  We have limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may place us at risk of delays, overspending and human resources inefficiencies.

 

FOLOTYN may not be approved for any additional indications even if it achieves its endpoints in clinical trials. Regulatory agencies, including the FDA, or their advisors, may disagree with our interpretations of data from preclinical

 

55



Table of Contents

 

studies and clinical trials.  The FDA has substantial discretion in the approval process, and when or whether regulatory approval will be obtained for any drug we develop.  Regulatory agencies also may approve a product candidate for fewer conditions than requested or may grant approval subject to the performance of post-approval studies or Risk Evaluation and Mitigation Strategies for a product candidate.  In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of FOLOTYN.

 

Following regulatory approval for any additional indication, FOLOTYN may later produce adverse events that limit or prevent its widespread use or that force us to withdraw FOLOTYN from the market for that indication or other indications. In addition, a marketed product continues to be subject to strict regulation after approval and may be required to undergo post-approval studies.  For example, we are required to conduct two randomized Phase 3 trials to confirm FOLOTYN’s clinical benefit in patients with T-cell lymphoma as well as two Phase 1 trials to assess whether FOLOTYN poses a serious risk of altered drug levels resulting from organ impairment.  Any unforeseen problems with an approved product, any failure to meet the post-approval study requirements or any violation of regulations could result in restrictions on the product, including its withdrawal from the market.  Any delay in or failure to obtain or maintain regulatory approvals for FOLOTYN in the United States for any additional indication or in any other countries could harm our business and prevent us from ever generating significant revenues or achieving profitability.

 

When we seek approval for FOLOTYN in other countries, we are subject to numerous complex regulatory requirements and if approval is denied or limited in another country, or if another country imposes post-marketing requirements, that decision could affect our ability to market FOLOTYN in other countries. *

 

We have filed an MAA with the EMA for FOLOTYN for the treatment of patients with relapsed or refractory PTCL, using the centralized procedure. If major objections are raised during the review procedure, we may not receive marketing approval and would be unable to commercialize FOLOTYN in the European Union. Alternatively, the marketing authorization may be subject to conditions for approval or post authorization obligations. Such conditions or obligations may be costly and time consuming to fulfill and may affect our operations. For example, additional clinical data may be required to confirm the safety or efficacy profile of FOLOTYN in the target patient population. In addition, marketing authorizations are subject to periodic reviews, which, if negative, could affect our ability to commercialize FOLOTYN in the European Union.

 

Additionally, failure to comply with, or changes to, the regulatory requirements that are applicable to FOLOTYN may result in a variety of consequences, including the following:

 

·                  restrictions on FOLOTYN or our manufacturing processes;

 

·                  warning letters;

 

·                  withdrawal of FOLOTYN from the market;

 

·                  voluntary or mandatory recall of FOLOTYN;

 

·                  fines against us;

 

·                  suspension or withdrawal of regulatory approvals for FOLOTYN;

 

·                  suspension or termination of any of our ongoing clinical trials of FOLOTYN;

 

·                  refusal to permit import or export of FOLOTYN;

 

·                  refusal to approve pending applications or supplements to approved applications that we submit;

 

·                  denial of permission to file an application or supplement in a jurisdiction;

 

·                  product seizure;

 

56



Table of Contents

 

·                  our strategic collaborator, Mundipharma, could terminate our arrangement to co-develop FOLOTYN globally and commercialize FOLOTYN outside the United States and Canada, which would delay the development and may increase the cost of developing and commercializing FOLOTYN; and

 

·                  injunctions, consent decrees, or the imposition of civil or criminal penalties against us.

 

We may experience delays in our clinical trials that could adversely affect our financial position and our commercial prospects.

 

We do not know when our current clinical trials will be completed, if at all.  We also cannot accurately predict when other planned clinical trials will begin or be completed.  Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the conditions we are investigating.  Other companies are conducting clinical trials and have announced plans for future trials that are seeking or likely to seek patients with the same diseases as those we are studying.  Competition for patients in some cancer trials is particularly intense because of the limited number of leading specialist physicians and the geographic concentration of major clinical centers.

 

As a result of the numerous factors that can affect the pace of progress of clinical trials, our trials may take longer to enroll patients than we anticipate, if they can be completed at all.  Delays in patient enrollment in the trials may increase our costs and slow our product development and approval process.  Our product development costs will also increase if we need to perform more or larger clinical trials than planned.  If other companies’ product candidates show favorable results, we may be required to conduct additional clinical trials to address changes in treatment regimens or for our products to be commercially competitive.  Any delays in completing our clinical trials will delay our ability to obtain regulatory approval to market FOLOTYN in the United States for any additional indications or in any other countries, which may adversely affect our ability to generate significant revenues or achieve profitability.

 

We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.

 

Clinical trials must be conducted in accordance with Good Clinical Practices, or GCP, or other applicable foreign government guidelines and are subject to oversight by the FDA, foreign governmental agencies and Institutional Review Boards at the medical institutions where the clinical trials are conducted.  In addition, clinical trials must be conducted with product candidates produced under cGMP and may require large numbers of test subjects.  Clinical trials may be suspended by the FDA, foreign governmental agencies, or us for various reasons, including:

 

·     deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;

 

·     deficiencies in the clinical trial operations or trial sites;

 

·      the product candidate may have unforeseen adverse side effects;

 

·     the time required to determine whether the product candidate is effective may be longer than expected;

 

·     fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;

 

·     the product candidate may appear to be less effective than current therapies;

 

·     the quality or stability of the product candidate may fall below acceptable standards; or

 

·     insufficient quantities of the product candidate to complete the trials.

 

In addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes.  Amendments may require us to resubmit our clinical trial protocols to Institutional Review Boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial.  Due to these and other factors, FOLOTYN could take a significantly longer time to gain regulatory approval for any additional

 

57



Table of Contents

 

indications than we expect or we may never gain approval for additional indications, which could reduce our revenue by delaying or terminating the commercialization of FOLOTYN for additional indications.

 

Due to our reliance on contract research organizations and other third parties to conduct our clinical trials, we are unable to directly control the timing, conduct and expense of our clinical trials.

 

We rely primarily on third parties to conduct our clinical trials.  As a result, we have had and will continue to have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trial than would be the case if we were relying entirely upon our own staff.  Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities.  Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, any of which may adversely affect their willingness or ability to conduct our trials.  We may experience unexpected cost increases that are beyond our control.  Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider.  However, making this change may be costly and may delay our trials, and contractual restrictions may make such a change difficult or impossible.  Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.

 

We may need to raise additional capital to support our future operations.  If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop or commercialize FOLOTYN.*

 

Based upon the current status of our product development and commercialization plans, we believe that our cash, cash equivalents, and investments as of September 30, 2011, should be adequate to support our operations through the end of 2014, although there can be no assurance that this can, in fact, be accomplished.  We anticipate continuing our current development programs and beginning other long-term development projects involving FOLOTYN, including the post-approval clinical studies required for FOLOTYN.  These projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful.  In addition, we expect to incur significant costs relating to the commercialization of FOLOTYN, including costs related to our sales and marketing, medical affairs and manufacturing operations.  Therefore, we may need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including:

 

·     the timing and amount of revenue generated from sales of FOLOTYN;

 

·     the timing and costs associated with our sales and marketing activities for promoting FOLOTYN;

 

·     the timing and costs associated with manufacturing clinical and commercial supplies of FOLOTYN;

 

·                  the timing and costs associated with conducting preclinical and clinical development of FOLOTYN, including the post-approval clinical studies required by the FDA;

 

·                  the timing and costs associated with our evaluation of, and decisions with respect to, the potential development of FOLOTYN for additional therapeutic indications;

 

·     the timing, costs and revenue associated with our strategic collaboration with Mundipharma for the co-development of FOLOTYN globally and commercialization outside the United States and Canada; and

 

·                  our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

 

We may seek to obtain this additional capital through equity or debt financings, arrangements with corporate partners, or from other sources.  Such financings or arrangements, if successfully consummated, may be dilutive to our existing stockholders.  However, there is no assurance that additional financing will be available when needed, or that, if available, we will obtain such financing on terms that are favorable to our stockholders or us. In the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development, which we might otherwise seek to develop or commercialize ourselves, on terms that are less favorable than might otherwise be available.  If we are unable to significantly increase sales of FOLOTYN or cannot otherwise raise sufficient additional funds to support our operations, we may be

 

58



Table of Contents

 

required to delay, reduce the scope of or eliminate one or more of our development programs and our business and future prospects for profitability may be harmed.

 

Budget constraints may force us to delay our efforts to develop FOLOTYN for additional indications while we complete the post-approval clinical studies required by the FDA, which may prevent us from commercializing FOLOTYN for all desired indications as quickly as possible.*

 

We regularly assess the most efficient allocation of our research and development budget because we have limited resources, and because research and development is an expensive process.  In particular, our approval of FOLOTYN in patients with relapsed or refractory PTCL is conditioned upon us undertaking two additional Phase 3 studies and two additional Phase 1 studies, which will result in significant additional expense.  As a result of our limited resources, we may have to prioritize the development of FOLOTYN for additional indications and may not be able to fully realize the value of FOLOTYN for other indications in a timely manner, if at all.

 

For example, in January 2011, we announced that we will not pursue Phase 3 studies for NSCLC at this time in order to prioritize our resources on the development and commercialization of FOLOTYN for the treatment of hematologic malignancies, and to manage our operating costs and expenses.

 

We do not have manufacturing facilities or capabilities and are dependent on third parties to fulfill our manufacturing needs and supply obligations, which could result in the delay of clinical trials, regulatory approvals, product introductions and commercial sales.

 

We are dependent on third parties for the manufacture and storage of FOLOTYN for clinical trials and for commercial sale. If we are unable to contract for a sufficient supply of FOLOTYN on acceptable terms, or if we encounter delays or difficulties in the manufacturing process or our relationships with our manufacturers, we may not have sufficient product to conduct or complete our clinical trials or support commercial requirements for FOLOTYN.

 

FOLOTYN is cytotoxic, which requires the manufacturers of FOLOTYN to have specialized equipment and safety systems to handle such a substance. In addition, the starting materials for FOLOTYN require custom preparations, which require us to manage an additional set of suppliers to obtain the needed supplies of FOLOTYN.

 

We have arrangements with two third-party manufacturers to produce FOLOTYN bulk drug substance and two third-party manufacturers to produce FOLOTYN formulated drug product. We believe these third-party manufacturers have the capability to meet our projected worldwide clinical trial and commercial requirements for FOLOTYN although we cannot assure you of this.  In particular, our third party manufacturers may not be able to fulfill our potential commercial needs or meet our deadlines, or the components they supply to us may not meet our specifications and quality policies and procedures. If we need to find additional alternative suppliers of FOLOTYN or its components, we may not be able to contract for those components on acceptable terms, if at all. Any such failure to supply or delay caused by such suppliers would have an adverse effect on our ability to continue clinical development of FOLOTYN or commercialize FOLOTYN.

 

Our current or future manufacturers may be unable to accurately and reliably manufacture commercial quantities of FOLOTYN at reasonable costs, on a timely basis and in compliance with the FDA’s cGMP. If our current or future contract manufacturers fail in any of these respects, our ability to timely complete our clinical trials, obtain or maintain required regulatory approvals and successfully commercialize FOLOTYN may be materially and adversely affected. This risk may be heightened with respect to FOLOTYN as there are a limited number of manufacturers with the ability to handle cytotoxic products such as FOLOTYN. In addition, we currently have obligations to supply Mundipharma Medical Company, an affiliate of Mundipharma, with FOLOTYN pursuant to the Mundipharma Supply Agreement.  If our current or future manufacturers fail to accurately and reliably manufacture commercial quantities of FOLOTYN, we could default on these supply obligations.

 

Our reliance on contract manufacturers exposes us to additional risks, including:

 

·     our current and future manufacturers are subject to ongoing, periodic, unannounced inspections by the FDA and corresponding state and international regulatory authorities for compliance with strictly enforced cGMP regulations and similar state and foreign standards, and we do not have control over our contract manufacturers’ compliance with these regulations and standards;

 

59



Table of Contents

 

·     our manufacturers may not be able to comply with applicable regulatory requirements, which would prohibit them from manufacturing products for us;

 

·     our manufacturers may have staffing difficulties, may undergo changes in control or may become financially distressed, adversely affecting their willingness or ability to manufacture products for us;

 

·     our manufacturers might not be able to fulfill our commercial needs, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demands;

 

·     if we need to change to other commercial manufacturing contractors, the FDA and comparable foreign regulators must approve our use of any new manufacturer, which would require additional testing, regulatory filings and compliance inspections, and the new manufacturers would have to be educated in, or themselves develop substantially equivalent processes necessary for, the production of our products; and

 

·     we may not have intellectual property rights, or may have to share intellectual property rights, to any improvements in the manufacturing processes or new manufacturing processes for our products.

 

Any of these factors could result in the delay of clinical trials, regulatory submissions, required approvals or commercialization of FOLOTYN. They could also entail higher costs and result in our being unable to effectively commercialize FOLOTYN.

 

If we are unable to effectively protect our intellectual property, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize FOLOTYN. In addition, enforcing our proprietary rights may be expensive and result in increased losses.

 

Our success will depend in part on our ability to obtain and maintain meaningful patent protection for FOLOTYN, both in the United States and in other countries.  We rely on patents to protect a large part of our intellectual property and our competitive position.  Any patents issued to or licensed by us could be challenged, invalidated, infringed, circumvented or held unenforceable, based on, among other things, obviousness, inequitable conduct, anticipation or enablement.  In addition, it is possible that no patents will issue on any of our owned or licensed patent applications.  It is possible that the claims in patents that have been issued or licensed to us or that may be issued or licensed to us in the future will not be sufficiently broad to protect our intellectual property or that the patents will not provide protection against competitive products or otherwise be commercially valuable. Failure to obtain and maintain adequate patent protection for our intellectual property would impair our ability to be commercially competitive.

 

Our commercial success will also depend in part on our ability to commercialize FOLOTYN without infringing patents or other proprietary rights of others or breaching the licenses granted to us.  We may not be able to obtain a license to third-party technology that we may require to conduct our business or, if obtainable, we may not be able to license such technology at a reasonable cost.  If we fail to obtain a license to any technology that we may require to commercialize FOLOTYN, or fail to obtain a license at a reasonable cost, we will be unable to commercialize FOLOTYN or to commercialize at a price that will allow us to become profitable.

 

In addition to patent protection, we also rely upon trade secrets, proprietary know-how and technological advances that we seek to protect through confidentiality agreements with our collaborators, employees, advisors and consultants.  Our employees and consultants are required to enter into confidentiality agreements with us. We also enter into non-disclosure agreements with our collaborators and vendors, which agreements are intended to protect our confidential information delivered to third parties for research and other purposes.  However, these agreements could be breached and we may not have adequate remedies for any breach, or our trade secrets and proprietary know-how could otherwise become known or be independently discovered by others.

 

As with any pharmaceutical company, our patent and other proprietary rights are subject to uncertainty.  Our patent rights related to FOLOTYN might conflict with current or future patents and other proprietary rights of others.  For the same reasons, the products of others could infringe our patents or other proprietary rights.  Litigation or patent interference proceedings, either of which could result in substantial costs to us, may be necessary to enforce any of our patents or other proprietary rights, or to determine the scope and validity or enforceability of other parties’ proprietary rights.  We may be dependent on third parties, including our licensors, for cooperation and information that may be required in connection with the defense and prosecution of our patents and other proprietary rights.  The defense and prosecution of patent and

 

60



Table of Contents

 

intellectual property infringement claims are both costly and time consuming, even if the outcome is favorable to us.  Any adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease selling our future products.  We are not currently a party to any patent or other intellectual property infringement claims.

 

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.*

 

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law.  The Leahy-Smith Act includes a number of significant changes to U.S. patent law.  These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation.  The United States Patent and Trademark Office is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act will not become effective until one year or 18 months after its enactment.  Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

 

We may explore strategic partnerships or collaborations that may never materialize or may fail. *

 

We may, in the future, periodically explore a variety of possible strategic partnerships or collaborations in an effort to gain access to additional product candidates or resources.  For example, in May 2011, we entered into a strategic collaboration with Mundipharma for the co-development of FOLOTYN globally and commercialization outside the United States and Canada.  At the current time, we cannot predict what form such additional strategic partnership or collaborations might take.  We are likely to face significant competition in seeking appropriate strategic partners, and these strategic partnerships or collaborations can be complicated and time consuming to negotiate and document. We may not be able to negotiate additional strategic partnerships or collaborations on acceptable terms, or at all.  We are unable to predict when, if ever, we will enter into any additional strategic partnerships or collaborations because of the numerous risks and uncertainties associated with establishing strategic partnerships or collaborations.

 

Health care reform measures could adversely affect our business.

 

The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payers to contain or reduce the costs of health care.  The U.S. Congress recently enacted legislation to reform the health care system.  While we anticipate that this legislation may, over time, increase the number of patients who have insurance coverage for pharmaceutical products, it also imposes cost containment measures that may adversely affect the amount of reimbursement for pharmaceutical products, including FOLOTYN.  These measures include increasing the minimum rebates for products covered by Medicaid programs and extending such rebates to drugs dispensed to Medicaid beneficiaries enrolled in Medicaid managed care organizations as well as expansion of the 340B Public Health Services drug discount program.  In foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the health care system.  For example, in some countries other than the United States, pricing of prescription drugs is subject to government control and we expect to see continued efforts to reduce healthcare costs in international markets.

 

Some states are also considering legislation that would control the prices of drugs, and state Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid.  Managed care organizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs.  Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs.  This may result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding constraint on prices and reimbursement for drugs, including FOLOTYN.  It is likely that federal and state legislatures and health agencies will continue to focus on additional health care reform in the future although we are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business. The pendency or approval of such proposals or reforms could result in a decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships, collaborations or licenses.

 

61



Table of Contents

 

We may not obtain orphan drug exclusivity or we may not receive the full benefit of orphan drug exclusivity even if we obtain such exclusivity.

 

The FDA has awarded orphan drug status to pralatrexate, which we market under the tradename FOLOTYN, for the treatment of patients with relapsed or refractory PTCL.  In addition, the FDA has awarded orphan drug designation to pralatrexate for the treatment of patients with follicular lymphoma and diffuse large B-cell lymphoma and advanced or metastatic Transitional Cell Carcinoma of the urinary bladder, for which we do not have approval. Under the Orphan Drug Act, the first company to receive FDA approval for pralatrexate for a designated orphan drug indication will obtain seven years of marketing exclusivity during which the FDA may not approve another company’s application for pralatrexate for the same orphan indication.  Because the FDA approved FOLOTYN for the treatment of patients with relapsed or refractory PTCL, we have received seven years of marketing exclusivity for that indication.  Orphan drug exclusivity does not prevent FDA approval of a different drug for the orphan indication or the same drug for a different indication.  In addition, the FDA may void orphan drug exclusivity under certain circumstances.

 

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of FOLOTYN.

 

The testing and marketing of pharmaceutical products entail an inherent risk of product liability.  Product liability claims might be brought against us by consumers or health care providers or by pharmaceutical companies or others selling FOLOTYN or any future products.  If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities or be required to limit the commercialization of FOLOTYN.  We have obtained limited product liability insurance coverage for our human clinical trials and commercial sales of FOLOTYN. However, product liability insurance coverage is becoming increasingly expensive, and we may be unable to maintain such insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability.  A successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

 

Our success depends on the retention of our President and Chief Executive Officer and other key personnel.*

 

We are highly dependent on our President and Chief Executive Officer Paul L. Berns, other members of our management team and other key employees.  We are named as the beneficiary on a term life insurance policy covering Mr. Berns in the amount of $10.0 million.  We also depend on key employees and academic collaborators for each of our research and development programs.  The loss of any members of our management team and other key employees or academic collaborators could delay the development and commercialization of FOLOTYN or result in the termination of our FOLOTYN development program in its entirety.  Mr. Berns and others on our executive management team have employment agreements with us, but the agreements provide for “at-will” employment with no specified term.  Our future success also will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, governmental regulation and commercialization of pharmaceutical products.  We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations.  Additionally, we have recently implemented a strategic reduction in workforce and we may have a more difficult time in attracting and retaining the employees we need as a result of a perceived risk of future workforce and expense reductions. If we are unsuccessful in our recruitment and retention efforts, our business will be harmed.

 

We also rely on consultants, collaborators and advisors to assist us in formulating and conducting our research and development programs.  All of our consultants, collaborators and advisors are employed by other employers or are self-employed and may have commitments to or consulting contracts with other entities that may limit their ability to contribute to our company.

 

We cannot guarantee that we will be in compliance with all potentially applicable regulations.

 

The development, manufacturing, pricing, marketing, sale and reimbursement of FOLOTYN, together with our general operations, are subject to extensive regulation by federal, state and other authorities within the United States and numerous entities outside of the United States.  We have fewer employees than many other companies that have one or more product candidates that are approved for marketing and we rely heavily on third parties to conduct many important functions.

 

As a publicly-traded company, we are subject to significant regulations including the Sarbanes Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act.  The Dodd-Frank Act contains

 

62



Table of Contents

 

significant corporate governance and executive compensation-related provisions, some of which the Securities and Exchange Commission, or SEC, has recently implemented by adopting additional rules and regulations in areas such as the compensation of executives (“say-on-pay”).  We cannot assure you that we are or will be in compliance with all potentially applicable regulations.  If we fail to comply with the Sarbanes Oxley Act of 2002, the Dodd-Frank Act and associated SEC rules, or any other regulations, we could be subject to a range of consequences, including restrictions on our ability to sell equity securities or otherwise raise capital funds, the de-listing of our common stock from The NASDAQ Global Market, or NASDAQ, suspension or termination of our clinical trials, failure to obtain approval to market FOLOTYN, restrictions on future products or our manufacturing processes, significant fines, or other sanctions or litigation.  Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities.

 

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar worldwide anti-bribery laws.*

 

The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business.  The recently enacted U.K. Bribery Act of 2010 prohibits both domestic and international bribery, as well as bribery across both private and public sectors.  In addition, an organization that “fails to prevent bribery” by anyone associated with the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implement “adequate procedures” to prevent bribery.  Practices in the local business community of many countries outside the United States have a level of government corruption that is greater than that found in the developed world.  We may be required to implement policies to mandate compliance with these anti-bribery laws and we plan to establish policies and procedures designed to monitor compliance with these anti-bribery law requirements.  However we cannot assure that our policies and procedures will protect us from potential reckless or criminal acts committed by individual employees or agents.  If we are found to be liable for anti-bribery law violations we could suffer from criminal or civil penalties or other sanctions that could have a material adverse effect on our business.

 

Management’s determination that there was a material weakness in our internal control over financial reporting could have a material adverse impact on the Company.*

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report on Form 10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to, and report on, management’s assessment of our internal controls over financial reporting.

 

In Part I. Item 4 of this report, management determined that there was a material weakness in our internal control over the evaluation of, and accounting for, complex multiple element arrangements.  Due to this material weakness, management also concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report. Consequently, and pending the Company’s remediation of the matters that caused the control deficiencies underlying the material weaknesses, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations, and investors may lose faith in the reliability of our financial statements. Accordingly, the price of our securities may be adversely and materially impacted.

 

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become ineffective because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We cannot assure you that we or our independent registered public accounting firm will not identify any additional material weaknesses in our internal controls in the future.

 

Our reserves and estimates depend upon the accuracy and consistency of third party data as well as dependence upon key finance and accounting personnel to maintain and implement the surrounding controls.

 

We have reserves and estimates that incorporate a significant amount of third party data from our wholesalers.  To effectively maintain the reserves and estimates, we depend to a considerable degree upon the timely and accurate reporting to us of such data from these third parties and our key accounting and finance personnel to accurately interpolate such data into

 

63



Table of Contents

 

the reserves and estimates.  If the third party data is not calculated on a consistent basis and reported to us on an accurate or timely basis or we lose any of our key accounting and finance personnel, the accuracy of our consolidated financial statements could be materially affected.  This could cause future delays in our earnings announcements, regulatory filings with the SEC and delisting with NASDAQ.

 

If we do not progress in our programs as anticipated, our stock price could decrease.

 

For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, such as when a certain product candidate will enter clinical development, when a clinical trial will be initiated or completed, or when an application for regulatory approval will be filed.  Some of our estimates are included in this report.  Our estimates are based on information available to us as of the date of this report and a variety of assumptions.  Many of the underlying assumptions are outside of our control. If milestones are not achieved when we estimated that they would be, investors could be disappointed and our stock price may decrease.

 

Warburg Pincus Private Equity VIII, L.P. controls a substantial percentage of the voting power of our outstanding common stock. *

 

On March 2, 2005, we entered into a Securities Purchase Agreement with Warburg Pincus Private Equity VIII, L.P., or Warburg, and certain other investors in connection with an equity financing.  In connection with this financing, Warburg and certain of its affiliates entered into a standstill agreement pursuant to which they agreed not to pursue, for so long as they continue to own a specified number of shares of our common stock, certain activities the purpose or effect of which may be to change or influence the control of our company.

 

As of November 1, 2011, we had 105,926,068 shares of common stock outstanding, of which Warburg owned 26,124,430 shares, or approximately 25% of the voting power of our outstanding common stock.  Although Warburg has entered into a standstill agreement with us, Warburg is, and will continue to be, able to exercise substantial influence over any actions requiring stockholder approval.

 

Anti-takeover provisions in our charter documents and under Delaware law could discourage, delay or prevent an acquisition of us, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management. *

 

Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. In addition, these provisions may make it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:

 

·      authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares or change the balance of voting control and thwart a takeover attempt;

 

·      prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates;

 

·     prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

 

·      eliminating the ability of stockholders to call a special meeting of stockholders; and

 

·      establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

 

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder.  This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.  Notwithstanding the foregoing, the three-year moratorium imposed on business combinations by Section 203 will not apply

 

64



Table of Contents

 

to Warburg because, prior to the date on which Warburg became an interested stockholder, our board of directors approved the transactions that resulted in Warburg becoming an interested stockholder.  However, in connection with Warburg’s participation in an equity financing we completed in March 2005, Warburg and certain of its affiliates entered into a standstill agreement pursuant to which they agreed not to pursue, for so long as they continue to own a specified number of shares of our common stock, certain activities the purpose or effect of which may be to change or influence the control of our company.

 

We have adopted a stockholder rights plan that may discourage, delay or prevent a merger or acquisition that is beneficial to our stockholders.*

 

In May 2003, our board of directors adopted a stockholder rights plan that may have the effect of discouraging, delaying or preventing a merger or acquisition of us that our stockholders may consider beneficial by diluting the ability of a potential acquirer to acquire us.  Pursuant to the terms of the stockholder rights plan, when a person or group, except under certain circumstances, acquires 15% or more of our outstanding common stock or 10 business days after announcement of a tender or exchange offer for 15% or more of our outstanding common stock, the rights (except those rights held by the person or group who has acquired or announced an offer to acquire 15% or more of our outstanding common stock) would generally become exercisable for shares of our common stock at a discount.  Because the potential acquirer’s rights would not become exercisable for our shares of common stock at a discount, the potential acquirer would suffer substantial dilution and may lose its ability to acquire us. In addition, the existence of the plan itself may deter a potential acquirer from acquiring or making an offer to acquire us.  As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of our company that our stockholders may consider in their best interests may not occur.

 

Because Warburg owns a substantial percentage of our outstanding common stock, we amended the stockholder rights plan in connection with Warburg’s participation in an equity financing we completed in March 2005 to provide that Warburg and its affiliates will be exempt from the stockholder rights plan, unless Warburg and its affiliates become, without the prior consent of our board of directors, the beneficial owner of more than 44% of our common stock

 

Unstable market conditions may have serious adverse consequences on our business.*

 

Market instability has made the business climate more volatile and more costly.  Our general business strategy may be adversely affected by unpredictable and unstable market conditions.  If the current equity and credit markets deteriorate further, or do not improve, it may make any necessary equity or debt financing more difficult, more costly, and more dilutive.  While we believe we have adequate capital resources to meet our expected working capital and capital expenditure requirements through the end of 2014, a radical economic downturn or increase in our expenses could require additional financing on less than attractive rates or on terms that are excessively dilutive to existing stockholders.  Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans.  There is a risk that one or more of our current service providers, manufacturers or other partners may encounter difficulties during challenging economic times, which could have an adverse effect on our business, results of operations and financial condition.

 

The market price for our common stock has been and may continue to be highly volatile, and an active trading market for our common stock may never exist.*

 

We cannot assure you that an active trading market for our common stock will exist at any time. Holders of our common stock may not be able to sell shares quickly or at the market price if trading in our common stock is not active.  The trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

 

·     the timing and amount of revenues generated from sales of FOLOTYN;

 

·     actual or anticipated variations in quarterly operating results;

 

·      actual or anticipated regulatory approvals or non-approvals of FOLOTYN or of competing product candidates;

 

·      the loss of regulatory approval for FOLOTYN in patients with relapsed or refractory PTCL;

 

65



Table of Contents

 

·      actual or anticipated results of our clinical trials involving FOLOTYN;

 

·      changes in laws or regulations applicable to FOLOTYN;

 

·      changes in the expected or actual timing of our development programs;

 

·      announcements of technological innovations by us or our competitors;

 

·      changes in financial estimates or recommendations by securities analysts;

 

·      conditions or trends in the biotechnology and pharmaceutical industries;

 

·      changes in the market valuations of similar companies;

 

·      announcements by us of significant acquisitions, strategic partnerships, collaborations, joint ventures or capital commitments;

 

·      additions or departures of key personnel;

 

·      disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

·      developments concerning any of our research and development, manufacturing and marketing collaborations;

 

·      sales of large blocks of our common stock;

 

·      sales of our common stock by our executive officers, directors and five percent stockholders; and

 

·      economic and other external factors, including disasters or crises.

 

Public companies in general and companies included on NASDAQ in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.  There has been particular volatility in the market prices of securities of biotechnology and other life sciences companies, and the market prices of these companies have often fluctuated because of problems or successes in a given market segment or because investor interest has shifted to other segments.  These broad market and industry factors may cause the market price of our common stock to decline, regardless of our operating performance.  We have no control over this volatility and can only focus our efforts on our own operations, and even these may be affected due to the state of the capital markets.  In the past, following large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company, including in 2004 against us.  Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would hurt our business.  Any adverse determination in litigation could also subject us to significant liabilities.

 

Substantial sales of shares may impact the market price of our common stock.

 

If our stockholders sell substantial amounts of our common stock, the market price of our common stock may decline.  These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we consider appropriate.  We are unable to predict the effect that sales may have on the then prevailing market price of our common stock.  We have entered into a Registration Rights Agreement with Warburg pursuant to which Warburg is entitled to certain registration rights with respect to shares of our common stock.  On July 20, 2009, we filed a Registration Statement on Form S-3 with the SEC providing for the registration for resale by Warburg of up to 26,124,430 shares of our common stock, which registration statement was declared effective on August 28, 2009.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

 

66



Table of Contents

 

ITEM 4.

RESERVED

None

 

 

 

 

ITEM 5.

OTHER INFORMATION

None

 

 

 

 

ITEM 6.

EXHIBITS

 

The exhibits listed in the Index to Exhibits (following the signatures page of this Report) are filed with, or incorporated by reference in, this Report.

 

67



Table of Contents

 

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.

 

Date: March 23, 2012

ALLOS THERAPEUTICS, INC.

 

 

 

/s/ Paul L. Berns

 

Paul L. Berns

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

 

 

/s/ David C. Clark

 

David C. Clark

 

Vice President, Finance and Treasurer

 

(Principal Financial and Accounting Officer)

 

68



Table of Contents

 

Allos Therapeutics, Inc.

 

Index to Exhibits

 

 

 

 

 

Incorporated by Reference

 

 

 

Exhibit
No.

 

Description

 

Form

 

Filing
Date

 

Number

 

Filed
Herewith

 

2.1

 

Agreement and Plan of Merger and Reorganization dated July 19, 2011, by and among AMAG Pharmaceuticals, Inc., Alamo Acquisition Sub, Inc. and Allos Therapeutics, Inc.

 

8-K

 

7/22/2011

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.2

 

Form of Voting Agreement dated July 19, 2011, by and between Allos Therapeutics, Inc. and each of the directors and named executive officers of AMAG Pharmaceuticals, Inc.

 

8-K

 

7/22/2011

 

2.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.3

 

Amendment No. 1 to Agreement and Plan of Merger and Reorganization, by and among AMAG Pharmaceuticals, Inc., Alamo Acquisition Sub, Inc. and Allos Therapeutics, Inc.

 

8-K

 

8/9/2011

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Amendment to Rights Agreement dated July 19, 2011, by and between Allos Therapeutics, Inc. and Mellon Investors Services LLC.

 

8-K

 

7/22/2011

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of principal executive officer required by Rule 13a-14(a) / 15d-14(a).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of principal financial officer required by Rule 13a-14(a) / 15d-14(a).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1#

 

Section 1350 Certification.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS†

 

XBRL Instance Document (furnished electronically herewith)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH†

 

XBRL Taxonomy Extension Schema Document (furnished electronically herewith)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL†

 

XBRL Taxonomy Extension Calculation Linkbase Document (furnished electronically herewith)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB†

 

XBRL Taxonomy Extension Label Linkbase Document (furnished electronically herewith)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE†

 

XBRL Taxonomy Extension Presentation Linkbase Document (furnished electronically herewith)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF†

 

XBRL Taxonomy Extension Definition Linkbase Document (furnished electronically herewith)

 

 

 

 

 

 

 

 

 

 


#                       The certifications attached as Exhibit 32.1 that accompany this Amendment No. 1 to the Quarterly Report on Form 10-Q/A are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Allos Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Amendment No. 1 to the Quarterly Report on Form 10-Q/A, irrespective of any general incorporation language contained in such filing.

 

                        XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

69