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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2012

OR

 

¨ 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: 0-31265

 

 

TELIK, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

 

DELAWARE   93-0987903

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

700 Hansen Way, Palo Alto, CA 94304

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

(650) 845-7700

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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  ¨

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  ¨

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.

 

Large accelerated filer    ¨   Accelerated filer                     ¨
Non-accelerated filer      ¨    (Do not check if a smaller reporting company)   Smaller reporting company    x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of common stock outstanding as of October 31, 2012 was 2,689,200.

 

 

 


TELIK, INC.

INDEX

 

          Page  

PART I.

   FINANCIAL INFORMATION   

Item 1:

  

Financial Statements (Unaudited)

  
  

Condensed Balance Sheets at September 30, 2012 and December  31, 2011

     3   
  

Condensed Statements of Comprehensive Income/Loss for the three  and nine months ended September 30, 2012 and 2011

     4   
  

Condensed Statements of Cash Flows for the nine months ended September 30, 2012 and 2011

     5   
  

Notes to Condensed Financial Statements

     6   

Item 2:

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      14   

Item 3:

   Quantitative and Qualitative Disclosures About Market Risk      24   

Item 4:

   Controls and Procedures      24   

PART II.

   OTHER INFORMATION   

Item 1A:

   Risk Factors      26   

Item 4.

   Mine Safety Disclosures      36   

Item 6:

   Exhibits      37   

SIGNATURES

     38   

 

2


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

TELIK, INC.

CONDENSED BALANCE SHEETS

(In thousands)

 

     September 30,
2012
    December 31,
2011
 
     (Unaudited)     (Note 1)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 5,642      $ 9,046   

Short-term investments

     750        2,404   

Interest and other receivables

     22        25   

Prepaids and other current assets

     781        589   
  

 

 

   

 

 

 

Total current assets

     7,195        12,064   

Property and equipment, net

     —          1   

Restricted investments

     250        250   

Other assets

     —          97   
  

 

 

   

 

 

 

Total assets

   $ 7,445      $ 12,412   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 46      $ 109   

Accrued clinical trial costs

     204        153   

Accrued compensation

     318        367   

Accrued liabilities

     425        550   

Short-term deferred rent

     6        —     

Current portion of facility exit costs

     1,135        1,463   
  

 

 

   

 

 

 

Total current liabilities

     2,134        2,642   

Noncurrent portion of facility exit costs

     684        1,463   

Long-term deferred rent

     —          8   

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock*

     27        18   

Additional paid-in capital*

     551,134        548,610   

Accumulated deficit

     (546,534     (540,329
  

 

 

   

 

 

 

Total stockholders’ equity

     4,627        8,299   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 7,445      $ 12,412   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Financial Statements.

* Adjusted for the 1-for-30 reverse stock split as discussed in Notes 1 and 9

 

3


TELIK, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME/LOSS

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Operating costs and expenses:

        

Research and development

   $ 867      $ 1,305      $ 2,788      $ 4,464   

General and administrative

     1,011        1,550        3,423        5,090   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     1,878        2,855        6,211        9,554   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,878     (2,855     (6,211     (9,554

Interest and other income, net

     2        7        6        31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1,876   $ (2,848   $ (6,205   $ (9,523
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share*

   $ (0.78   $ (1.58   $ (3.07   $ (5.30
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used to calculate basic and diluted net loss per share*

     2,395        1,799        2,021        1,796   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax:

        

Changes in net unrealized gains on investments

     —          (4     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (1,876   $ (2,852   $ (6,205   $ (9,523
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Financial Statements.

 

* Adjusted for the 1-for-30 reverse stock split as discussed in Notes 1 and 9

 

4


TELIK, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash flows from operating activities:

    

Net loss

   $ (6,205   $ (9,523

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation

     1        10   

Stock-based compensation expense

     550        1,183   

Changes in assets and liabilities:

    

Other receivables

     3        95   

Prepaid expenses and other current assets

     (95     (43

Accounts payable

     (63     (779

Accrued liabilities

     (125     (132

Accrued facility exit costs

     (1,107     (1,086
  

 

 

   

 

 

 

Net cash used in operating activities

     (7,041     (10,275
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (4,507     (11,756

Sales of investments

     —          199   

Maturities of investments

     6,161        15,615   
  

 

 

   

 

 

 

Net cash provided by investing activities

     1,654        4,058   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     1,983        244   
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,983        244   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (3,404     (5,973

Cash and cash equivalents at beginning of period

     9,046        7,768   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 5,642      $ 1,795   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Financial Statements.

 

5


TELIK, INC.

Notes to Condensed Financial Statements

(Unaudited)

 

1. Nature of Operations and Going Concern

Business Overview

Telik, Inc. (“Telik,” “we” or, the “Company”) was incorporated in the state of Delaware in October 1988. We are engaged in the discovery and development of small molecule therapeutics. We operate in only one business segment.

We have incurred net losses since inception and we expect to incur substantial losses for at least the next several years as we continue our research and development activities. To date, we have funded operations primarily through the sale of equity securities, non-equity payments from collaborators and interest income. The process of developing our products will require significant additional research and development, preclinical testing and clinical trials, as well as regulatory approval. We expect these activities, together with general and administrative expenses, to result in substantial operating losses for the foreseeable future. We will not receive product revenue unless we, or our collaborative partners, complete clinical trials, obtain regulatory approval and successfully commercialize one or more of our products.

Going Concern

We believe our existing cash resources will be sufficient to fund our projected operating requirements into the first quarter of 2013. We have been and are currently seeking collaborative arrangements with corporate partners to fund the development and commercialization of TELINTRA, our lead product candidate and TELCYTA, our other product candidate. While we were able to raise $2 million through the sale of our common stock in 2012 we continue to evaluate options to raise additional funds through equity or debt financings as well as other sources such as research grants from non-profit organizations. However, we cannot provide any assurances that we will be successful in obtaining additional funding. If we are unable to secure additional financing on a timely basis or on terms favorable to us, we will be required to cease or reduce certain research and development projects, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. Insufficient funds will require us to delay, scale back, or eliminate some or all of our activities, or to cease operations. There is a substantial doubt about our ability to continue as a going concern beyond the first quarter of 2013 unless we are able to obtain additional and sufficient funding for our operations in a timely manner.

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Reverse Stock Split

On March 30, 2012, we effected a 1-for-30 reverse stock split of our outstanding common stock. The reverse stock split affected all stockholders of our common stock uniformly but did not materially affect any stockholder’s percentage of ownership interest. The par value of our common stock remains unchanged at $0.01 per share and the number of authorized shares of common stock remains the same after the reverse stock split. Unless otherwise noted, all impacted amounts included in the condensed financial statements and notes thereto have been retroactively adjusted for the reverse stock split. See Note 9 to our condensed financial statements for additional information.

 

6


Stock Offerings

In August 2011, we filed a shelf registration statement on Form S-3 to offer and sell, from time to time, equity securities in one or more offerings up to a total dollar amount of $25.0 million. On August 30, 2011, we entered into an At Market Issuance Sales Agreement, or Sales Agreement, with McNicoll, Lewis &Vlak LLC, or MLV, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $7.0 million from time to time through MLV as our sales agent. For the three and nine months ended September 30, 2012, we received approximately $790,000 and $2.0 million, respectively, in net proceeds from stock sales under the Sales Agreement after deducting commissions and other related expenses. We have received $2.1 million in net proceeds since entering into the Sales Agreement. Our ability to sell shares of our common stock pursuant to the Sales Agreement is subject to share volume limitations, market conditions and our continued listing on the Nasdaq Capital Market. There is no assurance that we may be able to raise any additional funds in the future under the Sales Agreement.

 

2. Basis of Presentation and Summary of Significant Accounting Policies

We have prepared the accompanying condensed financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, or the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included herein. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or any other future period. The condensed balance sheet at December 31, 2011 has been derived from the audited financial statements at that date. You should read these condensed financial statements and notes in conjunction with our audited financial statements for the year ended December 31, 2011, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2012.

Use of Estimates

In preparing our financial statements to conform with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results may differ from these estimates.

Cash, Cash Equivalents, and Investments

We currently invest our excess cash in money market funds, cash deposits, and U.S. government agency securities. All investments with stated maturities of three months or less from date of purchase are classified as cash equivalents. Debt securities with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Debt securities with remaining maturities greater than one year and which we intend to hold until maturity are classified as long-term investments. We classify all cash equivalents and security investments as available-for-sale. Available-for-sale securities are carried at estimated fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss).

Realized gains or losses on the sale of investments are determined on a specific identification method, and such gains and losses are reflected as a component of interest income.

Marketable security investments are recorded at fair value and evaluated for impairment. We take into account general market conditions, changes in economic environment as well as specific investment attributes, such as credit downgrade or illiquidity for each investment, the expected cash flows from the security, our intent to sell the

 

7


security and whether or not we will be required to sell the security before the recovery of its amortized cost, to estimate the fair value of our investments and to determine whether impairment is other than temporary. If it is determined that a decline in fair value of any investment is other than temporary, then the unrealized loss related to credit risk would be included in interest and other income (expense), net.

Fair Value of Financial Instruments

We used the provisions of ASC 820, “Fair Value Measurements and Disclosure,” to determine the fair values of our financial and nonfinancial assets and liabilities where applicable. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. The objective of fair value measurement is to determine the price that would be received to sell the asset or paid to transfer the liability (an exit price) in an orderly transaction between market participants at the measurement date. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. To increase consistency and comparability in fair value measurement and related disclosures, this statement establishes a fair value hierarchy that prioritize the inputs to valuation techniques used to measure fair value into three broad levels: (1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; (2) Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data; and (3) Level 3 inputs are unobservable inputs for asset or liability that reflect the reporting entity’s own assumptions about risk and the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Our money market funds are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Government agency securities are recorded at their estimated fair value. Since these securities generally have market prices from multiple sources and it can be difficult to select the best individual price directly from the quoted prices in the active markets, we use Level 2 inputs for the valuation of these securities. Using the Level 2 inputs, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources.

New Accounting Standards Recently Adopted

In June 2011, FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220)-Presentation of Comprehensive Income, or ASU 2011-05, to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 should be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance beginning January 1, 2012 and reported our other comprehensive income in a single continuous statement.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2012, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance to us.

 

8


3. Employee Stock-Based Compensation

Stock-based Compensation

Total estimated stock-based compensation expense, related to all of our share-based payment awards recognized under ASC 718, “Compensation—Stock Compensation” was comprised of the following:

 

     Three Months
Ended
September 30,
     Nine Months
Ended
September 30,
 
     2012      2011      2012      2011  
     (In thousands)  

Research and development

   $ 61       $ 217       $ 224       $ 557   

General and administrative

     85         256         326         626   
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation expense before taxes

     146         473         550         1,183   
  

 

 

    

 

 

    

 

 

    

 

 

 

Effect on net loss

   $ 146       $ 473       $ 550       $ 1,183   
  

 

 

    

 

 

    

 

 

    

 

 

 

Because we had a net operating loss carryforward as of September 30, 2012, no tax benefits for the tax deductions related to stock-based compensation expense were recognized in our condensed statements of operations. Additionally, no incremental tax benefits were recognized from stock options exercised in the nine months ended September 30, 2012 and 2011, which would have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities. As of September 30, 2012, $301,000 of total unrecognized compensation costs, net of forfeitures, related to non-vested service based awards is expected to be recognized over a weighted average period of 0.75 year.

Valuation Assumptions

We used the Black-Scholes-Merton option valuation model, or the Black-Scholes model, to determine the stock-based expense recognized under ASC 718. Our expected stock-price volatility assumption was based solely on the weighted average of the historical volatility as there was insufficient traded option activity for us to use implied volatility. The expected term of stock awards under our Employee Stock Purchase Plan, or ESPP, was based on the weighted average purchase periods of each offering. The expected term of stock options granted was based on the simplified method in accordance with Staff Accounting Bulletin No. 110, or SAB 110, as our historical share option exercise experience did not provide a reasonable basis for estimation. The risk-free interest rate was based on the U.S. Treasury yield for a period consistent with the expected term of the stock award in effect at the time of the grant. Assumptions used in the Black-Scholes model were as follows:

 

     Stock Option Plans      Stock Purchase Plan  
     Three Months Ended
September 30,
     Three Months Ended
September 30,
 
     2012*      2011*      2012**      2011  

Weighted expected stock price volatility

     —           —           —           105.1

Weighted risk-free interest rate

     —           —           —           0.12

Weighted expected life (in years)

     —           —           —           1.25   

Weighted expected dividend yield

     —           —           —           —     

 

9


     Stock Option
Plans
    Stock Purchase
Plan
 
     Nine Months
Ended
September 30,
    Nine Months
Ended
September 30,
 
     2012     2011     2012     2011  

Weighted expected stock price volatility

     111.0     104.9     107.8     88.2

Weighted risk-free interest rate

     1.29     2.14     0.21     0.26

Weighted expected life (in years)

     6.08        5.53        1.25        1.25   

Weighted expected dividend yield

     —          —          —          —     

 

* We did not grant any stock options during these periods.
** We did not have any new ESPP participants in the quarter ended September 30, 2012.

 

4. Basic and Diluted Net Loss per Share

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.

Weighted average outstanding options to purchase 330,985 and 395,396 shares of our common stock before application of the treasury method for the three months ended September 30, 2012 and 2011; and 340,665 and 380,376 shares of our common stock before application of the treasury method for the nine months ended September 30, 2012 and 2011 were excluded from the diluted net loss per common share calculations because inclusion of such options would be anti-dilutive.

 

5. Fair Value Measurements on a Recurring Basis

We measure certain financial assets at fair value on a recurring basis, including cash equivalents and available-for-sale securities. The fair value of these financial assets was determined based on a three-tier fair value hierarchy as described in Note 1, which prioritizes the inputs used in measuring fair value.

The following table presents information about our financial assets that are measured at fair value on a recurring basis as of September 30, 2012 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:

 

            Fair Value Measurement at September 30, 2012 Using  
     September 30, 2012      Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (In thousands)  

Available-for-sale securities:

           

Money market funds

   $ 946       $ 946       $ —         $ —     

US government agencies

     3,708         —           3,708         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,654       $ 946       $ 3,708       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents information about our financial assets that are measured at fair value on a recurring basis as of December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

 

10


            Fair Value Measurement at December 31, 2011 Using  
     December 31,
2011
     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (In thousands)  

Available-for-sale securities:

           

Money market funds

   $ 5,190       $ 5,190       $ —         $ —     

US government agencies

     4,454         —           4,454         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,644       $ 5,190       $ 4,454       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between Level 1 and Level 2 measurements in the three and nine months ended September 30, 2012 and in the year ended December 31, 2011.

 

6. Cash, Cash Equivalents, Investments and Restricted Investments

The following is a summary of estimated fair value of cash and cash equivalents, investments and restricted investments:

 

     September 30,      December 31,  
     2012      2011  
     (In thousands)  

Certificate of deposits

   $ 250       $ 250   

US government agencies enterprises

     3,708         4,454   

Cash and money market funds

     2,684         6,996   
  

 

 

    

 

 

 

Total

   $ 6,642       $ 11,700   
  

 

 

    

 

 

 

Reported as:

     

Cash and cash equivalents

   $ 5,642       $ 9,046   

Short-term investments

     750         2,404   

Restricted investments

     250         250   
  

 

 

    

 

 

 

Total

   $ 6,642       $ 11,700   
  

 

 

    

 

 

 

There were no realized gains or losses on sales of available-for-sale securities for the three and nine months ended September 30, 2012 and 2011.

The following is a summary of the cost and estimated fair value of marketable debt securities, held as available-for-sale at September 30, 2012 and December 31, 2011, classified by stated maturity date of the security:

 

     September 30, 2012      December 31, 2011  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 
     (In thousands)  

Mature in less than one year

   $ 3,708       $ 3,708       $ 4,454       $ 4,454   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

7. Facility Exit Costs

In November 2010, we ceased the use of our facility at 3165 Porter Drive in Palo Alto, California and subleased the facility to a tenant for the remaining contractual term of our master lease, which is through May 2014. Future lease-related payments and rental income are scheduled to be made and received monthly until the lease and sublease expire in May 2014.

The following table summarizes the activities related to accrued facility exit costs for the nine months ended September 30, 2012 (in thousands):

 

11


Balance as of December 31, 2011

   $ 2,926   

Amounts paid during the period

     (2,953

Amounts received during the period

     1,827   

Non-cash accretion

     19   
  

 

 

 

Balance as of September 30, 2012

   $ 1,819   
  

 

 

 

Reported as current portion

   $ 1,135   

Reported as noncurrent portion

   $ 684   

 

8. Commitments

Operating Leases

In November 2010, we entered into a 28-month lease agreement for 8,620 square feet of office space at 700 Hansen Way in Palo Alto, California and relocated our corporate offices to this facility.

We also lease approximately 92,000 square feet located at 3165 Porter Drive in Palo Alto, California, which we have subleased to a tenant effective November 2010 through May 2014 when our master lease expires. Pursuant to the terms of the master lease, we are required to maintain a security deposit in the form of a letter of credit equal to approximately $250,000. This letter of credit must be secured by either a deposit account or a securities account. At September 30, 2012, the security deposit is in the form of securities that are classified in the balance sheet as restricted investments. This collateral account is managed in accordance with our investment policy, and is restricted as to withdrawal.

Future minimum rental payments under our non-cancelable operating leases as of September 30, 2012 are as follows:

 

     Operating Leases  
     (In thousands)  

Years ending December 31,

  

2012

     1,096   

2013

     3,685   

2014

     1,537   
  

 

 

 

Total future minimum rental payments

   $ 6,318   

Less aggregate future minimum rentals to be received from subleases

     (4,218
  

 

 

 

Total

   $ 2,100   
  

 

 

 

 

9. Stockholders’ Equity

Reverse Stock Split

On March 30, 2012, we effected a 1-for-30 reverse stock split of our outstanding common stock resulting in a reduction of our total common stock issued and outstanding from approximately 54.5 million shares to approximately 1.8 million shares. As the par value per share of our common stock remained unchanged, a total of $527,000 was reclassified from common stock to additional paid-in capital. In connection with this reverse stock split, the number of common shares reserved for issuance under our ESPP and stock plans as well as the common shares underlying stock options were also reduced proportionately while the exercise prices of these stock options increased proportionately. All references to common shares and per share data for all periods presented in the accompanying financial statements and notes thereto have been adjusted to reflect the reverse stock split on a retroactive basis.

 

12


Stock Offerings

In August 2011, we filed a shelf registration statement on Form S-3 to offer and sell, from time to time, equity securities in one or more offerings up to a total dollar amount of $25.0 million. On August 30, 2011, we entered into an At Market Issuance Sales Agreement with MLV pursuant to which we may issue and sell shares of our common stock having an aggregate offering price up to $7.0 million, from time to time, through MLV as our sales agent. In conjunction with the Sales Agreement, MLV would receive compensation based on an aggregate of 4% of the gross proceeds on the sale price per share of our common stock. Any sales made pursuant to the Sales Agreement are deemed an “at-the-market” offering and would be made pursuant to the shelf registration statement on Form S-3. For the three months ended September 30, 2012, we sold 462,533 shares of our Common Stock through MLV under the Sales Agreement and received approximately $790,000 in net proceeds after deducting commissions and other related expenses. For the nine months ended September 30, 2012, we sold 836,606 shares of our Common Stock through MLV and received approximately $2.0 million in net proceeds after deducting commissions and other related expenses. Since entering into the Sales Agreement, we have sold 852,743 shares of our Common Stock and received approximately $2.1 million in net proceeds.

 

13


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Statements of Expected Future Performance

This Quarterly Report on Form 10-Q contains statements indicating expectations about future performance and other forward-looking statements that involve risks and uncertainties. We usually use words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “potential,” or “continue” or the negative of these terms or similar expressions to identify forward-looking statements. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our current intent, belief or expectation, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding the following: our future operating expenses, our future losses, our future expenditures for research and development, the sufficiency of our cash resources and ability to raise adequate funds in the future, the timing and implications of results of our Phase 2 clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates using TRAP technology (our proprietary Target-Related Affinity Profiling technology), the potential of such product candidates to lead to the development of safer or more effective therapies, our ability to develop the technology derived from our collaborations, and our anticipated timing for filing additional Investigational New Drug applications, or INDs, with the FDA, or for the initiation or completion of Phase 1, Phase 2 or Phase 3 clinical trials for any of our product candidates. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 27, 2012.

TELIK, the Telik logo, TRAP, TELCYTA and TELINTRA are trademarks of Telik, Inc. All other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Overview

Telik is engaged in the discovery and development of small molecule drugs. Our business strategy is to advance our drug product candidates through Phase 2 clinical studies, and to enter into a partnership with a pharmaceutical or biotechnology company to assist in further development and commercialization, license product candidates outside our therapeutic focus, and identify and develop additional drug product candidates.

We have incurred net losses since inception and expect to incur losses for the remainder of the year as we continue our research and development activities. During the nine months ended September 30, 2012, loss from operations was $6.2 million and net loss was $6.2 million. Net cash used in operations for the nine months ended September 30, 2012 was $7.0 million and net cash, cash equivalents, investments and restricted investments at September 30, 2012 were $6.6 million. As of September 30, 2012, we had an accumulated deficit of $546.5 million.

Our expenses consist primarily of those incurred for research and development and general and administrative costs associated with our operations. The process of carrying out the development of our product candidates to later stages of development and our research programs will require significant additional research and development expenditures, including for preclinical testing and clinical trials, as well as for manufacturing development efforts and obtaining regulatory approval. We outsource our clinical trials and our manufacturing development activities to

 

14


third parties to maximize efficiency and minimize our internal overhead. To date, we have funded our operations primarily through the sale of equity securities, non-equity payments from collaborative partners and interest income.

We are subject to risks common to biopharmaceutical companies, including the need for capital, risks inherent in our research, development and commercialization efforts, preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, enforcement of patent and proprietary rights, potential competition and retention of key employees. In order for a product to be commercialized, it will be necessary for us to conduct preclinical tests and clinical trials, demonstrate efficacy and safety of our product candidates to the satisfaction of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, obtain market acceptance and, in many cases, obtain adequate reimbursement from government and private insurers. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.

We expect that our quarterly and annual results of operations will fluctuate for the foreseeable future due to several factors, including the timing and extent of our research and development efforts and the outcome of our clinical trial activities. The successful development of our product candidates is uncertain. As such, an accurate prediction of future operating results is difficult or impossible.

Going Concern

Our financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should we be unable to continue as a going concern. We believe our existing cash resources will be sufficient to fund our projected operating requirements into the first quarter of 2013, including prosecuting our current trials, conducting research and discovery efforts towards additional product candidates and providing sufficient funds for working capital and general corporate purposes. Our independent registered public accounting firm has issued a report on our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2011 that includes an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt as to our ability to continue as a going concern without additional capital becoming available. In order to continue as a going concern, we will require substantial additional financing to fund our operations and continue our clinical product development programs, and our ability to continue as a viable entity will be dependent on our ability to obtain funding in a timely manner. We have been and are currently seeking collaborative arrangements with corporate partners to fund the development and commercialization of TELINTRA, our lead product candidate and TELCYTA, our other product candidate. We have evaluated options to raise additional funds through equity or debt financings and sales transactions as well as other sources such as research grants from non-profit organizations. Although we raised approximately $2.0 million through equity financing pursuant to our At Market Issuance Sales Agreement in the first nine months of 2012, we will need significant additional funding prior to the end of the first quarter of 2013 and cannot provide any assurances that we will be successful in obtaining additional funding. In the event we are unable to obtain sufficient additional funding, we will be required to focus on other strategic alternatives including the further restructuring of our operations to conserve resources, the sale of company assets, in whole or in part, cease operations, or some other arrangement through which the value of our assets to stockholders could be optimized.

Clinical Product Development

TELINTRA, our lead drug product candidate in clinical development, is a small molecule glutathione analog inhibitor of the enzyme glutathione S-transferase P1-1, or GST P1-1. We are developing TELINTRA for the treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia. We completed an 86 patient Phase 2 clinical trial of TELINTRA tablets, for the treatment of patients with Myelodysplastic Syndrome, or MDS, in 2010. In addition, we completed a Phase 1 dose-ranging study of TELINTRA tablets in

 

15


combination with Revlimid in patients with MDS in the fourth quarter of 2011. We are currently conducting a Phase 2 randomized study in Severe Chronic Neutropenia, or SCN, to determine the effect of TELINTRA tablets on absolute neutrophil count in patients with this disease. Due to our focus on MDS, we plan to terminate this study once the last remaining patients complete treatment around the fourth quarter of 2012. In June 2011, we initiated a Phase 2 clinical trial to evaluate TELINTRA tablets in patients with Revlimid refractory or resistant, deletion 5q myelodysplastic syndrome, or del 5q MDS. This multicenter trial is intended to enroll up to 117 evaluable patients. The first planned interim analysis will occur after one-third of the patients have completed therapy and depending on the results of the interim analysis, additional enrollment may continue with two additional analyses planned. The timing of the interim analyses is dependent on the availability of patients in the del 5q MDS population. In October 2011, we initiated a Phase 2b clinical trial to evaluate TELINTRA tablets in patients with transfusion dependent, non-deletion 5q MDS, who have not been treated with hypomethylating agents, or HMA. This multicenter trial is intended to enroll up to 145 evaluable patients with 2 planned interim analyses, the first of which will be performed when data from 49 evaluable patients are available and the second at 97 evaluable patients. The timing of enrollment in this study is dependent on the availability of non-deletion 5q MDS patients.

TELCYTA, our other product candidate, is a small molecule cancer drug product candidate designed to be activated in cancer cells. TELCYTA has been evaluated in multiple Phase 2 and Phase 3 clinical trials, including trials using TELCYTA as monotherapy and in combination regimens in ovarian, non-small cell lung, breast and colorectal cancer. Results from these clinical trials indicate that TELCYTA monotherapy was generally well-tolerated, with mostly mild to moderate side effects, particularly when compared to the side effects and toxicities of standard chemotherapeutic drugs. When TELCYTA was evaluated in combination with standard chemotherapeutic drugs, the tolerability of the combinations was similar to that expected of each drug alone. Clinical activity including objective tumor responses and/or disease stabilization was reported in the TELCYTA Phase 2 trials; however, TELCYTA did not meet its primary endpoints in the Phase 3 studies. In May 2010, we initiated an investigator led study at a single site of TELCYTA in patients with refractory or relapsed mantle cell lymphoma, diffuse large B cell lymphoma, and multiple myeloma. Enrollment for this study was in two stages and expected to range between 18 to 48 patients based on the number of responses observed. Based on responses observed in stage 1, we had planned to expand the study to stage 2 and add a second investigator site in the first quarter of 2012. However, in an effort to focus our resources on TELINTRA development, we have decided to terminate this study instead. We are currently seeking a partnership with a pharmaceutical or biotechnology company to further advance the development and commercialization of TELCYTA.

We need to raise additional funds in the near future in order to see our current active, inactive and planned clinical trials to completion.

Preclinical Drug Product Development

TLK60404—Aurora Kinase/VEGFR Inhibitors

We have a small molecule compound inhibiting both Aurora kinase and VEGFR kinase. Aurora kinase is a signaling enzyme whose function is required for cancer cell division, while VEGF plays a key role in tumor blood vessel formation, ensuring an adequate supply of nutrients to support tumor growth. The lead compounds of our first dual inhibitor program met a development milestone in August 2008 by demonstrating anticancer activity in preclinical models of human colon cancer and human leukemia. These lead compounds prevented tumor growth in preclinical models of human colon cancer and human leukemia by inhibiting both Aurora kinase and VEGFR kinase. Our data support the concept that dual inhibition of Aurora kinase and VEGFR kinase represents a promising approach for anticancer therapy. A development drug product candidate, TLK60404, has been selected. While we have conducted some preclinical safety studies, we have decided to place this development program on hold in an effort to conserve resources.

 

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TLK60357—Antimitotic Agent

Using our TRAP technology, we have discovered TLK60357, a novel, potent small molecule inhibitor of cell division. TLK60357 inhibits the formation of microtubules that are necessary for cancer cell growth leading to persistent cancer cell block and subsequent cell death at the G2/M cell cycle. This compound demonstrates potent broad-spectrum anticancer activity against a number of human cancer cells. This compound also displays oral efficacy in multiple, standard preclinical models of cancer. Since we are currently focused on TELINTRA development, no additional expenditure on this compound is expected.

TLK60596—VEGFR Inhibitor

TLK60596 is a small-molecule dual inhibitor of VEGFR1 and VEGFR2 kinase. VEGFR1/2 kinases are known to mediate the formation of new blood vessels in human cancers allowing them to grow. In standard animal models of human colon cancer, oral administration of TLK60596 significantly reduced tumor growth. Since we are currently focused on TELINTRA development, no additional expenditure on this compound is expected.

Other

We discovered all of our drug product candidates using our proprietary technology, TRAP, which we believe enables the rapid and efficient discovery of small molecule drug product candidates. We may enter into collaborative arrangements with third parties, such as contract research organizations for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our products, particularly outside North America, or in disease areas requiring larger and longer clinical trials than cancer.

Reverse Stock Split

On March 30, 2012, we effected a 1-for-30 reverse stock split of our outstanding common stock. The reverse stock split affected all stockholders of our common stock uniformly and did not materially affect any stockholder’s percentage of ownership interest. The par value of our common stock remains unchanged at $0.01 per share and the number of authorized shares of common stock remains the same after the reverse stock split. See Notes 1 and 9 to our condensed financial statements for additional information.

Nasdaq Stock Listing Compliance

On September 19, 2008, we received notification from Nasdaq informing us that the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market under Nasdaq Marketplace Rule 5550(a)(2). Effective January 7, 2010, we transferred the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market. On April 22, 2010, we received notification from Nasdaq that we had regained compliance with the minimum bid price requirement. Since May 20, 2010, the bid price for our common stock had again fluctuated below the levels required by Nasdaq rules for continued listing. On July 21, 2010, we received notice from Nasdaq that the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market. On February 10, 2011, we received a notification from Nasdaq that we regained compliance with the minimum bid price requirement. On April 21, 2011, we received notice from Nasdaq that the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market and that we have 180 calendar days, or until October 18, 2011 to regain compliance. On October 20, 2011, we received notice from Nasdaq that we had been provided with an additional 180-day period, or until April 16, 2012, to regain compliance with the minimum $1.00 per share requirement. Following the 1-for-30 reverse stock split effected on March 30, 2012, we received notification from Nasdaq on April 17, 2012 that we had regained compliance with the minimum bid price requirement. We cannot provide assurances that we will be able to maintain compliance with Nasdaq listing requirements.

 

17


Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments related to revenue recognition and clinical development costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.

There has been no material change in our critical accounting policies and significant judgments and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2011.

Use of Estimates

In preparing our financial statements to conform with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results may differ from these estimates.

Results of Operations

Revenues

We did not record any revenues for the three and nine months ended September 30, 2012 or in 2011. Future non-product revenues, if any, will depend upon the extent to which we enter into new collaborative research agreements and the amounts of payments relating to such agreements.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2012 and 2011 were $867,000 and $1.3 million. Research and development expenses for the nine months ended September 30, 2012 and 2011 were $2.8 million and $4.5 million. Our research and development activities consist primarily of drug development, clinical supply manufacturing, clinical activities, discovery research, screening and identification of product candidates and preclinical studies. We group these activities into two major categories: “research and preclinical” and “clinical development.”

The approximate costs associated with research and preclinical and clinical development activities were as follows:

 

     Three Months Ended
September  30,
     %     Nine Months Ended
September 30,
     %  
     2012      2011      Change     2012      2011      Change  
     (In thousands, except percentages)  

Research and preclinical

   $ 228       $ 351         (35 )%    $ 781       $ 1,214         (36 )% 

Clinical development

     639         954         (33 )%      2,007         3,250         (38 )% 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total research and development

   $ 867       $ 1,305         (34 )%    $ 2,788       $ 4,464         (38 )% 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The decrease of 34%, or $438,000, in research and development expenses for the three months ended September 30, 2012 compared to the same period in 2011, was primarily due to the following:

 

18


   

decreased costs of approximately $416,000 associated with headcount reduction, reduced consulting expenses and reduced facility costs;

 

   

decreased clinical trial expenses of approximately $73,000 related to the wind down of our Phase 1 dose-ranging trial of TELINTRA tablets in combination with Revlimid in MDS;

 

   

offset by increased clinical development expenses of approximately $53,000 for our ongoing Phase 2 clinical trial to evaluate TELINTRA tablets in patients with Revlimid refractory or resistant, deletion 5q myelodysplastic syndrome, or del 5q MDS and our Phase 2b clinical trial to evaluate TELINTRA tablets in patients with transfusion dependent, non-deletion 5q MDS.

The decrease of 38%, or $1.7 million, in research and development expenses for the nine months ended September 30, 2012 compared to the same period in 2011 was primarily due to the following:

 

   

decreased costs of approximately $1.4 million associated with headcount reduction, reduced consulting expenses and reduced facility costs;

 

   

decreased clinical trial expenses of approximately $84,000 related to the completion of our Phase 2 TELINTRA tablets for MDS studies, $349,000 related to the wind down of our Phase 1 dose-ranging trial of TELINTRA tablets in combination with Revlimid in MDS and Phase 2 TELCYTA trial in multiple myeloma clinical studies;

 

   

decreased clinical drug supply manufacturing costs of $78,000;

 

   

offset by increased clinical development expenses of approximately $178,000 for our ongoing Phase 2 clinical trial to evaluate TELINTRA tablets in patients with Revlimid refractory or resistant, deletion 5q myelodysplastic syndrome, or del 5q MDS and our Phase 2b clinical trial to evaluate TELINTRA tablets in patients with transfusion dependent, non-deletion 5q MDS.

We expect total research and development expenditures to be slightly higher in the next twelve months as we focus on the enrollment of our two Phase 2 clinical trials of TELINTRA in MDS.

The following table summarizes our principal drug product candidate development initiatives:

 

     Related R&D Expenses
Nine  Months ended September 30,
 

Product

           2012                      2011          
     (In thousands)  

TELCYTA

   $ 588       $ 1,207   

TELINTRA

     2,200         3,222   

TLK60404

     —           35   
  

 

 

    

 

 

 

Total research and development expenses

   $ 2,788       $ 4,464   
  

 

 

    

 

 

 

A large component of our total operating expenses is our on-going investment in our research and development activities and, in particular, the clinical development of our product candidate pipeline. The process of conducting the clinical research necessary to obtain FDA approval is costly and time consuming. Current FDA requirements for a new human drug to be marketed in the United States include:

 

19


   

the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain preliminary information on the product’s safety;

 

   

filing with the FDA of an IND, to conduct initial human clinical trials for drug candidates;

 

   

the successful completion of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate; and

 

   

filing by company and acceptance and approval by the FDA of a New Drug Application, or NDA, for a product candidate to allow commercial distribution of the drug.

In view of the factors mentioned above, we consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the target and disease indication, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Due to these and other factors, it is difficult to give accurate guidance on the anticipated proportion of our research and development investments or the future cash inflows from these programs.

General and Administrative Expenses

 

    

Three Months Ended

September 30,

     %     Nine Months Ended
September 30,
     %  
     2012      2011      Change     2012      2011      Change  
     (In thousands, except percentages)  

General and administrative

   $ 1,011       $ 1,550         (35 )%    $ 3,423       $ 5,090         (33 )% 

The decrease in general and administrative expenses of 35%, or $539,000, for the three months ended September 30, 2012 compared to the same period in 2011, was primarily due to a decrease of $250,000 in reduced headcount related expenses and a decrease of $289,000 in legal and professional services expenses.

The decrease in general and administrative expenses of 33%, or $1.7 million, for the nine months ended September 30, 2012 compared to the same period in 2011 was primarily due to a decrease of $737,000 in reduced headcount and corporate administrative expenses and a decrease of $930,000 in legal and professional services expenses.

We expect future general and administrative expenses to decrease as we undertake efforts to conserve cash.

Stock-Based Compensation Expense

Employee stock-based compensation expense related to our share-based payment awards was as follows:

 

    

Three Months Ended

September 30,

    

Nine Months Ended

September 30,

 
     2012      2011      2012      2011  
     (In thousands)  

Research and development

   $ 61       $ 217       $ 224       $ 557   

General and administrative

     85         256         326         626   
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation expense before taxes

     146         473         550         1,183   
  

 

 

    

 

 

    

 

 

    

 

 

 

Effect on net loss

   $ 146       $ 473       $ 550       $ 1,183   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The decreases in employee stock-based compensation expense for the three and nine months ended September 30, 2012 compared with the same periods in 2011 were primarily due to more option shares with higher fair values which vested in 2011.

Interest Income and Interest Expense

 

    

Three Months Ended

September 30,

     %     Nine Months Ended
September 30,
     %  
     2012      2011      Change     2012      2011      Change  
     (In thousands, except percentages)  

Interest and other income, net

   $ 2       $ 7         (71 )%    $ 6       $ 31         (81 )% 

The decreases in interest and other income, net of approximately $5,000 and $25,000 for the three and nine months ended September 30, 2012 compared to the same periods in 2011 were due primarily to a decrease in investment income resulting from lower investment cash balances as well as low yields in our investments which are mainly held in US government agency securities.

Liquidity and Capital Resources

 

     September 30,
2012
     December 31,
2011
 
     (In millions, except ratios)  

Cash, cash equivalents, investments and restricted investments

   $ 6.6       $ 11.7   

Working capital

   $ 5.1       $ 9.4   

Current ratio

     3.4 : 1         4.6 : 1   

 

     Nine Months Ended
September 30,
 
     2012     2011  
     (In millions)  

Cash (used in) / provided by:

    

Operating activities

   $ (7.0   $ (10.3

Investing activities

   $ 1.7      $ 4.1   

Financing activities

   $ 2.0      $ 0.2   

Sources and Uses of Cash. Due to significant research and development expenditures and the lack of any approved products to generate revenue, we have not been profitable and have generated operating losses since we incorporated in 1988. As such, we have funded our research and development operations through the sale of equity securities, non-equity payments from corporate partners, interest earned on investments, government grants and equipment lease and loan financings. At September 30, 2012, we had available cash, cash equivalents, investments and restricted investments of $6.6 million. Our cash and investment balances are held in a variety of interest-bearing instruments including obligations of U.S. government agencies and money market accounts. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk.

Cash Flows from Operating Activities. Cash used in operations for the nine months ended September 30, 2012 was $7.0 million compared with $10.3 million for the same period in 2011. Net loss of $6.2 million in the nine months ended September 30, 2012 included non-cash charges of $550,000 for stock-based compensation. Cash used in operations was further impacted by a $125,000 reduction in accrued liabilities primarily due to payments

 

21


related to our annual audit and patent related legal expenses and a $1.1 million reduction in accrued facility exit costs due to payments made on our Porter Drive facility which were partially offset by sublease payments received. Operating cash outflows for the same period in 2011 resulted primarily from a net loss of $9.5 million which included non-cash charges of $1.2 million for stock-based compensation and $10,000 for depreciation. Cash used in operations in 2011 was further impacted by a $779,000 reduction in accounts payable primarily due to payments related to our office relocation at the end of 2010 and a $1.1 million reduction in accrued facility exit costs due to payments made on our Porter Drive facility which were partially offset by sublease payments received.

Cash Flows from Investing Activities. Cash provided by investing activities for the nine months ended September 30, 2012 was $1.7 million compared with cash provided of $4.1 million for the same period in 2011. Cash provided in the nine months ended September 30, 2012 was primarily from $6.2 million in investment maturities and was partially offset by the purchase of available-for-sale investments of $4.5 million. Cash provided by investing activities for the same period in 2011 was primarily from $15.6 million in investment maturities and $199,000 in investment sales partially offset by the purchase of available-for-sale investments of $11.8 million. We had no capital expenditures for the nine months ended September 30, 2012 or 2011.

Cash Flows from Financing Activities. Cash provided by financing activities for the nine months ended September 30, 2012 was approximately $2.0 million compared with $244,000 for the same period in 2011. Cash provided by financing activities for the nine months ended September 30, 2012 was primarily from sales of our common stock under the At Market Issuance Sales Agreement of about $2.0 million in net proceeds. Cash provided by financing activities for the nine months ended September 30, 2011 was primarily due to proceeds from stock purchases under our employee stock purchase plan and stock option exercises.

Working Capital. Working capital decreased to $5.1 million at September 30, 2012 from $9.4 million at December 31, 2011. The decrease in working capital was primarily due to our use of cash for our clinical studies and operating expenses.

We believe our cash, cash equivalents and marketable securities as of September 30, 2012 will be sufficient to fund our projected operating requirements at least through the end of the current fiscal year, including prosecuting our current trials, conducting research and discovery efforts towards additional product candidates and providing sufficient funds for working capital and general corporate purposes. In order to continue as a going concern, we will need sufficient additional capital to complete all the clinical trials we are currently conducting. We may raise funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently. Our future capital uses and requirements depend on numerous factors, including the following:

 

   

the progress and success of preclinical studies and clinical trials of our product candidates;

 

   

the progress and number of research programs in development;

 

   

the costs associated with conducting Phase 2 clinical trials;

 

   

the costs and timing of obtaining regulatory approvals;

 

   

our ability to establish, and the scope of, any new collaborations;

 

   

our ability to meet the milestones identified in our collaborative agreements that trigger payments;

 

   

the costs and timing of obtaining, enforcing and defending our patent and intellectual property rights; and

 

   

competing technological and market developments.

We need to raise additional capital or incur indebtedness before the end of the first quarter of 2013 to continue to fund our future operations. We may seek to raise capital through a variety of sources, including collaborative arrangements, licensing arrangements, public equity markets, private equity financings, and/or public or private debt as well as other sources such as research grants from non-profit organizations. In August 2011, we filed a shelf registration statement on Form S-3 to offer and sell, from time to time, equity securities in one or more offerings up to a total dollar amount of $25.0 million. On August 30, 2011, we entered into the Sales Agreement with MLV

 

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whereby we may issue and sell shares of our common stock having an aggregate offering price up to $7.0 million, from time to time, through MLV as our sales agent. In conjunction with the Sales Agreement, MLV would receive compensation based on an aggregate of 4% of the gross proceeds on the sale price per share of our common stock. Any sales made pursuant to the Sales Agreement are deemed an “at-the-market” offering and would be made pursuant to the shelf registration statement on Form S-3. For the three months ended September 30, 2012, we sold 462,533 shares of our Common Stock through MLV under the Sales Agreement and received approximately $790,000 in net proceeds after deducting commissions and other related expenses. For the nine months ended September 30, 2012, we sold 836,606 shares of our Common Stock through MLV and received approximately $2.0 million in net proceeds after deducting commissions and other related expenses. Since entering into the Sales Agreement in August 2011, we have sold 852,743 shares of our Common Stock and received approximately $2.1 million in net proceeds.

Our ability to raise additional funds will depend on clinical and regulatory events and factors related to financial, economic and market conditions, many of which are beyond our control. In addition, our ability to raise additional capital may be dependent upon our continued listing on the Nasdaq Capital Market, and we cannot provide assurances that we will be able to maintain compliance with Nasdaq listing requirements. We cannot be certain that sufficient funds will be available to us when required or on satisfactory terms. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain of our products, technologies or potential markets, any of which could delay or require that we curtail our development programs or otherwise have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in significant ownership dilution to our existing stockholders.

If we are unable to secure additional financing on a timely basis or on terms favorable to us, we may be required to cease or reduce certain research and development projects, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our activities, and our ability to continue as a going concern beyond the first quarter of 2013 is uncertain.

Our future contractual obligations at September 30, 2012 are as follows (in thousands):

 

     Total      2012      2013-
2014
     After
2014
 

Operating leases

   $ 2,100       $ 476       $ 1,624         —     

In November 2010, we entered into arrangements to sublease our facility located at 3165 Porter Drive in Palo Alto, California, which consists of approximately 92,000 square feet of research and office space. The sublease term commenced in November 2010 and will expire on May 31, 2014, the date on which the current term of our master lease for the facility expires. However, if the master lease is terminated for any reason prior to this date, the sublease will terminate concurrently.

On November 22, 2010, Telik entered into an arrangement to sublease a facility at 700 Hansen Way, Palo Alto, California in which to relocate our principal executive offices. The term of the sublease commenced on November 29, 2010 and expires on March 31, 2013, the date on which the current term of the master lease on the facility at 700 Hansen Way expires. However, if such master lease is terminated for any reason prior to this date, the sublease will terminate concurrently.

We have a contractual obligation under the terms of our manufacturing supply agreement with AMRI Rennselaer, Inc., or AMRI, previously known as Organichem Corporation, wherein we are obligated to purchase a majority of our United States requirements for the active ingredient in TELCYTA for a number of years. However, we currently do not have any requirements for the active ingredient. We have agreed on a pricing schedule for such supply, which will be subject to future renegotiation after a defined time period.

 

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Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The following discussion about our market risk exposure involves forward-looking statements. We do not use or hold derivative financial instruments; however we are exposed to market risk related to changes in interest rates and market conditions.

Our investment policy is to manage our marketable securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio. To minimize the exposure due to adverse shifts in interest rates we maintain investments of shorter maturities. Our marketable securities portfolio is primarily invested in U.S. government agency securities with an average maturity of less than one year and a minimum investment grade rating of A or A-1 or better to minimize credit risk. Although changes in interest rates may affect the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments were sold prior to maturity. Through our money managers, we maintain risk management control systems to monitor interest rate risk. The risk management control systems use analytical techniques, including sensitivity analysis. We have operated primarily in the United States and all funding activities with our collaborators to date have been made in U.S. dollars. Accordingly, we do not have any exposure to foreign currency rate fluctuations.

The table below presents the principal amounts and weighted-average interest rates by year of stated maturity for our investment portfolio:

 

     2012     2013
and
Beyond
    Total     Fair Value at
September 30,
2012
 
     (In thousands, except percentages)  

Available-for-sale securities

   $ 3,708        —        $ 3,708      $ 3,708   

Average interest rate

     0.16     0.00     0.16  

 

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Vice President, Finance and Controller, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. Based on such evaluation, our Chief Executive Officer and Vice President, Finance and Controller concluded that, subject to limitations described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), were effective as of September 30, 2012.

Changes in internal control over financial reporting. There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Limitations on the effectiveness of controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control

 

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issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Vice President, Finance and Controller have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

 

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PART II. OTHER INFORMATION

 

Item 1A. Risk Factors.

Included below is a description of risk factors related to our business to enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to the forward-looking statements made in this Quarterly Report on Form 10-Q. The risks and uncertainties set forth below are not all of the risks and uncertainties facing our business, but we do believe that they reflect the more important ones. You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results and financial condition. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements.

The risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on February 27, 2012, are set forth below. These risk factors have not substantively changed, except for those identified by asterisk and restated below.

If we are unable to raise adequate funds in the near future, we will not be able to continue to fund our operations, research programs, preclinical testing and clinical trials to develop and manufacture our drug product candidates, and our auditors have indicated that our recurring losses and net capital deficiency raise substantial doubt about our ability to continue as a going concern.*

The process of carrying out the development of our own unpartnered product candidates to later stages of development and developing other research programs to the stage that they may be partnered to a pharmaceutical or biotechnology company will require significant additional expenditures, including the expenses associated with preclinical testing, clinical trials and obtaining regulatory approval. Our independent registered public accounting firm has issued a report on our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2011 that includes an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt as to our ability to continue as a going concern without additional capital becoming available. We believe that our existing cash and investment securities will be sufficient to support our current operating plan into the first quarter of 2013. Unanticipated changes in our research and development plans or other changes affecting our operating expenses may affect actual consumption of existing cash resources. In any event, we will require substantial additional financing in the near term in order to complete the clinical trials we are currently conducting and to fund our continued operations. We do not know whether additional financing will be available when needed or that, if available, we will be able to obtain financing on terms favorable to our stockholders. In addition, the tight credit markets and concerns regarding the availability of credit, particularly in the United States, may also negatively impact our ability to raise additional capital to fund our business. If we fail to maintain the minimum $1.00 per share listing requirement on the Nasdaq Capital Market, our ability to raise additional capital in the public equity market will also be significantly limited. As of September 30, 2012, our accumulated deficit was $546.5 million, and we expect to incur capital outlays and operating expenditures for the next several years as we continue our clinical, research and development activities. The extent of any actual increase in operating or capital spending will depend in part on the clinical success of our product candidates. If we fail to raise adequate funds on terms acceptable to us, if at all, we will not be able to continue to fund our operations, research programs, preclinical testing, clinical trials and manufacturing efforts. Having insufficient funds will require us to delay, scale back, or eliminate some or all of our activities, and our continued existence beyond the first quarter of 2013 is uncertain.

Raising additional capital by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders or require us to relinquish rights to our technologies or product candidates.*

In order to fund our future operations we may seek to raise additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources. In August 2011, we filed a shelf registration

 

26


statement on Form S-3 to offer and sell, from time to time, equity securities in one or more offerings up to a total dollar amount of $25.0 million. On August 30, 2011 we entered into an At Market Issuance Sales Agreement, or the Sales Agreement, with McNicoll, Lewis & Vlak LLC, or MLV, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price up to $7.0 million, from time to time, through MLV as our sales agent. For the nine months ended September 30, 2012, we sold 836,606 shares of our Common Stock through MLV and received approximately $2.0 million in net proceeds after deducting commissions and other related expenses. Since entering into the Sales Agreement, we have sold 852,743 shares of our Common Stock and received approximately $2.1 million in net proceeds.

To the extent that we raise additional capital by issuing equity securities, our stockholders will experience dilution. To the extent that we raise additional capital through licensing arrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves.

We have a history of net losses, which we expect to continue for the next several years should we have the ability to operate as a going concern. We will never be profitable unless we develop, and obtain regulatory approval and market acceptance of, our product candidates.*

To date, we have not obtained regulatory approval for the commercial sale of any products, and we have not received any revenue from the commercial sale of products. Due to the significant research and development expenditures required to develop our TRAP technology and identify new product candidates, and the lack of any products to generate revenue, we have not been profitable and have incurred operating losses since we were incorporated in 1988. As of September 30, 2012, we had an accumulated deficit of $546.5 million. Should we have the ability to operate as a going concern, we expect to incur losses for the next several years as we continue our research and development activities and incur significant clinical testing and drug supply manufacturing costs. We do not anticipate that we will generate product revenue for at least several years. Our losses, among other things, have caused and will cause our stockholders’ equity and working capital to decrease. We expect that this trend will continue until we develop, and obtain regulatory approval and market acceptance of, our product candidates, if at all. We may never generate product revenue sufficient to become profitable.

If clinical trials of our product candidates are delayed or unsuccessful, or if we are unable to complete the preclinical development of our other preclinical product candidates, our business may suffer.*

Preclinical testing and clinical trials are long, expensive and uncertain processes. It may take us or our collaborators several years to complete this testing, and failure can occur at any stage of the process. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of clinical trials do not necessarily predict final results. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier clinical trials. To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and well-designed clinical trials demonstrating that a particular drug is safe and effective for the applicable disease.

In 2007, we completed a Phase 1-2a clinical trial of a tablet formulation of TELINTRA in MDS, a form of pre-leukemia, to evaluate safety, pharmacokinetics, pharmacodynamics and efficacy. In May 2008, we initiated a Phase 2 clinical trial of TELINTRA tablets for the treatment of patients with MDS and announced final data at the ASH meeting in December 2010. In April 2009, we initiated a randomized Phase 2 clinical trial in SCN and in November 2009, we initiated a Phase 1 Dose-Ranging Study of TELINTRA tablets in combination with Revlimid in patients with MDS. In June 2011, we initiated a Phase 2 clinical trial of TELINTRA tablets in patients with Revlimid refractory or resistant, deletion 5q MDS and in October 2011, we initiated a Phase 2 clinical trial of TELINTRA tablets in patients with transfusion dependent, non-deletion 5q MDS. Our success depends in part on our ability to continue clinical development of TELINTRA.

 

27


TELCYTA has been evaluated in multiple Phase 1, 2 and 3 clinical trials. Our Phase 3 trials did not achieve their primary endpoints and consequently the FDA required that we conduct additional studies of TELCYTA to complete clinical development. In May 2010, we initiated an investigator led study at a single site of TELCYTA in patients with refractory or relapsed mantle cell lymphoma, diffuse large B cell lymphoma, and multiple myeloma. However, in an effort to focus our resources on TELINTRA development, we have decided to terminate this study instead.

Our success depends in large part on our ability to continue clinical development of TELINTRA and TELCYTA. If we do not have sufficient capital required to conduct additional studies or if the data on future clinical trials are not positive, we may not be able to continue clinical development on TELINTRA or TELCYTA and our business will suffer.

We rely on third-party clinical investigators to conduct our clinical trials and, as a result, we may face additional delays outside our control. We have in the past engaged contract research organizations, or CROs, to facilitate the administration of our Phase 3 clinical trials of TELCYTA. Dependence on a CRO subjects us to a number of risks. We may not be able to control the amount and timing of resources the CRO may devote to our clinical trials. Should the CRO fail to administer our Phase 3 clinical trials properly and on a timely basis, regulatory approval, development and commercialization of our product candidates will be delayed.

We do not know whether we will begin planned clinical trials on time or whether we will complete any of our on-going clinical trials on schedule, if at all. Clinical trials can be delayed for a variety of other reasons, including delays in clinical testing, obtaining regulatory approval to commence a study, delays in reaching agreement on acceptable clinical study agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a study at a prospective clinical site and delays in recruiting subjects to participate in a study. Even if we are able to complete such clinical trials, we do not know whether any such trials will result in marketable products. Typically, there is a high rate of failure for product candidates in preclinical and clinical trials. We do not anticipate that any of our product candidates will reach the market for at least the next several years.

Delays in clinical testing can also materially impact our product candidates’ development costs. If we experience delays in clinical testing or approvals, our product candidates’ development costs will increase. For example, we may need to make additional payments to third-party investigators and organizations to retain their services or we may need to pay additional recruitment incentives. If the delays are significant, our financial results and the commercial prospects for our product candidates will be harmed, and our ability to become profitable will be significantly impaired or delayed.

If we do not find collaborators for our product candidates, we may have to reduce or delay our rate of product development and/or increase our expenditures.

Our strategy to develop, manufacture and commercialize our products includes entering into relationships with pharmaceutical companies to advance certain programs and reduce our expenditures with respect to such programs. Our product candidates will target highly competitive therapeutic markets in which we have limited experience and expertise. If we are unable to develop this expertise ourselves, we will need to enter into agreements with one or more biotechnology or pharmaceutical companies to provide us with the necessary resources and experience for the development and commercialization of products in these markets. In particular, we are seeking a partnership with a pharmaceutical or biotechnology company to further advance the development and commercialization of TELINTRA and TELCYTA. There are a limited number of companies with the resources necessary to develop our future products commercially, and we may be unable to attract any of these firms. The current credit and financial market conditions could also impact our ability to find a collaborator for our development programs. A company that has entered into a collaboration agreement with one of our competitors may choose not to enter into a collaboration agreement with us. We may not be able to negotiate a collaboration agreement on acceptable terms or at all. If we are not able to establish collaborative arrangements, we may have to reduce or delay further

 

28


development of some of our programs and/or increase our expenditures and undertake the development activities at our own expense. If we elect to increase our expenditures to fund our development programs, we will need to obtain additional capital, which may not be available on acceptable terms or at all.

In addition, there have been a significant number of recent business combinations among biotechnology and pharmaceutical companies that have reduced the number of potential future collaborators that would be willing to enter into a collaboration agreement with us. If business combinations involving potential collaborators continue to occur, our ability to find a collaborative partner could be diminished, which could result in the termination or delay in one or more of our product candidate development programs.

We will depend on collaborative arrangements to complete the development and commercialization of some of our product candidates. These collaborative arrangements may place the development of our product candidates outside of our control, may require us to relinquish important rights or may otherwise not be on terms favorable to us.

We may enter into collaborative arrangements with third parties for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our product candidates. Dependence on collaborative arrangements will subject us to a number of risks. We may not be able to control the amount and timing of resources our collaborative partners may devote to the product candidates. Our collaborative partners may experience financial difficulties. Should a collaborative partner fail to develop or commercialize a compound or product candidate to which it has rights from us, we may not receive any future milestone payments and will not receive any royalties for that compound or product candidate. Business combinations or significant changes in a collaborative partner’s business strategy may also adversely affect a partner’s willingness or ability to complete its obligations under an arrangement. If we fail to enter into additional collaborative agreements on favorable terms, our business, financial condition and results of operations could be materially adversely affected.

Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from the Nasdaq Capital Market and are unable to transfer our listing to another stock market.*

On September 19, 2008, we received a letter from the Nasdaq Listing Qualifications Department indicating that, for 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market under Nasdaq Marketplace Rule 5550(a)(2). The letter also stated that we were given 180 calendar days to regain compliance with this listing requirement, which could be accomplished if the bid price of our common stock closed at $1.00 per share or more for a minimum of 10 consecutive business days. Subsequently, Nasdaq implemented temporary suspensions of the minimum bid price requirement. Effective January 7, 2010, we transferred the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market, and we were provided an additional 180-day period to regain compliance. On April 22, 2010, we received notice from Nasdaq that we had regained compliance with the minimum bid price requirement. Subsequently, the bid price for our common stock fluctuated below the levels required by Nasdaq rules for continued listing. On July 21, 2010, we received notice from Nasdaq that the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market and that we had 180 calendar days to regain compliance. On January 19, 2011, we received a notice from Nasdaq indicating that, while we had not regained compliance with the $1.00 per share requirement, Nasdaq had determined that Telik was eligible to receive an additional 180-day period to regain compliance. On February 10, 2011, we received a notice from Nasdaq indicating that for the preceding, ten consecutive business days, the closing bid price of our common stock had been $1.00 per share or greater and, as such, we had regained compliance with the $1.00 per share minimum bid price requirement. On April 21, 2011, we received notice from Nasdaq that the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market and that we had 180 calendar days, or until October 18, 2011 to regain compliance. On October 20, 2011, we received notice from Nasdaq that we had been provided with an additional 180-day period, or until April 16, 2012, to regain compliance with the minimum $1.00 per share requirement. On March 30, 2012, we effected a 1-for-30 reverse stock split. On April 17, 2012, we received notification from Nasdaq that we had regained compliance with the minimum bid price requirement.

 

29


There is no assurance we will maintain compliance with Nasdaq listing requirements. Delisting from the Nasdaq Capital Market could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

It may be difficult for us to retain our current employees and identify, hire and retain future employees.*

Our future success depends in part upon our ability to attract and retain highly skilled personnel. Several factors could make it difficult for us to achieve this, including our current cash position and ability to continue our on-going concerns without additional capital. Competition among numerous companies, academic and other research institutions for skilled personnel and experienced scientists may be intense and turnover rates high. The cost of living in the San Francisco Bay Area is high compared to other parts of the country, which could adversely affect our ability to compete for qualified personnel and increase our costs. Because of this competitive environment, we have encountered and may continue to encounter increasing difficulty attracting qualified personnel, particularly if our operations expand and the demand for these professionals increases.

In addition, we may have difficulty attracting and retaining personnel as a result of having carried out four workforce reductions since 2007, the most recent of which was completed in November 2010. We cannot assure you that future reductions or adjustments of our workforce will not be made or that issues, such as voluntary departures by some employees, associated with such reductions will not recur. These circumstances could significantly impede the achievement of our business objectives.

If our competitors develop and market products that are more effective than our product candidates or any products that we may develop, or obtain marketing approval before we do, our commercial opportunity will be reduced or eliminated.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Some of the drugs that we are attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We face competition from pharmaceutical and biotechnology companies in the United States and abroad. Our competitors may develop new screening technologies and may utilize discovery techniques or partner with collaborators in order to develop products more rapidly or successfully than we or our collaborators are able to do.

Many of our competitors, particularly large pharmaceutical companies, have substantially greater financial, technical and human resources than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, licensing arrangements or other collaborations. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may establish exclusive collaborative or licensing relationships with our competitors.

Our competitors may succeed in developing technologies and drugs that are more effective, better tolerated or less costly than any which are being developed by us or which would render our technology and potential drugs obsolete and noncompetitive. In addition, our competitors may succeed in obtaining FDA or other regulatory approvals for product candidates more rapidly than us or our collaborators. Any drugs resulting from our research and development efforts, or from our joint efforts with our existing or future collaborative partners, may not be able to compete successfully with our competitors’ existing products or product candidates under development or may not obtain regulatory approval in the United States or elsewhere.

 

30


If we do not obtain regulatory approval to market products in the United States and foreign countries, we or our collaborators will not be permitted to commercialize our product candidates.

Even if we are able to achieve success in our preclinical testing, we, or our collaborators, must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and efficacy of our product candidates in humans before they can be approved for commercial sale. Failure to obtain regulatory approval will prevent commercialization of our product candidates.

The pharmaceutical industry is subject to stringent regulation by a wide range of regulatory authorities. We cannot predict whether regulatory clearance will be obtained for any product candidate that we are developing or hope to develop. A pharmaceutical product cannot be marketed in the United States until it has completed rigorous preclinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirements typically takes many years and depends on the type, complexity and novelty of the product candidate and requires the expenditure of substantial resources. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use.

Before commencing clinical trials in humans, we, or our collaborators, must submit and receive approval from the FDA of an IND application. We must comply with FDA “Good Laboratory Practices” regulations in our preclinical studies. Clinical trials are subject to oversight by Institutional Review Boards, or IRBs, of participating clinical sites and the FDA and:

 

   

must be conducted in conformance with the FDA regulations;

 

   

must meet requirements for IRB approval;

 

   

must meet requirements for informed consent;

 

   

must meet requirements for Good Clinical Practices;

 

   

may require large numbers of participants; and

 

   

may be suspended by us, our collaborators or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

Before receiving FDA clearance to market a product candidate, we, or our collaborators must demonstrate that the product candidate is safe and effective in the patient population that will be treated. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated, a program to be terminated and could delay approval. We typically rely on third-party clinical investigators to conduct our clinical trials and other third-party organizations to perform data collection and analysis. As a result, we may face additional delaying factors outside our control. In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy or interpretation during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval.

If regulatory clearance of a product candidate is granted, this clearance will be limited to those disease states and conditions for which the product candidate is demonstrated through clinical trials to be safe and efficacious, which could limit our market opportunity. Furthermore, product approvals, once granted, may be withdrawn if

 

31


problems occur after initial marketing. We cannot ensure that any product candidate developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance. Regulatory clearance may also contain requirements for costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. If problems occur after initial marketing, such as the discovery of previously unknown problems with our product candidates, including unanticipated adverse events or adverse events of unanticipated severity or frequency, or manufacturer or manufacturing issues, marketing approval can be withdrawn.

Outside the United States, the ability to market a product depends on receiving a marketing authorization from the appropriate regulatory authorities. Most foreign regulatory approval processes include all of the risks associated with FDA clearance described above and some may include additional risks.

As our product programs advance, we may need to hire additional scientific and management personnel. Our research and development efforts will be seriously jeopardized if we are unable to attract and retain key personnel.

Our success depends in part on the continued contributions of our principal management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, scientists and companies in the face of intense competition for such personnel. As we plan for additional advanced clinical trials, including Phase 2 and Phase 3, we may also need to expand our clinical development personnel. If we lose the services of Dr. Wick or any of our other key personnel, our research and development efforts could be seriously and adversely affected. We have generally entered into consulting or other agreements with our scientific and clinical collaborators and advisors. We do not carry key person insurance that covers Dr. Wick or any of our other key employees.

If we or our licensees cannot obtain and defend our respective intellectual property rights, or if our product candidates, technologies or any products that we may develop are found to infringe patents of third parties, we could become involved in lengthy and costly legal proceedings that could adversely affect our business.

Our success will depend in a large part on our own and our licensees’ ability to obtain and defend patents for each party’s respective technologies and the compounds and other products, if any, resulting from the application of these technologies. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. As a result, the degree of future protection for our proprietary rights is uncertain, and we cannot assure you that:

 

   

we were the first to make the inventions covered by each of our pending patent applications;

 

   

we were the first to file patent applications for these inventions;

 

   

others will not independently develop similar or alternative technologies or duplicate any of our technologies;

 

   

any of our pending patent applications will result in issued patents;

 

   

any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

 

   

any of our issued patents will be valid or enforceable; or

 

   

we will develop additional proprietary technologies that are patentable.

Accordingly, we cannot predict the breadth of claims allowed in our or other companies’ patents.

For TELINTRA, we hold compound patents in the United States and internationally that will expire in 2014. For TELCYTA, we hold compound patents in the United States and internationally that will expire in 2013 and 2014. We can generally apply for patent term extensions on the patents for TELINTRA and TELCYTA when and if marketing approvals for these compounds are obtained in the relevant countries. In foreign countries, these extensions are available only if approval is obtained before the patent expires, but in the United States, extensions are available even if approval is obtained after the patent would expire normally through a system of interim extensions until approval.

 

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Our success will also depend, in part, on our ability to operate without infringing the intellectual property rights of others. We cannot assure you that our activities will not infringe patents owned by others. To date, we have not received any communications with the owners of related patents alleging that our activities infringe their patents. However, if our product candidates, technologies or any products that we may develop are found to infringe patents issued to third parties, the manufacture, use and sale of any products that we may develop could be enjoined, and we could be required to pay substantial damages. In addition, we may be required to obtain licenses to patents or other proprietary rights of third parties. We cannot assure you that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. Failure to obtain such licenses could negatively affect our business.

Others may have filed and in the future may file patent applications covering small molecules or therapeutic products that are similar to ours. We cannot assure you that our patent applications will have priority over patent applications filed by others. Any legal action against us or our collaborators claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether we, or our collaborators, would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, and we may not be successful in any such litigation.

In addition, we could incur substantial costs and use of our key employees’ time and efforts in litigation if we are required to defend against patent suits brought by third parties or if we initiate these suits, and we cannot predict whether we would be able to prevail in any of these suits.

Furthermore, some of our patents and intellectual property rights are owned jointly by us and our collaborators. While there are legal and contractual restraints on the rights of these joint owners, they may use these patents and other intellectual property in ways that may harm our business. We may not be able to prevent this type of use.

We also rely on trade secrets to protect technology, including aspects of our TRAP technology, where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If the identity of specific proteins or other elements of our TRAP technology become known, our competitive advantage in drug discovery could be reduced.

Many of our collaborators and scientific advisors have publication and other rights to certain information and data gained from their collaborations and research with us. Any publication or other use could limit our ability to secure intellectual property rights or impair any competitive advantage that we may possess or realize by maintaining the confidentiality of that information or data.

If we are unable to enter into or maintain existing contracts with third parties to manufacture our product candidates or any products that we may develop in sufficient quantities and at an acceptable cost, clinical development of product candidates could be delayed and we may be unable to meet demand for any products that we may develop and lose potential revenue.*

We do not currently operate manufacturing facilities for clinical or commercial production of our product candidates. We expect to continue to rely on third parties for the manufacture of our product candidates and any products that we may develop. We currently lack the resources and capability to manufacture any of our product

 

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candidates on a clinical scale or any products that we may develop on a commercial scale. As a result, we will be dependent on corporate partners, licensees or other third parties for the manufacturing of clinical and commercial scale quantities of our product candidates and any products that we may develop. Our product candidates and any products that we may develop may be in competition with other product candidates and products for access to these manufacturing facilities. For this and other reasons, our collaborators or third parties may not be able to manufacture our product candidates and products in a cost effective or timely manner. While we currently possess sufficient inventory of TELINTRA that is stored in multiple locations, if this inventory is lost or damaged, the clinical development of our lead product candidate or its submission for regulatory approval could be delayed, and our ability to deliver any products that we may develop on a timely basis could be impaired or precluded.

Isochem North America LLC, or Isochem, has in the past manufactured and supplied a limited number of batches of the active ingredient to be used in the production of TELINTRA for use in clinical trials. As such, we have qualified Isochem as a potential source of supply for clinical quantities of this ingredient. In addition, Patheon Inc., or Patheon, has in the past performed formulation development and analytical services, and produced for us limited batches of clinical trial material, relating to the tablet formation of TELINTRA. As such, we have qualified Patheon as a potential manufacturer of TELINTRA tablets. However, we currently do not have in effect any manufacturing or supply agreements with either Isochem or Patheon. Although we have not qualified any other sources for the active ingredient in TELINTRA or the manufacture of TELINTRA tablets, we have evaluated, and may consider, potential alternative sources for this material in the future.

We are currently dependent on a single source of supply of the active ingredient in TELCYTA, AMRI. OSO BioPharmaceuticals Manufacturing LLC, or OSO, has in the past manufactured and supplied TELCYTA drug product for use in our clinical trials. As such, we have qualified OSO as a potential source of supply for clinical quantities of TELCYTA. However, we currently do not have in effect a manufacturing or supply agreement with OSO. Although we have not qualified any other source for TELCYTA drug product, we have evaluated, and may consider, potential alternative sources for TELCYTA in the future.

If manufacturing is not performed in a timely manner, if our suppliers fail to perform or if our relationships with our suppliers or manufacturers should terminate, our clinical trials and commercialization of TELINTRA and TELCYTA could be delayed. We may not be able to enter into or maintain any necessary third-party manufacturing arrangements on acceptable terms, if at all. Our current dependence upon others for the manufacture of our product candidates and our anticipated dependence upon others for the manufacture of any products that we may develop may adversely affect our future profit margins and our ability to commercialize any products that we may develop on a timely and competitive basis.

Working capital constraints may force us to delay our efforts to develop certain product candidates in favor of developing others, which may prevent us from commercializing all product candidates as quickly as possible.

Because we have limited resources, and because research and development is an expensive process, we must regularly assess the most efficient allocation of our research and development budget. As a result, we have had to prioritize development candidates and may not be able to fully realize the value of some of our product candidates in a timely manner, as they will be delayed in reaching the market, if at all.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates and any products that we may develop.

The testing and marketing of medical products entail an inherent risk of product liability. Although we are not aware of any historical or anticipated product liability claims or specific causes for concern, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates and any products that we may develop. In addition, product liability claims may also result in withdrawal of clinical trial volunteers, injury to our reputation and decreased

 

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demand for any products that we may commercialize. We currently carry product liability insurance that covers our clinical trials up to a $10.0 million annual aggregate limit. We will need to increase the amount of coverage if and when we have a product that is commercially available. If we are unable to obtain sufficient product liability insurance at an acceptable cost, potential product liability claims could prevent or inhibit the commercialization of any products that we may develop, alone or with corporate partners.

We have implemented anti-takeover provisions which could discourage or prevent a takeover, 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 be beneficial to our stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making 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:

 

   

establishing a classified board of directors requiring that members of the board be elected in different years, which lengthens the time needed to elect a new majority of the board;

 

   

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;

 

   

limiting the ability of stockholders to call special meetings of the stockholders;

 

   

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

 

   

establishing 90 to 120 day advance notice requirements for nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at stockholder meetings.

Substantial future sales of our common stock by us or by our existing stockholders could cause our stock price to fall.

Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, could adversely affect the market price of our common stock. Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the market price of our common stock to drop. Substantially all of our outstanding shares of common stock were freely tradable and, in limited cases, subject to certain volume, notice and manner of sale restrictions under Rule 144 of the Securities Act of 1933.

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 completed or when an application for regulatory approval will be filed. Our estimates are based on present facts 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.

 

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Our stock price may be volatile, you may not be able to resell your shares at or above your purchase price.*

Our stock prices and the market prices for securities of biotechnology companies in general have been highly volatile, with recent significant price and volume fluctuations, and may continue to be highly volatile in the future. For example, our stock price dropped by 71% on the day following the announcement in December 2006 that the preliminary top-line results of our first three Phase 3 trials did not meet primary end-points. During the nine months ended September 30, 2012, our common stock traded between $1.44 and $7.50, and on September 28, 2012, last trading day of the quarter, our common stock closed at $1.60 (all stock prices are adjusted for the 1-for-30 reverse stock split effected on March 31, 2012). You may not be able to sell your shares quickly or at the market price if we are delisted from the Nasdaq Capital Market or if we are unable to transfer our listing to another stock market, or if trading in our stock is not active or the volume is low. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock, some of which are beyond our control:

 

   

developments regarding, or the results of, our clinical trials;

 

   

announcements of technological innovations or new commercial products by our competitors or us;

 

   

the issuance of equity or debt securities of the Company, or disclosure or announcements relating thereto;

 

   

developments concerning proprietary rights, including patents;

 

   

developments concerning our collaborations;

 

   

publicity regarding actual or potential medical results relating to products under development by our competitors or us;

 

   

regulatory developments in the United States and foreign countries;

 

   

litigation;

 

   

economic and other external factors or other disaster or crisis; or

 

   

period-to-period fluctuations in our financial results.

We have been, and in the future may be, subject to securities class action lawsuits and shareholder derivative actions. These, and potential similar or related litigation, could result in substantial damages and may divert management’s time and attention from our business.

We have been, in particular between 2007 and 2008, and may in the future be, the target of securities class actions or shareholder derivative claims. Any such actions or claims could result in substantial damages and may divert management’s time and attention from our business.

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

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Item 6. Exhibits.

 

3.1    Amended and Restated Certificate of Incorporation. (1)
3.2    Certificate of Amendment to Amended and Restated Certificate of Incorporation. (2)
3.3    Amended and Restated Bylaws. (3)
4.1    Specimen Stock Certificate. (4)
4.2    Telik’s Certificate of Designation of Series A Junior Participating Preferred Stock. (5)
4.3    Telik’s Certificate of Elimination with respect to Series A Junior Participating Preferred Stock. (6)
4.4    Form of Common Stock Warrant and Warrant Certificate. (7)
31.1    Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2    Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
101.INS*    XBRL Instance Document
101.SCH*    XBRL Taxonomy Extension Schema Document
101.CAL*    XBRL Taxonomy Extension Calculation Document
101.DEF*    XBRL Taxonomy Definition Linkbase Document
101.LAB*    XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase Document

 

 * These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
(1) Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 27, 2002 (File No. 000-31265).
(2) Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated March 28, 2012, as filed on March 30, 2012 (File No. 000-31265).
(3) Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated December 11, 2007, as filed on December 14, 2007 (File No. 000-31265).
(4) Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1A filed on July 3, 2000 (File No. 333-33868).
(5) Incorporated by reference to Exhibit 4.7 to our Current Report on Form 8-K dated November 2, 2001, as filed on November 5, 2001 (File No. 000-31265).
(6) Incorporated by reference to Exhibit 3.4 to our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 27, 2012 (File No. 000-31265).
(7) Incorporated by reference to Exhibit 4.8 to our Registration Statement on Form S-3, as filed on August 8, 2011 (File No. 333-176121).

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELIK, INC.

/s/    WENDY K. WEE

Wendy K. Wee

Vice President, Finance and Controller

(Principal Financial and Accounting Officer)

Date: November 9, 2012

 

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EXHIBIT INDEX

 

3.1    Amended and Restated Certificate of Incorporation. (1)
3.2    Certificate of Amendment to Amended and Restated Certificate of Incorporation. (2)
3.3    Amended and Restated Bylaws. (3)
4.1    Specimen Stock Certificate. (4)
4.2    Telik’s Certificate of Designation of Series A Junior Participating Preferred Stock. (5)
4.3    Telik’s Certificate of Elimination with respect to Series A Junior Participating Preferred Stock. (6)
4.4    Form of Common Stock Warrant and Warrant Certificate. (7)
31.1    Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2    Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
101.INS*    XBRL Instance Document
101.SCH*    XBRL Taxonomy Extension Schema Document
101.CAL*    XBRL Taxonomy Extension Calculation Document
101.DEF*    XBRL Taxonomy Definition Linkbase Document
101.LAB*    XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase Document

 

 * These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
(1) Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 27, 2002 (File No. 000-31265).
(2) Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated March 28, 2012, as filed on March 30, 2012 (File No. 000-31265).
(3) Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated December 11, 2007, as filed on December 14, 2007 (File No. 000-31265).
(4) Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1A filed on July 3, 2000 (File No. 333-33868).
(5) Incorporated by reference to Exhibit 4.7 to our Current Report on Form 8-K dated November 2, 2001, as filed on November 5, 2001 (File No. 000-31265).
(6) Incorporated by reference to Exhibit 3.4 to our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 27, 2012 (File No. 000-31265).
(7) Incorporated by reference to Exhibit 4.8 to our Registration Statement on Form S-3, as filed on August 8, 2011 (File No. 333-176121).

 

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