Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| |
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
| |
| |
|
for the fiscal year ended December 31, 2004. |
| |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
| |
| |
|
For the transition period
from to . |
Commission file number 000-50447
Pharmion Corporation
(Exact name of Registrant as specified in its charter)
| |
|
|
Delaware
(State or other jurisdiction of
incorporation or organization) |
|
84-1521333
(I.R.S. Employer
Identification No.) |
2525 28th Street, Suite 200
Boulder, Colorado 80301
(720) 564-9100
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock $.001 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the Registrant is an accelerated
filer (as defined by Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the Registrant’s voting and
non-voting common equity held by non-affiliates as of
June 30, 2004, the last business day of the
Registrant’s most recently completed second fiscal quarter,
was approximately $830,839,767.
As of March 11, 2005, there were 31,819,131 shares of
the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement for
its 2005 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report on Form 10-K to
the extent stated therein.
TABLE OF CONTENTS
PART I
Unless the context requires otherwise, references in this
report to “Pharmion,” the “Company,”
“we,” “us,” and “our” refer to
Pharmion Corporation.
All statements, trend analysis and other information contained
in this Form 10-K and the information incorporated by
reference which are not historical in nature are forward-looking
statements within the meaning of the Private-Securities
Litigation Reform Act of 1995. These forward-looking statements
include, without limitation, discussion relative to markets for
our products and trends in revenue, gross margins and
anticipated expense levels, as well as other statements
including words such as “anticipate,”
“believe,” “plan,” “estimate,”
“expect” and “intend” and other similar
expressions. All statements regarding our expected financial
position and operating results, business strategy, financing
plans, forecast trends relating to our industry are
forward-looking statements. These forward-looking statements are
subject to business and economic risks and uncertainties, and
our actual results of operations may differ materially from
those contained in the forward-looking statements. Although we
may elect to update forward-looking statements in the future, we
specifically disclaim any obligation to do so, even if our
estimates change, and readers should not rely on those
forward-looking statements as representing our views as of any
date subsequent to the date of this annual report.
Overview
We are a global pharmaceutical company focused on acquiring,
developing and commercializing innovative products for the
treatment of hematology and oncology patients. We have
established our own regulatory, development and sales and
marketing organizations covering the U.S., Europe and Australia.
We have also developed a distributor network to cover the
hematology and oncology markets in 22 additional countries
throughout Europe, the Middle East and Asia. To date, we have
acquired the rights to four products. Thalidomide Pharmion
50mgtm
is being sold by us on a compassionate use or named patient
basis in Europe and other international markets while we pursue
marketing authorization from the European Agency for the
Evaluation of Medicinal Products, or EMEA. In May 2004,
Vidaza® was approved for marketing in the U.S. and we
commenced sales of the product in July 2004. We have filed for
approval to market Vidaza in Europe and Australia and these
submissions are under review by the respective regulatory
authorities. In addition, we sell Innohep® in the U.S. and
Refludan® in Europe and other international markets. With
our combination of regulatory, development and commercial
capabilities, we intend to continue to build a balanced
portfolio of approved and pipeline products targeting the
hematology and oncology markets. We had total sales of
$130.2 million in 2004, $25.5 million in 2003 and
$4.7 million in 2002.
Our current product portfolio consists of the following four
products:
|
|
|
| |
• |
Vidaza (azacitidine for injectable
suspension) — On May 19, 2004, we received full
approval from the U.S. Food and Drug Administration, or
FDA, to market Vidaza for the treatment of Myelodysplastic
Syndromes, or MDS, a bone marrow disorder characterized by the
production of abnormally functioning immature blood cells.
Vidaza is the first and only drug currently approved for the
treatment of MDS and is the first of a new class of drugs known
as demethylating agents to be approved. The FDA approved Vidaza
for the treatment of all MDS sub-types, including both low and
high-risk patients. We launched Vidaza for commercial sale in
the U.S. in July 2004. In September 2004 the EMEA accepted
for review our Marketing Authorization Application for Vidaza
for the treatment of MDS. In addition, we filed for approval to
market Vidaza in Australia in October 2004 and both submissions
are currently under review by the respective regulatory
authorities. We obtained worldwide rights to this product from
Pharmacia & Upjohn Company, now part of Pfizer, Inc.,
in June 2001. In 2004, sales of Vidaza were $47.1 million,
which represented approximately 36% of our total revenue
for 2004. |
| |
| |
• |
Thalidomide Pharmion 50mg and Thalidomide Laphal
(thalidomide) — Thalidomide has become a standard of
care for the treatment of relapsed and refractory multiple
myeloma, a cancer of the plasma |
1
|
|
|
| |
|
cells in the bone marrow. We have licensed the marketing rights
to thalidomide from Celgene Corporation and, in a separate
agreement, have an exclusive supply agreement for thalidomide
with Celgene UK Manufacturing II Limited (formerly known as
Penn T Limited) for all countries outside of North America and
certain Asian markets. We began selling thalidomide in Europe on
a compassionate use or named patient basis under a stringent
risk management program in the third quarter of 2003 while we
actively seek full regulatory approval for this drug in Europe
and several additional countries. Thalidomide Pharmion 50mg has
been approved as a treatment for relapsed and refractory
multiple myeloma in Australia, New Zealand, Turkey and Israel.
Although thalidomide has become a standard of care for the
treatment of relapsed/refractory multiple myeloma, these
regulatory approvals represent the first, and to date only,
regulatory approvals for this indication. In 2004, sales of
thalidomide were $65.3 million, which represented
approximately 50% of our total revenue for 2004. |
| |
| |
• |
Innohep (tinzaparin) — Innohep is a low
molecular weight heparin approved in the U.S. for the
treatment of deep vein thrombosis, or DVT, which occurs when a
blood clot develops in the deep veins of the legs. We obtained
the U.S. rights to this product from LEO Pharma A/ S, which
markets Innohep in Europe and several additional countries. We
re-launched Innohep as a treatment for DVT in cancer patients in
the fourth quarter of 2002, and used this drug to establish our
U.S. sales and marketing organization. |
| |
| |
• |
Refludan (lepirudin) — Refludan is an
anti-thrombin agent approved in the U.S., Europe and several
additional countries for the treatment of heparin-induced
thrombocytopenia, or HIT, an allergic, adverse immune response
to heparin, resulting in an absence of sufficient cell platelets
to enable blood clotting. We obtained rights to this product in
all countries outside of the U.S. and Canada from Schering AG.
We began selling Refludan in Europe and Australia in the third
quarter of 2002, and used this drug to establish our European
and Australian sales and marketing organizations. |
We were incorporated in Delaware in August 1999 and commenced
operations in January 2000. Our principal executive offices are
located at 2525 28th Street, Boulder, Colorado 80301, and our
telephone number is (720) 564-9100. Our website is located
at www.pharmion.com. The reference to our website does not
constitute incorporation by reference of the information
contained on our website into this annual report on
Form 10-K.
Our periodic and current reports, and all amendments to those
reports, are available free of charge, on our website at
www.pharmion.com, as soon as reasonably practicable after we
have electronically filed them with, or furnished them to, the
Securities and Exchange Commission.
Our Strategy
We believe that there are significant opportunities available
for a global pharmaceutical company with a focus on the
hematology and oncology markets. Our strategy for taking
advantage of these opportunities includes the following key
elements:
Focusing on the hematology and oncology markets. We focus
on the hematology and oncology markets for several reasons. The
hematology and oncology markets are characterized by a number of
disorders with high rates of recurrence and a limited response
from current therapies or treatments, many of which include
severe side effects. New hematology and oncology product
candidates addressing unmet medical needs or providing a
superior safety profile are frequently the subject of expedited
regulatory reviews and, if effective, can experience rapid
adoption rates. While the overall global hematology and oncology
markets are substantial, many drugs directed at hematology and
oncology patients treat relatively small patient populations or
subsets of patients with a specific cancer type. Because large,
multinational pharmaceutical companies are increasingly seeking
products with very large revenue potential, they often do not
devote resources to develop drugs they discover with the
potential to treat these patient populations, presenting us the
opportunity to acquire, develop and market these drugs. There
are also a large number of emerging biotechnology companies
doing research in hematology and oncology, many of which do not
have the global commercial and regulatory capabilities that we
have. We believe we can be a regional or global partner for
these companies, particularly for compounds that target smaller
patient populations. There are approximately 11,000
hematologists and
2
oncologists practicing in each of the U.S. and Europe. In
addition, a small number of opinion leaders significantly
influence the types of drugs prescribed by this group of
physicians. We believe that we can effectively reach the
hematology and oncology markets with a relatively small sales
organization focused on these physicians and opinion leaders.
Expanding and leveraging our global sales and marketing
capabilities. We believe that our U.S., European and
Australian sales and marketing organizations, combined with our
distributor network in other countries, distinguish us from
other pharmaceutical companies of our size. In each of these
markets, we have developed highly-trained sales forces that
target the hematology and oncology communities in conjunction
with medical science liaisons focused on advocate development,
educational forums, clinical development strategies and clinical
data publications. By managing the global sales and marketing of
our products on our own and with our partners, we believe we can
provide uniform marketing programs and consistent product
positioning and labeling. In addition, we seek consistent
pricing across these markets to maximize the commercial
potential of our products and reduce the risk of parallel
imports and re-importation. With the commercial launch of Vidaza
in the U.S. and increased sales of thalidomide in Europe in
2004, we have substantially increased our sales, marketing and
payer-relations organizations.
Leveraging our global regulatory expertise. We have
assembled a team of highly-experienced regulatory professionals
with multinational expertise in obtaining regulatory approvals
for new drugs and maintaining compliance with the regulations
governing the sales, marketing and distribution of
pharmaceutical products. While some early stage biotechnology
and pharmaceutical companies have developed regulatory
capabilities in the country in which they are located, we have
built an organization with multinational regulatory expertise.
We believe our regulatory experience enables us to devise time
and cost-efficient strategies to obtain regulatory approvals for
new drugs, and to choose the regulatory pathway that allows us
to get a product to market as quickly as possible. We can use
our resources efficiently to generate a regulatory submission
that can be used in multiple jurisdictions. Our global
regulatory expertise is an essential element of effectively
evaluating and developing late-stage product candidates. We
believe that this provides us with a competitive advantage in
attracting biotechnology and pharmaceutical companies with
products in development that they want to out-license.
Acquiring attractive late-stage development or approved
products. We intend to continue to acquire or in-license
rights to late-stage development and approved products to more
fully exploit our regulatory, sales and marketing capabilities
and build our product pipeline. We are focused on acquiring
products that satisfy significant unmet medical needs and that
provide us with a period of sales, regulatory or geographic
exclusivity.
3
Our Products
Our product portfolio is focused on addressing unmet needs in
the hematology and oncology markets. We believe these markets
present us with significant commercial opportunities. Our
current product portfolio consists of the following:
| |
|
|
|
|
|
|
|
|
| Product |
|
Disease/Indication |
|
Phase of Development |
|
Licensor |
|
Licensed Territory |
| |
|
|
|
|
|
|
|
|
|
Vidaza (azacitidine)
|
|
• Myelodysplastic Syndromes |
|
Approved May 19, 2004 in the U.S.; commercial launch in
July 2004. In registration in Europe and Australia.
Phase III/IV study ongoing |
|
Pfizer, Inc. |
|
Global rights |
|
Thalidomide Pharmion 50mg and Thalidomide Laphal (thalidomide)
|
|
• Relapsed and refractory multiple myeloma |
|
Approved in Australia, New Zealand, Turkey and Israel;
compassionate use and named patient sales ongoing in Europe;
Phase III study ongoing |
|
Celgene Corporation and Celgene UK Manufacturing II Limited |
|
All countries outside North America, Japan and all provinces of
China (except Hong Kong) |
| |
|
• Newly-diagnosed multiple myeloma |
|
Phase III study ongoing |
|
|
|
|
|
Innohep (tinzaparin)
|
|
• Deep vein thrombosis with or without pulmonary
embolisms |
|
Marketed |
|
LEO Pharma A/S |
|
U.S. |
|
Refludan (lepirudin)
|
|
• Heparin-induced thrombocytopenia type II |
|
Marketed |
|
Schering AG |
|
All countries outside North America |
On May 19, 2004, we received full approval from the FDA to
market Vidaza in the U.S. for the treatment of all subtypes
of MDS. Vidaza is the first and only drug currently approved for
the treatment of MDS and is the first of a new class of drugs
known as demethylating agents to be approved. The subtypes of
MDS are: refractory anemia (RA), refractory anemia with ringed
sideroblasts (RARS) (if accompanied by neutropenia or
thrombocytopenia or requiring transfusions), refractory anemia
with excess blasts (RAEB), refractory anemia with excess blasts
in transformation (RAEB-T) and chronic myelomonocytic leukemia
(CMMoL).
We launched Vidaza for commercial sale in the U.S. in July
2004. In anticipation of the launch, we expanded our
U.S. field organization from 31 to 75 employees, including
additional sales representatives, medical science liaisons,
payer relations and field based management. Since launch, we
have further increased our field organization from 75 to 85
employees. In addition, we developed appropriate materials for
mailings, educational literature and advertising in medical
journals geared to hematologists and oncologists, as well as
presentations at key industry conferences in support of the
Vidaza launch. Since we believe that securing timely
reimbursement will be critical to the commercial success of
Vidaza, we assembled a payer-relations team to work with state
Medicare carriers, state Medicaid programs and private payers to
insure that healthcare providers are promptly paid for Vidaza.
4
In June 2001, we entered into an agreement with
Pharmacia & Upjohn Company, now part of Pfizer, Inc.,
to obtain the exclusive worldwide manufacturing, marketing and
distribution rights to azacitidine, which we market under the
trademark “Vidaza.” Under the agreement with Pfizer,
we also obtained an exclusive worldwide license to use
Pfizer’s azacitidine technology and patents, including its
clinical data. Azacitidine was the subject of a completed and
published Phase III study demonstrating its safety and
efficacy in the treatment of MDS, a group of hematologic
conditions caused by abnormal blood-forming cells of the bone
marrow.
Azacitidine, a pyrimidine nucleoside analog, was originally
developed by Upjohn Corporation as a cytotoxic agent, which is
an agent that indiscriminately kills actively multiplying cells.
Azacitidine was studied at high doses as a treatment for various
malignancies, including acute myelogenous leukemia, or AML. A
New Drug Application, or NDA, was submitted by Upjohn in 1982
for the treatment of AML, but was deemed not approvable by the
FDA, due to a lack of controlled studies adequately
demonstrating clinical benefit. In addition, there were severe
side effects observed in the high dosage studies. Researchers at
the National Cancer Institute, or NCI, The Mount Sinai Medical
Center and other institutions continued to study azacitidine and
determined that it could be used effectively at much lower doses
than originally studied by Upjohn, thereby reducing the side
effects experienced in the earlier clinical studies. The results
of subsequent clinical studies suggest that azacitidine is an
effective treatment for MDS.
The recognition that azacitidine could be effective at lower
doses was based on the discovery that azacitidine acts not only
as a cytotoxic agent, but also through an additional mechanism
of action. Azacitidine is a member of a class of drugs in
development known as “hypomethylating” or
“demethylating” agents. Methylation of DNA is a major
mechanism regulating gene expression. Researchers have
determined that an increase in specific methylation of DNA
results in blockage of the activity of genes that regulate cell
division and differentiation, known as “suppressor
genes.” With suppressor genes blocked, cell division
becomes unregulated, causing cancer. In studies, researchers
have demonstrated that azacitidine can reverse the methylation
of DNA, leading to reexpression of suppressor genes and a
resulting differentiation and maturation of the cancer cells
back to normal.
MDS occurs when blood cells remain in an immature, or
“blast,” stage within the bone marrow and never
develop into mature cells capable of performing their necessary
functions. More than 80% of MDS cases occur in persons aged
60-80. According to the American Cancer Society, or ACS, the
exact number of cases of MDS in the U.S. is unknown, as
there is no registry tracking this information, but most
estimates are between 10,000 and 30,000 new cases each year.
According to the ACS, these numbers appear to be increasing each
year. Currently, we estimate there are approximately 40,000 MDS
patients throughout the U.S. with similar incidence and
prevalence rates in the E.U. According to the ACS, survival
rates range from six months to six years for the different types
of MDS. MDS can result in death from bleeding and infection in
the majority of patients, while transformation to AML occurs in
up to 40% of patients. Following transformation to AML, these
patients have an exceptionally poor prognosis. MDS may occur
without any identifiable cause, may be related to chemotherapy
or radiation therapy being administered to treat other diseases,
or may result from exposure to petrochemicals, benzene or
rubber. Prior to the availability of Vidaza, patients generally
received best supportive care, which typically consisted of a
combination of transfusions, antibiotics and growth factors,
such as erythropoietin and granulocyte colony stimulating
factor. In addition, best supportive care treatment options
included low-dose chemotherapies, if clinicians felt that their
patients could tolerate the side effects and, for patients under
60 years of age, bone marrow transplants.
Vidaza has been granted orphan product designation by the FDA
that entitles the drug to seven years of market exclusivity for
MDS in the U.S. We submitted the NDA on December 29,
2003 and received full approval from the FDA less than five
months later. Vidaza was granted priority review status by the
FDA on February 10, 2004.
The NDA submission was based upon a National Cancer
Institute-sponsored open-label, controlled Phase III study
for the treatment of MDS, conducted by Cancer and Leukemia Group
B, or CALGB, and two supportive Phase II studies conducted
by CALGB, which were also sponsored by the National Cancer
5
Institute. The results of this Phase III study were
published in the May 2002 Journal of Clinical Oncology. For the
purposes of the FDA submission, we re-collected and reanalyzed
the CALGB data.
The Phase III study examined the safety and efficacy of
Vidaza plus supportive care or supportive care alone in
191 patients with all five subtypes of MDS classified
according to the French-American-British system. Patients with
acute myelogenous leukemia were not intended to be included.
Vidaza was administered subcutaneously at a dose of
75 mg/m2
daily for seven days every four weeks. Dosage adjustments were
allowed based on response or adverse events. Patients in the
observation arm were allowed by protocol to cross over to Vidaza
if they met pre-determined criteria indicating worsening of
their condition. The primary endpoint of the study was response
rate.
Our recollected and reanalyzed CALGB data, including an
independent review showed that, of the 191 patients
included in the study, 19 had the diagnosis of AML at baseline.
These patients were excluded from the primary analysis of
response rate, although they were included in the
intent-to-treat analysis of all patients randomized. The overall
response rate, which includes both complete and partial
responses, was 15.7% in Vidaza-treated patients without AML
(16.2% for all Vidaza randomized patients including AML),
compared to zero percent in the observation group
(p<0.0001). Responses occurred in all five subtypes of MDS
as well as in patients determined to have a baseline diagnosis
of AML.
Patients responding to Vidaza had a decrease in bone marrow
blasts percentage or an increase in platelets, hemoglobin or
white blood cells. Greater than 90 percent of the
responders initially demonstrated these changes by the fifth
treatment cycle. All patients who had been transfusion dependent
became transfusion independent during complete or partial
response. The mean and median duration of clinical response for
patients experiencing complete or partial response was estimated
at 512 and 330 days, respectively. Seventy-five percent of
the responding patients were still in partial response or better
at the completion of treatment. Approximately 55% of the
observation patients crossed over to receive Vidaza treatment,
and of that crossover group, 12.8% demonstrated complete or
partial response.
The Phase II studies consisted of two multi-center,
open-label, single-arm studies. A study of 72 patients with
RAEB, RAEB-T, CMMoL or AML who were treated with subcutaneous
Vidaza demonstrated an overall response rate of 13.9%. A study
of 48 patients with RAEB, RAEB-T or AML who were treated
with intravenous Vidaza demonstrated an overall response rate of
18.8%. Response occurred in all MDS subtypes as well as in
patients with adjudicated baseline diagnosis of AML in both of
these studies.
Benefit was also seen in patients who did not meet the criteria
for partial response or better, but were considered
“improved.” About 24% of patients treated with Vidaza
were considered improved and about two-thirds of those became
transfusion independent. In the observation group, five of
83 patients met the criteria for improvement; none became
transfusion independent. In all three studies, about 19% of
patients met the criteria for improvement with a median duration
of 195 days. All three studies used similar dosing regimens
and response criteria. Response rates were similar regardless of
age or gender.
The recommended starting dose is
75 mg/m2
delivered subcutaneously, daily for seven consecutive days,
every four weeks. It is recommended that patients be treated for
a minimum of four cycles; however, complete or partial response
may require more than four cycles. Treatment may be continued as
long as the patient continues to benefit. Patients should be
monitored for hematologic response and renal toxicities, and
dosage delay or reduction may be necessary.
We have initiated a comparative Phase III/ IV clinical
trial that will examine survival and other secondary end points,
using a multi-center, randomized, open-label, parallel group
study design. The aim of this study is to compare the effect of
Vidaza plus best supportive care against conventional care
regimens plus best supportive care on survival in MDS patients.
Because this study is global in nature and MDS treatment
practices vary among countries, there are three comparative
conventional care treatments in the comparator arm of the study:
best supportive care only; low dose cytarabine plus best
supportive care; and standard chemotherapy plus best supportive
care. This design takes into account the actual
“conventional care” used to treat MDS patients in each
country targeted for trial participation and should also help to
enhance timely
6
enrollment. The study will recruit over 350 patients and
will be one of the largest studies to date in this disease. We
expect to complete enrollment of this study by the end of 2005.
The primary objective of this Phase III/ IV study is to
look at survival in these MDS patients. This study will also
assess several other relevant endpoints, such as time to
transformation to AML, time to relapse after complete remission
or partial remission, disease progression, hematological status
(peripheral blood counts, need for platelet and red blood cell
transfusions and hematological response), episodes of infections
requiring intravenous antibiotics and safety parameters.
We have also initiated an additional clinical study that will
investigate use of Vidaza with alternative dosing schedules and
we continue our Vidaza formulation development activities. The
alternative dosing study consists of two arms of fifty patients
each. One arm examines
75 mg/m2
of Vidaza in a schedule of five days on, two days off, two days
on. The other arm examines
50 mg/m2
of Vidaza in a schedule of five days on, two days off, five days
on. Our formulation development efforts are focused on improving
administration and manufacturing efficiencies, and, as a result
of these activities, potentially enhancing our intellectual
property. We have also initiated exploratory work to identify
the feasibility of developing an oral formulation of Vidaza.
In addition, a number of investigator-initiated trials
investigating the use of Vidaza in a variety of settings are
planned for 2005. Investigator-initiated clinical development
efforts are focused on MDS, AML and other hematological
malignancies as well as solid tumors. We do not control these
studies and the investigator is responsible for submitting and
maintaining an Investigational New Drug Application, or IND,
covering the clinical investigation as required by the FDA or
the equivalent regulatory applications required by foreign
regulatory authorities. Generally, we have the right to review
and use for our own business purposes clinical data generated by
these trials, however, the investigators own the study data and
may publish study data subject to our right to review any
publications prior to submission.
We expect to devote significant resources to continue the
clinical development of Vidaza in MDS as well as other potential
hematological and oncological disorders believed to be
associated with hypermethylation.
In September 2004 the EMEA accepted for review our Marketing
Authorization Application, or MAA, for Vidaza for the treatment
of MDS. We also filed for approval to market Vidaza in Australia
in October 2004. We are working with the EMEA to respond
promptly to inquiries on our MAA submission. However, the
timelines for product approval in Europe are often longer than
the corresponding approval timelines in the U.S. and, in
contrast with the U.S. regulatory process, the EMEA does
not provide applicants with a deadline on when it will render a
decision on an MAA. Furthermore, we cannot be certain that the
EMEA will approve Vidaza for marketing in Europe based on the
same data accepted by the FDA. If the EMEA requires additional
clinical data to approve Vidaza for marketing in Europe, we
believe our ongoing Phase III/ IV, if the results are
positive, could provide the required data.
The EMEA granted Vidaza Orphan Product Designation, which, if
the MAA is approved, and the criteria for orphan drug
designation continue to be met, entitles the drug to ten years
of market exclusivity from the date of the MAA’s approval
for the MDS indication in the European Union. During this period
the EMEA would be prohibited, except in very limited
circumstances, from approving another formulation of Vidaza for
the treatment of MDS.
In November 2001, we entered into agreements with Celgene
Corporation and Penn T Limited to obtain the exclusive marketing
and distribution rights to Celgene’s formulation of
thalidomide, Thalomid®, in all countries outside of North
America, Japan, China, Taiwan and Korea. Under the agreement
with Celgene, we also obtained an exclusive license in our
territory to utilize Celgene’s current and future
thalidomide-related patents, including its patented System for
Thalidomide Education and Prescribing Safety, or
S.T.E.P.S.tm
program, and its current and future thalidomide-related
dossiers, including clinical and pharmaceutical formulation
data. In October 2004, Penn T Limited was acquired by Celgene
and was renamed Celgene UK Manufacturing II Limited, or
CUK. In December 2004, we amended our agreements with Celgene
and CUK. Under the modified agreements we made a one-time
payment of $77 million in return for a substantial
7
reduction in our product supply price and royalty obligations to
Celgene and CUK. In addition, for an additional one-time payment
to Celgene of $3 million, we added Hong Kong, Korea and
Taiwan to our sales territories and eliminated a right held by
Celgene to terminate our license to market the product if
regulatory approval of thalidomide in Europe had not occurred by
November 2006. Furthermore, under our agreements with Celgene,
to further the clinical development of thalidomide, particularly
in multiple myeloma, we have also agreed to fund up to
$10 million incurred by Celgene for the conduct of
thalidomide clinical trials during 2005, 2006 and 2007.
In the second quarter of 2003, we began selling thalidomide on a
compassionate use and named patient basis in Europe while we
actively seek marketing authorizations for this drug in Europe
and several additional countries. Thalidomide Pharmion 50mg has
been approved as a treatment for relapsed and refractory
multiple myeloma and ENL in Australia, New Zealand, Turkey and
Israel. These approvals are the only regulatory approvals of
thalidomide for multiple myeloma in the world.
Since acquiring thalidomide rights from Celgene, we have
undertaken the following activities to commercialize thalidomide
in Europe and our additional markets:
|
|
|
| |
• |
Filed marketing authorization applications —
Beginning in March 2002, we submitted marketing authorization
applications to the EMEA and the Therapeutic Goods
Administration, or the TGA, in Australia and to regulatory
authorities in New Zealand, South Africa, Saudi Arabia, Turkey,
Israel, Thailand and the Philippines. We are seeking approval
for thalidomide as a treatment for relapsed and refractory
multiple myeloma and for erythema nodosum leprosum, or ENL.
Thalidomide Pharmion 50mg has been approved in Australia, New
Zealand, Turkey and Israel for these indications. In May 2004,
we withdrew our multiple myeloma applications with the EMEA, but
intend to resubmit our application with additional clinical data
from ongoing studies in relapsed/ refractory multiple myeloma
patients. This action was based on the EMEA’s stated view
that additional clinical data would be required before it can
reach an opinion on whether or not Thalidomide Pharmion 50mg
should be approved as a treatment for multiple myeloma. There
are at least two studies underway that we believe will provide
the clinical data required by the EMEA. We completed enrollment
in the first of these studies in October 2004 and we expect that
enrollment of the second study will be completed in the second
quarter of 2005. We will continue to sell thalidomide on a named
patient or compassionate use basis in Europe while we pursue a
marketing authorization for the drug. |
| |
| |
• |
Acquired Laphal Développement, S.A or
Laphal. — In March 2003, we acquired Laphal, the
only other company that has submitted a marketing authorization
application for thalidomide in Europe. In addition, Laphal was
selling its formulation of thalidomide on a compassionate use or
named patient basis in France, Belgium and Luxembourg, and we
are continuing to sell thalidomide in these markets on a
compassionate use or named patient basis. |
| |
| |
• |
Assumed CUK’s compassionate use and named patient sales
in the U.K., Ireland and Denmark — Under our
initial license agreement with CUK, CUK was permitted to
continue compassionate use and named patient sales of their
formulation of thalidomide in the U.K., Ireland and Denmark
until we received a marketing authorization from the EMEA. In
June 2003, CUK agreed to discontinue its sales of thalidomide in
these countries and we initiated sales of Thalidomide Pharmion
50mg on a compassionate use or named patient basis in these
countries. |
| |
| |
• |
Initiated compassionate use and named patient sales in
Europe — In late June 2003, we began compassionate
use and named patient sales in the markets previously served by
Grünenthal Group, the original manufacturer of thalidomide.
Through June 2003, Grünenthal distributed thalidomide free
of charge in all European markets, except for those served by
Laphal and CUK. In June 2003, Grünenthal announced that it
would no longer be providing thalidomide due to the exhaustion
of its supply and it referred healthcare professionals seeking
thalidomide supply to us. |
| |
| |
• |
Developed and implemented the Pharmion Risk Management
Program or PRMP — Given thalidomide’s history
and risk, the development of the PRMP was a critical element to
our planned commercialization of thalidomide and enrollment is
obligatory for all patients receiving the drug. |
8
|
|
|
| |
|
Shortly after our acquisition of the thalidomide rights from
Celgene in 2001, we began to develop the PRMP consistent with
Celgene’s S.T.E.P.S. This process included the development
of software and educational materials in over 20 languages
for use by physicians, pharmacists and patients throughout
Europe and our other markets. We implemented the PRMP in June
2003 in connection with the commencement of our compassionate
use and named patient sales. |
| |
| |
• |
Appointed Lipomed our Swiss and Austrian distributor and
settled patent litigation we initiated against
Lipomed — In May 2004, we appointed Lipomed AG, a
Swiss pharmaceutical company, on customary terms, as our
exclusive distributor of Thalidomide Pharmion 50mg in
Switzerland and Austria. In addition, both parties agreed to
terminate ongoing patent infringement litigation that we had
initiated against Lipomed in the fall of 2003. Under the terms
of the agreements, Lipomed exclusively distributes Thalidomide
Pharmion 50mg in Switzerland and Austria and has stopped selling
its own formulation of thalidomide in other European markets.
Lipomed also utilizes the PRMP to control the use and
distribution of thalidomide. |
Thalidomide was developed in the late 1950s as an oral,
non-barbiturate sedative and was prescribed throughout Europe
for use as a sleep aid and for the treatment of morning sickness
in pregnancy. Shortly thereafter, use of thalidomide was found
to be associated with severe birth defects and it was virtually
withdrawn from the worldwide market, without ever receiving
approval in the U.S. In 1964, thalidomide was discovered to
be effective in the treatment of ENL, which is an inflammatory
complication of leprosy. As a result, thalidomide has remained
in use as a treatment for ENL. In the 1990s, it was further
discovered to act as an anti-angiogenic agent, which is an agent
that prevents the formation of new blood vessels. Since many
types of tumors are associated with the formation of new blood
vessels, physicians began to explore thalidomide’s use as a
treatment to prevent the growth of tumor-associated blood
vessels on the theory that this would result in starvation of
the tumor.
In 1998, Celgene’s Thalomid® was approved in the
U.S. for the treatment of acute cutaneous manifestations of
moderate to severe ENL and as maintenance therapy for prevention
and suppression of cutaneous manifestation recurrences. Thalomid
was the first drug approved by the FDA under a special
“restricted distribution for safety regulation.” In
connection with FDA approval, given the known propensity of
thalidomide for causing birth defects, Celgene developed its
patented S.T.E.P.S. program, which is a comprehensive compliance
and risk management program designed to support the safe and
appropriate use of Thalomid by ensuring that women of
child-bearing potential do not come into contact with Thalomid.
While the treatment of ENL is the only currently approved
indication for thalidomide in the U.S., the drug is used
primarily in the treatment of multiple myeloma and other forms
of cancer, including: renal cell carcinoma, which is a cancer of
the kidneys; glioblastoma, which is a cancer of the brain; and
colon cancer.
Multiple myeloma is the second most common hematological cancer
after non-Hodgkin’s lymphoma. It is a cancer of the plasma
cells in the bone marrow, which is characterized by lytic bone
lesions or the production of elevated levels of M-protein, an
abnormal monoclonal antibody, in the blood or urine of patients.
The symptoms of multiple myeloma include painful bone
deterioration, bone marrow failure (anemia, leukopenia and
thrombocytopenia), plasma cell leukemia, infections, kidney
damage or failure and hyperviscosity of the blood. Although the
median age of onset of multiple myeloma is 65 to 70 years
of age, according to the Multiple Myeloma Research Foundation,
recent statistics indicate both increasing incidence and earlier
age of onset. The incidence of multiple myeloma in most western
industrialized countries is approximately four in every 100,000
persons. We estimate that there are approximately 65,000
multiple myeloma patients in the E.U., with approximately 21,000
new cases annually, and 4,000 to 5,000 multiple myeloma patients
in Australia, with approximately 800 new cases annually. While
current treatment regimens provide some therapeutic benefit,
multiple myeloma patients continue to have high rates of relapse
and suffer high mortality rates.
Thalidomide is currently being evaluated as a potential therapy
for all stages of multiple myeloma, in particular, newly
diagnosed and relapsed and refractory. Several leading
investigators at cancer research centers have published data on
the response rate, the median effective dose and the average
duration of response for multiple myeloma patients treated with
thalidomide in clinical trials.
9
|
|
|
| |
• |
Newly Diagnosed Multiple Myeloma. Peer-reviewed studies
from MD Anderson Cancer Center and the Mayo Clinic evaluating
the use of the orally administered combination of thalidomide
and dexamethasone for newly diagnosed multiple myeloma were
published in November 2002 in the Journal of Clinical
Oncology. Dr. S. Vincent Rajkumar of the Mayo Clinic
reported that 32 of 50 patients (64%) achieved a greater
than 50% reduction in M-protein, and an additional
14 patients (28%) achieved a reduction in M-protein of
between 25% and 50%. These reductions in M-protein are an
indication of a positive effect of the drug on the course of
this disease. The regimen was generally well-tolerated, and the
most commonly reported grade one or two adverse events were
constipation, sedation, fatigue, neuropathy, rash, tremor, edema
and elevated alkaline phosphatase, a kidney enzyme. Based on
this data, Celgene is sponsoring, and we are helping to fund, a
Phase III registration study to confirm the benefits of
thalidomide plus dexamethasone in newly diagnosed multiple
myeloma patients. If successful, we intend to submit this data
to the EMEA in support of an indication for Thalidomide Pharmion
50mg as a treatment for newly diagnosed multiple myeloma. |
| |
| |
• |
Relapsed and Refractory Multiple Myeloma.
Thalidomide’s effect on long-term survival in multiple
myeloma was published in Blood in July 2001 in an article
entitled “Extended Survival in Advanced and Refractory
Multiple Myeloma After Single-agent Thalidomide: Identification
of Prognostic Factors in a Phase II Study of
169 Patients.” The study is a follow-up of a
Phase II trial of 169 advanced and refractory multiple
myeloma patients with progressive disease treated with
thalidomide, and it extends results of 84 patients
previously reported in The New England Journal of
Medicine. The Phase II study was initiated to evaluate
the use of thalidomide in multiple myeloma patients who relapsed
after high dose chemotherapy. Of the study’s
169 patients, 37% demonstrated a 25% or greater reduction
in M-protein, 30% demonstrated a 50% or greater reduction and
14% of patients achieved a complete or near complete response. |
|
|
| |
The trial’s principal investigator, Bart
Barlogie, M.D., Ph.D., and researchers at the Arkansas
Cancer Research Center reported that high-risk patients who
received greater than or equal to 42 grams of thalidomide in a
three-month period experienced higher response rates (54% vs.
21%) and longer survival time (63% vs. 45%). In addition, for
the entire patient group, event-free survival after two years of
follow-up was 20%, and two year overall survival was 48%. The
study’s most commonly reported side effects included one or
more grade three toxicities, which reflect more severe side
effects. Approximately 25% of patients experienced events
affecting the central nervous system, such as sedation and
somnolence, confusion, depression and tremor. Approximately 16%
of patients experienced gastrointestinal toxicities, mainly
constipation. Neuropathy was seen in 9% of patients, and less
than 2% of patients developed deep vein thrombosis. These
toxicities were found to be dose related. |
In addition to these studies evaluating thalidomide as a therapy
for multiple myeloma, there are various Phase II studies
ongoing in respect of solid tumors, including colorectal cancer,
non-small cell lung cancer, prostate cancer, glioblastoma and
metastatic melanoma.
Despite the lack of any formal regulatory approval for
thalidomide in Europe, as a result of compassionate use and
named patient sales and the publication of articles reporting on
investigator-led clinical trials, thalidomide has become a
widely used therapy for the treatment of multiple myeloma and
certain other forms of cancer. Through mid-2003, substantially
all drug product used in Europe was distributed by four
companies. Grünenthal Group, the German company that was
the original developer of thalidomide, distributed approximately
two-thirds of the overall volume used in Europe free of charge
upon physician request through various special regulatory
authorizations. In June 2003, Grünenthal announced that due
to the exhaustion of its supply, it was discontinuing the
distribution of thalidomide. We believe that the remaining
thalidomide used in Europe during 2002 was supplied primarily by
three suppliers: CUK (then known as Penn T Limited); Laphal, the
French pharmaceutical company that we acquired in March 2003;
and Lipomed, which subsequently agreed to exclusively distribute
Thalidomide Pharmion 50mg in Switzerland and Austria and to stop
selling its own formulation of thalidomide in other European
markets. CUK, Laphal and Lipomed supplied thalidomide pursuant
to the regulatory provisions allowing for sale of unlicensed
drugs on a compassionate use or named patient basis. While the
thalidomide supplied by CUK, Laphal and Lipomed was not given
free of charge, it was sold at a significant discount to the
price charged by Celgene in the U.S.
10
We recognized that Grünenthal’s decision to
discontinue distributing thalidomide would create a large void
in the supply of thalidomide for the thousands of patients
currently being treated with the drug in Europe, Australia and
many Asian countries. We also believed that patients and medical
professionals would benefit from a more tightly controlled
distribution system for thalidomide, such as the PRMP.
Accordingly, in the fourth quarter of 2002, we began to actively
work with the regulatory authorities in each of the major
European countries to fully explain to them the benefits of the
PRMP and to obtain authorizations, where required, to allow us
to sell thalidomide on a compassionate use or named-patient
basis prior to the issuance of a formal marketing authorization.
Following negotiations with the health authorities of individual
countries, while we pursue a marketing authorization, we began
selling Thalidomide Pharmion 50mg in June 2003 on a
compassionate use and named patient basis in Europe, South
Africa and Egypt and we have made the PRMP program available in
over 20 languages. Since receiving regulatory approval to
market Thalidomide Pharmion 50mg in Australia, New Zealand,
Turkey and Israel, we have been actively marketing the product
in each of those countries.
In March 2002, working with the data packages that we had
obtained from Celgene and CUK, we submitted to the EMEA, under
its centralized procedure, two marketing authorization
applications for thalidomide for the treatment of relapsed and
refractory multiple myeloma and for ENL. In February 2003, we
withdrew our marketing authorization application for ENL to
focus our efforts with the EMEA on obtaining the marketing
authorization for relapsed and refractory multiple myeloma. This
decision was made in consultation with the EMEA, which, given
their belief that thalidomide would have widespread off-label
use in the treatment of multiple myeloma, was not comfortable
approving thalidomide for the much narrower indication of ENL,
especially given the history of thalidomide in Europe.
In May 2004, we withdrew our relapsed and refractory multiple
myeloma applications from the EMEA with the intent of
resubmitting one or more applications with additional clinical
data for relapsed/ refractory or newly diagnosed multiple
myeloma patients, or both. We made this decision following a
series of discussions with the EMEA during which it indicated
that it would require additional clinical data for thalidomide
before it can reach an opinion on whether or not the drug should
be approved as a treatment for multiple myeloma. We intend to
provide a dossier to the EMEA incorporating newly generated
clinical data on thalidomide that will reflect current practices
in the use of the drug to treat multiple myeloma.
We are focused on completing several ongoing studies with
thalidomide in patients with multiple myeloma, at least two of
which we believe could provide the significant new clinical data
required by the EMEA. The first is a study comparing survival
and additional clinical endpoints for two doses of thalidomide
in patients with relapsed/refractory multiple myeloma.
Enrollment of this 400 patient study was completed in
October 2004. The second study, currently being conducted by
Celgene in collaboration with us and with our financial support,
compares time to progression and additional clinical endpoints,
including survival, in newly diagnosed patients taking
thalidomide plus dexamethasone versus patients taking
dexamethasone alone. We expect that enrollment of this
435 patient study will be completed in the second quarter
of 2005.
We will continue to sell thalidomide in Europe on a named
patient or compassionate use basis while these studies are
completed and we pursue marketing authorization.
In addition to these EMEA regulatory approval activities, the
regulatory authorities in Australia, New Zealand, Turkey and
Israel have approved the use of Thalidomide Pharmion 50mg for
treatment of relapsed and refractory multiple myeloma and ENL.
Although thalidomide has become a standard of care for the
treatment of relapsed/refractory multiple myeloma, these
regulatory approvals represent the first, and to date only,
regulatory approvals for this indication. We have also submitted
regulatory approval applications for Thalidomide Pharmion 50mg
in Saudi Arabia, South Africa, Thailand and the Philippines.
We were granted orphan drug designation for thalidomide in
Europe by the EMEA for the multiple myeloma indication, which,
if the marketing authorization application is approved and the
criteria for orphan drug designation continue to be met, would
provide a ten year period of exclusivity from the date of the
marketing authorization application’s approval. During this
period the EMEA would be prohibited, except in very limited
circumstances, from approving another formulation of thalidomide
for treatment of relapsed and
11
refractory multiple myeloma. We were also granted orphan drug
designation for thalidomide in Australia, as well as data
exclusivity, which provides similar protection for a five year
period from the date of approval.
In March 2003, through our purchase of all of the outstanding
stock of Gophar S.A.S., we acquired Laphal, which sells its
formulation of thalidomide, known as Thalidomide Laphal, in
France and Belgium under an autorisation temporaire
d’utilisation, or ATU, which is a temporary
authorization for compassionate use sales. We are continuing to
sell Thalidomide Laphal in France and Belgium until such time as
we are permitted to replace this formulation with Thalidomide
Pharmion 50mg.
Our acquisition of Laphal, also allowed us to obtain its two
marketing authorization applications on file with the EMEA for
thalidomide. These two marketing authorization applications are
for thalidomide as a treatment for ENL and for relapsed and
refractory multiple myeloma, both of which have been granted
orphan drug status by the EMEA. We did, however, withdraw
Laphal’s relapsed and refractory multiple myeloma and ENL
applications from the EMEA at the same time as we withdrew the
Pharmion applications for those indications. Laphal had also
undertaken a number of clinical trials of thalidomide, the data
from which may be useful to us in connection with our efforts to
seek marketing approval from the EMEA.
We believe that an integral component of our applications was
and will continue to be our undertaking to develop and implement
the PRMP throughout Europe and our other markets. The PRMP
requires adherence to strict guidelines both prior to and during
the course of thalidomide therapy, including comprehensive
physician, pharmacist and patient registration and education,
emphasizing, among other things, the need for adequate
contraception in patients taking thalidomide and pregnancy tests
for female patients of child-bearing potential. Under the PRMP,
automatic prescription refills are prohibited, and prescriptions
may not exceed four weeks dosing. The PRMP also permits
authorization of each prescription only upon confirmation of
compliance with the PRMP guidelines.
We intend to work closely with the EMEA to better determine a
path to approval for thalidomide in the relapsed/refractory
multiple myeloma indication. We remain committed to gaining an
approval for thalidomide in Europe, and we believe an approval
in Europe would significantly enhance our revenue opportunity in
those markets.
Innohep, the trade name for tinzaparin, is a low molecular
weight heparin that is approved in the U.S. and 63 other
markets. In July 2002, we entered into an agreement with LEO
Pharma to obtain the exclusive U.S. marketing and
distribution rights to Innohep. Since LEO Pharma does not have a
presence in the U.S., it sought to market the product in the
U.S. through a marketing partner. It originally chose
DuPont Pharmaceuticals Company, which launched Innohep in the
U.S. in late 2000 following its approval by the FDA in June
of that year. Shortly after Innohep’s launch, DuPont’s
pharmaceutical business was acquired by Bristol Myers Squibb,
which elected to return the U.S. rights to the product back
to LEO Pharma. As a result, although the product has achieved
significant sales in Europe and elsewhere around the world,
Innohep received minimal marketing support in the
U.S. throughout 2001 and 2002.
Innohep is a member of a broad class of drugs known as
anticoagulants, which are generally prescribed to prevent or
treat blood clotting in patients. In the U.S., Innohep is
approved for the treatment of acute, symptomatic deep vein
thrombosis, or DVT, which is a subset of the overall
anticoagulant market. DVT occurs when a blood clot develops in
the deep veins of the legs. If not effectively treated, DVT can
lead to pulmonary embolisms that, in turn, can result in death.
Cancer patients are particularly at risk to develop DVT, either
from the disease itself or as a side effect of certain cancer
treatments. The estimated prevalence of DVT in cancer patients
ranges from 15-20%. Further, according to the ACS, approximately
1.3 million new cases of cancer occur in the U.S. each
year.
The acquisition of the marketing and distribution rights to
Innohep allowed us to establish our sales and marketing
organization in the U.S. in a cost-effective manner, and
provided us with access and exposure to the opinion leaders that
influence product sales in the hematology and oncology markets.
We completed the hiring
12
and training of our U.S. sales force and re-launched
Innohep in October 2002. Innohep is administered through a
subcutaneous injection once daily for at least a six day cycle.
We attribute the growth we have experienced in Innohep sales
since we began selling the product to our strategy of focusing
our marketing efforts on hematologists and oncologists, groups
often overlooked by pharmaceutical companies marketing other
anticoagulants. Hematologists and oncologists are among the top
three prescribers of DVT treatments. We believe, however, that
only a small number of the sales calls made to DVT treatment
prescribers are made to hematologists and oncologists. Innohep
does not require a dosing adjustment for weight-compromised,
elderly or renally-impaired patients. Because these are common
conditions for cancer patients, we believe that this feature,
combined with the convenience of its once per day dosing, makes
Innohep an attractive treatment choice for a cancer patient with
DVT.
Refludan, the trade name for lepirudin, is an anti-thrombin
agent for patients with heparin-induced thrombocytopenia
type II, or HIT type II. In May 2002, we entered into
an agreement with Schering AG to obtain the exclusive marketing
and distribution rights to Refludan in all markets outside of
North America. Schering AG continues to market the product in
the U.S. and Canada through its subsidiary, Berlex Laboratories,
Inc. We are currently marketing Refludan principally in Europe
and Australia.
HIT is an allergic, adverse immune response to heparin.
Generally this response occurs after two to four days of heparin
exposure, resulting in an absence of sufficient cell platelets
to enable blood clotting. HIT occurs in 2-3% of patients treated
with unfractionated heparin and 1-2% of patients treated with
low molecular weight heparins. There are two forms of HIT. The
first is relatively benign. The second, known as HIT
type II, is a more serious form with the potential for
significant impact on patient morbidity and mortality. Refludan
is prescribed for the treatment of HIT type II. Refludan is
administered through subcutaneous injection or infusion. Given
the relatively low incidence rate for HIT, we do not expect
Refludan sales to grow significantly above the current level.
In addition to adding a marketed product to our portfolio, the
acquisition of Refludan allowed us to achieve our objective of
establishing a sales and marketing organization throughout
Europe and our other non-U.S. markets. The primary target
physician audience for Refludan is hematologists. With the
planned launch of thalidomide and, later, Vidaza, it was
important that we develop our commercial organization and
establish relationships with the key prescribers of these
products. We were able to achieve that objective in Europe
through our acquisition of Refludan. Today we have sales and
marketing organizations established in each of the primary
European markets, Australia, and, through third party
distributors, in 22 additional countries throughout Europe, the
Middle East and Asia.
Sales, Marketing and Distribution
We have established sales and marketing organizations in the
U.S., Europe and Australia.
In the U.S., as of March 9, 2005, we have increased our
field based organization to 85 professionals consisting of
fifty-nine clinical account specialists, eight medical science
liaisons, five reimbursement specialists, one sales director,
three strategic account managers, three national accounts
managers and six field based managers. Each member of our field
based staff has significant experience in pharmaceutical and
oncology products sales and marketing. They target hematologists
and oncologists who prescribe high volumes of cancer therapies.
The concentration of high volume prescribers will allow us to
promote Vidaza and Innohep with a relatively small, dedicated
sales and marketing organization. The field based organization
is also supported by a medical education team that focuses on
the development, presentation and distribution of scientific and
clinical information regarding our products and the diseases
they treat.
In Europe, we employ a general manager in each of the U.K.,
France, Germany, Spain and Italy, and a general manager for the
Nordic countries. These general managers are responsible for all
commercial activities in each of their home countries, and may
also have responsibility for commercial activities in smaller
nearby countries. Each of our subsidiaries employs, in addition
to the general manager, a trained physician,
13
regulatory specialists if required by local law, sales
representatives, PRMP experts and administrative support staff.
In general, we only employ nationals in each of our local
subsidiaries. All marketing activities are centrally directed
from our U.K. office to ensure consistency across regional
markets. In addition, clinical development, regulatory affairs
and information technology functions are centrally managed from
our U.K. office. In this manner, we seek to develop globally
consistent programs but ensure that they are implemented
according to local practices. Our Australian sales and marketing
organizational structure is consistent with our European
structure. Information regarding geographic areas is included in
the notes to our consolidated financial statements included
elsewhere in this report.
In addition to our own sales organizations, we have access to
the hematology and oncology markets in 22 additional
countries through relationships with our distributors. Pursuant
to the agreements governing our relationships with our
distributors, we are prohibited from selling or marketing our
products on our own behalf in a country covered by one of these
agreements until the applicable agreement expires.
The chart below identifies the countries which are served
directly by our sales organizations and those which we access
using our third-party distribution network.
Direct Sales Countries
| |
|
|
|
|
Australia
Belgium
Denmark
Finland
France |
|
Germany
Ireland
Italy
Netherlands
Norway
Portugal |
|
Spain
Sweden
Switzerland
U.K.
U.S. |
Distribution Countries
| |
|
|
|
|
Austria
Cyprus
Egypt
Greece
Hong Kong
Israel
Jordan
Kuwait |
|
Lebanon
Malaysia
Malta
New Zealand
Oman
Saudi Arabia
Singapore |
|
South Africa
Switzerland*
Syria
Taiwan
Thailand
Turkey
United Arab Emirates |
|
|
| * |
In Switzerland, we sell Refludan directly to customers and we
sell Thalidomide Pharmion 50mg through our Swiss distributor,
Lipomed AG. |
By working closely with top scientists, physicians and
association leaders, our sales and marketing professionals are
able to create science-based marketing materials of interest to
key opinion leaders. In addition, our product acquisition
strategy has been designed to maximize the success of our sales
and marketing efforts by focusing on the acquisition of products
and product candidates that make a clinical difference to
patients in markets responsive to key opinion leaders. We intend
to seek new countries in which to promote our products and we
will continue the expansion of our sales and marketing
organization as product growth or product acquisitions warrant.
In the U.S., we sell to pharmaceutical wholesalers, who in turn
distribute product to physicians, retail pharmacies, hospitals,
and other institutional customers. In Europe and Australia, we
sell directly to retail and hospital pharmacies. Sales into
countries where we have partnered with third party distributors
are made directly to our partners. Net sales generated from our
largest three wholesale customers in the U.S. totaled
approximately 35% of our total net sales for the year ended
December 31, 2004.
14
Regulatory and Medical Affairs
Our regulatory affairs group is comprised of professionals with
experience from both large pharmaceutical companies and
biotechnology companies. The difference between an attractive
drug candidate and one which is not economically viable for
development often hinges on our assessment of the time and
expense required to get the drug approved and sold in a
particular jurisdiction. Determining the optimal regulatory
pathway for commercialization is an integral part of our product
candidate selection. We believe that our combination of
country-specific regulatory expertise and our focus on the
hematology and oncology markets provide a significant advantage
as we seek to acquire additional product candidates through
in-license or, if necessary and appropriate, through company
acquisition, and move our future product pipeline candidates, as
identified, forward through the approval process.
Collaborations and License Agreements
|
|
|
Celgene and CUK Agreements |
In 2001, we licensed rights relating to the use of thalidomide
from Celgene and separately entered into an exclusive supply
agreement for thalidomide with CUK. Under the agreements, as
amended, we obtained the right to market thalidomide in all
countries other than the United States, Canada, Mexico, Japan
and all provinces of China (except Hong Kong). More
specifically, under agreements with Celgene, as amended, we
obtained the rights in these territories to Celgene’s
formulation of thalidomide, Thalomid, exclusive licenses or
sublicenses for the intellectual property owned or licensed by
Celgene relating to thalidomide, as well as all existing and
future clinical data relating to thalidomide developed by
Celgene, and an exclusive license to employ Celgene’s
patented and proprietary S.T.E.P.S. program as our PRMP in
connection with the distribution of thalidomide in these
territories. Under agreements with CUK, as amended, CUK is our
exclusive supplier of thalidomide formulations that we sell in
certain territories licensed to us by Celgene. We pay
(i) Celgene a royalty/license fee of 8% on our net sales of
thalidomide under the terms of the license agreements, and
(ii) CUK product supply payments equal to 15.5% of our net
sales of thalidomide under the terms of the product supply
agreement. In connection with our ongoing relationship with
Celgene, and to further the clinical development of thalidomide,
particularly in multiple myeloma, we have also agreed to fund
certain amounts incurred by Celgene for the conduct of
thalidomide clinical trials. Through December 31, 2004, we
have funded $6 million of these costs and have agreed to
fund an additional $10 million of Celgene’s costs for
these studies incurred between January 1, 2005 and
December 31, 2007, payable in quarterly installments
through the end of 2007. The agreements with Celgene and CUK
each have a ten-year term running from the date of receipt of
our first regulatory approval for thalidomide in the United
Kingdom. In October 2004, Celgene acquired CUK.
We licensed worldwide exclusive rights to azacitidine from
Pharmacia & Upjohn Company, now a part of Pfizer, Inc.,
in June 2001. Under the terms of our agreement, we are obligated
to pay Pfizer a royalty of 20% on net sales of Vidaza. The
license from Pfizer has a term extending for the longer of the
last to expire of valid patent claims in any given country or
ten years from our first commercial sale of the product in a
particular country.
In July 2002, we obtained an exclusive ten year licensing
agreement from LEO Pharma A/ S to distribute Innohep in the
U.S., as well as an exclusive supply and requirements agreement
with LEO Pharma for their supply to us of Innohep. Under our
agreement with LEO Pharma, we made an up-front payment for this
license of $7.5 million, up to $2.5 million of which
is creditable against royalty payments otherwise due during the
period ending March 1, 2005. In addition, we are obligated
to pay LEO Pharma royalties at the rate of 30% on annual net
sales of up to $20.0 million and at the rate of 35% of
annual net sales exceeding $20.0 million, less in each case
our purchase price from LEO Pharma of the units of product we
sell. Furthermore, the agreement contains a minimum net sales
clause that is effective for two consecutive two-
15
year periods. If we do not achieve these minimum sales levels
for two consecutive years, we have the right to pay LEO Pharma
additional royalties up to the amount LEO Pharma would have
received had we achieved these net sales levels. If we opt not
to make the additional royalty payment, LEO Pharma has the right
to terminate the license agreement. The second of the two-year
terms will conclude on December 31, 2006.
In May 2002, we obtained the exclusive rights from Schering AG
to distribute Refludan in all countries outside of North
America. Schering produces the product for us under contract
with a third-party manufacturer and sells it to us at its
acquisition cost plus 5%. Our agreements with Schering, as
amended, transfer to us all of the marketing authorizations and
product registrations for Refludan in the individual countries
within our territory. We have paid Schering an aggregate of
$9.0 million and are obligated to make an aggregate of
$4.0 million of additional fixed payments to Schering,
payable in quarterly installments of $1.0 million through
the end of 2005. We are obligated to make up to
$7.5 million of additional payments upon the achievement of
certain milestones. We paid to Schering, in addition to our
product acquisition costs, a royalty of 8% of our net sales of
Refludan during the period through December 31, 2003 and we
pay a royalty of 14% of our net sales of Refludan thereafter.
However, when we have paid $12.0 million in royalties
measured from January 2004, the royalty rate would then be
reduced to 6%.
Manufacturing
We currently use, and expect to continue to be dependent upon,
contract manufacturers to manufacture each of our products. We
do not maintain alternative manufacturing sources for any of our
products. Our contract manufacturers and distributors are
subject to extensive governmental regulation. Regulatory
authorities in our markets require that drugs be manufactured,
packaged and labeled in conformity with Good Manufacturing
Practices, or cGMPs. We have established a quality control and
quality assurance program, including a set of standard operating
procedures and specifications, designed to ensure that our
products are manufactured in accordance with cGMPs, and other
applicable domestic and foreign regulations.
Thalidomide. We obtain our two formulations of
thalidomide from two different suppliers. Thalidomide Pharmion
50mg is formulated, encapsulated and packaged for us by CUK, of
Great Britain in a facility that is in compliance with the
regulatory standards of each of the countries where we sell and
expect to sell the product. Under the terms of our agreement
with CUK we purchase from CUK all of our requirements of the
product. Pricing is subject to an annual audit and, if
appropriate, an adjustment based upon the fully allocated cost
of manufacture. This agreement terminates upon the tenth
anniversary of the date upon which we receive regulatory
approval for thalidomide in the U.K.
Thalidomide Laphal is formulated, encapsulated and packaged for
us by Laphal Industrie, an unaffiliated company, in a facility
that is in compliance with the regulatory standards of each of
the countries where we sell and expect to sell the product.
Pricing is subject to an annual adjustment based upon a formula
that accounts for increases in the cost of manufacture. In
addition, in the event that prior to the expiration of the
agreement we decide to discontinue ordering Thalidomide Laphal
from Laphal Industrie, we are obligated to provide twelve months
advance notice and
pay €300,000
(approximately $409,000 as of December 31, 2004). If our
notice to discontinue ordering Thalidomide Laphal is not timely,
the fee may increase to as much
as €500,000
(approximately $680,000 as of December 31, 2004). This
agreement terminates in March 2013.
Vidaza. Under the terms of two development agreements,
Ash Stevens, Inc. and Ben Venue Labs provide us with clinical
supplies and manufacturing services for azacitidine. Azacitidine
drug substance is manufactured for us by Ash Stevens, who sends
the product in its raw form to Ben Venue Labs. Ben Venue Labs
then formulates the product, fills the product into vials and
labels the finished product for us. Both Ash Stevens and Ben
Venue Labs operate facilities that are in compliance with the
regulatory standards of each of the countries in which we sell
or expect to sell the product. To date, we have obtained our
commercial quantities of Vidaza from Ash Stevens and Ben Venue
under standard purchase order commitments, and we are in active
negotiations with both of these suppliers to finalize long-term
commercial supply agreements. We
16
are actively seeking back-up manufacturers for Vidaza and also
working with a number of partners in our reformulation efforts.
Innohep. Innohep is formulated and packaged for us by LEO
Pharmaceutical Products Ltd. in a facility that is in compliance
with FDA requirements. Under our agreement, we are required to
purchase our Innohep requirements exclusively from LEO. Pricing
may be adjusted annually based upon changes in the Danish Pay
Index. This agreement terminates in June 2012.
Refludan. Refludan is manufactured in a facility that
meets the standards of each of the countries where we sell and
expect to sell the product by a third-party manufacturer, who
then supplies the drug to our supplier, Schering AG. Under our
agreement, we are required to purchase our Refludan requirements
exclusively from Schering. The pricing is subject to an annual
adjustment under the existing supply agreement between Schering
and the third-party manufacturer. This agreement terminates in
2022.
Raw Materials
Raw materials and supplies are normally available in quantities
adequate to meet the needs of our business.
Government Regulation
Regulation by governmental authorities in the U.S. and other
countries is a significant factor in the manufacture and
marketing of our products and in ongoing research and product
development activities. All of our products require regulatory
approval by governmental agencies prior to commercialization. In
particular, our products are subject to rigorous preclinical and
clinical testing and other approval requirements by the FDA and
similar regulatory authorities in other countries. Various
statutes and regulations also govern or influence the
manufacturing, safety, reporting, labeling, storage, record
keeping and marketing of our products. The lengthy process of
seeking these approvals, and the subsequent compliance with
applicable statutes and regulations, require the expenditure of
substantial resources. Any failure by us to obtain, or any delay
in obtaining, regulatory approvals could harm our business.
The regulatory requirements relating to the manufacturing,
testing and marketing of our products may change from time to
time. For example, at present, member states in the E.U. are in
the process of incorporating into their domestic laws the
provisions contained in the E.U. Directive on the implementation
of good clinical practice in the conduct of clinical trials. The
Directive imposes more onerous requirements in relation to
certain aspects of clinical trial conduct than are currently in
place in many member states. This may impact our ability to
conduct clinical trials and the ability of independent
investigators to conduct their own research with support from us.
The clinical development, manufacturing and marketing of our
products are subject to regulation by various authorities in the
U.S., the E.U. and other countries, including, in the U.S., the
FDA, and, in the E.U., the EMEA. The Federal Food, Drug, and
Cosmetic Act and the Public Health Service Act in the U.S. and
numerous directives, regulations, local laws and guidelines in
the E.U. govern the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and
promotion of our products. Product development and approval
within these regulatory frameworks takes a number of years and
involves the expenditure of substantial resources.
Regulatory approval will be required in all the major markets in
which we, or our licensors, seek to test our products in
development. At a minimum, such approval requires the evaluation
of data relating to the quality, safety and efficacy of a
product for its proposed use. The specific types of data
required and the regulations relating to this data will differ
depending on the territory, the drug involved, the proposed
indication and the stage of development.
In general, new chemical entities are tested in animals until
adequate proof of safety is established. Clinical trials for new
products are typically conducted in three sequential phases that
may overlap. In Phase I,
17
the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. Phase II involves studies in a
limited patient population to determine the initial efficacy of
the pharmaceutical for specific targeted indications, to
determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. Once a compound
shows evidence of effectiveness and is found to have an
acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to more fully evaluate
clinical outcomes.
In the U.S., specific preclinical data and chemical data, as
described above, needs to be submitted to the FDA as part of an
Investigational New Drug application, or IND, which, unless the
FDA objects, will become effective 30 days following
receipt by the FDA. Phase I studies in human volunteers may
commence only after the application becomes effective. Prior
regulatory approval for human healthy volunteer studies is also
required in member states of the E.U. Currently, in each member
state of the E.U., following successful completion of
Phase I studies, data is submitted in summarized format to
the applicable regulatory authority in the member state in
respect of applications for the conduct of later Phase II
studies. The regulatory authorities in the E.U. typically have
between one and three months in which to raise any objections to
the proposed study, and they often have the right to extend this
review period at their discretion. In the U.S., following
completion of Phase I studies, further submissions to
regulatory authorities are necessary in relation to
Phase II and III studies to update the existing IND.
Authorities may require additional data before allowing the
studies to commence and could demand that the studies be
discontinued at any time if there are significant safety issues.
In addition to the regulatory review, a study involving human
subjects has to be approved by an independent body. The exact
composition and responsibilities of this body will differ from
country to country. In the U.S., for example, each study will be
conducted under the auspices of an independent Institutional
Review Board at the institution at which the study is conducted.
This board considers among other things, the design of the
study, ethical factors, the safety of the human subjects and the
possible liability risk for the institution. Equivalent rules
apply in each member state of the E.U. where one or more
independent ethics committees, which typically operate similarly
to an Institutional Review Board, will review the ethics of
conducting the proposed research. Other authorities around the
rest of the world have slightly differing requirements involving
both the execution of clinical trials and the import/export of
pharmaceutical products. It is our responsibility to ensure we
conduct our business in accordance with the regulations of each
relevant territory.
Information generated in this process is susceptible to varying
interpretations that could delay, limit or prevent regulatory
approval at any stage of the approval process. The failure to
demonstrate adequately the quality, safety and efficacy of a
therapeutic drug under development would delay or prevent
regulatory approval of the product. There can be no assurance
that if clinical trials are completed, either we or our
collaborative partners will submit applications for required
authorizations to manufacture and/or market potential products
(including a marketing authorization application, NDA or
abbreviated NDA) or that any such application will be reviewed
and approved by the appropriate regulatory authorities in a
timely manner, if at all.
In order to gain marketing approval we must submit a dossier to
the relevant authority for review, which is known in the
U.S. as an NDA and in the E.U. as a marketing authorization
application, or MAA. The format is usually specific and laid out
by each authority, although in general it will include
information on the quality of the chemistry, manufacturing and
pharmaceutical aspects of the product as well as the
non-clinical and clinical data. The FDA undertakes the review
for the U.S. In the E.U. there is, for many products, a
choice of two different authorization routes: centralized and
decentralized. Under the centralized route one marketing
authorization is granted for the entire E.U., while under the
decentralized route a series of national marketing
authorizations are granted. In the centralized system the
application will be reviewed by members of the Committee for
Medicinal Products for Human Use, or the CHMP, on behalf of the
EMEA. The EMEA will, based upon the review of the CHMP, provide
an opinion to the European Commission on the safety, quality and
efficacy of the product. The decision to grant or refuse an
authorization is made by the European Commission. In
circumstances where use of the centralized route is not
mandatory, we can choose to use the decentralized route, in
which case the application will be reviewed by one member
state’s regulatory
18
agency. If the regulatory agency grants the authorization, other
member states’ regulatory authorities are asked to
“mutually recognize” the authorization granted by the
first member state’s regulatory agency. Approval can take
several months to several years, or be denied. The approval
process can be affected by a number of factors. Additional
studies or clinical trials may be requested during the review
and may delay marketing approval and involve unbudgeted costs.
The regulatory authorities may conduct an inspection of relevant
facilities, and review manufacturing procedures, operating
systems and personnel qualifications. In addition to obtaining
approval for each product, in many cases each drug manufacturing
facility must be approved. Further inspections may occur over
the life of the product. An inspection of the clinical
investigation sites by a competent authority may be required as
part of the regulatory approval procedure. As a condition of
marketing approval, the regulatory agency may require
post-marketing surveillance to monitor for adverse effects, or
other additional studies as deemed appropriate. After approval
for the initial indication, further clinical studies are usually
necessary to gain approval for any additional indications. The
terms of any approval, including labeling content, may be more
restrictive than expected and could affect the marketability of
a product.
The FDA offers an accelerated approval procedure for certain
drugs under Subpart H of the agency’s NDA approval
regulations. Subpart H provides for accelerated NDA approval for
new drugs intended to treat serious or life-threatening diseases
where the drugs provide a meaningful therapeutic advantage over
existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and
well-controlled studies of the drug’s effect on a surrogate
endpoint that reasonably suggest clinical benefits, or on
evidence of the drug’s effect on a clinical endpoint other
than survival or irreversible morbidity. This approval is
conditioned on the favorable completion of trials to establish
and define the degree of clinical benefits to the patient. These
post-approval clinical trials, known as Phase IV trials,
would usually be underway when the product obtains this
accelerated approval. If, after approval, a Phase IV trial
establishes that the drug does not perform as expected, or if
post-approval restrictions are not adhered to or are not
adequate to ensure the safe use of the drug, or other evidence
demonstrates that the product is not safe or effective under its
conditions of use, the FDA may withdraw approval. This
accelerated approval procedure for expediting the clinical
evaluation and approval of certain drugs may shorten the drug
development process by as much as two to three years. The E.U.
rules relating to marketing authorizations permit, in
“exceptional circumstances,” the regulatory
authorities to grant a marketing authorization where the
applicant is not able to provide the usual comprehensive set of
data relating to safety and efficacy, because the targeted
disease state is rarely encountered or because there is a lack
of scientific knowledge about the disease, or because it would
be unethical to collect such data. Marketing authorizations
granted on an exceptional circumstances basis are normally
subject to the holder fulfilling certain obligations, such as
completion by the applicant of particular clinical studies.
In many markets outside of the U.S., regulations exist that
permit patients to gain access to unlicensed pharmaceuticals,
particularly for severely ill patients where other treatment
options are limited or non-existent. Generally, the supply of
pharmaceuticals under these circumstances is termed
“compassionate use” or “named patient”
supply. In the E.U., each member state has developed its own
system under an E.U. directive that permits the exemption from
traditional pharmaceutical regulation of “medicinal
products supplied in response to a bona fide unsolicited order,
formulated in accordance with specifications of an authorized
health care professional and for use by his individual patients
on his direct personal responsibility.” Essentially, two
systems operate among E.U. member states: approval can be given
for “cohort” supply, meaning more than one patient can
be supplied in accordance with an agreed treatment protocol; or,
alternatively, as is the case in the majority of E.U. member
states, supply is provided on an individual patient basis. Some
countries, such as France, have developed other systems, where
an ATU involves a thorough review and approval by the regulator
of a regulatory data package. In France, the company then
receives an approval to supply. All E.U. member states require
assurance of the quality of the product, which is usually
achieved by provision of good manufacturing practice, or GMP,
certification. In the majority of markets, the prescribing
physician is responsible for the use for the product and in some
countries the physician in conjunction with the pharmacist must
request approval from the regulator to use the unlicensed
pharmaceutical. Outside of the E.U., many countries have
developed named patient systems similar to those prevalent in
Europe.
19
The U.S., the E.U. and Australia may grant orphan drug
designation to drugs intended to treat a “rare disease or
condition,” which, in the U.S., is generally a disease or
condition that affects no more than 75 in 100,000 persons or
fewer than 200,000 individuals. In the E.U., orphan drug
designation can be granted if: the disease affects no more than
50 in 100,000 persons in the E.U. or the drug is intended for a
life-threatening, seriously debilitating or serious and chronic
condition; without incentive it is unlikely that the drug would
generate sufficient return to justify the necessary investment;
and no satisfactory method of treatment for the condition exists
or, if it does, the new drug will provide a significant benefit
to those affected by the condition. In Australia, orphan drug
designation can be granted to drugs intended to treat a disease
that affects no more than 11 in 100,000 persons or fewer than
2,000 individuals. If a product that has an orphan drug
designation subsequently receives the first regulatory approval
for the indication for which it has such designation, the
product is entitled to orphan exclusivity, meaning that the
applicable regulatory authority may not approve any other
applications to market the same drug for the same indication,
except in certain very limited circumstances, for a period of
seven years in the U.S., ten years in the E.U. and five years in
Australia. Orphan drug designation does not prevent competitors
from developing or marketing different drugs for an indication.
Orphan drug designation must be requested before submitting an
NDA or MAA. After orphan drug designation is granted, the
identity of the therapeutic agent and its potential orphan use
are publicly disclosed. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and
approval process.
Holders of an approved NDA are required to report certain
adverse reactions and production problems, if any, to the FDA,
and to comply with certain requirements concerning advertising
and promotional labeling for their products. Also, quality
control and manufacturing procedures must continue to conform to
cGMP after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with cGMP.
Accordingly, manufacturers must continue to expend time, money,
and effort in the area of production and quality control to
maintain compliance with cGMP and other aspects of regulatory
compliance. We continue to rely upon third-party manufacturers
to produce our products. We cannot be sure that those
manufacturers will remain in compliance with applicable
regulations or that future FDA inspections will not identify
compliance issues at the facilities of our contract
manufacturers that may disrupt production or distribution, or
require substantial resources to correct.
For both currently marketed and future products, failure to
comply with applicable regulatory requirements after obtaining
regulatory approval can, among other things, result in the
suspension of regulatory approval, as well as possible civil and
criminal sanctions. Renewals in Europe may require additional
data, which may result in a license being withdrawn. In the U.S.
and the E.U., regulators have the authority to revoke, suspend
or withdraw approvals of previously approved products, to
prevent companies and individuals from participating in the
drug-approval process, to request recalls, to seize violative
products and to obtain injunctions to close manufacturing plants
not operating in conformity with regulatory requirements and to
stop shipments of violative products. In addition, changes in
regulation could harm our financial condition and results of
operation.
We are also subject to various federal and state laws pertaining
to health care “fraud and abuse,” including
anti-kickback laws and false claims laws. Anti-kickback laws
make it illegal for a prescription drug manufacturer to solicit,
offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or
prescription of a particular drug. False claims laws prohibit
anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payers (including Medicare
and Medicaid) claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or
services.
As a drug marketer, we participate in the Medicaid rebate
program established by the Omnibus Budget Reconciliation Act of
1990, and under amendments of that law that became effective in
1993. Participation in this program includes requirements such
as extending comparable discounts under the Public Health
Service, or PHS, pharmaceutical pricing program. Under the
Medicaid rebate program, we pay a rebate for each unit of our
product reimbursed by Medicaid. The amount of the rebate for
each product is set by law as a
20
minimum 15.1% of the average manufacturer price, or AMP, of that
product, or if it is greater, the difference between AMP and the
best price available from us to any customer. The rebate amount
also includes an inflation adjustment if AMP increases faster
than inflation. The PHS pricing program extends discounts
comparable to the Medicaid rebate to a variety of community
health clinics and other entities that receive health services
grants from the PHS, as well as hospitals that serve a
disproportionate share of poor Medicare and Medicaid
beneficiaries. The rebate amount is recomputed each quarter
based on our reports of our current average manufacturer price
and best price for each of our products to the Health Care
Financing Administration.
As a result of the Veterans Health Care Act of 1992, federal law
requires that product prices for purchases by the Veterans
Administration, the Department of Defense, Coast Guard, and the
PHS (including the Indian Health Service) be discounted by a
minimum of 24% off the AMP to non-federal customers, the
non-federal average manufacturer price, or non-FAMP. Our
computation and report of non-FAMP is used in establishing the
price, and the accuracy of the reported non-FAMP may be audited
by the government under applicable federal procurement laws.
In addition, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 together with rulemaking by the
Centers for Medicare and Medicaid Services, or CMS, changed the
methodology for Medicare reimbursement of pharmaceutical
products administered in physician offices and hospital
outpatient facilities, including Vidaza and Innohep. Under the
new regulations, reimbursements will now be the average selling
price, or ASP, of a product plus 6%, rather than a specified
discount from the average wholesale price, or AWP, as was the
case under prior regulations. The new ASP-based reimbursement
regime generally will reduce the reimbursement physicians will
receive under Medicare for most for most office-administered
injectable drugs, including Vidaza and Innohep. Although the
actual impact of these reimbursement changes is not currently
well known, there is a risk that the new reimbursement policies
will adversely affect product use by physicians.
Under the laws of the U.S., the member states of the E.U. and
other countries, we and the institutions where we sponsor
research are subject to certain obligations to ensure the
protection of personal information of human subjects
participating in our clinical trials. We have instituted
procedures that we believe will enable us to comply with these
requirements and the contractual requirements of our data
sources. The laws and regulations in this area are evolving and
further regulation, if adopted, could affect the timing and the
cost of future clinical development activities.
We are subject to the U.S. Foreign Corrupt Practices Act
that prohibits corporations and individuals from engaging in
certain activities to obtain or retain business or to influence
a person working in an official capacity. Under this act, it is
illegal to pay, offer to pay, or authorize the payment of
anything of value to any foreign government official, government
staff member, political party, or political candidate in an
attempt to obtain or retain business or to otherwise influence a
person working in an official capacity.
Before a pharmaceutical product may be marketed and sold in
certain foreign countries the proposed pricing for the product
must be approved. The requirements governing product pricing
vary widely from country to country and can be implemented
disparately at the national level.
The E.U. generally provides options for its member states to
control the prices of medicinal products for human use. A member
state may approve a specific price for the medicinal product or
it may instead adopt a system of direct or indirect controls on
the profitability of the company placing the medicinal product
on the market. For example, the regulation of prices of
pharmaceuticals in the United Kingdom is generally designed to
provide controls on the overall profits that pharmaceutical
companies may derive from their sales to the U.K. National
Health Service. The U.K. system is generally based on
profitability targets or limits for individual companies which
are normally assessed as a return on capital employed by the
company in servicing the National Health Service market,
comparing capital employed and profits.
21
In comparison, Italy generally establishes prices for
pharmaceuticals based on a price monitoring system. The
reference price is the European average price calculated on the
basis of the prices in four reference markets: France, Spain,
Germany and the U.K. Italy typically establishes the price of
medicines belonging to the same therapeutic class on the lowest
price for a medicine belonging to that category. Spain generally
establishes the selling price for new pharmaceuticals based on
the prime cost, plus a profit margin within a range established
each year by the Spanish Commission for Economic Affairs.
Promotional and advertising costs are limited.
There can be no assurance that any country that has price
controls or reimbursement limitations for pharmaceuticals will
allow favorable reimbursement and pricing arrangements for our
products. In addition, in the U.S. there have been, and we
expect that there will continue to be, a number of federal and
state proposals to implement governmental pricing control.
|
|
|
Third Party Reimbursement |
In the U.S., E.U. and elsewhere, sales of therapeutic and other
pharmaceutical products are dependent in part on the
availability of reimbursement to the consumer from third party
payers, such as government and private insurance plans. Third
party payers are increasingly challenging the prices charged for
medical products and services. The E.U. generally provides
options for its member states to restrict the range of medicinal
products for which their national health insurance systems
provide reimbursement. Member states in the E.U. can opt to have
a “positive” or a “negative” list. A
positive list is a listing of all medicinal products covered
under the national health insurance system, whereas a negative
list designates which medicinal products are excluded from
coverage. In the E.U., the U.K. and Spain use a negative list
approach, while France uses a positive list approach. In Canada,
each province decides on reimbursement measures. In some
countries, in addition to positive and negative lists, products
may be subject to a clinical and cost effectiveness review by a
health technology assessment body. A negative determination by
such a body in relation to one of our products could affect the
prescribing of the product. For example, in the U.K., the
National Institute for Clinical Excellence, or the NICE,
provides guidance to the National Health Service on whether a
particular drug is clinically effective and cost effective.
Although presented as “guidance,” doctors are expected
to take the guidance into account when choosing a drug to
prescribe. In addition, health authorities may not make funding
available for drugs not given a positive recommendation by the
NICE. There is a risk that a negative determination by the NICE
will mean fewer prescriptions. Although the NICE will consider
drugs with orphan status, there is a degree of tension in the
application by the NICE of the standard cost assessment for
orphan drugs, which are often priced more highly to compensate
for the limited market. It is unclear whether the NICE will
adopt a more relaxed approach toward the assessment of orphan
drugs. We cannot assure you that any of our products will be
considered cost effective and that reimbursement to the consumer
will be available or will be sufficient to allow us to sell our
products on a competitive and profitable basis.
Our present and future business has been and will continue to be
subject to various other laws and regulations.
Patents and Proprietary Rights
Our success will depend in part on our ability to protect our
existing products and the products we acquire or license by
obtaining and maintaining a strong proprietary position both in
the U.S. and in other countries. To develop and maintain such a
position, we intend to continue relying upon orphan drug status,
trade secrets, know-how, continuing technological innovations
and licensing opportunities. Composition of matter patent
protection for each of our existing products has expired. We
have exclusive rights to one issued patent and two pending
European patent applications that relate to uses of thalidomide.
Patent protection for uses of thalidomide expire in February
2014. We own, or co-own with Ash Stevens, Inc., three patent
families and have exclusive rights to one additional patent
family relating to the production or formulation of Vidaza. We
have exclusive rights to a family of patents and patent
applications relating to the production of Refludan with
protection until November 2016. In addition, we intend to seek
patent protection whenever available for any products or product
candidates, in particular in conjunction with our formulation
and manufacturing process development activities, and related
technology we acquire in the future.
22
The patent positions of pharmaceutical firms like us are
generally uncertain and involve complex legal, scientific and
factual questions. In addition, the coverage claimed in a patent
application can be significantly reduced before the patent is
issued. Consequently, we do not know whether any of the products
or product candidates we acquire or license will result in the
issuance of patents or, if any patents are issued, whether they
will provide significant proprietary protection or will be
challenged, circumvented or invalidated. Because patent
applications in the U.S. and certain other jurisdictions are
maintained in secrecy until patents issue, and since publication
of discoveries in the scientific or patent literature often lags
behind actual discoveries, we cannot be certain of the priority
of inventions covered by pending patent applications. Moreover,
we may have to participate in interference proceedings declared
by the U.S. Patent and Trademark Office or a foreign patent
office to determine priority of invention, or in opposition
proceedings in a foreign patent office, either of which could
result in substantial cost to us, even if the eventual outcome
is favorable to us. There can be no assurance that the patents,
if issued, would be held valid by a court of competent
jurisdiction. An adverse outcome could subject us to significant
liabilities to third parties, require disputed rights to be
licensed from third parties or require us to cease using such
technology.
In the absence of or to supplement patent protection for our
existing products and any products or product candidates we
should acquire in the future, we have sought and intend to
continue seeking orphan drug status whenever it is available. To
date, we have been granted orphan drug status in the
U.S. for Vidaza for the MDS indication, in the E.U. for
Vidaza for the MDS indication and for Thalidomide Pharmion 50mg
for the indications multiple myeloma and ENL and in Australia
for Vidaza for the MDS indication and for Thalidomide Pharmion
50mg for the indications multiple myeloma and ENL. If a product
which has an orphan drug designation subsequently receives the
first regulatory approval for the indication for which it has
such designation, the product is entitled to orphan exclusivity,
meaning that the applicable regulatory authority may not approve
any other applications to market the same drug for the same
indication, except in certain very limited circumstances, for a
period of seven years in the U.S. and ten years in the E.U.
Orphan drug designation does not prevent competitors from
developing or marketing different drugs for an indication. See
“Government Regulation” for a more detailed
description of orphan drug status.
We also rely on trade secret protection for our confidential and
proprietary information. No assurance can be given that others
will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access
to our trade secrets or disclose such technology, or that we can
meaningfully protect our trade secrets. However, we believe that
the substantial costs and resources required to develop
technological innovations, such as the PRMP, will help us to
protect the competitive advantage of our products.
It is our policy to require our employees, consultants, outside
scientific collaborators, sponsored researchers and other
advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with us.
These agreements provide that all confidential information
developed or made known to the individual during the course of
the individual’s relationship with us is to be kept
confidential and not disclosed to third parties except in
specific circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual shall be
our exclusive property. There can be no assurance, however, that
these agreements will provide meaningful protection or adequate
remedies for our trade secrets in the event of unauthorized use
or disclosure of such information.
Competition
The development and commercialization of new drugs is
competitive and we will face competition from major
pharmaceutical companies, specialty pharmaceutical companies and
biotechnology companies worldwide. Our competitors may develop
or market products or other novel technologies that are more
effective, safer or less costly than any that have been or are
being developed by us, or may obtain regulatory approval for
their products more rapidly than we may obtain approval for ours.
The acquisition or licensing of pharmaceutical products is also
very competitive, and a number of more established companies,
which have acknowledged strategies to license or acquire
products, may have competitive advantages as may other emerging
companies taking similar or different approaches to product
23
acquisitions. In addition, a number of established
research-based pharmaceutical and biotechnology companies may
acquire products in late stages of development to augment their
internal product lines. These established companies may have a
competitive advantage over us due to their size, cash flows and
institutional experience.
Many of our competitors will have substantially greater
financial, technical and human resources than we have.
Additional mergers and acquisitions in the pharmaceutical
industry may result in even more resources being concentrated in
our competitors. Competition may increase further as a result of
advances made in the commercial applicability of technologies
and greater availability of capital for investment in these
fields. Our success will be based in part on our ability to
build and actively manage a portfolio of drugs that addresses
unmet medical needs and create value in patient therapy.
|
|
|
| |
• |
Thalidomide Pharmion 50mg. We believe that the primary
competition for Thalidomide Pharmion 50mg are
Velcadetm
from Millennium Pharmaceuticals Inc., a proteasome inhibitor,
and potentially
Revlimidtm
from Celgene, a small molecule compound that affects multiple
cellular pathways and is currently being evaluated for a wide
range of hematological cancers, including relapsed and
refractory multiple myeloma and MDS. |
| |
| |
• |
Vidaza. We believe that the primary potential future
competition for Vidaza will be
Dacogentm
from Supergen Inc., with marketing rights held by MGI Pharma,
Inc., which like Vidaza, is a demethylating agent, and
Thalomid® and Revlimid, each from Celgene. Both Dacogen and
Revlimid are currently in development and/or under review for
regulatory approval by the FDA and EMEA. In addition to these
products, there are additional products in clinical development
for the treatment of MDS and the enrollment of patients in
clinical trials for these products may reduce the number of
patients that will receive Vidaza treatment. We also face
competition for Vidaza from traditional therapies for the
treatment of MDS, including the use of blood transfusions and
growth factors. |
| |
| |
• |
Innohep. We believe that the primary competition for
Innohep are two low molecular weight heparins, Lovenox®
from Sanofi-Aventis, the top-selling low molecular weight
heparin worldwide, and Fragmin® from Pfizer, Inc., as well
as Arixtra® from GlaxoSmithKline plc, the first of a new
class of anti-thrombotic drugs which are Factor Xa inhibitors. |
| |
| |
• |
Refludan. We believe that the primary competition for
Refludan is Argatroban from GlaxoSmithKline, an anticoagulant
indicated for both the prevention and treatment of HIT. |
Clinical, Development and Regulatory Expense
In the years ended December 31, 2004, 2003 and 2002, we
incurred clinical, development and regulatory expense of
$28.4 million, $24.6 million and $15.0 million,
respectively. Since each of our four products was either already
marketed or at a late-stage of development at the time we
acquired rights to it, we have not, to date, incurred any
research expense.
Employees
As of March 9, 2005, we had 289 employees, consisting of 81
in regulatory affairs and clinical development, 141 in sales and
marketing and 67 in general and administrative. We believe that
our relations with our employees are good and we have no history
of work stoppages.
We lease approximately 29,000 square feet of space in our
headquarters in Boulder, Colorado under a lease that expires in
2008. In December 2004, we entered into an agreement to lease
approximately 26,000 square feet of office space in Windsor
in the United Kingdom. We expect to occupy that space by June
2005. The lease expires in 2010 and has a renewal option for an
additional five years. We also lease clinical development, sales
and marketing, and support offices in other parts of the U.S.
and abroad. We have no laboratory, research or manufacturing
facilities. We believe that our current facilities are adequate
for our
24
needs for the foreseeable future and that, should it be needed,
suitable additional space will be available to accommodate
expansion of our operations on commercially reasonable terms.
|
|
| Item 3. |
Legal Proceedings |
We are not engaged in any material legal proceedings.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of our security holders
through solicitation of proxies or otherwise during the fourth
quarter of the year ended December 31, 2004.
25
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity and Related
Stockholder Matters |
Market Information and Holders
Our common stock is traded on the NASDAQ National Market under
the symbol “PHRM.” Trading of our common stock
commenced on November 6, 2003, following completion of our
initial public offering. The following table sets forth, for the
periods indicated, the high and low sales prices for our common
stock as reported by the NASDAQ National Market:
| |
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$ |
15.70 |
|
|
$ |
11.00 |
|
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
24.70 |
|
|
$ |
14.72 |
|
|
Second Quarter
|
|
$ |
49.79 |
|
|
$ |
20.60 |
|
|
Third Quarter
|
|
$ |
58.49 |
|
|
$ |
40.37 |
|
|
Fourth Quarter
|
|
$ |
53.35 |
|
|
$ |
41.48 |
|
On March 11, 2005, the last reported sale price of our
common stock on the NASDAQ National Market was $32.22 per share.
American Stock Transfer and Trust Company is the transfer agent
and registrar for our common stock. As of the close of business
on March 11, 2005, we had approximately 81 holders of
record of our common stock.
Dividends
We have never paid any cash dividends on our capital stock and
do not intend to pay any such dividends in the foreseeable
future.
Securities Authorized for Issuance Under Equity Compensation
Plans
Equity Compensation Plan Information
As of December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
| |
|
|
|
|
|
Remaining Available for | |
| |
|
Number of Securities | |
|
Weighted-Average | |
|
Future Issuance Under | |
| |
|
to be Issued upon | |
|
Exercise Price of | |
|
Equity Compensation | |
| |
|
Exercise of | |
|
Outstanding Options | |
|
Plans (Excluding | |
| |
|
Outstanding Options, | |
|
Warrants and | |
|
Securities Reflected in | |
| |
|
Warrants and Rights | |
|
Rights | |
|
Column (a)) | |
| Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans approved by security holders(1)(2)
|
|
|
2,400,684 |
|
|
$ |
18.47 |
|
|
|
1,282,316 |
|
|
|
| (1) |
As of December 31, 2004, 3,258,000 shares were
reserved for issuance under our 2000 Stock Incentive Plan. This
number is subject to an automatic yearly increase pursuant to an
evergreen formula. Each year, on the date of our annual meeting
of stockholders, the amount of shares reserved for issuance
under the 2000 Stock Incentive Plan will be increased by
500,000 shares, unless our board of directors determines
that a smaller increase or no increase is necessary. |
| |
| (2) |
As of December 31, 2004, 425,000 shares were reserved
for issuance under our 2001 Non-Employee Director Stock Option
Plan. This number is subject to an automatic yearly increase
pursuant to an evergreen formula. Each year, on the date of our
annual meeting of stockholders, the amount of shares |
26
|
|
|
reserved for issuance under the 2001 Non-Employee Director Stock
Option Plan will be increased by 50,000 shares, unless our
board of directors determines that a smaller increase or no
increase is necessary. |
Recent Sales of Unregistered Securities
In June 2004, Penn Pharmaceuticals Holdings Limited, or Penn
Holdings, exercised a stock purchase warrant previously issued
by us to Penn Holdings, resulting in the issuance to Penn
Holdings of 44,026 shares of our common stock. Penn
Holdings utilized the cashless exercise option pursuant to the
warrant agreement and surrendered 16,580 shares to us as
consideration for this exercise. The issuance of these shares of
common stock were not registered under the Securities Act in
reliance upon Section 3(a)(9) under the Securities Act.
In September 2004, Celgene exercised two additional stock
purchase warrants previously issued by us to Celgene, which
resulted in the issuance to Celgene of 789,087 shares of
our common stock. We received approximately $7.6 million in
total exercise proceeds upon Celgene’s exercise of these
warrants. The issuance of these shares of common stock were not
registered under the Securities Act in reliance upon
Section 3(a)(9) under the Securities Act
Use of Proceeds from Sales of Registered Securities
On November 12, 2003, we closed the sale of
6,000,000 shares of our common stock in our initial public
offering. The registration statement on Form S-1 (Reg.
No. 333-108122) was declared effective by the SEC on
November 5, 2003. We incurred expenses in connection with
the offering of $7.8 million, which consisted of direct
payments of: (i) $1.6 million in legal, accounting and
printing fees; (ii) $5.9 million in underwriters’
discounts, fees and commissions; and (iii) $.3 million
in miscellaneous expenses. No payments for such expenses were
made directly or indirectly to (i) any of our directors,
officers or their associates, (ii) any person(s) owning 10%
or more of any class of our equity securities or (iii) any
of our affiliates. After deducting expenses of the offering, we
received net offering proceeds of approximately
$76.2 million.
From the time of receipt, November 12, 2003, through
December 31, 2004, we have used all of the net proceeds
from the offering to fund operations, the commercial launch and
clinical development of Vidaza, ongoing thalidomide clinical
development, payments to Celgene and CUK pursuant to our amended
agreements relating to Thalidomide Pharmion 50mg, capital
expenditures, working capital needs and other general corporate
purposes.
None of the net proceeds were directly or indirectly paid to
(i) any of our directors, officers or their associates,
(ii) any person(s) owning 10% or more of any class of our
equity securities or (iii) any of our affiliates.
|
|
| Item 6. |
Selected Financial Data |
We were formed in August 1999 and commenced operations in
January 2000. In the table below, we provide you with our
selected consolidated financial data which should be read in
conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and our
consolidated financial statements and the related notes
appearing elsewhere in this annual report. We have prepared this
information using our audited consolidated financial statements
for the years ended December 31, 2004, 2003, 2002, 2001 and
2000. The pro forma net loss attributable to common stockholders
per common share and shares used in computing pro forma net loss
attributable to common stockholders per common shares reflect
the conversion of all outstanding shares of our redeemable
convertible preferred stock as of January 1, 2001 or the
date of issuance, if later. The net loss per share data and pro
forma net loss per
27
share data do not include the effect of any options or warrants
outstanding as they would be anti-dilutive. For further
discussion of earnings per share, please see note 2 to our
consolidated financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003(1) | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share and per share data) | |
|
Consolidated Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$ |
130,171 |
|
|
$ |
25,539 |
|
|
$ |
4,735 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales, including royalties
|
|
|
43,635 |
|
|
|
11,462 |
|
|
|
1,575 |
|
|
|
— |
|
|
|
— |
|
| |
Clinical regulatory and development
|
|
|
28,392 |
|
|
|
24,616 |
|
|
|
15,049 |
|
|
|
6,009 |
|
|
|
972 |
|
| |
Selling, general and development
|
|
|
66,848 |
|
|
|
36,109 |
|
|
|
23,437 |
|
|
|
8,322 |
|
|
|
3,664 |
|
| |
Product rights amortization
|
|
|
3,395 |
|
|
|
1,972 |
|
|
|
375 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
142,270 |
|
|
|
74,159 |
|
|
|
40,436 |
|
|
|
14,331 |
|
|
|
4,636 |
|
|
Loss from operations
|
|
|
(12,099 |
) |
|
|
(48,620 |
) |
|
|
(35,701 |
) |
|
|
(14,331 |
) |
|
|
(4,636 |
) |
|
Other income (expense) net
|
|
|
2,415 |
|
|
|
(154 |
) |
|
|
1,109 |
|
|
|
621 |
|
|
|
190 |
|
|
Loss before taxes
|
|
|
(9,684 |
) |
|
|
(48,774 |
) |
|
|
(34,592 |
) |
|
|
(13,710 |
) |
|
|
(4,446 |
) |
|
Income tax expense
|
|
|
7,853 |
|
|
|
1,285 |
|
|
|
105 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(17,537 |
) |
|
|
(50,059 |
) |
|
|
(34,697 |
) |
|
|
(13,710 |
) |
|
|
(4,446 |
) |
|
Accretion to redemption value of redeemable convertible
preferred stock
|
|
|
— |
|
|
|
(10,091 |
) |
|
|
(8,576 |
) |
|
|
(2,458 |
) |
|
|
(409 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$ |
(17,537 |
) |
|
$ |
(60,150 |
) |
|
$ |
(43,273 |
) |
|
$ |
(16,168 |
) |
|
$ |
(4,855 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per common share,
basic and diluted
|
|
|
(0.63 |
) |
|
|
(14.70 |
) |
|
|
(57.58 |
) |
|
|
(23.99 |
) |
|
|
(7.28 |
) |
|
Shares used in computing net loss attributable to common
stockholders per common share, basic and diluted
|
|
|
27,933,202 |
|
|
|
4,093,067 |
|
|
|
751,525 |
|
|
|
673,822 |
|
|
|
667,000 |
|
|
Pro forma net loss attributable to common stockholders per
common share, assuming conversion of preferred stock, basic and
diluted (unaudited)
|
|
|
|
|
|
|
(2.66 |
) |
|
|
(2.47 |
) |
|
|
(2.26 |
) |
|
|
|
|
|
Shares used in computing pro forma net loss attributable to
common stockholders per common share, assuming conversion of
preferred stock basic and diluted
|
|
|
|
|
|
|
18,791,015 |
|
|
|
14,072,707 |
|
|
|
6,060,284 |
|
|
|
|
|
28
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003(1) | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
245,543 |
|
|
$ |
88,542 |
|
|
$ |
62,604 |
|
|
$ |
68,444 |
|
|
$ |
5,317 |
|
|
Working capital
|
|
|
233,366 |
|
|
|
86,539 |
|
|
|
60,891 |
|
|
|
66,568 |
|
|
|
4,966 |
|
|
Total assets
|
|
|
411,230 |
|
|
|
145,473 |
|
|
|
80,847 |
|
|
|
70,278 |
|
|
|
6,055 |
|
|
Convertible notes
|
|
|
— |
|
|
|
13,374 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other long-term liabilities
|
|
|
3,824 |
|
|
|
8,144 |
|
|
|
190 |
|
|
|
— |
|
|
|
— |
|
|
Redeemable convertible preferred stock
|
|
|
— |
|
|
|
— |
|
|
|
135,987 |
|
|
|
87,790 |
|
|
|
10,312 |
|
|
Accumulated deficit
|
|
|
(138,096 |
) |
|
|
(120,559 |
) |
|
|
(62,950 |
) |
|
|
(19,697 |
) |
|
|
(4,590 |
) |
|
Total stockholders’ equity (deficit)
|
|
|
351,953 |
|
|
|
104,914 |
|
|
|
(62,216 |
) |
|
|
(19,783 |
) |
|
|
(4,709 |
) |
|
|
| (1) |
We acquired Laphal Developement S.A. on March 25, 2003 and
its operations are included in our results since that date. |
| |
| (2) |
In November 2003 we completed our initial public offering, which
resulted in $76.2 million of net proceeds through the
issuance of 6,000,000 shares of common stock. Concurrent
with effective date of the initial public offering, all
outstanding shares of our redeemable convertible preferred stock
were converted into 17,030,956 shares of our common stock. |
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion should be read in conjunction with the
financial statements and the related notes that appear elsewhere
in this document.
Overview
We are a global pharmaceutical company focused on acquiring,
developing and commercializing innovative products for the
treatment of hematology and oncology patients. We have
established our own regulatory, development and sales and
marketing organizations covering the U.S., Europe and Australia.
We have also developed a distributor network to cover the
hematology and oncology markets in 22 additional countries
throughout Europe, the Middle East and Asia. To date, we have
acquired the rights to four products. Thalidomide Pharmion
50mgtm
is being sold by us on a compassionate use or named patient
basis in Europe and other international markets while we pursue
marketing authorization from the European Agency for the
Evaluation of Medicinal Products, or EMEA. In May 2004,
Vidaza® was approved for marketing in the U.S. and we
commenced sales of the product in July 2004. We have filed for
approval to market Vidaza in Europe and Australia and these
submissions are under review by the respective regulatory
authorities. In addition, we sell Innohep® in the U.S. and
Refludan® in Europe and other international markets. With
our combination of regulatory, development and commercial
capabilities, we intend to continue to build a balanced
portfolio of approved and pipeline products targeting the
hematology and oncology markets. We had total sales of
$130.2 million in 2004, $25.5 million in 2003 and
$4.7 million in 2002.
Critical Accounting Policies
We sell our products to wholesale distributors and directly to
hospitals, clinics, and retail pharmacies. Revenue from product
sales is recognized when ownership of the product is transferred
to our customer, the sales price is fixed and determinable, and
collectibility is reasonably assured. Within the U.S. and
certain foreign countries revenue is recognized upon shipment
(freight on board shipping point) since title passes and the
customers have assumed the risks and rewards of ownership. In
certain other foreign countries it is common practice that
ownership transfers upon receiving the product and, accordingly,
in these circumstances revenue is recognized upon delivery
(freight on board destination) when title effectively transfers.
29
We report revenue net of allowances for distributor chargebacks,
product returns, rebates, and prompt-pay discounts. Significant
estimates are required in determining such allowances and are
based on historical data, industry information, and information
from customers. If actual results are different from our
estimates, we adjust the allowances in the period the difference
becomes apparent.
Certain governmental health insurance providers as well as
hospitals and clinics that are members of group purchasing
organizations may be entitled to price discounts and rebates on
our products used by those organizations and their patients.
When we record sales, we estimate the likelihood that products
sold to wholesale distributors will ultimately be subject to a
rebate or price discount and book our sales net of estimated
discounts. This estimate is based on historical trends and
industry data on the utilization of our products.
Inventories are stated at the lower of cost or market, cost
being determined under the first-in, first-out method. We
periodically review inventories and items considered outdated or
obsolete are reduced to their estimated net realizable value. We
estimate reserves for excess and obsolete inventories based on
inventory levels on hand, future purchase commitments, product
expiration dates and current and forecasted product demand. If
an estimate of future product demand suggests that inventory
levels are excessive, then inventories are reduced to their
estimated net realizable value. For the years ended
December 31, 2004 and 2003, we reduced the estimated net
realizable value of obsolete and short-dated inventory by
$1.4 million and $1.8 million, respectively.
Our long-lived assets consist primarily of product rights and
property and equipment. In accordance with Statement of
Financial Accounting Standards No. 144
(“SFAS No. 144”), Accounting for the
Impairment or Disposal of Long-Lived Assets, we evaluate our
ability to recover the carrying value of long-lived assets used
in our business, considering changes in the business environment
or other facts and circumstances that suggest their value may be
impaired. If this evaluation indicates the carrying value will
not be recoverable, based on the undiscounted expected future
cash flows estimated to be generated by these assets, we reduce
the carrying amount to the estimated fair value. The process of
calculating the expected future cash flows involves estimating
future events and trends such as sales, cost of sales, operating
expenses and income taxes. The actual results of any of these
factors could be materially different than what we estimate. The
net value of our product rights and property and equipment was
$112.8 million and $35.7 million at December 31,
2004 and 2003, respectively.
We completed a business acquisition in 2003 that resulted in the
creation of goodwill. In accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets,” we do
not amortize goodwill. SFAS No. 142 requires us to
perform an impairment review of goodwill at least annually. If
it is determined that the value of goodwill is impaired, we will
record the impairment charge in the statement of operations in
the period it is discovered. The process of reviewing for
impairment of goodwill is similar to that of long-lived assets
in that expected future cash flows are calculated using
estimated future events and trends such as sales, cost of sales,
operating expenses and income taxes. The actual results of any
of these factors could be materially different than what we
estimate. The net value of our goodwill was $9.4 million
and $3.7 million at December 31, 2004 and 2003,
respectively.
Recently Issued Accounting Standards
|
|
|
Accounting for Stock-Based Compensation |
On December 16, 2004, the Financial Accounting Standards
Board issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends
30
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative.
See Note 2, Summary of Significant Accounting
Policies — Accounting for Stock-Based
Compensation, of Notes to Consolidated Financial Statements
for our presentation of net income and earnings per share
assuming we had applied the fair value recognition provisions of
the earlier version of SFAS No. 123 to our stock-based
employee compensation.
SFAS No. 123(R) must be adopted no later than
July 1, 2005. Early adoption will be permitted in periods
in which financial statements have not yet been issued. We
expect to adopt SFAS No. 123(R) on July 1, 2005.
SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
| |
• |
A “modified prospective” method in which compensation
cost is recognized beginning with the effective date
(a) based on the requirements of SFAS No. 123(R)
for all share-based payments granted after the effective date
and (b) based on the requirements of SFAS No. 123
for all rewards granted to employees prior to the effective date
of SFAS No. 123(R) that remain unvested on the
effective date; or |
| |
| |
• |
A “modified retrospective” method which includes the
requirements of the modified prospective method described above,
but also permits entities to restate based on the amounts
previously recognized under SFAS 123 for purposes of pro
forma disclosures either (a) all prior periods or
(b) prior interim periods of the year of adoption. |
We are still evaluating which method we will adopt on
July 1, 2005.
Results of Operations
|
|
|
Comparison of Years Ended December 31, 2004, 2003 and
2002 |
Net Sales. Net sales for the years ended
December 31, 2004, 2003 and 2002 were as follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Net Sales — U.S.
|
|
$ |
55,642 |
|
|
$ |
3,751 |
|
|
$ |
2,100 |
|
|
Net Sales — Europe and other countries
|
|
$ |
74,529 |
|
|
$ |
21,788 |
|
|
$ |
2,635 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$ |
130,171 |
|
|
$ |
25,539 |
|
|
$ |
4,735 |
|
|
Increase from prior year
|
|
$ |
104,632 |
|
|
$ |
20,804 |
|
|
|
n/a |
|
|
% Change from prior year
|
|
|
409.7 |
% |
|
|
439.4 |
% |
|
|
n/a |
|
The increase in sales for the year ended December 31, 2004
as compared to 2003 is due primarily to the launch of Vidaza in
the U.S. on July 1, 2004 as well as growth in
compassionate use and named patient sales of thalidomide in
Europe and other international markets. Vidaza sales for 2004
totaled $47.1 million. Thalidomide sales totaled
$65.3 million in 2004, compared to $15.6 million in
2003. We began selling thalidomide on a compassionate use or
named patient basis in France and Belgium in April 2003
following our acquisition of Gophar S.A.S., the parent company
of Laphal. In July 2003, we began selling thalidomide in
additional countries in Europe and other international markets.
The growth in thalidomide sales experienced in 2004 is due both
to increased volume of product sold as well as an increase in
the average selling price of thalidomide in certain markets. The
increase in net sales for the year ended December 31, 2003
as compared to 2002 is largely due to the initiation of
thalidomide sales. In addition, sales of Innohep and Refludan in
2003 increased by $4.7 million as those products were sold
only for a partial year in 2002.
Net sales in 2002 were generated by Innohep and Refludan, both
of which we began selling in the second half of the year. The
combined sales of these products and other orphan products
acquired as part of our 2003 acquisition of Laphal totaled
$9.9 million in 2003 and $17.8 million in 2004.
31
Cost of Sales. Cost of sales includes the cost of product
sold, royalties due on the sales of our products and the
distribution and logistics costs related to selling our
products. Cost of sales for the years ended December 31,
2004, 2003 and 2002 were as follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of Sales
|
|
$ |
43,635 |
|
|
$ |
11,462 |
|
|
$ |
1,575 |
|
|
Increase from prior year
|
|
$ |
32,173 |
|
|
$ |
9,887 |
|
|
$ |
n/a |
|
|
% Change from prior year
|
|
|
280.7 |
% |
|
|
627.7 |
% |
|
|
n/a |
|
|
As a % of net sales
|
|
|
33.5 |
% |
|
|
44.9 |
% |
|
|
33.3 |
% |
The increase in cost of sales in 2004 and 2003 over the
predecessor year is attributable to the increase in sales for
those years. The decrease in cost of sales as a percentage of
net sales experienced in 2004 as compared to 2003 is largely due
to charges totaling $2.1 million recorded in 2003 relating
to Refludan product inventory. These charges increased cost of
sales as a percentage of net sales by approximately
8 percentage points. The launch of Vidaza in 2004 also
improved the overall gross margin as compared to 2003, reducing
2004 cost of sales as a percentage of net sales by approximately
4 percentage points as the Vidaza gross margin is higher
than that of our other products on a combined basis.
Clinical, development and regulatory expenses. Clinical,
development and regulatory expenses generally consist of
regulatory, clinical and manufacturing development, and medical
and safety monitoring costs for both products in development as
well as products being sold. Clinical, development and
regulatory expenses for the years ended December 31, 2004,
2003 and 2002 were as follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Clinical, development and regulatory expenses
|
|
$ |
28,392 |
|
|
$ |
24,616 |
|
|
$ |
15,049 |
|
|
Increase from prior year
|
|
$ |
3,776 |
|
|
$ |
9,567 |
|
|
|
n/a |
|
|
% Change from prior year
|
|
|
15.3 |
% |
|
|
63.6 |
% |
|
|
n/a |
|
Clinical, development and regulatory expenses for the year ended
December 31, 2004 increased by $3.8 million over 2003.
This increase was due primarily to a $3.0 million increase
in medical safety and monitoring costs associated with the
selling of our products, including expanded staffing to support
the growth in sales of thalidomide as well as the
U.S. launch of Vidaza. Clinical and regulatory expenses
increased by $2.1 million in 2004 as compared to 2003. This
increase was primarily related to a $2.3 million increase
in personnel related costs as we expanded staffing to support
the regulatory and clinical development activities of
thalidomide and Vidaza, including the pursuit of European
marketing authorization approvals for those products. In
addition we incurred a net cost of $1.1 million in 2004 for
the settlement of a patent infringement suit filed by us against
Lipomed, AG. These increases in clinical and regulatory expenses
were partially offset by $1.3 million decline in clinical
development expenses for Vidaza and thalidomide in 2004, due
primarily to the completion of clinical data analysis in 2003 to
support the submission of the Vidaza new drug approval
application filed with the FDA in the fourth quarter of 2003.
Finally, manufacturing development expenses declined by
$1.3 million in 2004 due to the completion in 2003 of
Vidaza manufacturing development activities required for the
submission of the New Drug Application for Vidaza.
Clinical, development and regulatory expenses increased by
$9.6 million during the year ended December 31, 2003
as compared to 2002. In 2003 we spent approximately
$16.8 million on Vidaza and thalidomide development,
primarily for clinical programs, analysis of data from
previously completed Phase III studies, manufacturing and
formulation development, pursuing regulatory authorizations to
sell thalidomide in Europe on a compassionate use and named
patient basis, and establishing a medical safety, education and
distribution system to support our thalidomide sales. This
represented an increase of $5.8 million over product
development expenses in 2002. The remainder of the
$9.6 million increase was due to increased salaries and
benefits expenses and other non-product specific costs.
Due to the significant risks and uncertainties inherent in the
clinical development and regulatory approval processes, the cost
to complete projects in development is not reasonably estimable.
Results from clinical trials
32
may not be favorable. Further, data from clinical trials is
subject to varying interpretation, and may be deemed
insufficient by the regulatory bodies reviewing applications for
marketing approvals. As such, clinical development and
regulatory programs are subject to risks and changes that may
significantly impact cost projections and timelines.
Selling, general and administrative expenses. Selling
expenses include salaries and benefits for sales and marketing
personnel, advertising and promotional programs, professional
education programs and facility costs for our sales offices
located throughout Europe, and in Thailand and Australia.
General and administrative expenses include personnel related
costs for corporate staff, outside legal, tax and auditing
services, and corporate facility and insurance costs. Selling,
general and administrative expenses for the years ended
December 31, 2004, 2003 and 2002 were as follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Selling, general and administrative expenses
|
|
$ |
66,848 |
|
|
$ |
36,108 |
|
|
$ |
23,436 |
|
|
Increase from prior year
|
|
$ |
30,740 |
|
|
$ |
12,672 |
|
|
|
n/a |
|
|
% Change from prior year
|
|
|
85.1 |
% |
|
|
54.1 |
% |
|
|
n/a |
|
Selling, general and administrative expenses have increased
significantly over the three years ended December 31, 2004
as we established our commercial organizations in the U.S.,
Europe, Australia and Thailand to support the selling of our
products in these markets. Our general and administrative
functions also expanded over this period to support the growth
of our business and the additional requirements of becoming a
publicly held company.
Sales and marketing expenses totaled $46.8 million for the
year ended December 31, 2004, an increase of
$26.0 million over 2003. Generally, this increase is due to
expansion of our commercial organization and sales and marketing
activities in the U.S. and our European and other international
markets to support the U.S. launch of Vidaza and the
significant growth in thalidomide sales. Field sales and sales
management expenses in the U.S. increased by
$10.7 million in 2004 due to the expansion of our sales
organization to support the launch of Vidaza. We increased our
U.S. field-based organization from approximately 30
employees to 75 employees during 2004. Other U.S. selling
expenses also increased in connection with the Vidaza launch.
European and international field sales and sales management
expenses increased by $5.7 million in 2004. We began
selling thalidomide in Europe on a compassionate use or named
patient basis in mid-2003. The sales expense growth in 2004
reflects having these costs for a full year in 2004 as well as
increased selling activities to support the sales growth of
thalidomide. Marketing expenses increased by $9.6 million
in 2004, due primarily to the U.S. launch of Vidaza and
increased activities to support the sales growth of thalidomide.
Product marketing costs increased by $7.5 million while
non-product specific costs, such as personnel costs and travel,
increased by $2.1 million.
Sales and marketing expenses totaled $20.8 million for
2003, an increase of $9.7 million over 2002. In the second
half of 2002 and the first half of 2003, following the
in-licensing of Refludan and Innohep, we began establishing our
sales organizations in the U.S., Europe, and Australia and
expanded our marketing staffing to support the commercialization
of these products. This resulted in a $9.5 million increase
in personnel related expenses, including salaries, benefits and
travel, for the year ended December 2003 over 2002. Significant
product marketing costs totaling $5.4 million were incurred
to launch Refludan and Innohep in 2002, resulting in only a
slight increase of $.2 million to product specific
marketing costs in 2003.
General and administrative expenses totaled $20.0 million
for the year ended December 31, 2004, an increase of
$4.7 million over the prior year. This increase is
primarily due to increased costs associated with becoming a
public company with the completion of our initial public
offering in November 2003. Professional fees, including legal,
accounting, tax and Sarbanes-Oxley implementation consulting,
increased by $2.5 million during 2004. Directors and
officers liability insurance premiums increased by
$.6 million in 2004 and the establishment of our investor
relations function increased 2004 expenses by $.4 million.
In addition, business development costs increased by
$.8 million in 2004 as we significantly increased our
activities associated with identifying potential product
licensing and acquisition candidates.
33
General and administrative expenses totaled $15.3 million
for the year ended December 31, 2003, an increase of
$3.0 million over 2002. This increase was due primarily to
increased salaries, benefits and travel costs resulting from
personnel hired to expand our corporate infrastructure and to
support the additional responsibilities of becoming a public
company. Of the $3.0 million increase, $1.9 million
relates to facility and depreciation expenses, $.7 million
to corporate staffing to support our business growth,
$.8 million to insurance costs, partially offset by a
decrease of $.4 million in other corporate expenses.
Product rights amortization. Product rights amortization
expense for the years ended December 31, 2004, 2003 and
2002 was as follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Product rights amortization
|
|
$ |
3,396 |
|
|
$ |
1,972 |
|
|
$ |
375 |
|
|
Increase from prior year
|
|
$ |
1,424 |
|
|
$ |
1,597 |
|
|
|
n/a |
|
|
% Change from prior year
|
|
|
72.2 |
% |
|
|
425.9 |
% |
|
|
n/a |
|
The increase in amortization expense in 2004 as compared to 2003
is due primarily to having a full year of amortization of
product rights acquired through the purchase of Laphal
Developement in April 2003. In addition, the August 2003
renegotiation of the financial terms of the Refludan product
rights resulted in an increase to the value of the capitalized
product rights and increased the related amortization expense
for all of 2004 compared to only 5 months of 2003. The
increase in 2003 is due primarily to the amortization of product
rights acquired through the 2003 acquisition of Laphal and the
renegotiation of the financial terms of the Refludan rights in
August 2003.
Interest and other income (expense), net. Interest and
other income (expense), net, totaled $2.4 million for the
year ended December 31, 2004, an increase of
$2.6 million over 2003. This increase is due primarily to
increased interest income from higher balances of cash, cash
equivalents and short-term investments resulting from the equity
offerings completed in November 2003 and July 2004. In addition,
in March 2004 $14 million of 6% convertible notes,
originally issued in April 2003, were converted into shares of
our common stock, thereby eliminating the interest expense
associated with those notes. Interest and other income
(expense), net totaled $(.2) for the year ended
December 31, 2003, a decrease of $1.3 million as
compared to the year ended December 31, 2002. This net
decrease is primarily due to higher interest expense in 2003
related to the $14 million 6% convertible notes issued
in April 2003.
Income tax expense. Income tax expense totaled
$7.9 million for the year ended December 31, 2004 as
compared to $1.3 million for the year ended
December 31, 2003 and $.1 million for the year ended
December 31, 2002. Although we have incurred pre-tax losses
on a consolidated basis, certain of our foreign subsidiaries
generate taxable income, and therefore incur income tax expense.
The increase in income tax expense for 2004 as compared to 2003
is due primarily to an increase in taxable income in certain
foreign countries. The $1.2 million increase in income tax
expense for 2003 as compared to 2002 is due to similar factors,
largely driven by the acquisition of Laphal Developpement in
April 2003.
Liquidity and Capital Resources
Since our inception, we have incurred significant losses and as
of December 31, 2004, we had an accumulated deficit of
$138.1 million. We achieved profitability on a quarterly
basis for the first time in the fourth quarter of 2004, but have
not yet achieved profitability on a full year basis. We expect
that our clinical, development and regulatory and selling,
general and administrative expenses will continue to grow and,
as a result, we will need to generate significant sales to
maintain profitability. To date, our operations have been funded
with proceeds from the sale of preferred stock, the issuance of
convertible notes, and the sale of common stock in two public
offerings. Net proceeds from our preferred stock sales totaled
$125.0 million, the issuance of convertible notes generated
$14.0 million, and our public offerings of common stock
completed in November 2003 and July 2004 resulted in combined
net proceeds of $314.1 million. We began generating revenue
from product sales in July 2002.
34
Cash and cash equivalents and short-term investments increased
from $88.5 million at December 31, 2003 to
$245.5 million at December 31, 2004. This increase is
primarily due to the receipt of the net proceeds from a public
offering of our common stock completed in July 2004 of
$237.9 million plus $8.4 million of proceeds from the
exercise of common stock options and warrants, partially offset
by cash used to fund operations of $6.1 million, purchases
of property and equipment of $1.2 million,
$4.0 million to repay debt obligations, and net cash of
$80.0 million paid to Celgene to reduce our thalidomide
product supply cost, add three countries to our thalidomide
licensed territory and to eliminate Celgene’s right to
terminate the thalidomide license agreement in the event
thalidomide has not received a marketing approval by November
2006.
We expect that our cash on hand at December 31, 2004, along
with cash generated from expected product sales, will be
adequate to fund our operations for at least the next twelve
months. However, we reexamine our cash requirements periodically
in light of changes in our business. For example, in the event
that we make additional product acquisitions, we may need to
raise additional funds. Adequate funds, either from the
financial markets or other sources may not be available when
needed or on terms acceptable to us. Insufficient funds may
cause us to delay, reduce the scope of, or eliminate one or more
of our planned development, commercialization or expansion
activities. Our future capital needs and the adequacy of our
available funds will depend on many factors, including the
effectiveness of our sales and marketing activities, the cost of
clinical studies and other actions needed to obtain regulatory
approval of our products in development, and the timing and cost
of any product acquisitions.
Accounts receivable, net increased to $35.2 million at
December 31, 2004 from $8.0 million at
December 31, 2003. This increase is due to the growth in
sales in 2004, primarily from the launch of Vidaza in the U.S.
and increased thalidomide sales in Europe and other
international markets. Our customer payment practices vary
significantly between countries. Increased sales in countries in
which payments tend to be slower, often as a result of the pace
at which governmental entities reimburse our customers, may
increase the financial risk of certain of our customers in those
countries. Accounts receivable in countries in which customer
payments are typically slow, namely Spain and Portugal, totaled
$6.9 million at December 31, 2004. To date, we have
experienced minimal losses with respect to the collection of our
accounts receivable and we believe that the accounts receivable
for Spain and Portugal are collectible. We continually seek
improvement in our collection process to maximize cash flow from
product sales in a timely manner.
Contractual Obligations
Our contractual obligations as of December 31, 2004 were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Less Than | |
|
1-3 | |
|
3-5 | |
|
More Than | |
| Contractual Obligations |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Operating leases
|
|
$ |
11.8 |
|
|
$ |
3.1 |
|
|
$ |
7.3 |
|
|
$ |
1.4 |
|
|
|
— |
|
|
Clinical development funding
|
|
|
10.0 |
|
|
|
4.7 |
|
|
|
5.3 |
|
|
|
— |
|
|
|
— |
|
|
Product and company acquisition payments
|
|
|
9.4 |
|
|
|
9.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Product royalty payments
|
|
|
7.3 |
|
|
|
3.3 |
|
|
|
4.0 |
|
|
|
— |
|
|
|
— |
|
|
Inventory purchase commitments
|
|
|
7.1 |
|
|
|
7.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Long-term debt obligations
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total — fixed contractual obligations
|
|
$ |
46.2 |
|
|
$ |
28.0 |
|
|
$ |
16.8 |
|
|
$ |
1.4 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases. Our commitment for operating leases
relates primarily to our corporate and sales offices located in
the U.S., Europe, Thailand and Australia. These lease
commitments expire on various dates through 2009.
Clinical development funding. We have entered into two
agreements with Celgene to provide funding to support clinical
development studies sponsored by Celgene studying thalidomide as
a treatment for various types of cancers. Under these
agreements, we will pay Celgene $4.7 million in 2005 and
$2.65 million in each of 2006 and 2007.
Product and company acquisition payments. We have future
payment obligations associated with our acquisition of Laphal
and our licensing of Refludan. Certain of these payments are
fixed and determinable
35
while the timing and amount of others are contingent upon future
events such as achieving revenue milestones. Under the terms of
our agreements with Schering, we agreed to make an aggregate of
$10.0 million of fixed payments to Schering, payable in
quarterly installments of $1.0 million through the end of
2005 for our license of Refludan and a royalty of 14% of our net
sales of Refludan commencing in January 2004 and up to
$7.5 million of contingent payments described below. In the
fourth quarter of 2004, we achieved a cumulative sales milestone
related to our acquisition of Laphal. According, we paid in the
first quarter of 2005 a total
of €4.0 million
(approximately $5.4 million) to the former shareholders of
the parent company of Laphal.
Product royalty payments. Pursuant to our thalidomide
product license agreements with Celgene, we are required to make
additional quarterly payments to the extent that the royalty and
license payments due under those agreements do not meet certain
minimums. These minimum royalty and license payment obligations
expire the earlier of 2006 or the date we obtain regulatory
approval to market thalidomide in the E.U. The amounts reflected
in the summary above represent the minimum amounts due under
these agreements. In addition, our Innohep license agreement
with LEO Pharma requires annual minimum royalty payments through
2006.
Inventory purchase commitments. The contractual summary
above includes contractual obligations related to our product
supply contracts. Under these contracts, we provide our
suppliers with rolling 12-24 month supply forecasts, with
the initial 3-6 month periods representing binding purchase
commitments.
Contingent product and company acquisition payments. The
contractual summary above reflects only payment obligations for
product and company acquisitions that are fixed and
determinable. We also have contractual payment obligations, the
amount and timing of which are contingent upon future events. In
accordance with generally accepted accounting principles,
contingent payment obligations are not recorded on our balance
sheet until the amount due can be reasonably determined. Under
the agreements with Schering, in addition to the
$10.0 million of fixed payments required, payments totaling
up to $7.5 million are due if milestones relating to
revenue and gross margin targets for Refludan are achieved. The
terms of our Laphal acquisition require a second payment of
€4 million,
or an aggregate of approximately $5.4 million based on
foreign currency exchange rates as of December 31, 2004, if
Laphal’s products achieve future revenue milestones.
Factors Affecting Our Business Conditions
In addition to the other information included in this report,
the following factors should be considered in evaluating our
business and future prospects.
Risks Related to Our Business
|
|
|
We have a history of net losses, and may not maintain
profitability in the future. |
We have incurred annual net losses since our inception,
including a net loss of $17.5 million on an annual basis
for the fiscal year ended December 31, 2004. As of
December 31, 2004, we had an accumulated deficit of
$138.1 million. In February 2005, we announced that the
fourth quarter of 2004 was our first profitable quarter. We
expect to make substantial expenditures to further develop and
commercialize our products, including costs and expenses
associated with completing clinical trials, seeking regulatory
approvals and marketing of our products. Furthermore, our
expenditures could increase significantly if we acquire
additional products or product candidates. Accordingly, we will
need to generate significantly greater revenues to maintain
profitability. If we fail to achieve profitability on a
continuous basis within the time frame expected by investors or
securities analysts, the market price of our common stock may
decline.
|
|
|
Our business is largely dependent on the commercial
success of Vidaza. If we are unable to successfully
commercialize Vidaza we may be unable to continue our operations
as planned. |
The success of our business is largely dependent on the
commercial success of Vidaza. Although initial sales of Vidaza
since we launched the product last year are encouraging, Vidaza
is new to the market and we do not have substantial data on the
use of the product by physicians and patients. As a consequence,
we cannot assure you that Vidaza will gain widespread acceptance
from members of the medical community or that the
36
initial acceptance of Vidaza we have observed thus far will be
maintained. Acceptance will be a function of its continued
acceptance by regulators, physicians, patients and other key
decision-makers as a safe, superior therapeutic as compared to
currently existing or future treatments for MDS. Moreover, the
FDA is currently considering for approval new therapeutics for
treating MDS that have been under development by our
competitors. Even if Vidaza does achieve market acceptance, we
may not be able to maintain that market acceptance over time if
these new products are introduced and are more favorably
received than Vidaza or render Vidaza obsolete.
Regulatory authorities in our markets subject approved products
and manufacturers of approved products to continual regulatory
review. Previously unknown problems, such as unacceptable
toxicities or side effects, may only be discovered after a
product has been approved and used in an increasing number of
patients. If this occurs, regulatory authorities may impose
labeling restrictions on the product that could affect its
commercial viability or could require withdrawal of the product
from the market. Because Vidaza has only recently been approved
for commercial sale, there is a risk that we will discover such
previously unknown problems associated with the use of Vidaza in
patients, which could limit sales growth or cause sales of
Vidaza to decline.
|
|
|
We may not receive regulatory approvals for Thalidomide
Pharmion 50mg or, outside of the U.S., for Vidaza, or approvals
may be delayed. |
Our ability to fully commercialize Thalidomide Pharmion 50mg is
subject to regulatory approval by governmental authorities in
Europe and our other markets, and our ability to commercialize
Vidaza outside the U.S. is subject to regulatory approval
by governmental authorities in Europe and elsewhere. In May
2004, we withdrew our multiple myeloma applications with the
EMEA for Thalidomide Pharmion 50mg, based on the EMEA’s
stated view that additional clinical data would be required
before it can reach an opinion on whether or not Thalidomide
Pharmion 50mg should be approved as a treatment for multiple
myeloma. We intend to resubmit our application with additional
clinical data from ongoing studies in both relapsed/ refractory
and newly-diagnosed multiple myeloma patients. In September 2004
the EMEA accepted for review our Marketing Authorization
Application for Vidaza for the treatment of MDS based on data
from the same clinical studies accepted by the FDA for approval
of Vidaza in the U.S. We cannot assure you that the results
of our ongoing clinical trials for Thalidomide Pharmion 50mg and
the data submitted to the EMEA for approval of Vidaza will
support our applications for these regulatory approvals. The
timing of our submissions, the outcome of reviews by the
applicable regulatory authorities in each relevant market, and
the initiation and completion of clinical trials are subject to
uncertainty, change and unforeseen delays. Moreover, favorable
results in later stage clinical trials do not ensure regulatory
approval to commercialize a product. Some companies that have
believed their products performed satisfactorily in clinical
trials have nonetheless failed to obtain regulatory approval of
their products. We will not be able to market Thalidomide
Pharmion 50mg or Vidaza in any country where the drug is not
approved, and if Thalidomide Pharmion 50mg or Vidaza is not
approved for sale in a market where we have acquired rights to
the product, we will only be able to sell it in such market, if
at all, on a compassionate use or named patient basis, which may
limit sales and revenues.
|
|
|
Thalidomide’s history of causing birth defects may
prevent it from becoming commercially successful. |
At the time thalidomide first came on the market in the late
1950’s and into the early 1960’s, it was not known
that the drug could cause birth defects in babies born to women
who had taken the drug while pregnant. Although no proper census
was ever taken, it has been estimated that there were between
10,000 and 20,000 babies born with birth defects as a result of
thalidomide. The majority of these births were in the U.K. and
Germany, two of our largest target markets for sales of
Thalidomide Pharmion 50mg. As a result, thalidomide’s
historical reputation in our target markets may delay or prevent
regulatory approval in Europe or may present a substantial
barrier to its market acceptance. Thalidomide’s potential
for causing severe birth defects and its negative historical
reputation may limit the extent of its market acceptance among
both doctors and patients, despite the efficacy that it has been
proven to have in patients afflicted with a number of different
diseases. In addition, any report of a birth defect attributed
to the current use of thalidomide could result in a material
decrease in our sales of thalidomide, and may result in the
forced withdrawal of thalidomide from the market.
37
|
|
|
If the third party manufacturers upon whom we rely fail to
produce our products in the volumes that we require on a timely
basis, or to comply with stringent regulations applicable to
pharmaceutical drug manufacturers, we may face delays in the
commercialization of, or be unable to meet demand for, our
products and may lose potential revenues. |
We do not manufacture any of our products and we do not plan to
develop any capacity to do so. We have contracted with
third-party manufacturers to manufacture each of our four
products. The manufacture of pharmaceutical products requires
significant expertise and capital investment, including the
development of advanced manufacturing techniques and process
controls. Manufacturers of pharmaceutical products often
encounter difficulties in production, especially in scaling up
initial production. These problems include difficulties with
production costs and yields, quality control and assurance and
shortages of qualified personnel, as well as compliance with
strictly enforced federal, state and foreign regulations. Our
third-party manufacturers may not perform as agreed or may
terminate their agreements with us.
Regulatory authorities in our markets require that drugs be
manufactured, packaged and labeled in conformity with cGMP
regulations and guidelines. In addition, before any product
batch produced by our manufacturers can be shipped, it must
conform to release specifications pre-approved by regulators for
the content of the pharmaceutical product. The manufacturing
process for Vidaza is very complex, and we have limited
experience with manufacturing commercial batches of Vidaza.
There is a risk that our manufacturers will not comply with all
applicable regulatory standards, and may not be able to
manufacture Vidaza on a commercial scale that conforms on a
consistent basis to our release specifications approved by the
FDA.
To date, we have relied on sole sources for the manufacture of
our products and we do not have alternate manufacturing plans in
place at this time. The number of third-party manufacturers with
the expertise, required regulatory approvals and facilities to
manufacture bulk drug substance on a commercial scale is
extremely limited, and it would take a significant amount of
time to arrange for alternative manufacturers. If we need to
change to other commercial manufacturers, the FDA and comparable
foreign regulators must approve these manufacturers’
facilities and processes prior to our use, which would require
new testing and compliance inspections, and the new
manufacturers would have to be educated in or independently
develop the processes necessary for the production of our
products.
Any of these factors could cause us to delay or suspend clinical
trials, regulatory submissions, required approvals or
commercialization of our products or product candidates, entail
higher costs and result in our being unable to effectively
commercialize our products. Furthermore, if our third-party
manufacturers fail to deliver the required commercial quantities
of bulk drug substance or finished product on a timely basis and
at commercially reasonable prices, and we are unable to promptly
find one or more replacement manufacturers capable of production
at a substantially equivalent cost, in substantially equivalent
volume and on a timely basis, we would likely be unable to meet
demand for our products and we would lose potential revenues.
Moreover, failure of our third party manufacturers to comply
with applicable regulations could result in sanctions being
imposed on us, including fines, injunctions, civil penalties,
suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating
restrictions and criminal prosecutions, any of which could
significantly and adversely affect supplies of Vidaza and our
other products.
|
|
|
Fluctuations in our operating results could affect the
price of our common stock. |
Our operating results may vary significantly from period to
period due to many factors, including the amount and timing of
sales of our products, the availability and timely delivery of a
sufficient supply of our products, the timing and expenses of
clinical trials, announcements regarding clinical trial results
and product introductions by us or our competitors, the
availability and timing of third-party reimbursement and the
timing of regulatory submissions and approvals. If our operating
results do not match the expectations of securities analysts and
investors as a result of these and other factors, the trading
price of our common stock will likely decrease.
38
|
|
|
If we breach any of the agreements under which we license
commercialization rights to products or technology from others,
we could lose license rights that are important to our
business. |
We license commercialization rights to products and technology
that are important to our business, and we expect to enter into
similar licenses in the future. For instance, we acquired our
first four products through exclusive licensing arrangements.
Under these licenses we are subject to commercialization and
development, sublicensing, royalty, insurance and other
obligations. If we fail to comply with any of these
requirements, or otherwise breach these license agreements, the
licensor may have the right to terminate the license in whole or
to terminate the exclusive nature of the license. Loss of any of
these licenses or the exclusivity rights provided therein could
harm our financial condition and operating results.
|
|
|
Our failure to successfully acquire, develop and market
additional product candidates or approved products would impair
our ability to grow. |
As part of our growth strategy, we intend to acquire, develop
and market additional products and product candidates. Because
we neither have, nor currently intend to establish, internal
research capabilities, we are dependent upon pharmaceutical and
biotechnology companies and other researchers to sell or license
products to us. The success of this strategy depends upon our
ability to identify, select and acquire the right pharmaceutical
product candidates and products. To date, we have in-licensed
rights to four products, and our only product acquisitions have
been those associated with our acquisition of Laphal.
Any product candidate we license or acquire may require
additional development efforts prior to commercial sale,
including extensive clinical testing and approval by the FDA and
applicable foreign regulatory authorities. All product
candidates are prone to the risks of failure inherent in
pharmaceutical product development, including the possibility
that the product candidate will not be shown to be sufficiently
safe and effective for approval by regulatory authorities. In
addition, we cannot assure you that any products that we develop
or acquire that are approved will be manufactured or produced
economically, successfully commercialized or widely accepted in
the marketplace.
Proposing, negotiating and implementing an economically viable
acquisition is a lengthy and complex process. Other companies,
including those with substantially greater financial, marketing
and sales resources, may compete with us for the acquisition of
product candidates and approved products. We may not be able to
acquire the rights to additional product candidates and approved
products on terms that we find acceptable, or at all.
|
|
|
We face substantial competition, which may result in
others commercializing competing products before or more
successfully than we do. |
Our industry is highly competitive. Our success will depend on
our ability to acquire, develop and commercialize products and
our ability to establish and maintain markets for our products.
Potential competitors in North America, Europe and elsewhere
include major pharmaceutical companies, specialized
pharmaceutical companies and biotechnology firms, universities
and other research institutions. Many of our competitors have
substantially greater research and development capabilities and
experience, and greater manufacturing, marketing and financial
resources, than we do. Accordingly, our competitors may develop
or license products or other novel technologies that are more
effective, safer or less costly than our existing products or
products that are being developed by us, or may obtain
regulatory approval for products before we do. Clinical
development by others may render our products or product
candidates noncompetitive.
Other pharmaceutical companies may develop generic versions of
our products that are not subject to patent protection or
otherwise subject to orphan drug exclusivity or other
proprietary rights. Governmental and other pressures to reduce
pharmaceutical costs may result in physicians writing
prescriptions for these generic products. Increased competition
from the sale of competing generic pharmaceutical products could
cause a material decrease in revenue from our products.
39
The primary competition and potential competition for our
products currently are:
|
|
|
| |
• |
Thalidomide Pharmion 50mg:
Velcadetm,
from Millennium Pharmaceuticals Inc., and
Revlimidtm,
from Celgene Corporation; |
| |
| |
• |
Vidaza: Thalomid® and
Revlimidtm,
each from Celgene, and
Dacogentm,
from Supergen Inc., with marketing rights held by MGI Pharma,
Inc., which like Vidaza, is a demethylating agent; |
| |
| |
• |
Innohep: Lovenox®, from Sanofi-Aventis,
Fragmin®, from Pfizer, Inc. and Arixtra, from
GlaxoSmithKline plc; and |
| |
| |
• |
Refludan: Argatroban, from GlaxoSmithKline. |
Both Dacogen and Revlimid are currently in development and/or
under review for regulatory approval by the FDA and EMEA. In
addition to these products, there are additional products in
clinical development for the treatment of MDS and the enrollment
of patients in clinical trials for these products may reduce the
number of patients that will receive Vidaza treatment. We also
face competition for Vidaza from traditional therapies for the
treatment of MDS, including the use of blood transfusions and
growth factors.
|
|
|
We may not be able to obtain sufficient product liability
insurance on commercially reasonable terms or with adequate
coverage for Thalidomide Pharmion 50mg. |
Historically, the vast majority of product liability insurers
have been unwilling to write any product liability coverage for
thalidomide. Although we currently have product liability
coverage for Thalidomide Pharmion 50mg that we believe is
appropriate, if our sales of this product grow in the future,
our current coverage may be insufficient. We may be unable to
obtain additional coverage on commercially reasonable terms if
required, or our coverage may be inadequate to protect us in the
event claims are asserted against us. In addition, we might be
unable to renew our existing level of coverage if there were a
report of a birth defect attributable to the current use of
thalidomide, whether or not sold by us.
|
|
|
Our failure to raise additional funds in the future may
affect the development and sale of our products. |
Our operations to date have generated substantial and increasing
needs for cash. The development and approval of our product
candidates and the acquisition and development of additional
products or product candidates by us, as well as the expansion
of our sales, marketing and regulatory organizations, will
require a commitment of substantial funds. Our future capital
requirements are dependent upon many factors and may be
significantly greater than we expect.
We believe, based on our current operating plan, including
anticipated sales of our products, that our cash, cash
equivalents and marketable securities as of December 31,
2004 will be sufficient to fund our operations for at least the
next twelve months. If our existing resources are insufficient
to satisfy our liquidity requirements due to slower than
anticipated sales of our products or otherwise, or if we acquire
additional products or product candidates, we may need to sell
additional equity or debt securities. If we are unable to obtain
this additional financing, we may be required to delay, reduce
the scope of, or eliminate one or more of our planned
development, commercialization or expansion activities, which
could harm our financial condition and operating results.
|
|
|
We may not be able to manage our business effectively if
we are unable to attract and retain key personnel. |
Our industry has experienced a high rate of turnover of
management personnel in recent years. We are highly dependent on
our senior management, especially Patrick J. Mahaffy, our
President and Chief Executive Officer, and Judith A. Hemberger,
our Executive Vice President and Chief Operating Officer, whose
services are critical to the successful implementation of our
product acquisition, development and regulatory strategies. Each
of Mr. Mahaffy and Dr. Hemberger has entered into an
employment agreement with us for a term that runs until the
agreement is otherwise terminated by us or them. Their
employment agreements provide that they cannot compete with us
for a period of one year after their employment with us is
terminated. If we lose
40
their services or the services of one or more of the other
members of our senior management or other key employees, our
ability to successfully implement our business strategy could be
seriously harmed. We are not aware of any present intention of
any of these individuals to leave our company. We do not
maintain key person life insurance on any of the members of our
senior management. Replacing key employees may be difficult and
may take an extended period of time because of the limited
number of individuals in our industry with the breadth of skills
and experience required to develop, gain regulatory approval of
and commercialize products successfully. Competition to hire
from this limited pool is intense, and we may be unable to hire,
train, retain or motivate these additional key personnel.
|
|
|
We have limited patent protection for our current
products, and we may not be able to obtain, maintain and protect
proprietary rights necessary for the development and
commercialization of our products or product candidates. |
Our commercial success will depend in part on obtaining and
maintaining a strong proprietary position for our products both
in the U.S., Europe and elsewhere. Of our four current products,
Thalidomide Pharmion 50mg and Refludan currently have patent
protection under issued patents. As a result, we must rely in
large part on orphan drug exclusivity, trade secrets, know-how
and continuing technological innovations to protect our
intellectual property and to enhance our competitive position.
Even if we are granted orphan drug exclusivity, competitors are
not prohibited from developing or marketing different drugs for
an indication. As a result, competitors could overcome the
competitive advantage gained by orphan drug exclusivity by
introducing other products in the same indication. Until we are
granted a marketing authorization, while we are selling
Thalidomide Pharmion 50mg on a compassionate use and named
patient basis, we do not have orphan drug exclusivity and we
must rely on our use patent protection to prevent competitors
from selling thalidomide in our markets.
We also rely on protection derived from trade secrets, process
patents, know-how and technological innovation. To maintain the
confidentiality of trade secrets and proprietary information, we
generally seek to enter into confidentiality agreements with our
employees, consultants and collaborators upon the commencement
of a relationship with us. However, we may not obtain these
agreements in all circumstances. In addition, adequate remedies
may not exist in the event of unauthorized use or disclosure of
this information. The loss or exposure of our trade secrets,
know-how and other proprietary information could harm our
operating results, financial condition and future growth
prospects. Furthermore, others may have developed, or may
develop in the future, substantially similar or superior
know-how and technology.
We intend to seek patent protection whenever it is available for
any products or product candidates we acquire in the future.
However, any patent applications for future products may not
issue as patents, and any patent issued on such products may be
challenged, invalidated, held unenforceable or circumvented.
Furthermore, the claims in patents which have been issued on
products we may acquire in the future may not be sufficiently
broad to prevent third parties from commercializing competing
products. In addition, the laws of various foreign countries in
which we compete may not protect the intellectual property on
which we may rely to the same extent as do the laws of the
U.S. If we fail to obtain adequate patent protection for
our products, our ability to compete could be impaired.
|
|
|
We may undertake acquisitions in the future and any
difficulties from integrating such acquisitions could damage our
ability to attain or maintain profitability. |
We may acquire additional businesses, products or product
candidates that complement or augment our existing business. To
date, our only experience in acquiring and integrating a
business involved our acquisition of Laphal in March 2003.
Integrating any newly acquired business or product could be
expensive and time-consuming. We may not be able to integrate
any acquired business or product successfully or operate any
acquired business profitably. Moreover, if we acquire additional
businesses or products we will incur significant acquisition
costs and operating expenses, which could harm our financial
condition and operating results. In addition, we may need to
raise additional funds through public or private debt or equity
financing to make acquisitions, which may result in dilution for
stockholders and the incurrence of indebtedness.
41
|
|
|
Changes to financial accounting standards may affect our
results of operations and cause us to change our business
practices. |
We prepare our financial statements to conform with generally
accepted accounting principles, or GAAP, in the United States.
These accounting principles are subject to interpretation by the
American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, or FASB, the SEC and
various bodies formed to promulgate and interpret appropriate
accounting policies. A change in those accounting principles or
interpretations could have a significant effect on our reported
financial results and may affect our reporting of transactions
completed before a change is announced or adopted. Changes to
those rules or the questioning of current practices may
adversely affect our reported financial results or the way we
conduct our business. For example, accounting policies affecting
certain aspects of our business, including rules relating to
employee stock option grants, have recently been revised. In
December 2004, the FASB issued a revision of
SFAS No. 123, “Accounting for Stock-Based
Compensation,” which amends SFAS No. 123 to
require the recognition of employee stock options as
compensation based on their fair value at the time of grant
(with limited exceptions). These new rules, which are effective
on the commencement of the first interim period starting after
June 15, 2005, will require us to change our accounting
policy and record an expense for our stock-based compensation
plans using the fair value method, and will result in additional
accounting charges as described in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Recently Issued Accounting Standards.
|
|
|
Our business is subject to economic, political, regulatory
and other risks associated with international sales and
operations. |
Since we sell our products in Europe, Australia and many
additional countries, our business is subject to risks
associated with conducting business internationally. We
anticipate that revenue from international operations will
continue to represent a substantial portion of our total
revenue. In addition, a number of our suppliers are located
outside the United States. Accordingly, our future results could
be harmed by a variety of factors, including:
|
|
|
| |
• |
difficulties in compliance with foreign laws and regulations; |
| |
| |
• |
changes in foreign regulations and customs; |
| |
| |
• |
changes in foreign currency exchange rates and currency controls; |
| |
| |
• |
changes in a specific country’s or region’s political
or economic environment; |
| |
| |
• |
trade protection measures, import or export licensing
requirements or other restrictive actions by the U.S. or
foreign governments; |
| |
| |
• |
negative consequences from changes in tax laws; |
| |
| |
• |
difficulties associated with staffing and managing foreign
operations; |
| |
| |
• |
longer accounts receivable cycles in some countries; and |
| |
| |
• |
differing labor regulations. |
Risks Related to Our Industry
|
|
|
Our ability to generate revenue from our products will
depend on reimbursement and drug pricing policies and
regulations. |
Our ability to achieve acceptable levels of reimbursement for
drug treatments by governmental authorities, private health
insurers and other organizations will have an effect on our
ability to successfully commercialize, and attract collaborative
partners to invest in the development of, product candidates.
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 together with rulemaking by the Centers for Medicare
and Medicaid Services, or CMS, changed the methodology for
Medicare reimbursement of pharmaceutical products administered
in physician offices and hospital outpatient facilities,
including
42
Vidaza and Innohep. Under the new regulations, reimbursements
will now be the average selling price, or ASP, of a product plus
6%, rather than a specified discount from the average wholesale
price, or AWP, as was the case under prior regulations. The new
ASP-based reimbursement regime generally will reduce the
reimbursement physicians will receive under Medicare for most
office-administered injectable drugs, including Vidaza and
Innohep. Although the actual impact of these reimbursement
changes is not currently well known, there is a risk that the
new reimbursement policies will adversely affect product use by
physicians, thereby reducing our sales for these products.
In other countries, particularly the countries of the European
Union, the pricing of prescription pharmaceuticals and the level
of reimbursement are subject to governmental control. We cannot
be sure that reimbursement in the U.S., Europe or elsewhere will
be available for any products we may develop or, if already
available, will not be decreased or eliminated in the future. If
reimbursement is not available or is available only at limited
levels, we may not be able to successfully commercialize our
products, and may not be able to obtain a satisfactory financial
return on our products.
Third-party payers increasingly are challenging prices charged
for medical products and services. Also, the trend toward
managed health care in the U.S. and the changes in health
insurance programs, as well as legislative proposals to reform
health care or reduce government insurance programs, may result
in lower prices for pharmaceutical products, including any
products that may be offered by us. Cost-cutting measures that
health care providers are instituting, and the effect of any
health care reform, could harm our ability to sell any products
that are successfully developed by us and approved by
regulators. Moreover, we are unable to predict what additional
legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be
enacted in the future or what effect this legislation or
regulation would have on our business. In the event that
governmental authorities enact legislation or adopt regulations
which affect third-party coverage and reimbursement, demand for
our products may be reduced thereby harming our sales and
profitability.
|
|
|
If product liability lawsuits are brought against us, we
may incur substantial liabilities. |
The clinical testing and commercialization of pharmaceutical
products involves significant exposure to product liability
claims. If losses from such claims exceed our liability
insurance coverage, we may incur substantial liabilities.
Whether or not we were ultimately successful in product
liability litigation, such litigation could consume substantial
amounts of our financial and managerial resources, and might
result in adverse publicity, all of which would impair our
business. We may not be able to maintain our clinical trial
insurance or product liability insurance at an acceptable cost,
if at all, and this insurance may not provide adequate coverage
against potential claims or losses. If we are required to pay a
product liability claim, we may not have sufficient financial
resources to complete development or commercialization of any of
our product candidates and our business and results of
operations will be harmed.
|
|
|
If our promotional activities fail to comply with the
regulations and guidelines of the various relevant regulatory
agencies, we may be subject to warnings or enforcement action
that could harm our business. |
Physicians may prescribe drugs for uses that are not described
in the product’s labeling for uses that differ from those
tested in clinical studies and approved by the FDA or similar
regulatory authorities in other countries. These
“off-label” uses are common across medical specialties
and may constitute the best treatment for many patients in
varied circumstances. Regulatory authorities generally do not
regulate the behavior of physicians in their choice of
treatments. Regulatory authorities do, however, restrict
communications on the subject of off-label use. Companies cannot
actively promote approved drugs for off-label uses, but in some
countries outside of the E.U., including the U.S., they may
disseminate to physicians articles published in peer-reviewed
journals, like The New England Journal of Medicine and
The Lancet, that discuss off-label uses of approved
products. To the extent allowed, we may disseminate
peer-reviewed articles on our products to our physician
customers. We believe our promotional activities are currently
in compliance with the regulations and guidelines of the various
regulatory authorities. If, however, our promotional activities
fail to comply with these regulations or guidelines, we may be
subject to warnings from, or enforcement action by, these
43
authorities. Furthermore, if the discussion of off-label use in
peer-reviewed journals, or the dissemination of these articles,
is prohibited, it may harm demand for our products.
|
|
|
We are subject to numerous complex regulatory requirements
and failure to comply with these regulations, or the cost of
compliance with these regulations, may harm our business. |
The testing, development and manufacturing of our products are
subject to regulation by numerous governmental authorities in
the U.S., Europe and elsewhere. These regulations govern or
affect the testing, manufacture, safety, labeling, storage,
record-keeping, approval, advertising and promotion of our
products and product candidates, as well as safe working
conditions and the experimental use of animals. Noncompliance
with any applicable regulatory requirements can result in
refusal of the government to approve products for marketing,
criminal prosecution and fines, recall or seizure of products,
total or partial suspension of production, prohibitions or
limitations on the commercial sale of products or refusal to
allow us to enter into supply contracts. Regulatory authorities
typically have the authority to withdraw approvals that have
been previously granted.
The regulatory requirements relating to the manufacturing,
testing, and marketing of our products may change from time to
time. For example, at present, member states in the E.U. are in
the process of incorporating into their domestic laws the
provisions contained in the E.U. Directive on the implementation
of good clinical practice in the conduct of clinical trials. The
Directive imposes more onerous requirements in relation to
certain aspects of the conduct of clinical trials than are
currently in place in many member states. This may impact our
ability to conduct clinical trials and the ability of
independent investigators to conduct their own research with
support from us.
Risks Related to Our Common Stock
|
|
|
Our certificate of incorporation, our bylaws, Delaware law
and our employment agreements with members of our senior
management contain provisions that could discourage, delay or
prevent a change in control or management of Pharmion. |
Our amended and restated certificate of incorporation, bylaws,
Delaware law and our employment agreements with members of
senior management contain provisions which could delay or
prevent a third party from acquiring shares of our common stock
or replacing members of our board of directors, each of which
certificate of incorporation provisions can only be amended or
repealed upon the consent of 80% of our outstanding shares. Our
amended and restated certificate of incorporation allows our
board of directors to issue up to 10,000,000 shares of
preferred stock. The board can determine the price, rights,
preferences and privileges of those shares without any further
vote or action by the stockholders. As a result, our board of
directors could make it difficult for a third party to acquire a
majority of our outstanding voting stock, for example by
adopting a stockholders’ rights plan.
Our amended and restated certificate of incorporation also
provides that the members of the board are divided into three
classes. Each year the terms of approximately one-third of the
directors will expire. Our bylaws do not permit our stockholders
to call a special meeting of stockholders. Under the bylaws,
only our Chief Executive Officer, Chairman of the Board or a
majority of the board of directors are able to call special
meetings. The staggering of directors’ terms of office and
the limitation on the ability of stockholders to call a special
meeting may make it difficult for stockholders to remove or
replace the board of directors should they desire to do so.
Since management is appointed by the board of directors, any
inability to effect a change in the board may result in the
entrenchment of management. The bylaws also require that
stockholders give advance notice to our Secretary of any
nominations for director or other business to be brought by
stockholders at any stockholders’ meeting. These provisions
may delay or prevent changes of control or management, either by
third parties or by stockholders seeking to change control or
management.
We are also subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. Under
these provisions, if anyone becomes an “interested
stockholder,” we may not enter into a “business
combination” with that person for three years without
special approval, which could discourage a third party from
making a takeover offer and could delay or prevent a change of
control. For purposes of
44
Section 203, “interested stockholder” means,
generally, someone owning 15% or more of our outstanding voting
stock or an affiliate of ours that owned 15% or more of our
outstanding voting stock during the past three years, subject to
certain exceptions as described in Section 203.
The employment agreements with members of our senior management
provide that certain benefits will be payable to the executives
in the event we undergo a change in control and the termination
of the executive’s employment within two years after such
change in control for any reason other than for cause,
disability, death, normal retirement or early retirement.
|
|
|
Our stock price has been and may continue to be volatile
and your investment in our common stock could suffer a decline
in value. |
We completed our initial public offering in November 2003. Since
our initial public offering, the price of our common stock as
reported by the NASDAQ National Market has ranged from a low of
$11.00 to a high of $58.49.
Some specific factors that may have a significant effect on our
common stock market price include:
|
|
|
| |
• |
actual or anticipated fluctuations in our operating results; |
| |
| |
• |
our announcements or our competitors’ announcements of
clinical trial results or new products; |
| |
| |
• |
changes in our growth rates or our competitors’ growth
rates; |
| |
| |
• |
the timing or results of regulatory submissions or actions with
respect to our products; |
| |
| |
• |
public concern as to the safety of our products; |
| |
| |
• |
changes in health care, drug pricing or reimbursement policies
in a country where we sell our products; |
| |
| |
• |
our inability to raise additional capital; |
| |
| |
• |
conditions of the pharmaceutical industry or in the financial
markets or economic conditions in general; and |
| |
| |
• |
changes in stock market analyst recommendations regarding our
common stock, other comparable companies or the pharmaceutical
industry generally. |
Item 7A. Quantitative
and Qualitative Disclosures on Market Risk
We currently invest our excess cash balances in short-term
investment grade securities including money market accounts that
are subject to interest rate risk. The amount of interest income
we earn on these funds will decline with a decline in interest
rates. However, due to the short-term nature of short-term
investment grade securities and money market accounts, an
immediate decline in interest rates would not have a material
impact on our financial position, results of operations or cash
flows.
We are exposed to movements in foreign exchange rates against
the U.S. dollar for inter-company trading transactions and
the translation of net assets and earnings of
non-U.S. subsidiaries. Our primary operating currencies are
the U.S. dollar, U.K. pound sterling, the euro, and Swiss
francs. We have not undertaken any foreign currency hedges
through the use of forward foreign exchange contracts or
options. Foreign currency exposures have been managed solely
through managing the currency denomination of our cash balances.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
The financial statements required pursuant to this item are
included in Item 15 of this report and are presented
beginning on page F-1.
45
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive
Officer, or CEO, and Chief Financial Officer, or CFO, of the
effectiveness of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15(d)-15(e) of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, as of the end of the period covered by this report. Based
on that evaluation, the CEO and CFO have concluded that our
disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed
by us in our periodic reports under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and that such
information is accumulated and communicated to our management,
including our CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure. It should be noted that
the design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and
can therefore only provide reasonable, not absolute assurance
that the design will succeed in achieving its stated goals.
Management’s Report on Internal Control Over Financial
Reporting
The management of the company is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15(d)-15(f) of
the Exchange Act. Our internal control system was designed to
provide reasonable assurance to our management and board of
directors regarding the preparation and fair presentation of
published financial statements. All internal control systems, no
matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement
preparation and presentation.
Our management assessed the effectiveness of the company’s
internal control over financial reporting as of
December 31, 2004. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment we believe
that, as of December 31, 2004, our internal control over
financial reporting is effective based on those criteria.
46
Our management’s assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004, has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included in this Item 9A
immediately below.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Pharmion
Corporation:
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting, that Pharmion Corporation maintained
effective internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Pharmion Corporation’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Pharmion
Corporation maintained effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, Pharmion Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Pharmion Corporation as of
December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders’ equity (deficit),
and cash flows for each of the three years in the period ended
December 31, 2004 of Pharmion Corporation and our report
dated March 11, 2005 expressed an unqualified opinion
thereon.
Denver, Colorado
March 11, 2005
47
|
|
| Item 9B. |
Other Information |
None.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
The information required by this Item concerning our directors
is incorporated by reference from the information set forth in
the section entitled “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s
definitive Proxy Statement for the 2005 Annual Meeting of
Stockholders to be filed with the Commission within
120 days after the end of our fiscal year ended
December 31, 2004 (the “Proxy Statement”). The
information required by this Item concerning our executive
officers is incorporated by reference from the information set
forth in the section of the Proxy Statement entitled
“Executive Officers, Directors and Key Employees.” The
information required by this Item concerning our code of ethics
is incorporated by reference from the information set forth in
the section of the Proxy Statement entitled “Code of
Ethics.” The information required by this Item concerning
our equity compensation plan is set forth under Item 5 of
this Annual Report on Form 10-K.
|
|
| Item 11. |
Executive Compensation |
The information required by this Item regarding executive
compensation is incorporated by reference from the information
set forth in the section of the Proxy Statement entitled
“Executive Compensation.”
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required by this Item regarding security
ownership of certain beneficial owners and management is
incorporated by reference from the information set forth in the
section of the Proxy Statement entitled “Security Ownership
of Certain Beneficial Owners and Management.” The
information required by this Item regarding our equity
compensations plans is incorporated by reference from the
information set forth in the section of the Proxy Statement
entitled “Equity Compensation Plan Information.”
|
|
| Item 13. |
Certain Relationships and Related Transactions |
The information required by this Item regarding certain
relationships and related transactions is incorporated by
reference from the information set forth in the section of the
Proxy Statement entitled “Certain Transactions.”
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information required by this Item regarding principal
accountant fees and services is incorporated by reference from
the information set forth in the sections of the Proxy Statement
entitled “Report of the Audit Committee,”
“Ratification of Selection of Independent Auditors”
and “Fees Paid to Ernst & Young.”
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are being filed as part of this
report:
|
|
| |
(1) Consolidated Financial Statements |
|
|
| |
Reference is made to the Index to Consolidated Financial
Statements of Pharmion Corporation. appearing on page F-1 of
this report. |
48
|
|
| |
(2) Consolidated Financial Statement Schedules |
|
|
| |
The following consolidated financial statement schedule of the
Company for each of the years ended December 31, 2004, 2003
and 2002, is filed as part of this Annual Report on
Form 10-K and should be read in conjunction with the
Consolidated Financial Statements, and the related notes
thereto, of the Company. |
| |
|
|
|
|
| |
|
Page | |
| |
|
Number | |
| |
|
| |
|
Schedule II — Valuation and Qualifying Accounts
|
|
|
S-1 |
|
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Document |
| |
|
|
| |
2.1(1) |
|
|
Stock Purchase Agreement, dated March 7, 2003, by and among
Pharmion France and the shareholders of Gophar S.A.S. |
| |
3.1(1) |
|
|
Amended and Restated Certificate of Incorporation. |
| |
3.2(1) |
|
|
Amended and Restated Bylaws. |
| |
4.1(1) |
|
|
Specimen Stock Certificate. |
| |
4.2(1) |
|
|
Amended and Restated Investors’ Rights Agreement, dated as
of November 30, 2001, by and among the Registrant, the
founders and the holders of the Registrant’s Preferred
Stock. |
| |
4.3(1) |
|
|
Series C Omnibus Amendment Agreement, dated as of
October 11, 2002 to Amended and Restated Investors’
Rights Agreement, dated as of November 30, 2001, by and
among the Registrant, the founders and the holders of the
Registrant’s Preferred Stock. |
| |
4.4(1) |
|
|
Amendment, dated as of April 8, 2003 to Amended and
Restated Investors’ Rights Agreement, dated as of
November 30, 2001, by and among the Registrant, the
founders and the holders of the Registrant’s Preferred
Stock. |
| |
4.5(1) |
|
|
Series B Preferred Stock Purchase Warrant, dated
November 30, 2001, issued by the Registrant to Celgene
Corporation. |
| |
4.6(1) |
|
|
Senior Convertible Promissory Note, dated April 8, 2003,
issued by the Registrant to Celgene Corporation. |
| |
4.7(1) |
|
|
Common Stock Purchase Warrant, dated April 8, 2003, issued
by the Registrant to Celgene Corporation. |
| |
4.8(1) |
|
|
Convertible Subordinated Promissory Note, dated April 11,
2003, issued by the Registrant to Penn Pharmaceuticals Holdings
Limited. |
| |
4.9(1) |
|
|
Common Stock Purchase Warrant, dated April 11, 2003, issued
by the Registrant to Penn Pharmaceuticals Holdings Limited. |
| |
10.1(1)* |
|
|
Amended and Restated 2001 Non-Employee Director Stock Option
Plan. |
| |
10.2(1)* |
|
|
Amended and Restated 2000 Stock Incentive Plan. |
| |
10.3(1) |
|
|
Securities Purchase Agreement, dated as of April 8, 2003,
by and between the Registrant and Celgene Corporation. |
| |
10.4(1) |
|
|
Securities Purchase Agreement, dated as of April 11, 2003,
by and between the Registrant and Penn Pharmaceuticals Holdings
Limited. |
| |
10.5(1) |
|
|
Amended and Restated Distribution and License Agreement, dated
as of November 16, 2001, by and between Pharmion GmbH and
Penn T Limited. |
| |
10.6(1) |
|
|
Amendment No. 1, dated March 4, 2003, to Amended and
Restated Distribution and License Agreement, dated as of
November 16, 2001, by and between Pharmion GmbH and Penn T
Limited. |
| |
10.7(1) |
|
|
Supplementary Agreement, dated June 18, 2003, to Amended
and Restated Distribution and License Agreement, dated as of
November 16, 2001, by and between Pharmion GmbH and Penn T
Limited. |
49
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
10.8(1) |
|
|
License Agreement, dated as of November 16, 2001, by and
among the Registrant, Pharmion GmbH and Celgene Corporation. |
| |
10.9(1) |
|
|
Amendment No. 1, dated March 3, 2003, to License
Agreement, dated as of November 16, 2001, by and among the
Registrant, Pharmion GmbH and Celgene Corporation. |
| |
10.10(1) |
|
|
Letter Agreement, dated April 2, 2003, by and among the
Registrant, Pharmion GmbH and Celgene Corporation regarding
clinical funding. |
| |
10.11(1) |
|
|
Amendment No. 2, dated April 8, 2003, to License
Agreement, dated as of November 16, 2001, by and among the
Registrant, Pharmion GmbH and Celgene Corporation. |
| |
10.12(1) |
|
|
License and Distribution Agreement, dated as of June 21,
2002, by and between the Registrant and LEO Pharmaceutical
Products Ltd. A/S. |
| |
10.13(1) |
|
|
License Agreement, dated as of June 7, 2001, by and between
the Registrant, Pharmion GmbH and Pharmacia & Upjohn
Company. |
| |
10.14(1) |
|
|
Interim Sales Representation Agreement, dated as of May 29,
2002, by and between Pharmion GmbH and Schering
Aktiengesellschaft. |
| |
10.15(1) |
|
|
Distribution and Development Agreement, dated as of May 29,
2002, by and between Pharmion GmbH and Schering
Aktiengesellschaft. |
| |
10.16(1) |
|
|
First Amendment Agreement dated August 20, 2003 by and
between Pharmion GmbH and Schering Aktiengesellschaft. |
| |
10.17(3)* |
|
|
Employment Agreement, dated as of February 23, 2004, by and
between the Registrant and Patrick J. Mahaffy. |
| |
10.18(3)* |
|
|
Amended and Restated Employment Agreement, dated as of
March 1, 2004, by and between the Registrant and Judith A.
Hemberger. |
| |
10.19(1)* |
|
|
Non-Competition and Severance Agreement, dated as of
November 29, 2001, by and between the Registrant and
Michael Cosgrave. |
| |
10.20(1)* |
|
|
Employment Agreement, dated as of January 5, 2001, by and
between the Registrant and Michael Cosgrave. |
| |
10.21(3)* |
|
|
Amended and Restated Employment Agreement, dated as of
March 1, 2004, by and between the Registrant and Erle Mast. |
| |
10.22(3)* |
|
|
Amended and Restated Employment Agreement, dated as of
March 1, 2004, by and between the Registrant and Gillian C.
Ivers-Read. |
| |
10.23(1) |
|
|
Office Lease, dated as of April 24, 2002, by and between
the Registrant and Centro III, LLC. |
| |
10.24(1) |
|
|
First Amendment to Lease, dated as of January 31, 2003, to
Office Lease, dated as of April 24, 2002, by and between
the Registrant and Centro III, LLC. |
| |
10.25(2)* |
|
|
Addendum to Employment Agreement, dated June 15, 2004, by
and between the Registrant and Michael Cosgrave. |
| |
10.26 |
|
|
Amendment No. 2, dated December 3, 2004, to Amended
and Restated Distribution and License Agreement, dated
November 16, 2001, between Pharmion GmbH and Celgene UK
Manufacturing II Limited (formerly Penn T Limited). |
| |
10.27 |
|
|
Letter Agreement, dated December 3, 2004, among the
Registrant, Pharmion GmbH and Celgene Corporation amending the
Letter Agreement regarding clinical funding, dated April 2,
2003, between Registrant, Pharmion GmbH and Celgene. |
| |
10.28 |
|
|
Letter Agreement, dated December 3, 2004, between the
Registrant, Pharmion GmbH and Celgene Corporation amending the
License Agreement, dated November 16, 2001, among
Registrant, Pharmion GmbH and Celgene. |
| |
10.29 |
|
|
Lease, dated December 21, 2004, by and between Pharmion
Limited and Alecta Pensionsförsäkring Ömsesidigit. |
50
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
10.30 |
|
|
Counterpart Guarantee, dated December 21, 2004, by and
between Registrant and Alecta Pensionsförsäkring
Ömsesidigit. |
| |
21.1(2) |
|
|
Subsidiaries of the Registrant. |
| |
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
| |
24.1 |
|
|
Power of Attorney. (reference is made to page 52) |
| |
31.1 |
|
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for
President and Chief Executive Officer. |
| |
31.2 |
|
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for
Chief Financial Officer. |
| |
32.1 |
|
|
Sarbanes-Oxley Act of 2002, Section 906 Certification for
President and Chief Executive Officer and Chief Financial
Officer. |
|
|
| (1) |
Incorporated by reference to our Registration Statement on
Form S-1 (File No. 333-108122) and amendments thereto,
declared effective November 5, 2003. |
| |
| (2) |
Incorporated by reference to our Registration Statement on
Form S-1 (File No. 333-116252) and amendments thereto,
declared effective June 30, 2004. |
| |
| (3) |
Incorporated by reference to our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004 (File
No. 000-50447) |
|
|
|
| |
* |
Management Contract or Compensatory Plan or Arrangement |
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
| |
By: |
/s/ Patrick J. Mahaffy
|
|
|
| |
|
| |
Patrick J. Mahaffy |
| |
President and Chief Executive Officer |
Date: March 15, 2005
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Patrick J.
Mahaffy and Erle T. Mast, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution,
for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this
Form 10-K, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Form 10-K has been signed by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
| |
|
|
|
|
|
|
| Name |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Patrick J. Mahaffy
Patrick
J. Mahaffy |
|
President, Chief Executive Officer and Director (Principal
Executive Officer) |
|
March 15, 2005 |
| |
/s/ Erle T. Mast
Erle
T. Mast |
|
Chief Financial Officer (Principal Financial and Accounting
Officer) |
|
March 15, 2005 |
| |
/s/ Judith A. Hemberger
Judith
A. Hemberger |
|
Executive Vice President, Chief Operating Officer and Director |
|
March 15, 2005 |
| |
/s/ Edward J. McKinley
Edward
J. McKinley |
|
Director |
|
March 15, 2005 |
| |
/s/ Brian G. Atwood
Brian
G. Atwood |
|
Director |
|
March 15, 2005 |
| |
/s/ Thorlef Spickschen
Thorlef
Spickschen |
|
Director |
|
March 15, 2005 |
52
| |
|
|
|
|
|
|
| Name |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ M. James Barrett
M.
James Barrett |
|
Director |
|
March 15, 2005 |
| |
/s/ James Blair
James
Blair |
|
Director |
|
March 15, 2005 |
| |
/s/ Cam Garner
Cam
Garner |
|
Director |
|
March 15, 2005 |
53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
|
|
Pharmion Corporation Consolidated Financial Statements:
|
|
|
|
|
| |
|
|
|
F-2 |
|
| |
|
|
|
F-3 |
|
| |
|
|
|
F-4 |
|
| |
|
|
|
F-5 |
|
| |
|
|
|
F-6 |
|
| |
|
|
|
F-7 |
|
| |
|
|
|
S-1 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Pharmion Corporation
We have audited the accompanying consolidated balance sheets of
Pharmion Corporation as of December 31, 2004 and 2003, and
the related consolidated statements of operations,
stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2004. Our audits
also include the financial statement schedule listed in the
index at Item 15(a)2. These financial statements and
schedule are the responsibility of management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Pharmion Corporation at December 31,
2004 and 2003, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Pharmion Corporation’s internal control
over financial reporting as of December 31, 2004, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 11, 2005
expressed an unqualified opinion thereon.
Denver, Colorado
March 11, 2005
F-2
PHARMION CORPORATION
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
119,657,986 |
|
|
$ |
88,541,793 |
|
| |
Short-term investments
|
|
|
125,884,838 |
|
|
|
— |
|
| |
Accounts receivable, net of allowances of $2,209,842 and
$818,516, respectively
|
|
|
35,193,222 |
|
|
|
7,992,177 |
|
| |
Inventories, net
|
|
|
3,687,496 |
|
|
|
4,923,161 |
|
| |
Prepaid royalties
|
|
|
— |
|
|
|
1,342,987 |
|
| |
Other current assets
|
|
|
4,396,282 |
|
|
|
2,779,203 |
|
| |
|
|
|
|
|
|
|
Total current assets
|
|
|
288,819,824 |
|
|
|
105,579,321 |
|
|
Product rights, net
|
|
|
108,478,367 |
|
|
|
30,650,819 |
|
|
Goodwill
|
|
|
9,425,524 |
|
|
|
3,651,804 |
|
|
Property and equipment, net
|
|
|
4,283,763 |
|
|
|
5,049,420 |
|
|
Other assets
|
|
|
222,994 |
|
|
|
541,223 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
411,230,472 |
|
|
$ |
145,472,587 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
9,891,391 |
|
|
$ |
4,241,075 |
|
| |
Accrued and other current liabilities
|
|
|
45,562,831 |
|
|
|
14,799,437 |
|
| |
|
|
|
|
|
|
|
Total current liabilities
|
|
|
55,454,222 |
|
|
|
19,040,512 |
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
| |
Convertible notes
|
|
|
— |
|
|
|
13,374,455 |
|
| |
Deferred tax liability
|
|
|
3,605,721 |
|
|
|
3,664,618 |
|
| |
Other long-term liabilities
|
|
|
217,828 |
|
|
|
4,479,267 |
|
| |
|
|
|
|
|
|
|
Total long term liabilities
|
|
|
3,823,549 |
|
|
|
21,518,340 |
|
| |
|
|
|
|
|
|
|
Total liabilities
|
|
|
59,277,771 |
|
|
|
40,558,852 |
|
| |
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
| |
Common stock: par value $0.001, 100,000,000 shares
authorized, 31,780,715 and 23,948,636 shares issued and
outstanding, respectively
|
|
|
31,781 |
|
|
|
23,949 |
|
| |
Preferred stock: par value $0.001, 10,000,000 shares
authorized, no shares issued and outstanding
|
|
|
— |
|
|
|
— |
|
| |
Additional paid-in capital
|
|
|
482,660,589 |
|
|
|
222,217,779 |
|
| |
Deferred compensation
|
|
|
(679,572 |
) |
|
|
(1,155,169 |
) |
| |
Accumulated other comprehensive income
|
|
|
8,036,088 |
|
|
|
4,386,182 |
|
| |
Accumulated deficit
|
|
|
(138,096,185 |
) |
|
|
(120,559,006 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
351,952,701 |
|
|
|
104,913,735 |
|
| |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$ |
411,230,472 |
|
|
$ |
145,472,587 |
|
| |
|
|
|
|
|
|
See accompanying notes.
F-3
PHARMION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
130,170,640 |
|
|
$ |
25,539,248 |
|
|
$ |
4,735,354 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales, including royalties
|
|
|
43,634,611 |
|
|
|
11,461,994 |
|
|
|
1,575,105 |
|
| |
Clinical, development and regulatory
|
|
|
28,391,812 |
|
|
|
24,615,968 |
|
|
|
15,049,487 |
|
| |
Selling, general and administrative
|
|
|
66,847,663 |
|
|
|
36,108,728 |
|
|
|
23,436,614 |
|
| |
Product rights amortization
|
|
|
3,395,504 |
|
|
|
1,971,597 |
|
|
|
375,439 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
142,269,590 |
|
|
|
74,158,287 |
|
|
|
40,436,645 |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,098,950 |
) |
|
|
(48,619,039 |
) |
|
|
(35,701,291 |
) |
|
Interest and other income (expense), net
|
|
|
2,414,838 |
|
|
|
(154,390 |
) |
|
|
1,109,690 |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(9,684,112 |
) |
|
|
(48,773,429 |
) |
|
|
(34,591,601 |
) |
|
Income tax expense
|
|
|
7,853,067 |
|
|
|
1,285,473 |
|
|
|
105,255 |
|
|
Net loss
|
|
|
(17,537,179 |
) |
|
|
(50,058,902 |
) |
|
|
(34,696,856 |
) |
|
Less accretion of redeemable convertible preferred stock to
redemption value
|
|
|
— |
|
|
|
(10,090,971 |
) |
|
|
(8,575,644 |
) |
|
Net loss attributable to common stockholders
|
|
$ |
(17,537,179 |
) |
|
$ |
(60,149,873 |
) |
|
$ |
(43,272,500 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per common share,
basic and diluted
|
|
$ |
(.63 |
) |
|
$ |
(14.70 |
) |
|
$ |
(57.58 |
) |
|
Shares used in computing net loss attributable to common
stockholders per common share, basic and diluted
|
|
|
27,933,202 |
|
|
|
4,093,067 |
|
|
|
751,525 |
|
|
Unaudited pro forma net loss attributable to common stockholders
per common share assuming conversion of preferred stock, basic
and diluted (Note 2)
|
|
|
N/A |
|
|
$ |
(2.66 |
) |
|
$ |
(2.47 |
) |
|
Shares used in computing unaudited pro forma net loss
attributable to common stockholders per common share assuming
conversion of preferred stock, basic and diluted (Note 2)
|
|
|
N/A |
|
|
|
18,791,015 |
|
|
|
14,072,707 |
|
See accompanying notes.
F-4
PHARMION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
| |
|
Common Stock | |
|
Treasury Stock | |
|
Additional | |
|
|
|
Other | |
|
|
|
Stockholders’ | |
| |
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
Comprehensive | |
|
Accumulated | |
|
Equity | |
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Income | |
|
(Deficit) | |
|
(Deficit) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at January 1, 2002
|
|
|
849,500 |
|
|
|
850 |
|
|
|
(22,500 |
) |
|
|
(13,500 |
) |
|
|
— |
|
|
|
(88,309 |
) |
|
|
14,313 |
|
|
|
(19,696,600 |
) |
|
|
(19,783,246 |
) |
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(34,696,856 |
) |
|
|
(34,696,856 |
) |
|
Foreign currency translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
762,625 |
|
|
|
— |
|
|
|
762,625 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,934,231 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
42,177 |
|
|
|
42 |
|
|
|
— |
|
|
|
— |
|
|
|
32,629 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
32,671 |
|
|
Cancellation of unvested shares of common stock
|
|
|
(22,500 |
) |
|
|
(23 |
) |
|
|
22,500 |
|
|
|
13,500 |
|
|
|
(13,477 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,160 |
|
|
|
— |
|
|
|
— |
|
|
|
44,160 |
|
|
Accretion of preferred stock to redemption value
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,152 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,556,492 |
) |
|
|
(8,575,644 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
869,177 |
|
|
|
869 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(44,149 |
) |
|
|
776,938 |
|
|
|
(62,949,948 |
) |
|
|
(62,216,290 |
) |
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50,058,902 |
) |
|
|
(50,058,902 |
) |
|
Foreign currency translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,609,244 |
|
|
|
— |
|
|
|
3,609,244 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,449,658 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
53,190 |
|
|
|
53 |
|
|
|
— |
|
|
|
— |
|
|
|
73,595 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
73,648 |
|
|
Repurchase of unvested shares of common stock
|
|
|
(4,687 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,871 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,875 |
) |
|
Deferred compensation associated with stock option grants
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,740,879 |
|
|
|
(1,740,879 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
629,859 |
|
|
|
— |
|
|
|
— |
|
|
|
629,859 |
|
|
Issuance of warrants associated with convertible notes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
729,697 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
729,697 |
|
|
Accretion of preferred stock to redemption value
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,540,815 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,550,156 |
) |
|
|
(10,090,971 |
) |
|
Conversion of preferred stock to common stock
|
|
|
17,030,956 |
|
|
|
17,031 |
|
|
|
|
|
|
|
|
|
|
|
146,060,825 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
146,077,856 |
|
|
Issuance of common stock, net of issuance costs
|
|
|
6,000,000 |
|
|
|
6,000 |
|
|
|
— |
|
|
|
— |
|
|
|
76,155,469 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
76,161,469 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
23,948,636 |
|
|
$ |
23,949 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
222,217,779 |
|
|
$ |
(1,155,169 |
) |
|
$ |
4,386,182 |
|
|
$ |
(120,559,006 |
) |
|
$ |
104,913,735 |
|
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,537,179 |
) |
|
|
(17,537,179 |
) |
|
Foreign currency translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,923,764 |
|
|
|
— |
|
|
|
3,923,764 |
|
|
Net unrealized loss on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(273,858 |
) |
|
|
|
|
|
|
(273,858 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,887,273 |
) |
|
Exercise of stock options and warrants
|
|
|
1,206,551 |
|
|
|
1,207 |
|
|
|
— |
|
|
|
— |
|
|
|
8,384,438 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,385,645 |
|
|
Repurchase of unvested shares of common stock
|
|
|
(6,642 |
) |
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,979 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,986 |
) |
|
Conversion of debt and accrued interest to equity
|
|
|
1,342,170 |
|
|
|
1,342 |
|
|
|
— |
|
|
|
— |
|
|
|
14,160,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,161,491 |
|
|
Amortization of deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
475,597 |
|
|
|
— |
|
|
|
— |
|
|
|
475,597 |
|
|
Issuance of common stock, net of issuance costs
|
|
|
5,290,000 |
|
|
|
5,290 |
|
|
|
— |
|
|
|
— |
|
|
|
237,902,202 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
237,907,492 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
31,780,715 |
|
|
$ |
31,781 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
482,660,589 |
|
|
$ |
(679,572 |
) |
|
$ |
8,036,088 |
|
|
$ |
(138,096,185 |
) |
|
$ |
351,952,701 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
PHARMION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(17,537,179 |
) |
|
$ |
(50,058,902 |
) |
|
$ |
(34,696,856 |
) |
| |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
5,609,395 |
|
|
|
3,516,450 |
|
|
|
1,044,453 |
|
| |
|
Compensation expense related to stock option issuance
|
|
|
475,597 |
|
|
|
629,859 |
|
|
|
— |
|
| |
|
Other
|
|
|
(539,165 |
) |
|
|
201,675 |
|
|
|
62,834 |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable, net
|
|
|
(25,432,117 |
) |
|
|
(5,610,818 |
) |
|
|
(433,065 |
) |
| |
|
|
Inventories
|
|
|
1,682,708 |
|
|
|
(1,733,357 |
) |
|
|
(1,351,257 |
) |
| |
|
|
Other current assets
|
|
|
(39,688 |
) |
|
|
(232,363 |
) |
|
|
(2,544,209 |
) |
| |
|
|
Other long-term assets
|
|
|
324,875 |
|
|
|
1,033,649 |
|
|
|
(1,484,399 |
) |
| |
|
|
Accounts payable
|
|
|
5,215,896 |
|
|
|
(1,081,441 |
) |
|
|
2,709,344 |
|
| |
|
|
Accrued and other current liabilities
|
|
|
24,176,512 |
|
|
|
5,632,587 |
|
|
|
1,612,470 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(6,063,166 |
) |
|
|
(47,702,661 |
) |
|
|
(35,080,685 |
) |
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of property and equipment
|
|
|
(1,164,801 |
) |
|
|
(2,468,685 |
) |
|
|
(2,904,669 |
) |
| |
Acquisition of business, net of cash acquired
|
|
|
(19,032 |
) |
|
|
(12,289,524 |
) |
|
|
— |
|
| |
Purchase of product rights
|
|
|
(80,000,000 |
) |
|
|
(1,000,000 |
) |
|
|
(8,000,000 |
) |
| |
Purchase of available-for-sale investments
|
|
|
(158,593,097 |
) |
|
|
— |
|
|
|
— |
|
| |
Sale and maturity of available-for-sale investments
|
|
|
32,584,820 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net cash used in investing activities
|
|
|
(207,192,110 |
) |
|
|
(15,758,209 |
) |
|
|
(10,904,669 |
) |
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from sale of preferred and common stock, net of
issuance costs
|
|
|
237,907,492 |
|
|
|
76,161,469 |
|
|
|
39,621,351 |
|
| |
Proceeds from exercise of common stock options and warrants
|
|
|
8,381,659 |
|
|
|
71,774 |
|
|
|
32,671 |
|
| |
Proceeds from issuance of convertible debt and warrants
|
|
|
— |
|
|
|
14,000,000 |
|
|
|
— |
|
| |
Payment of debt obligations
|
|
|
(3,972,033 |
) |
|
|
(1,075,924 |
) |
|
|
(7,856 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Net cash provided in financing activities
|
|
|
242,317,118 |
|
|
|
89,157,319 |
|
|
|
39,646,166 |
|
| |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,054,351 |
|
|
|
241,025 |
|
|
|
499,276 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net increase (decrease) in cash and cash equivalents
|
|
|
31,116,193 |
|
|
|
25,937,474 |
|
|
|
(5,839,912 |
) |
| |
Cash and cash equivalents, beginning of period
|
|
|
88,541,793 |
|
|
|
62,604,319 |
|
|
|
68,444,231 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents, end of year
|
|
$ |
119,657,986 |
|
|
$ |
88,541,793 |
|
|
$ |
62,604,319 |
|
| |
|
|
|
|
|
|
|
|
|
|
Noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financed property and equipment acquisitions
|
|
|
57,718 |
|
|
|
— |
|
|
|
222,705 |
|
| |
Financed product rights acquisition
|
|
|
— |
|
|
|
8,208,071 |
|
|
|
— |
|
| |
Conversion of debt and accrued interest to common stock
|
|
|
14,161,491 |
|
|
|
— |
|
|
|
|
|
| |
Accrual of additional business acquisition consideration
|
|
|
5,457,600 |
|
|
|
— |
|
|
|
— |
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest
|
|
|
485,787 |
|
|
|
237,421 |
|
|
|
3,179 |
|
| |
Cash paid for income taxes
|
|
|
1,317,307 |
|
|
|
237,389 |
|
|
|
— |
|
See accompanying notes.
F-6
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pharmion Corporation (the “Company”) was incorporated
in Delaware on August 26, 1999 and commenced operations in
January 2000. The Company is engaged in the acquisition,
development and commercialization of pharmaceutical products for
the treatment of oncology and hematology patients. The
Company’s product acquisition and licensing efforts are
focused on both late-stage development products as well as those
approved for marketing. In exchange for distribution and
marketing rights, the Company generally grants the seller
royalties on future sales and, in some cases, up-front cash
payments. To date, the Company has acquired the distribution and
marketing rights to four products, three of which are approved
for marketing and with the fourth being sold on a compassionate
use or named patient basis while the Company pursues marketing
approval. The Company has established operations in the United
States, Europe and Australia. Through a distributor network, the
Company can reach the hematology and oncology community in
additional countries in the Middle East and Asia.
On September 25, 2003, the Company effected a one for four
reverse stock split of its common stock. All share and per share
amounts included in these consolidated financial statements have
been retroactively adjusted for all periods presented to give
effect to the reverse stock split.
On November 12, 2003, the Company completed an initial
public offering, which resulted in net proceeds of
$76.2 million from the issuance of 6,000,000 shares of
common stock. In connection with the initial public offering,
all of the outstanding shares of the Company’s preferred
stock were converted into shares of common stock.
On July 7, 2004, the Company completed a public offering of
common stock. A total of 5,290,000 shares of common stock
were sold at a price to the public of $48.00 per share,
resulting in net proceeds to the Company of $237.9 million.
|
|
| 2. |
Summary of Significant Accounting Policies |
The consolidated financial statements include the accounts of
Pharmion Corporation and all subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents consist of money market accounts and
overnight deposits. The Company considers all highly liquid
investments purchased with a maturity of three months or less to
be cash equivalents. Interest income resulting from cash and
cash equivalent holdings was $2,559,956, $494,595, and $990,842
for the years ended December 31, 2004, 2003 and 2002,
respectively.
During 2004, the Company entered into an international standby
letter of credit to guarantee both current and future
commitments of a new foreign office lease agreement. The
aggregate amount outstanding under the letter of credit was
approximately $1.6 million at December 31, 2004 and is
secured by restricted cash held in U.S. cash accounts.
Short-term investments consist of investment grade government
agency and corporate debt securities due within one year.
Investments with maturities beyond one year are classified as
short-term based on their highly liquid nature and because such
investments represent the investment of cash that is available
for current operations. All investments are classified as
available-for-sale and are recorded at market value. Unrealized
gains and losses are reflected in other comprehensive income.
F-7
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Inventories consist of Vidaza, Innohep, Refludan and
thalidomide. Vidaza and Innohep are drugs that are sold
exclusively in the U.S. market, while Refludan and
thalidomide are sold in the international markets. All of the
products are manufactured by third-party manufacturers and
delivered to the Company as finished goods. Inventories are
stated at the lower of cost or market, cost being determined
under the first-in, first-out method. The Company periodically
reviews inventories and items considered outdated or obsolete
are reduced to their estimated net realizable value. For the
years ended December 31, 2004 and 2003, the Company reduced
the estimated net realizable value of obsolete and short-dated
inventory by $1.4 million and $1.8 million,
respectively.
Inventories consisted of $351,263 and $0 of raw material and
$3,336,233 and $4,923,161 of finished goods, respectively, at
December 31, 2004 and 2003.
At December 31, 2004, the Company had firm inventory
purchase commitments, due within one year, of approximately
$7.1 million.
The Company sells its products to wholesale distributors and
directly to hospitals, clinics, and retail pharmacies. Revenue
from product sales is recognized when ownership of the product
is transferred to the customer, the sales price is fixed and
determinable, and collectibility is reasonably assured. Within
the United States and certain foreign countries, revenue is
recognized upon shipment (freight on board shipping point) as
title has transferred to the customer along with the risk and
rewards of ownership. In certain other foreign countries it is
common practice that ownership transfers upon receiving the
product and, accordingly, in these circumstances revenue is
recognized upon delivery (freight on board destination) when
title effectively transfers.
Revenue is reported net of allowances for chargebacks from
distributors, product returns, rebates, and discounts.
Significant estimates are required in determining such
allowances and are based on historical data, industry
information, and information from customers. If actual results
are different from the estimates, the Company will adjust the
allowances at the time such differences become apparent.
Certain governmental health insurance providers as well as
hospitals and clinics that are members of group purchasing
organizations may be entitled to price discounts and rebates on
the Company’s products used by those organizations and
their patients. As such, the Company must estimate the
likelihood that products sold to wholesale distributors will
ultimately be subject to a rebate or price discount. This
estimate is based on historical trends and industry data on the
utilization of the Company’s products.
Cost of sales includes the cost of product sold, royalties due
on the sales of the products and the distribution and logistics
costs related to selling the products.
The Company is subject to risks common to companies in the
pharmaceutical industry including, but not limited to,
uncertainties related to regulatory approvals, dependence on key
products, dependence on key customers and suppliers, and
protection of proprietary rights.
F-8
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The Company expenses all advertising, promotional and
publication costs as incurred. Total advertising costs were
approximately $5,606,000, $2,218,000 and $1,914,000 for the
years ended December 31, 2004, 2003 and 2002, respectively.
|
|
|
Translation of Foreign Currencies |
The functional currencies of the Company’s foreign
subsidiaries are the local currencies, primarily the British
Pound Sterling, Euro and Swiss Franc. In accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 52, Foreign Currency Translation, assets and
liabilities are translated using the current exchange rate as of
the balance sheet date. Income and expenses are translated using
a weighted average exchange rate over the period ending on the
balance sheet date. Adjustments resulting from the translation
of the financial statements of the Company’s foreign
subsidiaries into U.S. dollars are excluded from the
determination of net loss and are accumulated in a separate
component of stockholders’ equity. Foreign exchange
transaction gains and losses which, to date have not been
significant, are included in the results of operations.
The Company reports comprehensive income in accordance with the
provisions of SFAS No. 130, Reporting Comprehensive
Income. Comprehensive income includes all changes in equity
for cumulative translation adjustments resulting from the
consolidation of foreign subsidiaries and unrealized losses on
available for sale securities.
The cost of acquiring the distribution and marketing rights of
the Company’s products were capitalized and are being
amortized on a straight-line basis over the estimated benefit
period of 10-15 years.
The Company completed a business acquisition in 2003, which
resulted in the creation of goodwill. In accordance with
SFAS No. 142, “Goodwill and Other Intangible
Assets,” the Company does not amortize goodwill.
SFAS No. 142 requires the Company to perform an
impairment review of goodwill at least annually. If it is
determined that the value of goodwill is impaired, the Company
will record the impairment charge to the statement of operations
in the period it is discovered. During the year ended
December 31, 2004, the Company recorded an increase of
$5,457,600 to goodwill to reflect additional consideration due
the seller of the business acquired in 2003 (see Note 4).
Property and equipment are stated at cost. Repairs and
maintenance are charged to operations as incurred, and
significant expenditures for additions and improvements are
capitalized. Leasehold improvements are amortized over the
economic life of the asset or the lease term, whichever is
shorter. Depreciation
F-9
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
and amortization of property and equipment are computed using
the straight-line method based on the following estimated useful
lives:
| |
|
|
|
|
| |
|
Estimated Useful Life | |
| |
|
| |
|
Computer hardware and software
|
|
|
3 years |
|
|
Leasehold improvements
|
|
|
3-5 years |
|
|
Equipment
|
|
|
7 years |
|
|
Furniture and fixtures
|
|
|
10 years |
|
Long-lived assets, other than goodwill, consist primarily of
product rights, and property and equipment. In accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the recoverability of the
carrying value of long-lived assets to be held and used is
evaluated if changes in the business environment or other facts
and circumstances that suggest they may be impaired. If this
evaluation indicates the carrying value will not be recoverable,
based on the undiscounted expected future cash flows generated
by these assets, the Company reduces the carrying amount to the
estimated fair value.
|
|
|
Concentration of Credit Risk |
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and cash
equivalents, short-term investments and accounts receivable. The
Company maintains its cash and investment balances in the form
of money market accounts, debt and equity securities and
overnight deposits with financial institutions that management
believes are creditworthy. The Company has no financial
instruments with off-balance-sheet risk of accounting loss.
The Company’s products are sold both to wholesale
distributors and directly to hospitals and clinics. Ongoing
credit evaluations of customers are performed and collateral is
generally not required. Many of the international hospitals and
clinics are government supported and may take a significant
amount of time to collect. Accounts receivable, net of
allowances, for the U.S. were $12.9 million and $0,
respectively at December 31, 2004 and 2003. International
accounts receivable net of allowances, were $22.3 million
and $8.0 million, respectively, at December 31, 2004
and 2003. The Company maintains a reserve for potential credit
losses based on the financial condition of customers and the
aging of accounts. Losses have been within management’s
expectations.
In 2004, 2003 and 2002, revenues generated from three customers
in the United States totaled approximately 35%, 13% and 37%,
respectively, of consolidated net revenues. Revenues generated
from international customers were individually less than 5% of
consolidated net revenues.
|
|
|
Clinical, Development and Regulatory Costs |
Clinical, development, and regulatory costs include salaries,
benefits and other personnel related expenses as well as fees
paid to third parties for clinical development and regulatory
services. Such costs are expensed as incurred.
|
|
|
Fair Value of Financial Instruments |
Financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable
and accrued liabilities. The carrying values of these
instruments approximate fair value due to their short-term
nature.
F-10
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
|
|
|
Accounting for Stock-Based Compensation |
The Company has elected to account for its stock compensation
arrangements to employees under the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB No. 25”), and its
related interpretations. Under the provisions of APB
No. 25, the company utilizes the intrinsic value method of
accounting. Under this method, compensation expense is
recognized on the date of grant if the current market price of
the underlying stock exceeds the exercise price. The difference
in value between the current market price and the exercise price
is recorded as deferred compensation and is amortized to expense
over the vesting period of the option on a straight-line basis.
Pro forma information regarding net loss is required by
SFAS No. 123, Accounting for Stock-Based
Compensation, and has been determined as if the Company had
accounted for its employee stock options under the fair value
method of that statement. The fair value for options granted was
estimated at the date of grant using the Black-Scholes valuation
model. Under this model, the following weighted average
assumptions were used:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Expected stock price volatility
|
|
|
76 |
% |
|
|
86 |
% |
|
|
85 |
% |
|
Risk free interest rate
|
|
|
2.9 |
% |
|
|
2.8 |
% |
|
|
2.9 |
% |
|
Expected life of options
|
|
|
4.6 years |
|
|
|
5 years |
|
|
|
5 years |
|
The expected stock price volatility was estimated using
percentages reported by similar public companies within the
pharmaceutical industry as well as trading history of the
Company’s common stock. The weighted-average fair value per
share was $20.67, $8.98, and $1.33 for the options granted in
2004, 2003, and 2002, respectively. The difference between the
actual expense recorded and pro forma expense for all periods
presented is provided in the table below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net loss attributable to common stockholders as reported
|
|
$ |
(17,537,179 |
) |
|
$ |
(60,149,873 |
) |
|
$ |
(43,272,500 |
) |
|
Add stock based compensation expense included in net loss
|
|
|
475,597 |
|
|
|
585,710 |
|
|
|
— |
|
|
Deduct total stock based compensation expense determined using
the fair value method for all rewards
|
|
|
(3,821,369 |
) |
|
|
(931,910 |
) |
|
|
(315,318 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(20,882,951 |
) |
|
$ |
(60,496,073 |
) |
|
$ |
(43,587,818 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
As reported
|
|
$ |
(.63 |
) |
|
$ |
(14.70 |
) |
|
$ |
(57.58 |
) |
|
Pro forma
|
|
|
(.75 |
) |
|
|
(14.78 |
) |
|
|
(58.00 |
) |
Option valuation models such as the Black-Scholes value method
described above require the input of highly subjective
assumptions. Because the Company’s employee stock options
have characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can
F-11
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
materially affect the fair value estimate, in the opinion of the
Company’s management, the existing models do not
necessarily provide a reliable single measure of the fair value
of its employee stock options.
The Company accounts for options issued to consultants using the
provisions of SFAS No. 123 and Emerging Issues Task
Force (“EITF”) 96-18, Accounting for Equity
Instruments that are Issued to other than Employees for
Acquiring or in Conjunction with Selling Goods or Services.
Basic net loss per share is computed by dividing net loss for
the period by the weighted average number of shares of common
stock outstanding during the period reduced, where applicable,
for outstanding, yet unvested, shares. Diluted net loss per
share is computed by dividing the net loss for the period by the
weighted average number of common and potential incremental
common shares outstanding during the period, if their effect is
dilutive. Potential incremental common shares include shares of
common stock issuable upon the exercise of stock options and
warrants and upon the conversion of convertible notes and
redeemable convertible preferred stock outstanding during the
period. The potential shares of common stock have not been
included in the diluted net loss per share calculation because
to do so would be anti-dilutive. Such shares totaled 1,599,076,
3,625,180, and 5,800,304 for the years ended December 31,
2004, 2003 and 2002, respectively.
|
|
|
Pro Forma Net Loss Per Share |
Immediately prior to the effective date of the Company’s
initial public offering (November 12, 2003), all redeemable
convertible preferred stock shares outstanding converted into an
aggregate of 17,030,956 shares of common stock. The pro
forma net loss per share was calculated on the consolidated
statement of operations for fiscal years 2003 and 2002 to show
the effects of this conversion on earnings per share. It is
computed by dividing net loss before accretion of redeemable
convertible preferred stock by the weighted average number of
common shares outstanding, including the pro forma effects of
conversion of all outstanding redeemable convertible preferred
stock into shares of the Company’s common stock.
|
|
|
Recently Issued Accounting Standards |
On December 16, 2004, the Financial Accounting Standards
Board issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation.
SFAS No. 123(R) supersedes APB No. 25, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
SFAS No. 123(R) must be adopted no later than
July 1, 2005. Early adoption will be permitted in periods
in which financial statements have not yet been issued. The
Company expects to adopt SFAS No. 123(R) on
July 1, 2005.
SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
| |
• |
A “modified prospective” method in which compensation
cost is recognized beginning with the effective date
(a) based on the requirements of SFAS No. 123(R)
for all share-based payments granted after the effective date
and (b) based on the requirements of SFAS No. 123
for all rewards granted to employees prior to the effective date
of SFAS No. 123(R) that remain unvested on the
effective date; or |
F-12
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
|
| |
• |
A “modified retrospective” method which includes the
requirements of the modified prospective method described above,
but also permits entities to restate based on the amounts
previously recognized under SFAS 123 for purposes of pro
forma disclosures either (a) all prior periods or
(b) prior interim periods of the year of adoption. |
The Company is still evaluating which method it will adopt on
July 1, 2005.
|
|
| 3. |
Geographic Information |
Foreign and domestic financial information (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
United | |
|
Foreign | |
|
|
| |
|
Year | |
|
States | |
|
Entities | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
Net Sales
|
|
|
2004 |
|
|
$ |
55,642 |
|
|
$ |
74,529 |
|
|
$ |
130,171 |
|
| |
|
|
2003 |
|
|
|
3,751 |
|
|
|
21,788 |
|
|
|
25,539 |
|
| |
|
|
2002 |
|
|
|
2,100 |
|
|
|
2,635 |
|
|
|
4,735 |
|
|
Operating income (loss)
|
|
|
2004 |
|
|
$ |
(16,472 |
) |
|
$ |
4,373 |
|
|
$ |
(12,099 |
) |
| |
|
|
2003 |
|
|
|
(32,899 |
) |
|
|
(15,720 |
) |
|
|
(48,619 |
) |
| |
|
|
2002 |
|
|
|
(26,114 |
) |
|
|
(9,587 |
) |
|
|
(35,701 |
) |
|
Total Assets
|
|
|
2004 |
|
|
$ |
235,958 |
|
|
$ |
175,272 |
|
|
$ |
411,230 |
|
| |
|
|
2003 |
|
|
|
90,295 |
|
|
|
55,178 |
|
|
|
145,473 |
|
|
|
| 4. |
Acquisition of Laphal Développement |
On March 25, 2003, a subsidiary of the Company acquired
100% of the outstanding stock of Gophar S.A.S. and its wholly
owned subsidiary, Laphal Développement S.A. (collectively,
“Laphal”). Laphal is a French pharmaceutical company
focused on the sale of orphan drugs primarily in France and
Belgium. Under the terms of the related Stock Purchase Agreement
(“SPA”), the Company paid
€12 million
at closing, less the amount of Laphal’s net financial debt
(as defined in the SPA). The actual amount of cash paid for
Laphal, net of cash received in the acquisition and including
transaction costs incurred was approximately $12.3 million.
Two additional payments of
€4 million
each will be paid if certain aggregate sales targets are
achieved. The first of their sales targets was achieved in the
fourth quarter of 2004, and as such, the
€4 million
(approximately $5.4 million) payment due the former
shareholders of Gophar is accrued in the accompanying financial
statements as of December 31, 2004. As a result of this
purchase, the Company acquired the rights to the Laphal
thalidomide formulation and access to certain European markets.
F-13
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The following assets and liabilities were acquired in the
acquisition of Laphal.
| |
|
|
|
|
|
| |
|
As of March 25, | |
| |
|
2003 | |
| |
|
| |
|
Current assets:
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
1,551,479 |
|
| |
Accounts receivable
|
|
|
1,096,486 |
|
| |
Inventories
|
|
|
413,707 |
|
| |
Other current assets
|
|
|
496,447 |
|
| |
|
|
|
|
Total current assets
|
|
|
3,558,119 |
|
|
Product rights
|
|
|
13,723,231 |
|
|
Goodwill
|
|
|
3,651,804 |
|
|
Property and equipment, net
|
|
|
8,743 |
|
| |
|
|
|
|
Total assets acquired
|
|
|
20,941,897 |
|
| |
|
|
|
|
Current liabilities:
|
|
|
|
|
| |
Accounts payable
|
|
$ |
1,353,288 |
|
| |
Accrued and other current liabilities
|
|
|
1,206,851 |
|
| |
Long-term debt, due within one year
|
|
|
277,006 |
|
| |
|
|
|
|
Total current liabilities
|
|
|
2,837,145 |
|
|
Deferred tax liability
|
|
|
3,651,804 |
|
|
Long-term debt
|
|
|
576,100 |
|
| |
|
|
|
|
Total liabilities assumed
|
|
$ |
7,065,049 |
|
| |
|
|
|
|
Net assets acquired
|
|
$ |
13,876,848 |
|
| |
|
|
|
The operating results of Laphal have been included in the
results of the Company from the date of the acquisition. Product
rights relate to thalidomide and are being amortized over the
15 year period in which the Company expects to generate
significant revenues from this product.
The following pro forma combined financial information for the
years ended December 31, 2003 and 2002 is derived from the
historical financial statements of the Company and of Laphal for
the periods then ended, adjusted to give effect to their
consolidation using the purchase method of accounting and to
reflect interest costs on the convertible notes issued by the
Company to fund the acquisition. This pro forma financial
information assumes the acquisition of Laphal occurred as of the
beginning of the periods shown. It is provided for illustrative
purposes only and is not indicative of the operating results
that would have been achieved had the acquisition been
consummated at the dates indicated, nor is it necessarily
indicative of future operating results:
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
Year Ended | |
| |
|
December 31, | |
|
December 31, | |
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
Net sales
|
|
$ |
27,326,566 |
|
|
$ |
10,283,058 |
|
|
Net loss
|
|
$ |
(50,426,996 |
) |
|
$ |
(36,374,903 |
) |
|
Net loss attributable to common stockholders per common share,
basic and diluted
|
|
$ |
(14.79 |
) |
|
$ |
(59.81 |
) |
F-14
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
| 5. |
Short-term Investments |
The amortized cost, gross unrealized gains, gross unrealized
losses and fair value of available-for-sale investments by
security classification at December 31, 2004, was as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
Estimated Fair | |
| December 31, 2004 |
|
Amortized Cost | |
|
Unrealized Gain | |
|
Unrealized Loss | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Asset backed securities
|
|
$ |
17,500,097 |
|
|
|
$— |
|
|
$ |
(66,550 |
) |
|
$ |
17,433,547 |
|
|
Corporate debt securities
|
|
|
28,688,241 |
|
|
|
|
|
|
|
(48,763 |
) |
|
|
28,639,478 |
|
|
Government agencies
|
|
|
77,194,609 |
|
|
|
— |
|
|
|
(158,545 |
) |
|
|
77,036,064 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities
|
|
|
2,775,749 |
|
|
|
— |
|
|
|
— |
|
|
|
2,775,749 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$ |
126,158,696 |
|
|
|
$— |
|
|
$ |
(273,858 |
) |
|
$ |
125,884,838 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2004, the gross realized
gains on sales of available-for-sale securities totaled $342,809
and the gross realized losses totaled $(181,333). The gains and
losses on available-for-sale securities are based on the
specific identification method.
The fair value of available-for-sale securities with unrealized
losses at December 31, 2004 was as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
| December 31, 2004 |
|
Amortized Cost | |
|
Unrealized Loss | |
| |
|
| |
|
| |
|
Asset backed securities
|
|
$ |
17,500,097 |
|
|
$ |
(66,550 |
) |
|
Corporate debt securities
|
|
|
28,688,241 |
|
|
|
(48,763 |
) |
|
Government agencies
|
|
|
77,194,609 |
|
|
|
(158,545 |
) |
| |
|
|
|
|
|
|
|
Total securities
|
|
$ |
123,382,947 |
|
|
$ |
(273,858 |
) |
| |
|
|
|
|
|
|
Unrealized losses were due to changes to interest rates
associated with securities with short maturity lives and are
deemed to be temporary. The duration in which the securities
have been in an unrealized loss position was less than
12 months.
The amortized cost and estimated fair value of the
available-for-sale securities at December 31, 2004, by
maturity, was as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Estimated Fair | |
| Maturity |
|
Amortized Cost | |
|
Value | |
| |
|
| |
|
| |
|
Due within one year
|
|
$ |
122,904,838 |
|
|
$ |
122,639,250 |
|
|
Due after one year through three years
|
|
|
3,245,588 |
|
|
|
3,245,588 |
|
| |
|
|
|
|
|
|
|
Total securities
|
|
$ |
126,158,696 |
|
|
$ |
125,884,838 |
|
| |
|
|
|
|
|
|
F-15
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The cost value and accumulated amortization associated with the
Company’s product rights is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, 2004 | |
|
As of December 31, 2003 | |
| |
|
| |
|
| |
| |
|
Gross | |
|
|
|
Gross | |
|
|
| |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Accumulated | |
| |
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amortization | |
| |
|
| |
|
| |
|
| |
|
| |
|
Amortized product rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thalidomide
|
|
$ |
97,242,280 |
|
|
$ |
(2,509,252 |
) |
|
$ |
15,849,130 |
|
|
$ |
(791,337 |
) |
|
Refludan
|
|
|
12,208,071 |
|
|
|
(2,212,732 |
) |
|
|
12,208,071 |
|
|
|
(865,045 |
) |
|
Innohep
|
|
|
5,000,000 |
|
|
|
(1,250,000 |
) |
|
|
5,000,000 |
|
|
|
(750,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product rights
|
|
$ |
114,450,351 |
|
|
$ |
(5,971,984 |
) |
|
$ |
33,057,201 |
|
|
$ |
(2,406,382 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of $3,395,504, $1,971,620, and $375,439 was
recorded for the years ended December 31, 2004, 2003 and
2002, respectively. The estimated amortization expense for the
next five years is approximately $9 million per year.
In 2001, the Company licensed rights relating to the development
and commercial use of thalidomide from Celgene and separately
entered into an exclusive supply agreement for thalidomide with
Celgene UK Manufacturing II Limited (formerly known as
“Penn T Limited”), or CUK. Under the agreements, as
amended in December 2004, the territory licensed from Celgene is
for all countries other than the United States, Canada, Mexico,
Japan and all provinces of China (except Hong Kong).The Company
pays (i) Celgene a royalty/license fee of 8% on the
Company’s net sales of thalidomide under the terms of the
license agreements, and (ii) CUK product supply payments
equal to 15.5% of the Company’s net sales of thalidomide
under the terms of the product supply agreement. The agreements
with Celgene and CUK each have a ten-year term running from the
date of receipt of the Company’s first regulatory approval
for thalidomide in the United Kingdom. In October of 2004,
Celgene acquired CUK.
In December 2004, the Company amended its thalidomide agreements
with Celgene and CUK to reduce the thalidomide product supply
payment, expand the Company’s licensed territory, and
eliminate certain license termination rights held by Celgene.
The Company paid Celgene a one-time payment of $80 million
in exchange for (i) the reduction in the cost of product
supply from 28.0% of net sales to 15.5% of net sales,
(ii) the addition of Korea, Hong Kong, and Taiwan to the
Company’s licensed territory and, (iii) elimination of
Celgene’s right to terminate the license agreement in the
event the Company has not obtained a marketing authorization
approval for thalidomide in the United Kingdom by November 2006.
The $80 million payment was capitalized as part of the
thalidomide product rights and is being amortized over the
remaining period the Company expects to generate significant
thalidomide sales, approximately 13 years from
December 31, 2004.
The Company has also committed to provide funding to support
further clinical development studies of thalidomide sponsored by
Celgene. Under these agreements, the Company will pay Celgene
$4.7 million in 2005 and $2.65 million in each of 2006
and 2007.
In connection with the 2003 acquisition of Laphal (see
Note 4), the Company acquired rights to Laphal’s
formulation of thalidomide. The portion of the purchase price
allocated to thalidomide has been included in product rights,
net on the accompanying balance sheet.
F-16
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
In 2001, the Company licensed worldwide rights to Vidaza
(azacitidine) from Pharmacia & Upjohn Company, now
part of Pfizer, Inc. Under terms of the license agreement, the
Company is responsible for all costs to develop and market
Vidaza and the Company pays Pfizer a royalty equal to 20% of
Vidaza net sales. No up-front or milestone payments have or will
be made to Pfizer. The license has a term extending for the
longer of the last to expire of valid patent claims in any given
country or ten years from the first commercial sale of the
product in a particular country.
In May 2002, the Company entered into agreements to acquire the
exclusive right to market and distribute Refludan in all
countries outside the U.S. and Canada. These agreements, as
amended in August 2003, transferred all marketing authorizations
and product registrations for Refludan in the individual
countries within the Company’s territories. The Company has
paid Schering an aggregate of $9 million to date and is
obligated to make four additional fixed payments to Schering,
payable in quarterly installments of $1 million through the
end of 2005. The value of the total cash payments made and the
present value of future payments is $12.2 million, which
was capitalized to product rights and is being amortized over
the 10 year period during which the Company expects to
generate revenue. Additional payments of up to $7.5 million
will be due Schering upon achievement of certain milestones.
Because such payments are contingent upon future events, they
are not reflected in the accompanying financial statements. In
addition, the Company paid Schering an 8% royalty on net sales
of Refludan through December 31, 2003 and will pay a
royalty of 14% of net sales of Refludan thereafter until the
aggregate royalty payments total $12.0 million measured
from January 2004. At that time, the royalty rate will be
reduced to 6%.
In June 2002, the Company entered into a 10 year agreement
with LEO Pharma A/ S for the license of the low molecular weight
heparin, Innohep. Under the terms of the agreement, the Company
acquired an exclusive right and license to market and distribute
Innohep in the United States. On the closing date the Company
paid $5 million for the license, which is capitalized as
product rights and is being amortized over a 10 year period
in which the Company expects to generate significant revenues.
On the closing date, the Company paid an additional
$2.5 million, which is creditable against royalty payments
otherwise due during the period ending March 1, 2005. In
addition, the Company is obligated to pay LEO Pharma royalties
at the rate of 30% of net sales on annual net sales of up to
$20 million and at the rate of 35% of net sales on annual
net sales exceeding $20 million, less in each case the
Company’s purchase price from LEO Pharma of the units of
product sold. Furthermore, the agreement contains a minimum net
sales clause that is effective for two consecutive two-year
periods. If the company does not achieve these minimum sales
levels for two consecutive years, it has the right to pay LEO
Pharma additional royalties up to the amount LEO Pharma would
have received had the company achieved these net sales levels.
If the company opts not to make the additional royalty payment,
LEO Pharma has the right to terminate the license agreement. The
second of the two-year terms will conclude on December 31,
2006.
F-17
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
| 7. |
Property and Equipment |
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Property and equipment:
|
|
|
|
|
|
|
|
|
| |
Computer hardware and software
|
|
$ |
5,171,173 |
|
|
$ |
4,251,895 |
|
| |
Furniture and fixtures
|
|
|
1,497,455 |
|
|
|
1,311,303 |
|
| |
Equipment
|
|
|
1,142,592 |
|
|
|
827,681 |
|
| |
Leasehold improvements
|
|
|
1,288,820 |
|
|
|
1,213,363 |
|
| |
|
|
|
|
|
|
| |
|
|
9,100,040 |
|
|
|
7,604,242 |
|
|
Less accumulated depreciation
|
|
|
(4,816,277 |
) |
|
|
(2,554,822 |
) |
| |
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$ |
4,283,763 |
|
|
$ |
5,049,420 |
|
| |
|
|
|
|
|
|
Depreciation expense was $2,213,891, $1,544,830, and $669,014
for the years ended December 31, 2004, 2003 and 2002,
respectively.
|
|
| 8. |
Accrued and Other Current Liabilities |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
|
Royalties payable
|
|
$ |
10,695,532 |
|
|
$ |
2,040,588 |
|
|
Income taxes payable
|
|
|
7,319,821 |
|
|
|
1,035,652 |
|
|
Product rights and notes payable
|
|
|
4,332,811 |
|
|
|
3,988,456 |
|
|
Accrued salaries and benefits
|
|
|
11,107,500 |
|
|
|
3,180,228 |
|
|
Accrued operating expenses
|
|
|
12,107,167 |
|
|
|
4,554,513 |
|
| |
|
|
|
|
|
|
| |
|
$ |
45,562,831 |
|
|
$ |
14,799,437 |
|
| |
|
|
|
|
|
|
|
|
| 9. |
Other Long-term Liabilities |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Product rights payable
|
|
$ |
3,831,399 |
|
|
$ |
7,398,544 |
|
|
Notes payable
|
|
|
719,240 |
|
|
|
1,069,179 |
|
| |
|
|
|
|
|
|
| |
|
|
4,550,639 |
|
|
|
8,467,723 |
|
|
Current portion of product rights and notes payable
|
|
|
(4,332,811 |
) |
|
|
(3,988,456 |
) |
| |
|
|
|
|
|
|
|
Other long term liabilities
|
|
$ |
217,828 |
|
|
$ |
4,479,267 |
|
| |
|
|
|
|
|
|
F-18
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
In August 2003, the Company restructured the purchase of
Refludan product rights with Schering AG and agreed to make a
$1 million payment upon execution of the agreement and nine
future quarterly payments of $1 million commencing in
December 2003. The future payments were discounted at
7% per annum, to determine the present value of the product
rights payable balance. Maturities of other long-term
liabilities are as follows:
| |
|
|
|
|
|
2005
|
|
$ |
4,332,811 |
|
|
2006
|
|
|
147,234 |
|
|
2007
|
|
|
67,772 |
|
|
2008
|
|
|
2,822 |
|
| |
|
|
|
| |
|
$ |
4,550,639 |
|
| |
|
|
|
|
|
| 10. |
Convertible Notes Payable |
In April 2003, the Company issued $14 million of
6% convertible notes with interest payable annually.
Holders of the notes also received warrants to purchase an
aggregate of 424,242 shares of the Company’s common
stock at a price of $11.00 per share. The value of the
warrants was reflected as an additional debt discount to be
amortized over the term of the debt or 5 years. Effective
March 1, 2004, the $14 million of convertible notes
plus accrued interest were converted into 1,342,170 shares
of common stock. The remaining unamortized debt discount was
recorded as a decrease to equity.
|
|
| 11. |
Leases and Other Commitments |
The Company leases office space and equipment under various
noncancelable operating lease agreements. One of these
agreements has a renewal term which allows the Company to extend
this lease up to six years, or through 2013. Rental expense was
$2,874,934, $1,561,425, and $943,635 for the years ended
December 31, 2004, 2003 and 2002, respectively.
As of December 31, 2004, future minimum rental commitments,
by fiscal year and in the aggregate, for the Company’s
operating leases are as follows:
| |
|
|
|
|
|
2005
|
|
$ |
3,074,579 |
|
|
2006
|
|
|
3,108,750 |
|
|
2007
|
|
|
2,531,770 |
|
|
2008
|
|
|
1,645,935 |
|
|
2009
|
|
|
1,435,646 |
|
| |
|
|
|
|
Total minimum lease payments
|
|
$ |
11,796,680 |
|
| |
|
|
|
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Under the provisions of SFAS No. 109, a deferred tax
liability or asset (net of a valuation allowance) is provided in
the financial statements by applying the provisions of
applicable tax laws to measure the deferred tax consequences of
temporary differences that will result in net taxable or
deductible amounts in future years as a result of events
recognized in the financial statements in the current or
preceding years.
At December 31, 2004, the Company has federal, state, and
foreign net operating loss carryforwards for income tax purposes
of approximately $111.8 million, which will expire in the
years 2019 through 2024 if not utilized.
F-19
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating loss and tax credit carryforwards
if there has been a “change of ownership” as described
in Section 382 of the Internal Revenue Code. Such a change
of ownership may limit the Company’s utilization of its net
operating loss and tax credit carryforwards, and could be
triggered by subsequent sales of securities by the Company or
its stockholders.
The components of the Company’s deferred tax assets and
liabilities are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Net operating loss
|
|
$ |
28,550,438 |
|
|
$ |
18,822,182 |
|
| |
Credit carryforwards
|
|
|
6,513,802 |
|
|
|
4,195,219 |
|
| |
Organization costs
|
|
|
3,406,902 |
|
|
|
4,769,663 |
|
| |
Allowance on accounts receivable
|
|
|
815,237 |
|
|
|
301,476 |
|
| |
Depreciation
|
|
|
140,025 |
|
|
|
(143,883 |
) |
| |
Other
|
|
|
511,395 |
|
|
|
400,133 |
|
| |
|
|
|
|
|
|
| |
|
Total gross deferred tax assets
|
|
|
39,937,799 |
|
|
|
28,344,790 |
|
| |
|
Valuation allowance
|
|
|
(39,205,040 |
) |
|
|
(28,282,751 |
) |
| |
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
|
732,759 |
|
|
|
62,039 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Amortization of product rights
|
|
|
(3,437,962 |
) |
|
|
(3,559,476 |
) |
| |
Prepaid expenses
|
|
|
(730,964 |
) |
|
|
(154,366 |
) |
| |
Other
|
|
|
(169,554 |
) |
|
|
(12,815 |
) |
| |
|
|
|
|
|
|
| |
|
Total gross deferred tax liabilities
|
|
|
(4,338,480 |
) |
|
|
(3,726,657 |
) |
| |
|
|
|
|
|
|
| |
|
|
Net deferred tax liability
|
|
$ |
(3,605,721 |
) |
|
$ |
(3,664,618 |
) |
| |
|
|
|
|
|
|
A valuation allowance was recorded in 2004 and 2003 due to the
Company’s inability to determine if it is more likely than
not that the deferred tax asset will be realized in future
periods.
The Company’s effective tax rate differs from the federal
income tax rate for the following reasons:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Expected federal income tax benefit (expense) at statutory rate
|
|
|
34.0 |
% |
|
|
34.0 |
% |
|
Effect of permanent differences
|
|
|
(10.4 |
)% |
|
|
(4.4 |
)% |
|
State income tax, net of federal benefit
|
|
|
(6.4 |
)% |
|
|
1.2 |
% |
|
Effect of tax credits
|
|
|
23.9 |
% |
|
|
5.3 |
% |
|
Effect of foreign operations
|
|
|
(50.2 |
)% |
|
|
(5.0 |
)% |
|
Valuation allowance
|
|
|
(72.0 |
)% |
|
|
(33.7 |
)% |
| |
|
|
|
|
|
|
| |
|
|
(81.1 |
)% |
|
|
(2.6 |
)% |
F-20
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
The provision (benefit) for income taxes is comprised of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
| |
State
|
|
|
618,802 |
|
|
|
194,496 |
|
|
|
— |
|
| |
Foreign
|
|
|
7,647,744 |
|
|
|
1,090,977 |
|
|
|
105,255 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,266,546 |
|
|
|
1,285,473 |
|
|
|
105,255 |
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
(8,283,747 |
) |
|
|
(7,067,508 |
) |
|
|
— |
|
| |
State
|
|
|
(714,122 |
) |
|
|
(609,273 |
) |
|
|
— |
|
| |
Foreign
|
|
|
(2,236,232 |
) |
|
|
(3,986,714 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(11,234,101 |
) |
|
|
(11,663,495 |
) |
|
|
— |
|
|
Valuation allowance
|
|
|
10,820,622 |
|
|
|
11,663,495 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,853,067 |
|
|
$ |
1,285,473 |
|
|
$ |
105,255 |
|
| |
|
|
|
|
|
|
|
|
|
The Company reported net income (loss) before tax from
operations within the U.S. of $(14,027,515), $(32,145,779) and
$(18,406,402) and from foreign operations of $4,343,403,
$(16,627,650) and $(16,185,199), respectively, for the years
ended December 31, 2004, 2003 and 2002.
In 2000, the Company’s Board of Directors approved the 2000
Stock Incentive Plan (the “2000 Plan”) and, as of
December 31, 2004, has authorized 3,258,000 shares of
stock to be reserved under the plan. The 2000 Plan provides for
awards of both nonstatutory stock options and incentive stock
options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and stock purchase rights to
purchase shares of the Company’s common stock. A total of
481,093 shares of common stock are available for future
stock option issuance to eligible employees, consultants, and
directors of the Company as of December 31, 2004.
In 2001, the Company’s Board of Directors approved the 2001
Non-Employee Director Stock Option Plan (the “2001
Plan”) and, as of December 31, 2004, has authorized
425,000 shares of stock to be reserved under the plan. The
2001 Plan provides for awards of nonstatutory stock options
only. A total of 193,750 shares of common stock are
available for future stock option issuance to directors of the
Company as of December 31, 2004.
The 2000 Plan and the 2001 Plan are administered by the
compensation committee of the Board of Directors, which has the
authority to select the individuals to whom awards will be
granted and to determine whether and to what extent stock
options and stock purchase rights are to be granted, the number
of shares of common stock to be covered by each award, the
vesting schedule of stock options, generally over a period of
four years, and all other terms and conditions of each award.
The grants expire seven and ten years from the date of
grant for the 2000 and 2001 Plans, respectively.
In September 2003, the Board of Directors amended both the 2000
and 2001 plans to allow for automatic “evergreen”
annual additions to the stock options available for grant not to
exceed 500,000 shares and 50,000 shares, respectively.
F-21
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
A summary of the Plans’ activity is as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
Number of | |
|
Weighted Average | |
| |
|
Options | |
|
Exercise Price | |
| |
|
| |
|
| |
|
Balance, January 1, 2002
|
|
|
237,379 |
|
|
$ |
0.68 |
|
| |
Granted
|
|
|
1,142,738 |
|
|
|
1.96 |
|
| |
Exercised
|
|
|
(42,177 |
) |
|
|
0.76 |
|
| |
Terminated or expired
|
|
|
(15,948 |
) |
|
|
0.56 |
|
| |
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
1,321,992 |
|
|
|
1.76 |
|
| |
Granted
|
|
|
610,219 |
|
|
|
9.21 |
|
| |
Exercised
|
|
|
(53,190 |
) |
|
|
1.38 |
|
| |
Terminated or expired
|
|
|
(60,809 |
) |
|
|
1.91 |
|
| |
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
1,818,212 |
|
|
|
4.28 |
|
| |
Granted
|
|
|
1,110,303 |
|
|
|
34.87 |
|
| |
Exercised
|
|
|
(373,436 |
) |
|
|
2.22 |
|
| |
Terminated or expired
|
|
|
(154,395 |
) |
|
|
8.52 |
|
| |
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
2,400,684 |
|
|
$ |
18.47 |
|
| |
|
|
|
|
|
|
A summary of options outstanding as of December 31, 2004,
is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding Options | |
|
Exercisable Options | |
| |
|
| |
|
| |
| |
|
|
|
Weighted- | |
|
Weighted- | |
|
Shares | |
|
Weighted- | |
| |
|
|
|
Average | |
|
Average | |
|
Currently | |
|
Average | |
| |
|
Shares | |
|
Remaining | |
|
Exercise | |
|
Vested and | |
|
Exercise | |
| Range of Exercise Prices |
|
Under Option | |
|
Contractual Life | |
|
Price | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$0.40 to 1.60
|
|
|
497,668 |
|
|
|
4.5 |
|
|
$ |
1.52 |
|
|
|
465,807 |
|
|
$ |
1.52 |
|
|
$1.61 to 2.40
|
|
|
481,876 |
|
|
|
5.4 |
|
|
$ |
2.40 |
|
|
|
430,772 |
|
|
$ |
2.40 |
|
|
$2.41 to 20.00
|
|
|
388,688 |
|
|
|
5.9 |
|
|
$ |
13.96 |
|
|
|
71,336 |
|
|
$ |
13.59 |
|
|
$20.01 to 30.00
|
|
|
372,377 |
|
|
|
6.3 |
|
|
$ |
21.95 |
|
|
|
— |
|
|
$ |
— |
|
|
$30.01 to 40.00
|
|
|
140,850 |
|
|
|
7.0 |
|
|
$ |
39.31 |
|
|
|
25,000 |
|
|
$ |
39.98 |
|
|
$40.01 to 50.00
|
|
|
427,725 |
|
|
|
7.0 |
|
|
$ |
43.68 |
|
|
|
25,000 |
|
|
$ |
48.26 |
|
|
$50.01 to 52.27
|
|
|
91,500 |
|
|
|
6.8 |
|
|
$ |
50.43 |
|
|
|
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,400,684 |
|
|
|
5.9 |
|
|
$ |
18.47 |
|
|
|
1,017,915 |
|
|
$ |
4.83 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the period January 1, 2003 through November 5,
2003, options were granted to employees and directors at
exercise prices that were less than the estimated fair value of
the underlying shares of common stock as of the grant date. In
accordance with APB No. 25, deferred compensation expense
is being recognized for the excess of the estimated fair value
of the Company’s common stock as of the grant date over the
exercise price of the options and amortized to expense on a
straight-line basis over the vesting periods of the related
options, which is generally four years. The Company
recorded compensation expense totaling $475,597 and $585,710 for
the years ended December 31, 2004 and 2003 respectively. As
of December 31, 2004 and 2003, the unamortized compensation
expense recorded as deferred compensation within the statement
of stockholders’ equity was $679,572 and $1,155,169,
respectively.
F-22
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
| 14. |
Common and Redeemable Convertible Preferred Stock |
On January 4, 2000, the Company issued 667,000 shares
of its common stock to founders for $2,000. On January 5,
2000, the Company executed a restricted stock agreement
pertaining to the issuance of these shares to its founders.
Under this agreement, 33.33% of these shares vested immediately
while the remaining shares vest over a term of forty-eight
months. As a result, the Company’s 2004, 2003 and
2002 statements of operations reflect $0, $44,149, and
$44,160, respectively, of stock compensation related to this
arrangement.
|
|
|
Redeemable Convertible Preferred Stock |
In January 2000, the Company issued 5,069,792 shares of
redeemable convertible preferred stock (“Series A
Preferred”), in a first closing, to a group of private
investors at a purchase price of $1.00 per share. In
December 2000 and January 2001, the Company issued 3,237,500 and
9,605,973 shares, respectively, of Series A Preferred,
in a second closing, to the same group of investors at a
purchase price of $1.50 per share. In November 2001, the
Company issued 31,071,769 shares of redeemable convertible
preferred stock (“Series B Preferred”) to a group
of investors at a purchase price of $2.09 per share. In
October 2002, the Company issued 19,138,756 shares of
redeemable convertible preferred stock (“Series C
Preferred”) at a purchase price of $2.09 per share.
All of the preferred shares had preferences before common stock
in liquidation equal to the initial preferred purchase price,
plus any accrued but unpaid noncumulative dividends. In
addition, the Series B and Series C Preferred shares
had preferences before the Series A Preferred shares and
were entitled to share on a pro rata, as if converted, basis in
the remaining assets with the common shares after preferential
liquidation payments were made to preferred shareholders.
In connection with the completion of the Company’s initial
public offering in November 2003, all of the outstanding shares
of redeemable convertible preferred stock were automatically
converted into 17,030,956 shares of the Company’s
common stock.
In November 2001, the Company issued a warrant to
purchase 1,701,805 shares of Series B Preferred
stock at $2.09 per share to a business partner which was
exercisable one year after the date of grant and expired seven
years from the date of grant. Based on the estimated fair value
of the warrant, development expense in the amount of $884,939
was recorded in connection with the issuance of this warrant in
2001. Upon conversion of the Company’s preferred shares to
common stock in November 2003, the number of shares available
under the warrant was automatically modified to
425,451 shares of common stock at $8.36 per share.
In April 2003, the Company issued two warrants in conjunction
with the convertible debt issued in 2003. The warrants had a
life of five years and could be exercised immediately. A total
of 424,242 shares of common stock could be purchased at a
price of $11.00 per share under these warrants. The
$729,697 fair value of the warrant has been classified as
additional paid-in capital with a corresponding amount treated
as a debt discount which is being amortized using the interest
method.
In June 2004, a stock purchase warrant was exercised by one of
the business partners, resulting in the issuance of
44,026 shares of common stock. The option holder utilized
the cashless exercise option allowed under the warrant agreement
and surrendered 16,580 shares to the Company as
consideration for this exercise.
In September 2004, the second business partner exercised two
stock purchase warrants which resulted in the issuance of
789,087 shares of common stock. Total exercise proceeds
received by the Company were $7.6 million.
F-23
PHARMION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
|
|
| 15. |
Employee Savings Plans |
Through 2002, the Company’s employees located in the U.S.,
were leased from ADP Total Source II, the employer of
record, and worked exclusively for the Company. These employees
participated in a 401(k) plan sponsored by ADP Total
Source II that allowed participants to contribute up to 15%
of their salary, subject to eligibility requirements and annual
limits. Effective January 1, 2003, the employee leasing
arrangement with ADP Total Source II was terminated and the
administration of the 401(k) plan for U.S. employees was
transitioned to the Company. Under the ADP and Company sponsored
plans, the Company matches 100% of the participant’s
contribution up to a limit of 3% of the participant’s
annual salary. Matching contributions totaled $276,952,
$204,561, and $112,910 in 2004, 2003 and 2002, respectively. The
Company’s international employees are eligible to
participate in retirement plans, subject to the local laws that
are in effect for each country. The Company matched $477,695,
$321,695, and $144,355 of the contributions made by these
employees in 2004, 2003 and 2002, respectively.
As part of the relocation assistance provided to three officers,
during 2002, the Company made loans totaling $400,000 to these
individuals. At December 31, 2004 the balance outstanding
for these loans is $125,000. The loans do not bear interest and
are secured by a second deed of trust on the principal
residences of each of the officers. The notes are repayable over
terms ranging from two to four years. The Company has agreed,
for as long as these officers remain employed by the Company, to
make annual bonus payments to these officers in amounts
sufficient the pay to loan amounts then due.
|
|
| 17. |
Quarterly Information (Dollars in thousands, except per share
data) (Unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
15,721 |
|
|
$ |
20,396 |
|
|
$ |
42,576 |
|
|
$ |
51,478 |
|
|
Cost of sales, including royalties
|
|
|
6,309 |
|
|
|
7,453 |
|
|
|
14,169 |
|
|
|
15,704 |
|
|
Loss from operations
|
|
|
(8,814 |
) |
|
|
(8221 |
) |
|
|
(1,712 |
) |
|
|
3,224 |
|
|
Net loss
|
|
|
(9,809 |
) |
|
|
(9983 |
) |
|
|
(355 |
) |
|
|
2,609 |
|
|
Net loss applicable to common shareholders per share —
basic
|
|
|
(.40 |
) |
|
|
(.39 |
) |
|
|
(.01 |
) |
|
|
.08 |
|
|
Net loss applicable to common shareholders per share —
diluted
|
|
$ |
(.40 |
) |
|
$ |
(.39 |
) |
|
$ |
(.01 |
) |
|
$ |
.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
| |
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales
|
|
$ |
1,658 |
|
|
$ |
4,429 |
|
|
$ |
7,673 |
|
|
$ |
11,779 |
|
|
Cost of sales, including royalties
|
|
|
779 |
|
|
|
3,681 |
|
|
|
2,681 |
|
|
|
4,321 |
|
|
Loss from operations
|
|
|
(14,020 |
) |
|
|
(14,071 |
) |
|
|
(8,924 |
) |
|
|
(11,604 |
) |
|
Net loss
|
|
|
(13,893 |
) |
|
|
(13,994 |
) |
|
|
(9,254 |
) |
|
|
(12,918 |
) |
|
Net loss applicable to common shareholders
|
|
|
(16,718 |
) |
|
|
(16,819 |
) |
|
|
(12,079 |
) |
|
|
(14,534 |
) |
|
Net loss applicable to common shareholders per share —
basic and diluted
|
|
$ |
(21.29 |
) |
|
$ |
(20.72 |
) |
|
$ |
(14.35 |
) |
|
$ |
(1.05 |
) |
|
Proforma net loss applicable to common shareholders per
share — basic and diluted (Note 2)
|
|
$ |
(0.78 |
) |
|
$ |
(0.78 |
) |
|
$ |
(0.52 |
) |
|
$ |
(0.60 |
) |
F-24
SCHEDULE II
Valuation and Qualifying Accounts
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
Charged | |
|
|
|
|
| |
|
Balance at | |
|
to | |
|
|
|
|
| |
|
Beginning | |
|
Expense | |
|
|
|
Balance at End | |
| Years Ended December 31, |
|
of Period | |
|
or Sales | |
|
Deductions | |
|
of Period | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowances for chargebacks, cash discounts and doubtful accounts
|
|
$ |
819 |
|
|
$ |
7,419 |
|
|
$ |
(6,028 |
) |
|
$ |
2,210 |
|
| |
Inventory reserve
|
|
|
1,387 |
|
|
|
1,366 |
|
|
|
(2,393 |
) |
|
|
360 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowances for chargebacks, cash discounts and doubtful accounts
|
|
$ |
734 |
|
|
$ |
2,486 |
|
|
$ |
(2,401 |
) |
|
$ |
819 |
|
| |
Inventory reserve
|
|
|
— |
|
|
|
1,761 |
|
|
|
(374 |
) |
|
|
1,387 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowances for chargebacks, cash discounts and doubtful accounts
|
|
$ |
— |
|
|
$ |
1,156 |
|
|
$ |
(422 |
) |
|
$ |
734 |
|
| |
Inventory reserve
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
S-1
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Document |
| |
|
|
| |
2.1(1) |
|
|
Stock Purchase Agreement, dated March 7, 2003, by and among
Pharmion France and the shareholders of Gophar S.A.S. |
| |
3.1(1) |
|
|
Amended and Restated Certificate of Incorporation. |
| |
3.2(1) |
|
|
Amended and Restated Bylaws. |
| |
4.1(1) |
|
|
Specimen Stock Certificate. |
| |
4.2(1) |
|
|
Amended and Restated Investors’ Rights Agreement, dated as
of November 30, 2001, by and among the Registrant, the
founders and the holders of the Registrant’s Preferred
Stock. |
| |
4.3(1) |
|
|
Series C Omnibus Amendment Agreement, dated as of
October 11, 2002 to Amended and Restated Investors’
Rights Agreement, dated as of November 30, 2001, by and
among the Registrant, the founders and the holders of the
Registrant’s Preferred Stock. |
| |
4.4(1) |
|
|
Amendment, dated as of April 8, 2003 to Amended and
Restated Investors’ Rights Agreement, dated as of
November 30, 2001, by and among the Registrant, the
founders and the holders of the Registrant’s Preferred
Stock. |
| |
4.5(1) |
|
|
Series B Preferred Stock Purchase Warrant, dated
November 30, 2001, issued by the Registrant to Celgene
Corporation. |
| |
4.6(1) |
|
|
Senior Convertible Promissory Note, dated April 8, 2003,
issued by the Registrant to Celgene Corporation. |
| |
4.7(1) |
|
|
Common Stock Purchase Warrant, dated April 8, 2003, issued
by the Registrant to Celgene Corporation. |
| |
4.8(1) |
|
|
Convertible Subordinated Promissory Note, dated April 11,
2003, issued by the Registrant to Penn Pharmaceuticals Holdings
Limited. |
| |
4.9(1) |
|
|
Common Stock Purchase Warrant, dated April 11, 2003, issued
by the Registrant to Penn Pharmaceuticals Holdings Limited. |
| |
10.1(1)* |
|
|
Amended and Restated 2001 Non-Employee Director Stock Option
Plan. |
| |
10.2(1)* |
|
|
Amended and Restated 2000 Stock Incentive Plan. |
| |
10.3(1) |
|
|
Securities Purchase Agreement, dated as of April 8, 2003,
by and between the Registrant and Celgene Corporation. |
| |
10.4(1) |
|
|
Securities Purchase Agreement, dated as of April 11, 2003,
by and between the Registrant and Penn Pharmaceuticals Holdings
Limited. |
| |
10.5(1) |
|
|
Amended and Restated Distribution and License Agreement, dated
as of November 16, 2001, by and between Pharmion GmbH and
Penn T Limited. |
| |
10.6(1) |
|
|
Amendment No. 1, dated March 4, 2003, to Amended and
Restated Distribution and License Agreement, dated as of
November 16, 2001, by and between Pharmion GmbH and Penn T
Limited. |
| |
10.7(1) |
|
|
Supplementary Agreement, dated June 18, 2003, to Amended
and Restated Distribution and License Agreement, dated as of
November 16, 2001, by and between Pharmion GmbH and
Penn T Limited. |
| |
10.8(1) |
|
|
License Agreement, dated as of November 16, 2001, by and
among the Registrant, Pharmion GmbH and Celgene Corporation. |
| |
10.9(1) |
|
|
Amendment No. 1, dated March 3, 2003, to License
Agreement, dated as of November 16, 2001, by and among the
Registrant, Pharmion GmbH and Celgene Corporation. |
| |
10.10(1) |
|
|
Letter Agreement, dated April 2, 2003, by and among the
Registrant, Pharmion GmbH and Celgene Corporation regarding
clinical funding. |
| |
10.11(1) |
|
|
Amendment No. 2, dated April 8, 2003, to License
Agreement, dated as of November 16, 2001, by and among the
Registrant, Pharmion GmbH and Celgene Corporation. |
| |
10.12(1) |
|
|
License and Distribution Agreement, dated as of June 21,
2002, by and between the Registrant and LEO Pharmaceutical
Products Ltd. A/S. |
| |
10.13(1) |
|
|
License Agreement, dated as of June 7, 2001, by and between
the Registrant, Pharmion GmbH and Pharmacia & Upjohn
Company. |
| |
10.14(1) |
|
|
Interim Sales Representation Agreement, dated as of May 29,
2002, by and between Pharmion GmbH and Schering
Aktiengesellschaft. |
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
10.15(1) |
|
|
Distribution and Development Agreement, dated as of May 29,
2002, by and between Pharmion GmbH and Schering
Aktiengesellschaft. |
| |
10.16(1) |
|
|
First Amendment Agreement dated August 20, 2003 by and
between Pharmion GmbH and Schering Aktiengesellschaft. |
| |
10.17(3)* |
|
|
Employment Agreement, dated as of February 23, 2004, by and
between the Registrant and Patrick J. Mahaffy. |
| |
10.18(3)* |
|
|
Amended and Restated Employment Agreement, dated as of
March 1, 2004, by and between the Registrant and Judith A.
Hemberger. |
| |
10.19(1)* |
|
|
Non-Competition and Severance Agreement, dated as of
November 29, 2001, by and between the Registrant and
Michael Cosgrave. |
| |
10.20(1)* |
|
|
Employment Agreement, dated as of January 5, 2001, by and
between the Registrant and Michael Cosgrave. |
| |
10.21(3)* |
|
|
Amended and Restated Employment Agreement, dated as of
March 1, 2004, by and between the Registrant and Erle Mast. |
| |
10.22(3)* |
|
|
Amended and Restated Employment Agreement, dated as of
March 1, 2004, by and between the Registrant and Gillian C.
Ivers-Read. |
| |
10.23(1) |
|
|
Office Lease, dated as of April 24, 2002, by and between
the Registrant and Centro III, LLC. |
| |
10.24(1) |
|
|
First Amendment to Lease, dated as of January 31, 2003, to
Office Lease, dated as of April 24, 2002, by and between
the Registrant and Centro III, LLC. |
| |
10.25(2)* |
|
|
Addendum to Employment Agreement, dated June 15, 2004, by
and between the Registrant and Michael Cosgrave. |
| |
10.26 |
|
|
Amendment No. 2, dated December 3, 2004, to Amended
and Restated Distribution and License Agreement, dated
November 16, 2001, between Pharmion GmbH and Celgene UK
Manufacturing II Limited (formerly Penn T Limited). |
| |
10.27 |
|
|
Letter Agreement, dated December 3, 2004, among the
Registrant, Pharmion GmbH and Celgene Corporation amending the
Letter Agreement regarding clinical funding, dated April 2,
2003, between Registrant, Pharmion GmbH and Celgene. |
| |
10.28 |
|
|
Letter Agreement, dated December 3, 2004, between the
Registrant, Pharmion GmbH and Celgene Corporation amending the
License Agreement, dated November 16, 2001, among
Registrant, Pharmion GmbH and Celgene. |
| |
10.29 |
|
|
Lease, dated December 21, 2004, by and between Pharmion
Limited and Alecta Pensionsförsäkring Ömsesidigit. |
| |
10.30 |
|
|
Counterpart Guarantee, dated December 21, 2004, by and
between Registrant and Alecta Pensionsförsäkring
Ömsesidigit. |
| |
21.1(2) |
|
|
Subsidiaries of the Registrant. |
| |
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
| |
24.1 |
|
|
Power of Attorney. (reference is made to page 52) |
| |
31.1 |
|
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for
President and Chief Executive Officer. |
| |
31.2 |
|
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for
Chief Financial Officer. |
| |
32.1 |
|
|
Sarbanes-Oxley Act of 2002, Section 906 Certification for
President and Chief Executive Officer and Chief Financial
Officer. |
|
|
| (1) |
Incorporated by reference to our Registration Statement on
Form S-1 (File No. 333-108122) and amendments thereto,
declared effective November 5, 2003. |
| |
| (2) |
Incorporated by reference to our Registration Statement on
Form S-1 (File No. 333-116252) and amendments thereto,
declared effective June 30, 2004. |
| |
| (3) |
Incorporated by reference to our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004 (File
No. 000-50447) |
|
|
|
| |
* |
Management Contract or Compensatory Plan or Arrangement |