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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission File Number: 000-29089
Antigenics Inc.
(exact name of registrant as specified in its charter)
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Delaware |
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06-1562417 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
630 Fifth Avenue, Suite 2100, New York, New York
10111
(Address of principal executive offices including zip
code)
Registrants telephone number, including area code:
(212) 994-8200
Securities registered pursuant to Section 12(b) of the
Act:
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None |
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None |
(Title of each Class) |
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(Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 Par Value
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 is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 126-2 of the Exchange
Act). Yes þ No o
The aggregate market value of voting stock held by
non-affiliates of the registrant as of June 30, 2004 was:
$385,949,454. There were 45,564,652 shares of the
registrants Common Stock outstanding as of March 24,
2005.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the
registrants 2005 Annual Meeting of Stockholders to be held
on June 1, 2005, which definitive proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the registrants fiscal year of
December 31, 2004, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
1
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking
statements, including statements regarding the broad
applicability and commercial potential of our heat shock protein
product candidates, our ability to develop new compounds that
are more efficacious and less toxic than conventional therapies,
that we will successfully develop a next generation
Oncophage® that relies on much smaller tumor tissue
samples, that a personalized vaccination approach to cancer is
required to generate a more robust and targeted immune response,
that our heat shock protein technology can be applied without a
personalized vaccination approach to diseases that are not
highly variable among patients, the timing of commencing final
analysis of data from our C-100-12 clinical trial, the plans for
and timing of clinical trials, the safety and efficacy of our
product candidates, our future research and development
activities, estimates of the potential markets for our products,
estimates of the capacity of manufacturing and other facilities
to support our products, our expected future revenues,
operations and expenditures, and projected cash needs. These
statements are subject to risks and uncertainties that could
cause our actual results to differ materially from those that
are projected in these forward-looking statements. These risks
and uncertainties include, among others:
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our ability to successfully complete pre-clinical and clinical
development of our product candidates, which includes enrolling
sufficient patients in our clinical trials and demonstrating the
safety and efficacy of our product candidates in such trials; |
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our ability to manufacture sufficient amounts of our products
for clinical trials and commercialization activities; |
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our ability to obtain, maintain and successfully enforce
adequate patent and other proprietary rights protection of our
product candidates; |
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the content and timing of submissions to and decisions made by
the US Food and Drug Administration, also known as the FDA, and
other regulatory agencies, including demonstrating to the
satisfaction of the FDA the safety and efficacy of our product
candidates; |
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our ability to develop a sales and marketing staff and the
success of their selling efforts; |
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the accuracy of our estimates of the size and characteristics of
the markets to be addressed by our product candidates; |
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our ability to obtain reimbursement for our products from
third-party payers, and the extent of such coverage; and |
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our ability to raise additional funds in the capital markets,
through arrangements with corporate partners, or from other
sources. |
We have included more detailed descriptions of these risks and
uncertainties and other risks and uncertainties applicable to
our business under Factors that May Impact Future
Results in Item 7: Managements Discussion and
Analysis of Financial Condition and Results of Operation of this
Form 10-K. We encourage you to read those descriptions
carefully. We caution investors not to place significant
reliance on forward-looking statements contained in this
document; such statements need to be evaluated in light of all
the information contained in this document. Furthermore, the
statements speak only as of the date of this document, and we
undertake no obligation to update or revise these statements.
Oncophage®, is a registered trademark of Antigenics Inc. or
its subsidiaries,
Aroplatintm,
is a trademark of Antigenics Inc. or its subsidiaries.
Gleevec® is a trademark of Novartis. All rights reserved.
2
PART I
Our Business
We are a biotechnology company developing technology and
products to treat cancers, infectious diseases and autoimmune
disorders, primarily based on immunological approaches. Our most
advanced product candidate is Oncophage®, a personalized
therapeutic cancer vaccine being tested in several types of
cancer, including in Phase 3 clinical trials for the
treatment of renal cell carcinoma, the most common type of
kidney cancer, and metastatic melanoma. Our product candidate
portfolio also includes (1) AG-858, a personalized
therapeutic cancer vaccine in a Phase 2 clinical trial for
the treatment of chronic myelogenous leukemia,
(2) AG-702/AG-707, a therapeutic vaccine program in
Phase 1 clinical development for the treatment of genital
herpes, and
(3) Aroplatintm,
a liposomal chemotherapeutic currently completing pre-clinical
reformulation and testing. Our related business activities
include research and development, regulatory and clinical
affairs, clinical manufacturing, business development, marketing
and administrative functions that support these activities.
Our Products Under Development
Heat shock proteins, our founding technology platform, form the
basis for our most advanced product candidate, Oncophage, and
for our AG-858 and AG-702/AG-707 product candidates. We have
observed clinical activity in Phase 1, Phase 1/2 and
Phase 2 trials of Oncophage in terms of improvement or
stabilization of disease in multiple cancer types. This includes
data demonstrating complete disappearance (a complete response)
or substantial shrinkage (a partial response) of tumor lesions
in a portion of patients with renal cell carcinoma, melanoma and
lymphoma. Additionally, in a portion of patients who were
rendered disease-free by surgery, we have observed signs of
positive impact on disease such as disease free survival in
resectable pancreatic cancer and increased survival in a subset
population in stage IV colon cancer. In our studies to
date, the vaccine has shown that it may have a favorable safety
profile. The most common side effects have been mild to moderate
injection site reactions and transient low-grade fevers. We
believe that this human data further supports the broad
applicability and corresponding commercial potential of our heat
shock protein candidates.
Oncophage is a personalized therapeutic cancer vaccine that is
based on a heat shock protein called gp96, and it is currently
in Phase 3 clinical trials for renal cell carcinoma and
metastatic melanoma. Oncophage has received Fast Track
designation and Orphan Drug designation from the US Food and
Drug Administration, also known as the FDA, for both renal cell
carcinoma and metastatic melanoma.
AG-858 is a personalized therapeutic cancer vaccine based on a
different heat shock protein called HSP70, which is being tested
in combination with
Gleevectm
(imatinib mesylate, Novartis) in a Phase 2 clinical trial
for the treatment of chronic myelogenous leukemia, a cancer of
the blood system in which too many white blood cells are
produced in the bone marrow.
AG-702/AG-707 is our therapeutic vaccine program for the
treatment of genital herpes. While AG-702 consists of a heat
shock protein (Hsc70) associated with a single synthetic peptide
from the herpes simplex virus-2, AG-707 is a multivalent vaccine
(a type of vaccine that addresses multiple components of the
virus) that contains multiple herpes simplex virus-2 homologous
peptides. We initiated a proof-of principle Phase 1 trial
for AG-702 in the fourth quarter of 2001. We plan to file an
investigational new drug application
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(IND) during the first half of 2005 for AG-707 and we plan
to initiate a Phase 1 clinical trial of AG-707 shortly
thereafter. We have experienced delays in the animal experiments
performed to support the basis of clinical development and an
IND filing. Delays in animal experiments are common in the
biotechnology industry. We continue to work towards achieving an
effective formulation from our animal studies and expect to
complete these studies in the first half of 2005.
Our other product candidates and clinical programs include
Aroplatin, a novel liposomal third-generation platinum
chemotherapeutic that has been studied in two Phase 1
trials of patients with colorectal cancer and other solid
tumors. Platinum chemotherapeutics are cancer drugs containing
the metallic element platinum, which has been shown to have some
anti-cancer effects. In the case of Aroplatin, the active
platinum drug component is encapsulated in a liposome, which is
a spherical particle of phospholipids that are components of
human cell membranes. Our technologies also include QS-21, an
adjuvant, or companion compound, studied in both therapeutic and
prophylactic vaccines to improve the quality of immune response.
Through our preclinical research programs, we intend to develop
additional novel compounds to treat cancer and infectious
diseases that are designed to be more efficacious and safer than
conventional therapies. Our lead preclinical program is focused
on a next-generation Oncophage vaccine, which
incorporates several important innovations. With these advances,
we expect to be able to manufacture sufficient quantities of a
personalized cancer vaccine for patient treatment from much
smaller tumor tissue samples. We are also studying pathways
through which heat shock proteins activate the immune system and
plan on initiating combination therapy studies with Oncophage
and other immunomodulators and chemotherapeutics during 2005.
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Heat Shock Protein Technology |
Heat shock proteins, also known as HSPs, are also called stress
proteins. HSPs are a group of proteins that are induced when a
cell undergoes various types of environmental stresses like
heat, cold and oxygen deprivation. HSPs are present in all cells
in all life forms from bacteria to mammals, and their structure
and function are similar across these diverse life forms. Under
normal conditions, heat shock proteins play a major role in
transporting fragments of proteins called peptides, including
antigenic peptides, within a cell, and are thus called
chaperones. Antigenic peptides are those portions of
a protein that stimulate immune response when recognized by the
immune system. Because HSPs chaperone peptides within the cell,
they bind a broad array of antigenic peptides and facilitate
their recognition by the immune system. Thus, HSPs help present
the antigenic fingerprint of the cell to the immune
system.
Although heat shock proteins are normally found inside cells,
they also serve an important purpose when found extracellularly,
meaning outside of cells. When they are found outside of cells,
it indicates that a cell has undergone necrosis, a type of
rupturing cell death caused by disease, mutation or injury
whereby a cells contents are spilled into the body tissue.
Extracellular HSPs are a powerful danger signal to
the immune system and they therefore are capable of generating a
targeted immune response against the infection or disease
responsible for the necrotic cell death.
Combined, the intracellular and extracellular functions of heat
shock proteins form the basis of our technology. The
chaperoning nature of heat shock proteins allows us
to produce vaccines containing all the antigenic peptides of a
given disease. In the case of cancer, the vaccines are
personalized, consisting of heat shock proteins purified from a
patients tumor cells which remain bound, or complexed, to
the broad array of peptides produced by that patients
tumor. These heat shock protein-peptide complexes, also known as
HSPPCs, when injected into the skin, have the ability to
stimulate a powerful T-cell-based immune response capable of
targeting and killing the cancer cells from which these
complexes were derived. Because cancer is a highly variable
disease from one patient to another, we believe that a
personalized vaccination approach is required to generate a more
robust and targeted immune response.
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For diseases that are not highly variable from one patient to
another, such as genital herpes, we do not believe that a
personalized vaccination approach is required. For example, in
our AG-702/AG-707 program for the treatment of genital herpes,
we complex, or bind, one or several defined antigenic herpes
peptides to a heat shock protein (Hsc70) that we genetically
engineer creating an HSPPC. This HSPPC, when injected into the
skin, is designed to elicit a T-cell-based immune response to
the synthetic peptides carried by the heat shock protein.
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Product Development Portfolio |
Below is a table showing the clinical status of our lead product
candidates under development.
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Status |
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Product |
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Phase 3(1) |
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Phase 2 |
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Phase 1/2 |
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Oncophage
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Renal cell carcinoma(2) |
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Colorectal cancer(2) |
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Pancreatic cancer(2) |
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Melanoma(2) |
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Non-Hodgkins lymphoma(2) |
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Gastric cancer(2) |
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Metastatic renal cell carcinoma |
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Lung Cancer |
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AG-858
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Chronic myelogenous leukemia |
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AG-702
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Genital herpes |
Aroplatin
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Colorectal cancer(2) |
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Solid tumors |
(1) These are multi-center trials being conducted in the US
as well as internationally.
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(2) |
These trials are closed to enrollment. |
Oncophage
Oncophage, our most advanced product candidate, is a
personalized therapeutic cancer vaccine that is based on heat
shock protein gp96 and is currently in Phase 3 clinical
trials for the treatment of renal cell carcinoma and metastatic
melanoma. Each Oncophage vaccine is made from a patients
tumor tissue. After a surgeon removes a patients tumor, a
portion of that tumor tissue is frozen and shipped overnight to
our manufacturing facility in Massachusetts. In our current
Phase 3 trials, we generally require at least seven grams
of tumor tissue to yield a sufficient amount of Oncophage for a
typical course of treatment.
Using a proprietary manufacturing process that takes
approximately eight to ten hours per individual patient lot, we
isolate the heat shock protein peptide complexes, also known as
HSPPCs, from the tumor tissue. Through this isolation process,
the HSPPCs are extracted and purified from the tumor tissue,
then formulated in sterile saline solution and packaged in
standard single injection vials. After the performance of
quality control testing, including sterility testing, we ship
Oncophage frozen back to the hospital pharmacy for
administration after a patient has recovered from surgery, which
is usually four to six weeks later. A medical professional
administers Oncophage by injecting the product into the skin
weekly for four weeks and every other week thereafter until that
patients supply of Oncophage is depleted.
Although we believe that our technology is applicable to all
cancer types, our initial focus with Oncophage is on cancers
that have poor or no available treatment options and that
typically yield larger quantities of tumor tissue from the
surgical procedure.
We filed an investigational new drug application, also known as
an IND, for Oncophage in November 1996 that the FDA allowed on
December 20, 1996. We started enrolling patients in our
first clinical trial at
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Memorial Sloan-Kettering Cancer Center in New York, New York in
November 1997. To date, we have treated over 700 cancer patients
with Oncophage in our clinical trials.
We believe that the collective results from these clinical
trials show that Oncophage has a favorable safety profile. We
also believe that these results demonstrate that treatment with
Oncophage can generate immunological and anti-tumor responses.
Oncophage Clinical Programs
Background. Renal cell carcinoma is the most common type
of kidney cancer. The American Cancer Society estimates that
there will be approximately 36,160 new cases of kidney cancer in
the United States in 2005, and about 12,660 people will die from
the disease in 2005. Renal cell carcinoma accounts for about
85 percent of all kidney tumors. By the time renal cell
carcinoma is diagnosed in these patients, about one-third of
them will have developed metastatic disease.
The current standard of care for patients with non-metastatic
renal cell carcinoma consists of a nephrectomy, meaning the
surgical removal of the kidney, followed by observation. For
patients with metastatic disease, the only FDA approved
treatment is intravenous high-dose interleukin-2, or IL-2, a
human cytokine, which is a hormone-like protein that facilitates
communication between cells of the immune system. The response
rate, which includes partial responses and complete responses,
of patients who are treated with high-dose interleukin-2 is
approximately 15 percent. Treatment with high-dose
interleukin-2 often causes severe adverse side effects. These
side effects often can lead to discontinuation of treatment.
Unlike for metastatic renal cell carcinoma noted above, there is
no FDA approved treatment for non-metastatic renal cell
carcinoma at the present time.
Clinical Trials. In a Phase 1/2 trial conducted at
M.D. Anderson Cancer Center, in Houston, Texas, the investigator
enrolled patients with metastatic renal cell carcinoma. The
trial was opened for enrollment on February 4, 1998, and
38 patients with renal cell carcinoma were treated in the
study. Of the 38 treated patients, the investigator reported
that one patient had a complete response and two patients had a
partial response. Another seven patients showed no substantial
change in their disease status, which is referred to as disease
stabilization. The reported median time from surgery to
worsening or progression of disease (time to progression) was
2.9 months and the reported median time from surgery to
death (survival) was 13 months from date of surgery.
Because this was a single-arm study without a comparator arm,
statistical significance is not calculable. No serious adverse
events were reported with treatment with Oncophage.
A Phase 2 trial for patients with metastatic renal cell
carcinoma was initiated at M.D. Anderson Cancer Center in March
1999. Findings from this trial were presented at the 39th annual
meeting of the American Society of Clinical Oncology, also known
as ASCO, in June 2003. At the ASCO meeting, the clinical
investigators reported preliminary data on 61 patients with
metastatic renal cell carcinoma treated with at least one dose
of Oncophage. One patient was reported to have had a complete
response, two additional patients were reported to have had
partial responses and eighteen patients were reported to have
had disease stabilization. Final results of the study are being
evaluated. Because this was a single-arm study without a
comparator arm, statistical significance is not calculable. In
this trial patients were treated with Oncophage until
progression and IL-2 after progression. No significant toxicity
was observed to be associated with Oncophage treatment.
Oncophage received Fast Track designation for the treatment of
renal cell carcinoma from the FDA in October 2001. Oncophage is
the first personalized therapeutic cancer vaccine to receive
Fast Track designation. Oncophage also received Orphan Drug
status in renal cell carcinoma from the FDA in May 2002.
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We initiated a Phase 3, multicenter, international trial
for non-metastatic renal cell carcinoma, identified as
Study C-100-12, in 2000 into which the first patient was
randomized in February 2001. We did not submit a special
protocol assessment to the FDA for this trial as the guidance
for such was not finalized until May 2002. Such an assessment
would generally seek confirmation that the FDA would consider
the clinical trial protocol acceptable for purposes of product
approval. We are conducting this trial at sites located in the
following countries USA, Canada, Belgium, Germany,
France, Austria, Sweden, Switzerland, Norway, Spain, UK,
Netherlands, Israel, Russia and Poland. On September 2,
2003, the FDA imposed a partial clinical hold on our
Phase 3 clinical trials because of inadequate data to
support specifications for product purity, identity, potency,
and pH. The FDA provided comments and requested additional
information. During the pendency of the partial clinical hold,
we could not enroll any additional patients in our Phase 3
trials in renal cell carcinoma and melanoma. Patients who were
already enrolled or in the screening process for enrollment were
allowed to continue with the study procedures including therapy
with Oncophage. We produced information in response to the FDA
comments mentioned above in a submission on October 22,
2003. On November 24, 2003, we announced that the FDA had
lifted the partial clinical hold. The FDA had additional
comments suggesting that we should attempt to reduce the
variability among assay readings, that we should use
patients full names rather than initials on the vaccine
tubes, that we should comment on the use of different
formulations for the melanoma and renal cell carcinoma Oncophage
trials, and, finally, that we should use SAS rather than EXCEL
as our statistical computer program. The FDA did not impose any
conditions or limitations when it lifted the partial clinical
hold in November 2003. After the clinical hold was lifted, we
submitted, during 2004, our validation package to the FDA for
the qualified potency assays and we are awaiting the FDAs
response.
Validation of the assays refers, in general terms, to
establishing the robustness and reproducibility of the assays on
an ongoing basis and under various different conditions to
demonstrate that the qualified potency assays, accepted by the
FDA for continuation of the clinical trial, work consistently.
In late December 2003, we announced achievement of what we view
as a major milestone of this trial. A planned interim analysis
of the data from our Phase 3 renal cell carcinoma trial was
conducted. Based on its review of the safety data, efficacy data
and other information regarding the trial, the independent Data
Monitoring Committee, also known as the DMC, a panel of cancer
specialists who are reviewing the safety and conduct of the
trial at regular intervals but are not otherwise involved in the
study, recommended that the trial proceed as planned and advised
that there was no need to change the number of patients we
planned to enroll in this trial. The DMC also declared the
design and conduct of the trial to be sound and raised no safety
concerns. We remain blinded to the efficacy data from the trial.
The members of the DMC are only affiliated with us through this
DMC relationship. We pay the members $2,000 per meeting
pursuant to individual contracts.
This trial was closed to enrollment during the quarter ended
September 30, 2004. The final analysis of part I of
the trial will be triggered once a pre-specified number of
events occur. An event is defined as a recurrence of a
patients renal cell carcinoma or death of a patient.
Events are reviewed and confirmed, on a blinded basis, by an
independent Clinical Events Committee comprised of expert
radiologists and an expert oncologist. Based on the overall
trend of events in this trial to date, we estimate that the
earliest time by which the final analysis for this trial will be
triggered is mid- 2005. The final analysis for the endpoint of
recurrence-free survival in trial C-100-12 is a prospectively
defined statistical analysis, which will occur at a time when a
pre-defined number of patients in the study have had
re-occurrence (recurrence) of their disease. It is termed
final analysis because it is set up to be the last analysis
performed in the study for that endpoint and its results will
determine the success of the trial with respect to that endpoint.
On July 20, 2004, we held a meeting with the FDA medical
review team for Oncophage in renal cell carcinoma. The medical
review team is specifically focused on the review of patient
safety, product efficacy, clinical protocols and clinical
development plan-related issues. This compares to the product
review team,
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which is focused on the review of non-clinical issues such as
product features, chemistry, manufacturing, and formulation. The
purpose of the meeting with the medical review team was to
address issues surrounding the clinical development plan for
product registration of Oncophage in renal cell carcinoma. This
was a Type A meeting; such meetings are typically
held to review critically important issues for the development
of a product and are scheduled within 30 days of the
meeting request. The FDA expressed agreement with our overall
proposed registration plan. This plan includes using the current
Phase 3 trial as part of our product registration strategy
and dividing the study into two parts. We commenced enrollment
activities in a part II Phase 3 trial in February 2005
having received approval from the FDA and anticipate recruiting
patients in the near term. Following the final analysis of our
current Phase 3 clinical trial, part I, we intend to
consult with the FDA and present additional data and rationale
to determine if a biologics license application (BLA)
filing could be achieved while part II of the trial is
still ongoing. In the event such a determination is made, we
would complete preparation and submission of a BLA. We would
expect that the FDA review process of such application would
take approximately 6 months from the date of filing if
accelerated review is granted and that commercialization will
commence if approval is granted.
The FDA has indicated that, by itself, part I of our
ongoing Phase 3 clinical trial in renal cell carcinoma is
not sufficient to support a BLA filing. As noted above, we have
expanded our clinical development and registration plan by
initiating a second part to this Phase 3 trial in a similar
patient population. The FDA has approved this registration plan,
which comprises two components part I and
part II. The FDA considers part II of the trial as
potentially providing the definitive evidence of safety and
efficacy; however, we expect that part I will be accepted
as part of the BLA filing. While the FDA has expressly excluded
the possibility that part I of our renal cell carcinoma
trial alone can support a BLA filing, we intend to complete
part I, which is a large, controlled study, perform final
analysis, and review the data closely. Should the results from
the first part of the trial be clearly positive in terms of
clinical outcomes, we plan to submit the data to the FDA and
request that the agency reconsider its position regarding the
use of the data from part I of the trial alone to support a
BLA filing, while part II of the study is continuing. We
expect to support this position with data which may demonstrate
that Oncophage used in part I of the study should be
considered sufficiently characterized. We would expect to derive
that data from additional tests we plan to perform on frozen
portions of the administered product using our potency assays.
We plan on commencing these additional tests and have them
completed in time for any BLA filing. We believe that the FDA is
unlikely to reverse its position unless part I of the trial
demonstrates significant benefit to patients. We believe that
demonstration of efficacy might be persuasive given
(1) part I of our Phase 3 renal cell carcinoma
trial is designed to show that patients being treated with
Oncophage have a statistically significant benefit in
recurrence-free survival over patients in the observation arm,
which we believe would be regarded as a substantial benefit in
this patient population, (2) Oncophage has a favorable
safety profile, particularly when compared with the toxicity
associated with many cancer drugs, (3) part I of the
trial represents the largest single randomized trial to date in
this patient population and was designed to show statistically
significant results, and (4) the patients with the stage of
renal cell carcinoma addressed in this trial have no approved
post-surgical treatment options. Other companies have submitted
BLAs, and obtained approvals, based on data from non-definitive
Phase 2 and Phase 3 studies while they complete
confirmatory studies. We are not aware of a situation in which
the FDA has reconsidered its position that a clinical trial
could not be considered pivotal, and therefore would not support
licensure, because of its determination that the product
candidate was insufficiently characterized. However, as noted
previously, we plan to perform additional tests of Oncophage
product samples produced prior to December 2003 and attempt to
demonstrate that our product should be considered sufficiently
characterized. There is no assurance that we will be successful
in demonstrating that our product is sufficiently characterized
or that the FDA would accept such a strategy.
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Background. Melanoma is the most serious form of skin
cancer. According to the American Cancer Society, melanoma
accounts for only about four percent of skin cancer cases, yet
it causes about 79 percent of skin cancer deaths. The
American Cancer Society also estimates that physicians will
diagnose about 59,580 new cases of melanoma in the United
States in 2005 and that the disease will kill approximately
7,770 people in 2005. The incidence of melanoma is growing
at a rate of approximately three percent per year based on a
report from the American Cancer Society.
Oncologists treat advanced or metastatic melanoma, also known as
stage III or IV, with surgery, radiation therapy,
immunotherapy, or chemotherapy, depending on the case.
Approximately 15% of all melanoma patients at the time of their
first diagnosis have stage III or stage IV disease.
Existing treatments have not significantly improved overall
survival of patients with melanoma. The median survival of
patients with stage III melanoma varies widely according to
published literature. According to published literature, the
median survival of patients with late stage III melanoma is
about 24 months and patients with stage IV melanoma
have a median survival of about seven months. Although
oncologists use various treatments, the only FDA approved
therapies for patients with metastatic melanoma are high-dose
intravenous interleukin-2 and alpha interferon, another human
cytokine.
Clinical Trials. We have treated 36 patients in a
Phase 1/2 clinical trial, evaluating Oncophage as a
treatment for late stage III and early stage IV
metastatic melanoma, as well as 45 patients in a
Phase 2 clinical trial for patients with stage IV
disease. In the phase 1/2 study (C-100-02), which evaluated
HSPPC-96 vaccination in patients with advanced non-metastatic or
limited metastatic melanoma (Stage III N2 or
Stage IV), 13 of 20 patients (65%) treated with
vaccine and who also had complete surgical removal of all cancer
are still alive after 4.5 years compared to one of 16 (6%)
patients that still had some cancer left after surgery and is
still alive after 3.5 years. Because this was a single-arm
study without a comparator arm, statistical significance is not
calculable. The investigator reported data from the Phase 2
trial (C-100-06) that showed that 28 patients had residual
disease after surgery and, of these patients, five patients
responded favorably to Oncophage, including one who was reported
to have achieved a complete response for more than five years.
The investigators also reported that Oncophage vaccination
generated anti-melanoma immune responses in about one-half of
the patients. Because this was a single-arm study without a
comparator arm, statistical significance is not calculable.
Results of this Phase 2 trial were presented by the
investigators at the American Society of Clinical Oncologists,
also known as ASCO, meeting in May 2001 and the American
Association for Cancer Research, also known as AACR, meeting in
October 2001 where it was selected by the conference organizers
as one of six presentations out of over 800 to be highlighted
and presented to the press. In October 2002, the results from
this trial were published in the Journal of Clinical Oncology,
the official journal of ASCO.
Oncophage received Fast Track designation for the treatment of
metastatic melanoma in February 2002. Oncophage also received
Orphan Drug status in metastatic melanoma from the FDA in July
2002. In February 2002, we initiated a multicenter,
international Phase 3 trial in metastatic melanoma
identified as Study C-100-21. We are conducting this trial at
sites located in the following countries USA, UK,
Italy, Poland, Sweden, Hungary, Australia, Russia and Ukraine.
On September 2, 2003, the FDA imposed a partial clinical
hold on our Phase 3 clinical trials because of inadequate
data to support specifications for our product purity, identity,
potency, and pH. The FDA provided comments and requested
additional information in a letter received October 1,
2003. During the pendency of the partial clinical hold, we could
not enroll any additional patients in our Phase 3 trials in
renal cell carcinoma and melanoma. Patients, who were already
enrolled or in the screening process for enrollment, were
allowed to continue with the study procedures including therapy
with Oncophage. We produced information in response to the FDA
comments mentioned above in a submission on October 22,
2003. On November 21, 2003 the FDA lifted the partial
clinical hold
9
because the issues raised had been satisfactorily addressed. The
FDA did not impose any conditions or limitations when it lifted
the partial clinical hold in November 2003. At that time, the
FDA requested further information regarding Oncophage and the
established potency assay. The FDA had additional minor comments
suggesting that we should try to reduce the variability among
assay readings, that we should use patients full names
rather than initials on the vaccine tubes, that we should
comment on the use of different formulations for the metastatic
melanoma and renal cell carcinoma Oncophage trials, and finally,
that we should use SAS rather than EXCEL as our statistical
computer program. This trial is closed to enrollment. We believe
this study will not qualify as registrational due to the
relatively high failure rate in vaccine manufacturing. The
vaccine could not be produced for approximately 30% of patients
in this study. We have not had detailed discussions or formally
asked the FDA if our overall product approval strategy for
Oncophage in melanoma is acceptable. We did not cover these
issues during our July 20, 2004 Type A meeting with
the FDA, since that meeting focused on our clinical trial in
renal cell carcinoma. We anticipate achieving the required
number of events to trigger final analysis of this trial during
the second half of 2005.
Oncophage has also been studied in other cancers, including
colorectal cancer, non-Hodgkins lymphoma, pancreatic
cancer and gastric cancer. Recent data from some of these trials
is summarized below. During the second quarter of 2004, we
initiated an additional Oncophage Phase 1/2 trial for lung
cancer and plan to begin enrollment in a Phase 1/2 trial
for breast cancer in the second half of 2005.
Colorectal. Results from a Phase 2 clinical trial in
patients with metastatic colorectal cancer were published as a
featured article in the August 15, 2003 issue of Clinical
Cancer Research. The paper presented data on 29 patients
with stage IV colorectal cancer that had spread to the
liver who had undergone complete resection, or surgical removal,
of their metastasized disease. The paper also showed that in the
trial, patients who responded immunologically to the vaccine
(52 percent of study subjects) had a statistically
significant survival advantage compared with patients who did
not respond immunologically. Responders demonstrated a two-year
overall survival rate of 100 percent, compared with
50 percent for nonresponders, and a disease-free survival
rate of 51 percent, compared with 8 percent among
nonresponders. These results were statistically significant.
This trial has been closed to enrollment.
Non-Hodgkins Lymphoma. Findings from a
Phase 2, open-label, single-arm study for newly diagnosed
or relapsed low-grade, indolent, or slow-growing,
non-Hodgkins lymphoma were presented by the principal
investigator from the trial at the ASCO meeting in June 2003.
The study was conducted at M. D. Anderson Cancer Center. Of the
10 patients who received Oncophage in the Phase 2
trial up to that point in time, there were responses reported in
six: one partial response, two minor responses and three disease
stabilizations. Because this was a single-arm study without a
comparator arm, statistical significance is not calculable.
These findings were updated at the American Society of
Hematology, or ASH, 45th annual meeting in December 2003.
The studys lead investigator reported indications of
clinical activity in eight out of 14 evaluable patients
treated up to that point in time in the trial, including one
partial response, two minor responses and five disease
stabilizations. Oncophage was reported to be well tolerated and
without significant adverse effects in this study. To date,
17 patients have been treated with Oncophage and there are
two patients still in the follow-up stage of the study.
This trial has been closed to enrollment.
Gastric. Data from a Phase 1/2 clinical trial
evaluating Oncophage as a treatment for metastatic gastric
cancer was presented at the ASCO meeting in 2002. The
investigators reported preliminarily data for 15 patients
with gastric cancer (stage II to stage IV) who
underwent surgery, then Oncophage vaccination. At 32 months
post-surgery, three were still disease-free, nine had survived,
and the mean disease-free and overall survival rates were seven
months and over 16 months, respectively. Because this was a
single-arm study without a comparator arm, statistical
significance is not calculable. No toxicity was observed to be
associated
10
with Oncophage treatment. This trial was conducted with clinical
investigators at the Johannes Gutenberg-University Hospital in
Mainz, Germany, Technical University of Munich in Germany, and
the Russian Oncology Research Center in Moscow, Russia.
Pancreatic. In early 1999, we conducted a pilot
Phase 1 clinical trial evaluating Oncophage as a treatment
for resectable pancreatic cancer. We conducted the trial with
clinical investigators at the Memorial Sloan-Kettering Cancer
Center. Initially, five patients were treated. Subsequently,
five more patients were treated. Updated data from this pilot
study were presented at the 12th annual European Cancer
Conference, also known as ECCO, in September 2003. These data
were highlighted in a press release issued by the Federation of
European Cancer Societies during the ECCO conference. In this
trial, which included 10 evaluable patients, the
manufacture of Oncophage was feasible and no toxicity associated
with vaccination was observed. Recent follow-up data from
patients in this Phase 1 trial of Oncophage indicates a
median overall survival of over 26 months, with one patient
still alive and disease-free after more than five years and two
other patients alive and disease-free 2.7 and 2.6 years
after treatment. Because this was a single-arm study without a
comparator arm, statistical significance is not calculable. This
trial has been closed to enrollment.
Oncophage is manufactured in a new 162,000 square-foot
manufacturing and research and development facility in
Lexington, Massachusetts. We are currently leasing approximately
94,000 square-feet of this facility and plan to expand to
132,000 square feet on or before August 2005 with a second
planned expansion to 162,000 square feet on or before March
2006. We estimate that the facilitys current capacity, for
Oncophage and AG-858 combined, is approximately
10,000 patient courses per year, expandable to between
40,000 and 50,000 patient courses per year. On average, it
takes eight to ten hours of direct processing time to
manufacture a patient batch of Oncophage. We currently have
26 employees in our manufacturing department. Until March
2004, Oncophage had been manufactured in a portion of a
58,725 square foot facility in Woburn, Massachusetts.
After manufacturing, Oncophage is tested and released by our
quality systems staff. The quality control organization,
consisting of 19 employees, performs a series of release
assays designed to ensure that the product meets all applicable
specifications. Our quality assurance staff, consisting of
13 employees, also review manufacturing and quality control
records prior to batch release in an effort to assure
conformance with current Good Manufacturing Practices, also
known as cGMP, as mandated by the FDA and foreign regulatory
agencies.
Our Oncophage manufacturing staff is rigorously trained and
routinely evaluated for conformance to manufacturing procedures
and quality standards. This oversight is intended to ensure
compliance with FDA regulations and to provide consistent
vaccine output. Our quality control and quality assurance staff
is similarly trained and evaluated as part of our effort to
ensure consistency in the testing and release of the product,
materials, equipment and facilities.
AG-858
AG-858 is a personalized therapeutic cancer vaccine based on our
heat shock protein technology for the treatment of chronic
myelogenous leukemia, also known as CML, a type of cancer
characterized by the proliferation of abnormal white blood
cells. AG-858 consists of purified HSPPCs based on a specific
heat shock protein called HSP70. Because CML is a cancer of the
blood, these HSPPCs are purified from a patients white
blood cells, which are obtained through leukapheresis, a method
of blood filtration through a machine whereby white blood cells
are removed and other blood cell types are returned to the donor.
11
Background. The American Cancer Society estimates that
there will be about 34,810 new cases of all types of
leukemia in 2005 in the United States. Of these, about
4,600 cases will be diagnosed as chronic myelogenous
leukemia. The current standard of care for CML is treatment with
Gleevec®(imatinib mesylate, Novartis).
Clinical Trials. In December 2002, interim data was
reported from a pilot trial conducted at the University of
Connecticut School of Medicine. This pilot trial studied the
feasibility of using purified HSP70 and its associated antigens,
also known as HSPPC-70, in combination with Gleevec for the
treatment of CML. In this exploratory trial, the investigators
reported that five out of the five evaluable patients showed a
clinical response that could be objectively verified by
reproducible criteria such as the measurable reduction of
quantity of tumor cells present in the patients blood.
Updated data were subsequently presented as an oral presentation
at the ASCO meeting in June 2003. The investigators reported
that seven of the eight patients evaluated achieved a clinical
response. Further data on this HSPPC-70 study were presented at
the ASH meeting in December 2003. Of the 17 evaluable
patients, 11 experienced a reduction in levels of disease
as determined either by cytogenetic or molecular tests which
measure, respectively, the number or presence of leukemia
causing CML cells in the patients blood. Because this was
a single-arm study without a comparator arm, statistical
significance is not calculable for any of these results.
HSPPC-70 vaccines were successfully prepared for all patients
and were well tolerated in the clinical trial.
In April 2003, we initiated an international, multi-center
Phase 2 trial combining AG-858 with Gleevec. In
May 2004, we voluntarily placed enrollment of this study on
hold to modify the cell collection procedure. The study resumed
on July 24, 2004. The trial will evaluate the safety and
cytogenetic response (changes in the amount of tumor cells in
the patients blood) of this combination treatment in up to
40 patients with chronic phase CML who are currently
receiving Gleevec treatment but are cytogenetically positive. We
expect to complete enrollment in this trial by mid 2005 and to
release the data from this trial approximately 12-15 months
after completion of enrollment.
We transferred the manufacture of AG-858 to our facility in
Lexington, Massachusetts during the first quarter of 2004. The
facilitys initial capacity, for Oncophage and AG-858
combined, is approximately 10,000 patient courses per year,
expandable to between 40,000 and 50,000 patient courses per
year. On average, it takes 20 to 25 hours of direct
processing time to manufacture a patient batch of AG-858. We are
developing a revised manufacturing process for AG-858 to reduce
this processing time. All patient doses of HSPPC-70 for the
pilot study were manufactured at the University of Connecticut,
where the study is being conducted.
The manufacturing process for AG-858 is based on similar
principles as those used for Oncophage. After manufacturing,
AG-858 is tested and released by our quality systems staff. The
quality control organization performs a series of release assays
designed to ensure that the product meets all applicable
specifications. Our quality assurance staff also review
manufacturing and quality control records prior to batch release
in an effort to assure conformance with cGMP as mandated by the
FDA and key foreign regulatory agencies.
Our AG-858 manufacturing staff is trained and routinely
evaluated for conformance to manufacturing procedures and
quality standards. This oversight is intended to ensure
compliance with FDA regulations and to provide consistent
vaccine output. Our quality control and quality assurance staff
is similarly trained and evaluated as part of our effort to
ensure consistency in the testing and release of the product,
materials, equipment and facilities.
12
AG-702/AG-707
AG-702/AG-707 is our therapeutic vaccine program based on our
heat shock protein technology for the treatment of genital
herpes, a chronic disease caused by herpes simplex virus-2, or
HSV-2. AG-702 consists of HSPPCs that we manufacture by
complexing, or binding, a heat shock protein to a single
synthetic peptide of HSV-2 homology and is referred to as a
monovalent vaccine. In theory, this monovalent vaccine would
only address approximately 40 percent of the patient
population due to variances in patients genetic makeup.
AG-707 is a multivalent vaccine (a type of vaccine that
addresses multiple targets) containing multiple HSV-2 homologous
peptides. The multivalent AG-707 is therefore designed to
address HSV-2 infection in a broad population of patients (up to
90 percent of those affected). AG-707 is designed to be an
off-the-shelf product because the antigenic profile of HSV-2 is
similar in all patients so personalization of the products is
not required. The most common side effects of AG-702/AG-707 have
been injection site reactions or transient low-grade fevers.
Laboratory experiments to characterize and formulate AG-707 have
demonstrated specific immune responses to the homologous
peptides using human donor blood and reduced disease severity in
animals treated with product prior to exposure to HSV-2 virus.
Furthermore, the final formulation is currently undergoing
stability testing and pre-clinical safety assessment necessary
for filing an IND.
Background. The US Centers for Disease Control and
Prevention estimated in surveys from 1997 that about one in five
people in the United States ages 12 or older is infected
with HSV-2. The World Health Organization estimated in 1995 that
approximately 21 million people worldwide are infected each
year. Genital herpes is currently treated with palliative
topical drugs or antiviral agents that reduce further
replication of the virus during the period of treatment.
Clinical Trials. We initiated a Phase 1 clinical
trial of AG-702 as a proof-of-principle study in the fourth
quarter of 2001 at The University of Washington. This is a
dose-escalation study in both healthy volunteers and genital
herpes patients. We expect to file an Investigational New Drug
application, also known as an IND, for AG-707, our multivalent
product candidate, for the treatment of genital herpes in the
first half of 2005 and, assuming allowance of the IND by the
FDA, we would expect to begin clinical studies shortly
thereafter. We do not anticipate further developing AG-702,
given that AG-707 should be beneficial to a larger number of
patients with genital herpes.
The synthetic peptide components used in AG-702/ AG-707 are
manufactured for us by a contract manufacturer. The recombinant
Hsc70 used in AG-702 was also produced by a contract
manufacturer. We plan to continue using contract manufacturers
to produce the recombinant Hsc70 and the synthetic peptides for
AG-707. We expect that the purification of recombinant Hsc70
complexing with synthetic peptides, fill and finish operations
will be performed in our Lexington, Massachusetts facility.
Aroplatin
Aroplatin is a novel liposomal formulation of a third-generation
platinum chemotherapeutic structurally similar to oxaliplatin, a
recently approved treatment for colorectal cancer. Although
structural similarity does not guarantee similar clinical
benefit, laboratory studies comparing Aroplatin to oxaliplatin
showed that Aroplatin suppressed tumor growth, caused a
reduction in tumor size, and provided a 50% increase in
survival as compared to control animals. This data represents a
five-fold improvement to results seen from the oxaliplatin arm
of the study. Laboratory studies also indicate that Aroplatin
has considerable anti-tumor activity, which is the ability to
kill cancer cells. This anti-tumor activity has been
demonstrated in over ten tumor cell lines with results that are
at least three fold, or better, than those of cisplatin and/or
carboplatin, two other approved platinum chemotherapeutic
agents. Platinum chemotherapeutics are cancer drugs
13
containing the metallic element platinum, which has been shown
to have some anti-cancer effects. Platinum chemotherapeutics
have shown the ability to shrink solid tumors and, often in
combination with non-platinum anti-cancer agents, have
demonstrated moderate ability to slow the spread of several
types of solid tumor cancers. Published results that demonstrate
activity of Aroplatin against tumors cells resistant to
cisplatin and carboplatin suggest that Aroplatin may be useful
in cancers that are already resistant to platinum agents.
Aroplatin is also encapsulated in liposomes, a round shell of
phospholipids, which are basic components of human cell
membranes. Liposome encapsulation has been shown to increase
drug bioavailability, or the amount of time and specific
distribution within the body, which can extend the treatment
effect. In some cases, liposomal drugs have been shown to
accumulate at the site of a tumor, delivering higher
concentrations of the drug to a disease target. The liposomal
delivery system can also help to reduce the damaging effects of
some drugs on healthy tissues. Aroplatin has the safety profile
of a chemotherapeutic agent; the most common side effect being
suppression of formation of new red or white blood cells and
platelets in the bone marrow. Thus, based on its chemical
structure that makes it active against platinal resistant tumors
and its liposomal formulation, we believe that Aroplatin will
have some advantages for the treatment of certain cancers when
compared with current platinum-based chemotherapeutics such as
carboplatin and cisplatin. We have developed a new formulation
of Aroplatin and a bridging Good Laboratory Practice toxicology
study comparing the old and new formulations of Aroplatin was
initiated in January 2005 and is on schedule to be
completed during the second quarter of 2005. The results from
this study and studies describing characterization of the new
formulation will form the basis of an IND amendment that is
expected to be filed with the FDA during the second quarter of
2005.
We initiated a Phase 2 trial for advanced colorectal cancer
unresponsive to medical treatment (refractory) in 2002.
This single-arm, open-label trial, conducted at the Arizona
Cancer Center, was designed to evaluate the effect of Aroplatin
alone in patients whose disease is not responsive to standard
first-line cancer treatments (5-fluorouracil/leucovorin or
capecitabine and irinotecan). In September 2003, the
investigators presented findings from this trial at ECCO. One
out of the 15 evaluable patients demonstrated a partial clinical
response and two experienced disease stabilization. Because this
was a single-arm study without a comparator arm, statistical
significance is not calculable. In addition, researchers
observed that Aroplatin appears well tolerated in this
pretreated patient population. This trial is closed to
enrollment.
In January 2003, we also initiated at the John Wayne Cancer
Center, in Santa Monica, California, a Phase 1/2 trial of
Aroplatin for a variety of advanced solid tumors amenable to
platinum therapy. This study is closed to enrollment.
During 2005, we plan on initiating a Phase 1 trial of the
new formulation of Aroplatin in solid malignancies if our IND is
accepted by the FDA.
Aroplatin has been manufactured for us by contract
manufacturers. These contract manufacturers also produce drug
products for other pharmaceutical companies at clinical and
commercial scale and are periodically inspected and qualified by
US and foreign regulatory agencies.
QS-21
QS-21 is an adjuvant, or a substance added to vaccines and other
immunotherapies that is designed to enhance the bodys
immune response to the antigen contained within the treatment.
QS-21 is best known for
14
its ability to stimulate antibody, or humoral, immune response,
and has also been shown to activate cellular immunity. A natural
product, QS-21 is a triterpene glycoside, or saponin, a natural
compound purified from the bark of a South American tree called
Quillaja saponaria. It is sufficiently characterized with a
known molecular structure, thus distinguishing it from other
adjuvant candidates, which are typically emulsions, polymers or
biologicals.
QS-21 has been tested in more than 90 clinical trials
involving, in aggregate, over 3,100 patients in a variety
of cancer indications and infectious diseases. These studies
have been carried out by academic institutions predominantly
located in the United States and by global pharmaceutical
companies at more than 20 international sites. A number of
these studies have shown QS-21 to be significantly more
effective in stimulating antibody responses than aluminum
hydroxide or aluminum phosphate, the only adjuvants used in
approved vaccines in the United States today. None of these
QS-21 trials have been pivotal.
We are actively pursuing a strategy of commercializing QS-21
through licensing to other pharmaceutical and biotechnology
companies. A number of pharmaceutical and biotechnology
companies have licensed QS-21 for a variety of human diseases.
Companies with QS-21 programs are GlaxoSmithKline, P.L.C.,
Progenics Pharmaceuticals, Inc., Elan Corporation, plc.,
Advanced Bioscience Laboratories, Inc. and Pharmexa A/S. In
January 2005, Pharmexa announced it had licensed QS-21 for
use with a vaccine entering Phase 2 clinical trials. In
return for rights to use QS-21, these companies have agreed to
pay us license fees, milestone payments, and royalties on
product sales. We have retained worldwide manufacturing rights
and have the right to subcontract manufacturing for QS-21. In
addition to these companies, we have developed a number of
academic collaborations to test new vaccine concepts and
products containing QS-21. Currently, there are no pivotal
trials ongoing with QS-21. GlaxoSmithKline, P.L.C., however, has
recently released data on a proof of concept study in malaria
that may form the basis for Phase 3 trials utilizing QS-21.
Elan Corporation, plc., a sponsor that had been investigating a
product candidate for Alzheimers disease, notified us of
patients who were reported to show clinical signs consistent
with inflammation of the central nervous system. The
investigators reported possible causality with the
study drug. We do not have details regarding these events. To
our knowledge, however, there is no report of a causal
connection between QS-21 and development of inflammation of the
central nervous system. In one study investigating the product
candidate for Alzheimers disease, no events involving
inflammation of the central nervous system have been reported
from the study arm in which only QS-21 was administered.
Additionally, no events of inflammation of the central nervous
system have been reported to us from any other studies of drugs
containing adjuvant QS-21.
We have entered into a supply agreement as of March 2004 for the
production of QS-21. Since we have inventoried sufficient
quantities of QS-21 for the immediate future, to date, we have
not purchased any product under this agreement. The manufacturer
is capable of producing up to 2 million doses per batch at
its facility. We have retained worldwide manufacturing rights
and have the right to subcontract manufacturing for QS-21.
Preclinical Activities
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Next-Generation Oncophage |
Our lead preclinical program is focused on a
next-generation Oncophage vaccine, which
incorporates several important innovations. In this next
generation Oncophage, the binding of heat shock proteins to
15
peptides occurs artificially in a test tube rather than
naturally, as in our first generation Oncophage. This should
allow us to prepare larger quantities of product than the
original Oncophage. We expect to be able to manufacture
sufficient quantities of a personalized cancer vaccine from much
smaller tumor tissue samples. This approach would be designed to
treat patients with earlier stages of disease in a broader array
of cancers. Clinical trials conducted with first generation
Oncophage will not need to be repeated, as the first generation
would continue to be used for treatment of cancers in which it
is currently being used for in Phase 3 clinical trials.
During 2004, we launched a preclinical program to evaluate
Oncophage in combination with other compounds such as other
biologic and chemotherapeutic products. Some of these
combination experiments will be conducted in collaboration with
prospective pharmaceutical partners who have expressed an
interest in studying certain of their compounds in combination
with Oncophage.
During 2005, we plan on commencing a number of clinical studies
using Oncophage in combination with other oncology drug products
and/or experimental therapies. We are currently planning these
studies.
Intellectual Property Portfolio
We devote significant resources to protecting and expanding our
intellectual property portfolio. We seek to protect our core
technologies through a combination of patents, trade secrets and
know-how. We currently have exclusive rights to 80 issued United
States patents and 112 foreign patents. We also have rights to
70 pending United States patent applications and 199 pending
foreign patent applications. Our issued patents cover our core
technologies including (i) HSPs such as Oncophage and
AG-858 for treatment of cancers; (ii) HSPs such as AG-707
for treatment of infections; (iii) HSPs for treatment of
autoimmune disorders; (iv) saponin adjuvants such as QS-21;
and (v) liposomal drugs, including Aroplatin. In addition,
several patent applications are related to technology based on
HSP receptors, including CD91, one of our preclinical programs.
The following tables provide detailed information regarding the
United States patents and patent applications relating to our
product candidates and technologies and their uses. The tables
encompass less than all of our 192 issued patents and 269
pending patent applications because a substantial portion of our
patent portfolio is directed to alternative and/or non-core
technologies.
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HSPs in |
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Oncophage® & |
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Autoimmune |
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HSP |
Products or Technologies |
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AG-858 |
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AG-707 |
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Disorders |
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Receptors |
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Number of issued US patents
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12 |
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9 |
|
1 |
|
1 |
Expiration range
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2015 2018 |
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2015 2017 |
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2017 |
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2019 |
Number of pending US patent applications
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4 |
|
3 |
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0 |
|
5 |
Number of issued foreign patents
|
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6 |
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3 |
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2 |
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0 |
Expiration range
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2015 2018 |
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2015 2016 |
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2018 |
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Number of pending foreign patent applications
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11 |
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8 |
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4 |
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9 |
We also have rights to 32 issued US patents and 37 US
patent applications, 30 issued foreign patents and 87 foreign
patent applications directed to various other HSP technologies.
With the exception of one patent
16
application that we own outright, all of our patent applications
relating to Oncophage®, AG-858 and AG-707 are licensed
exclusively to us.
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Products or Technologies |
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QS-21 |
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Aroplatin |
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Number of issued US patents
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4 |
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3 |
Expiration range
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2008 2018 |
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2010 2020 |
Number of pending US patent applications
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4 |
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1 |
Number of issued foreign patents
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37 |
|
11 |
Expiration range
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2007 2017 |
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2006 2012 |
Number of pending foreign patent applications
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21 |
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5 |
All patents and applications relating to QS-21 are owned by
Antigenics. All of the foreign patents and one foreign patent
application relating to
Aroplatintm
and all of the US patents and US patent applications
relating to
Aroplatintm
are licensed exclusively to us. We own four foreign applications
relating to
Aroplatintm.
It is worth noting that:
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patent applications in the United States are currently
maintained in secrecy until they are published, generally
18 months after they are first filed in any country; |
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patent applications in other countries, likewise, generally are
not published until 18 months after they are first filed in
any country; |
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publication of technological developments in the scientific or
patent literature often lags behind the date of these
developments; and |
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searches of prior art may not reveal all relevant prior
inventions. |
In addition to our patents, we rely on our trade secrets and
know-how to provide a competitive advantage and we intend to
continue to develop and protect this proprietary information. We
take active measures to control access to know-how and trade
secrets through confidentiality agreements, which we generally
require all of our employees, consultants and scientific
collaborators to execute upon the commencement of an employment
or consulting relationship with us. These agreements generally
provide that all confidential information developed or made
known to the individual by us during the course of the
individuals relationship with us is to be kept
confidential and not disclosed to third parties except in
specific circumstances. In the case of employees and
consultants, the agreements generally provide that all
inventions conceived by the individual in the course of
rendering services to us are assigned to us and become our
exclusive property.
With the exception of one patent application that we own
outright, all of our heat shock protein patents and patent
applications relating to Oncophage, AG-858, and AG-702/707 have
been exclusively licensed to us by the following academic
institutions:
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Mount Sinai School of Medicine |
In November 1994, we entered into a patent license agreement
with the Mount Sinai School of Medicine. Through the Mount Sinai
agreement, we obtained an exclusive worldwide license to patent
rights relating to the heat shock protein technology that
resulted from the research and development performed by
Dr. Pramod Srivastava, our founding scientist and one of
our directors. We agreed to pay Mount Sinai a royalty on the net
sales of products covered by the licensed patent rights and also
provided Mount Sinai with a 0.45% equity interest in the company
(approximately 62,000 shares) valued at approximately
$90,000 at the time of issuance. The term of the Mount Sinai
agreement ends when the last of the licensed patents expires
(2018) or becomes no longer valid. If we fail to pay
royalties that are due under the agreement, Mount Sinai
17
may issue written notice to us. If we continue to fail to pay
royalties after 60 days of the written notice, Mount Sinai
can terminate the agreement. The Mount Sinai agreement requires
us to use due diligence to make the products covered by the
licensed patent rights commercially available, including a
requirement for us to use best efforts to reach a number of
developmental milestones, which have been achieved. If we fail
to comply with the due diligence provisions of the agreement,
Mount Sinai could take actions to convert our exclusive license
to a non-exclusive license after six months written notice. The
Mount Sinai Agreement does not contain any milestone payment
provisions.
During 1995, Dr. Srivastava moved his research to Fordham
University. We entered into a sponsored research and technology
license agreement with Fordham in March 1995 relating to the
continued development of the heat shock protein technology and
agreed to make payments to Fordham to sponsor
Dr. Srivastavas research. Through the Fordham
agreement, we obtained an exclusive, perpetual, worldwide
license to all of the intellectual property, including all the
patent rights, which resulted from the research and development
performed by Dr. Srivastava at Fordham. We also agreed to
pay Fordham a royalty on the net sales of products covered by
the Fordham agreement through the last expiration date on the
patents under the agreement (2018) or when the patents become no
longer valid. The agreement does not contain any milestone
payment provisions or any diligence provisions.
Dr. Srivastava moved his research to the University of
Connecticut Health Center during 1997 and, accordingly, the
parts of the agreement related to payments for sponsored
research at Fordham terminated in mid-1997. During the term of
this agreement, we paid Fordham approximately $2,374,000.
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University of Connecticut |
In February 1998, we entered into a research agreement with the
University of Connecticut Health Center, or UConn, and
Dr. Srivastava relating to the continued development of
heat shock protein technology. The research agreement provides
us with an option to license inventions stemming from the
research that we sponsor at UConn and provides certain
pre-determined royalty rates for licensed inventions. The
research agreement had an initial term of five years and called
for minimum payments to UConn totaling $5,000,000, payable
quarterly at a rate of $250,000 (contingent upon the continuing
employment of Dr. Srivastava by UConn). The research
agreement was amended during 2002 and again on December 31,
2003 to: (1) extend the term of the research agreement to
December 31, 2003 and then to December 31, 2008, and
(2) provide for an annual payment of $1,200,000 payable
quarterly at the rate of $300,000 during 2003 and then an annual
payment of $1,350,000 payable quarterly at the rate of $337,500
from 2004 to 2008. UConn may terminate the research agreement
upon 60 days written notice if it is unable to fulfill the
terms of the research agreement. We can terminate the research
agreement by giving 30 days written notice in the event
that Dr. Srivastava terminates his employment by UConn or
is otherwise unable to continue his research at UConn.
In May 2001, we entered into a license agreement with UConn.
Through the license agreement, we obtained an exclusive
worldwide license to patent rights resulting from inventions
discovered under the research agreement. The term of the license
agreement ends when the last of the licensed patents expires
(2019) or becomes no longer valid. UConn may terminate the
agreement: (1) if, after 30 days written notice for
breach, we continue to fail to make any payments due under the
License Agreement, or (2) we cease to carry on our business
related to the patent rights or if we initiate or conduct
actions in order to declare bankruptcy. We may terminate the
agreement upon 90 days written notice. The license
agreement contains
18
aggregate milestone payments of approximately $1.2 million
for each product we develop covered by the licensed patent
rights. These milestone payments are contingent upon regulatory
filings, regulatory approvals, and commercial sales of products.
We have also agreed to pay UConn a royalty on the net sales of
products covered by the license agreement as well as annual
license maintenance fees beginning in May 2006. Royalties
otherwise due on the net sales of products covered by the
license agreement may be credited against the annual license
maintenance fee obligations. As of December 31, 2004, we
have paid approximately $55,000 to UConn under the license
agreement. The license agreement gives us complete discretion
over the commercialization of products covered by the licensed
patent rights but also requires us to use commercially
reasonable diligent efforts to introduce commercial products
within and outside the United States. If we fail to meet these
diligence requirements, UConn may be able to terminate the
license agreement.
In March 2003, we entered into an amendment agreement that
amended certain provisions of both the research agreement and
the license agreement. The amendment agreement provides that any
time we elect to exercise our option to license inventions
discovered or developed as a result of research we sponsor at
UConn, such inventions will be automatically covered under the
terms of our existing license agreement with UConn. In
consideration for execution of the amendment agreement and for
the license of additional patent rights, we agreed to pay UConn
an up-front payment and to make future payments for each patent
or patent application with respect to which we exercise our
option under the research agreement. As of December 31,
2004, we have paid approximately $94,000 to UConn under the
amendment agreement.
With the exception of four patent applications that we own
outright, all of our Aroplatin patents and patent applications
have been exclusively licensed to us by the following
corporation and institution:
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Sumitomo Pharmaceuticals Co., Ltd. |
In December 2000, Aronex Pharmaceuticals Inc., a company we
acquired in July 2001, entered into a license agreement with
Sumitomo Pharmaceuticals Co., Ltd. In September 2003, this
agreement was amended and restated. The license agreement grants
us the exclusive right to an issued US patent application that
contains certain claims that relate to Aroplatin. Except for the
treatment of hepatoma, the license agreement gives us the
exclusive right to make, use, develop, import and sell Aroplatin
in the United States. The term of the license agreement ends
when the licensed patent expires in 2020. Either party may
terminate the license agreement by giving written notice to the
other party upon the occurrence of the following events:
(1) if the other party makes an assignment for the benefit
of creditors, is the subject of bankruptcy proceedings, or has a
trustee or receiver appointed for substantially all of its
assets, (2) if the other party becomes insolvent, or
(3) if the other party materially defaults in its
performance under the license agreement. Prior to our
acquisition of Aronex Pharmaceuticals Inc., Sumitomo received a
$500,000 up-front payment in 2001 from Aronex Pharmaceuticals
Inc. and will receive subsequent milestone payments from us in
the aggregate of up to $3.5 million if regulatory filings,
regulatory approval and sales in connection with Aroplatin
occur. We agreed to pay Sumitomo royalties on the net sales of
Aroplatin in the United States upon commercialization of the
product. The license agreement does not contain any diligence
provisions.
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University of Texas Board of Regents/University of Texas
M.D. Anderson Cancer Center |
In June 1988, a predecessor to Aronex Pharmaceuticals Inc.
entered into an exclusive license agreement with: (1) The
Board of Regents of The University of Texas System, and
(2) The University of Texas System Cancer Center,
collectively referred to as the University of Texas.
As amended, the exclusive license agreement grants us the
exclusive, worldwide license to patents containing claims that
relate to Aroplatin. The term of the exclusive license agreement
expires when the last licensed patent expires (2010). Either
party may
19
terminate the agreement upon 60 days written notice if the
other party materially breaches any material term of the
exclusive license agreement. The agreement requires that we meet
certain diligence provisions, specifically the conduct of
ongoing and active research, developmental activities,
marketing, clinical testing, or a licensing program, directed
towards the production and sale of Aroplatin. If we fail to
comply with these diligence provisions, the University of Texas
may be able to terminate the exclusive license agreement upon
90 days written notice. The University of Texas also has
the right terminate the exclusive license agreement in the event
that: (1) we discontinue our business, (2) we have a
receiver or trustee appointed for our assets, or (3) we are
the subject of a bankruptcy proceeding. We agreed to pay the
University of Texas royalties on the net sales of Aroplatin. The
applicable royalty percentage is dependent on the level of net
sales of Aroplatin. We have also agreed to make a
$200,000 milestone payment to the University of Texas if
the FDA approves a new drug application for Aroplatin. To date,
we have not made any payments to the University of Texas under
the license agreement.
Regulatory Considerations
Governmental authorities in the United States and other
countries extensively regulate the preclinical and clinical
testing, manufacturing, labeling, storage, record keeping,
advertising, promotion, export, marketing and distribution,
among other things, of our investigational product candidates.
In the United States, the FDA under the Federal Food, Drug, and
Cosmetic Act, the Public Health Service Act and other federal
statutes and regulations, subject pharmaceutical products to
rigorous review.
In order to obtain approval of a new product from the FDA, we
must, among other requirements, submit proof of safety and
efficacy as well as detailed information on the manufacture and
composition of the product. In most cases, this proof entails
extensive preclinical, clinical, and laboratory tests. The FDA
may also require confirmatory trials, post-marketing testing and
extra surveillance to monitor the effects of approved products
or place conditions on any approvals that could restrict the
commercial applications of these products.
The first stage of the FDA approval process for a new biologic
or drug involves completion of preclinical studies and the
submission of the results of these studies to the FDA. This,
together with proposed clinical protocols, manufacturing
information, analytical data and other information, in an
investigational new drug application, or IND, must become
effective before human clinical trials may commence. Preclinical
studies involve laboratory evaluation of product characteristics
and animal studies to assess the efficacy and safety of the
product. The FDA regulates preclinical studies under a series of
regulations called the current Good Laboratory
Practices regulations. If the sponsor violates these
regulations, in some cases, the FDA may invalidate the studies
and require that the sponsor replicate those studies.
After the IND becomes effective, a sponsor may commence human
clinical trials. The sponsor typically conducts human clinical
trials in three sequential phases, but the phases may overlap.
In Phase 1 trials, the sponsor tests the product in a small
number of patients or healthy volunteers, primarily for safety
at one or more doses. Phase 1 trials in cancer are often
conducted with patients that are not healthy who have end-stage
or metastatic cancer. In Phase 2, in addition to safety,
the sponsor evaluates the efficacy of the product in a patient
population somewhat larger than Phase 1 trials.
Phase 3 trials typically involve additional testing for
safety and clinical efficacy in an expanded population at
geographically dispersed test sites. The sponsor must submit to
the FDA a clinical plan, or protocol, accompanied by
the approval of the institutions participating in the trials,
prior to commencement of each clinical trial. The FDA may order
the temporary or permanent discontinuation of a clinical trial
at any time.
The sponsor must submit to the FDA the results of the
preclinical and clinical testing, together with, among other
things, detailed information on the manufacture and composition
of the product, in the form of a new drug application or, in the
case of a biologic, like Oncophage or AG-858, a biologics
license application.
20
In a process which can take a year or more, the FDA reviews this
application and, when and if it decides that adequate data is
available to show that the new compound is both safe and
effective for a particular indication and that other applicable
requirements have been met, approves the drug or biologic for
marketing. The amount of time taken for this approval process is
a function of a number of variables, including the quality of
the submission and studies presented, the potential contribution
that the compound will make in improving the treatment of the
disease in question, and the workload at the FDA.
Congress enacted the Food and Drug Administration Modernization
Act of 1997 in part to ensure the availability of safe and
effective drugs, biologics, and medical devices by expediting
the FDA review process for new products. The Modernization Act
establishes a statutory program for the approval of Fast Track
products, including biologics. A Fast Track product is defined
as a new drug or biologic intended for the treatment of a
serious or life-threatening condition that demonstrates the
potential to address unmet medical needs for this condition.
Under the Fast Track program, the sponsor of a new drug or
biologic may request the FDA to designate the drug or biologic
as a Fast Track product at any time during the clinical
development of the product. This designation assures access to
FDA personnel for consultation throughout the development
process and provides an opportunity to request accelerated
review of a marketing application providing a six-month review
timeline for the designated product. Our most advanced product,
Oncophage, has been designated by the FDA as a Fast Track
product in renal cell carcinoma and metastatic melanoma. We
cannot predict whether these designations will impact the timing
or likelihood of FDA approval of Oncophage.
The Modernization Act specifies that the FDA must determine if
the product qualifies for Fast Track designation within
60 days of receipt of the sponsors request. The FDA
can base approval of a marketing application for a Fast Track
product on an effect on a clinical endpoint or on another
endpoint that is reasonably likely to predict clinical benefit.
The FDA may subject approval of an application for a Fast Track
product to:
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post-approval studies to validate the surrogate endpoint or
confirm the effect on the clinical endpoint; and |
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prior review of all promotional materials. |
In addition, the FDA may withdraw its approval of a Fast Track
product on a number of grounds, including the sponsors
failure to conduct any required post-approval study with due
diligence.
If a preliminary review of the clinical data suggests that a
Fast Track product may be effective, the FDA may initiate review
of sections of a marketing application for a Fast Track product
before the sponsor completes the application. This rolling
review is available if the applicant provides a schedule for
submission of remaining information and pays applicable user
fees. However, the time periods specified under the Prescription
Drug User Fee Act concerning timing goals to which the FDA has
committed in reviewing an application, do not begin until the
sponsor submits the complete application.
The Orphan Drug Program provides a mechanism for the FDA to
acknowledge that a product is designed to treat a disease with
limited prevalence in the United States. An Orphan Drug
designation bestows certain advantages including extending
marketing exclusivity if the product is ultimately approved for
marketing, considerations in trial size and design based on the
actual patient population, and tax credits for some research and
development expenses. We hold orphan drug designations for
Oncophage in renal cell carcinoma and in metastatic melanoma.
The FDA may, during its review of a new drug application or
biologics license application, ask for additional test data. If
the FDA does ultimately approve a product, it may require
post-marketing testing, including potentially expensive
Phase 4 studies, and extra surveillance to monitor the
safety and effectiveness
21
of the drug. In addition, the FDA may in some circumstances
impose restrictions on the use of the drug that may be difficult
and expensive to administer, and may require prior approval of
promotional materials.
Before approving a new drug application or biologics license
application, the FDA will inspect the facilities at which the
product is manufactured and will not approve the product unless
the manufacturing facilities appear to be in compliance with
cGMP. In order to accomplish this inspection, a local field
division of the FDA is responsible for completing this
inspection and providing a recommendation for or against
approval. We are in communication with the field division of the
FDA regarding our manufacturing facilities. This effort is
intended to assure appropriate facility and process design to
avoid potentially lengthy delays in product approvals due to
inspection deficiencies.
Following approval, the manufacture, holding, and distribution
of a product must be in compliance with cGMP. Manufacturers must
expend time, money, and effort in the area of production and
quality control and record keeping and reporting to ensure full
compliance with those requirements. The labeling, advertising,
promotion, marketing, and distribution of a drug or biologic
product must be in compliance with FDA regulatory requirements.
Failure to comply with applicable requirements can lead to the
FDA demanding that production and shipment cease, and, in some
cases, that the manufacturer recall products, or to enforcement
actions that can include seizures, injunctions, and criminal
prosecution. These failures can also lead to FDA withdrawal of
approval to market a product.
We are also subject to regulation by the Occupational Safety and
Health Administration, also known as OSHA, and the Environmental
Protection Agency, also known as EPA, and to regulation under
the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations.
OSHA and/or the EPA may promulgate regulations that may affect
our research and development programs.
Sales of pharmaceutical products outside the United States are
subject to foreign regulatory requirements that vary widely from
jurisdiction to jurisdiction. Whether or not we have obtained
FDA approval, we must obtain approval of a product by comparable
regulatory authorities of foreign jurisdictions prior to the
commencement of marketing the product in those jurisdictions.
The time required to obtain this approval may be longer or
shorter than that required for FDA approval.
Competition
Competition in the pharmaceutical and biotechnology industries
is intense. Many pharmaceutical or biotechnology companies have
products on the market and are actively engaged in the research
and development of products for the treatment of cancer,
infectious diseases, and autoimmune disorders. In addition, many
competitors focus on immunotherapy as a treatment for cancer,
infectious diseases, and autoimmune disorders. In particular,
some of these companies are developing cancer vaccines produced
from a patients own cells or tissue. Others are focusing
on developing heat shock protein products. We compete for
funding, access to licenses, personnel, and third-party
collaborations. In addition, many competitors have substantially
greater financial, manufacturing, marketing, sales,
distribution, and technical resources, and more experience in
research and development, clinical trials and regulatory
matters, than we do. A competing company developing, or
acquiring rights to, a more efficacious therapeutic product for
the same diseases we are targeting, or one which offers
significantly lower costs of treatment, could render our
products noncompetitive or obsolete.
Academic institutions, governmental agencies, and other public
and private research institutions conduct significant amounts of
research in biotechnology, medicinal chemistry, and
pharmacology. These entities have become increasingly active in
seeking patent protection and licensing revenues for their
research results. They also compete with us in recruiting and
retaining skilled scientific talent.
22
We are aware of certain programs and products under development
by others that may compete with our programs and products.
Several companies, including Biomira Inc., CancerVax
Corporation, Cell Genesys Inc., Corixa Corporation, Dendreon
Corporation, Genzyme Corporation, Oxford Biomendica PLC,
LipoNova, and Intracel Corporation, are developing treatments
for cancer based on modulation of the immune system, including
cancer vaccines. In addition, several companies, including
Pfizer Inc, Bristol Myers-Squibb, Genentech, Roche, Merck,
Schering-Plough, AstraZeneca, GlaxoSmithKline, Novartis and
Wyeth, have expertise in, and are developing products for the
treatment of cancer, infectious diseases, and autoimmune
disorders. We are aware of one competitor, Dendreon Corporation,
who received Fast Track designation for Provenge, an autologous
cancer vaccine for the treatment of prostate cancer.
Certain companies to which we have licensed QS-21 have also
licensed vaccine adjuvants from direct competitors, such as
Coley Pharmaceutical Group, Corixa Corporation and Avant
Immunotherapeutics. The existence of products developed by these
and other competitors, or other products of which we are not
aware or which other companies may develop in the future, may
adversely affect the marketability of products we develop.
Employees
As of March 4, 2005, we had 273 employees, of whom
36 have PhDs and six have MDs. None of our employees
are subject to a collective bargaining agreement. We believe
that we have good relations with our employees.
Corporate History
Antigenics L.L.C. was formed as a Delaware limited liability
company in 1994 and was converted to Antigenics Inc., a Delaware
corporation, in February 2000.
Availability of Periodic SEC Reports
Our Internet website address is www.antigenics.com. We
make available free of charge through our website our annual
reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file such material with, or
furnish such material to, the SEC. The contents of our website
are not part of, or incorporated into, this document.
23
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Item 1A. |
Directors and Executive Officers of the Registrant |
Set forth below is certain information regarding our executive
officers and directors, including their age, as of March 1,
2005:
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Name |
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Age | |
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Title |
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Garo H. Armen, Ph.D.
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52 |
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Chairman of the Board and Chief Executive Officer |
Pramod K. Srivastava, Ph.D.
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49 |
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Director, Founding Scientist and Chairman of the Scientific and
Medical Advisory Board |
Russell H. Herndon
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46 |
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President, Commercial Operations |
Peter Thornton
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40 |
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Senior Vice President and Chief Financial Officer |
Renu Gupta, MD
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49 |
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Senior Vice President, Development |
Roman M. Chicz, Ph.D.
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42 |
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Senior Vice President, Research and Pre-Clinical Development |
Noubar Afeyan, Ph.D.(1)
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42 |
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Director |
Frank V. AtLee III(3)(4)
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64 |
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Director |
Gamil G. de Chadarevian(2)
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53 |
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Director |
Tom Dechaene(2)
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45 |
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Director |
Margaret Eisen(1)(2)
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51 |
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Director |
Wadih (Bill) Jordan(1)
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70 |
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Director |
Mark Kessel(4)
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63 |
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Director |
Alastair J. J. Wood, MD(3)
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58 |
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Director |
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(1) |
Member of the Compensation Committee |
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(2) |
Member of the Audit and Finance Committee |
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(3) |
Member of the Corporate Governance Committee |
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(4) |
Member of the Litigation Committee |
GARO H. ARMEN, PH.D. co-founded Antigenics in 1994 and has been
the Chairman of the Board and Chief Executive Officer since
inception. He currently serves as a director of Elan
Corporation, plc and a director of Color Kinetics Inc.
Dr. Armen is also the founder and president of the Children
of Armenia Fund. Since 1990, Dr. Armen has been the
managing general partner of Armen Partners, L.P., an investment
partnership specializing in public and private healthcare and
biotechnology investments.
PRAMOD K. SRIVASTAVA, PH.D. co-founded Antigenics in 1994, and
is the Chairman of our Scientific and Medical Advisory Board.
Dr. Srivastava is the Director of the Center for
Immunotherapy of Cancer and Infectious Diseases at the
University of Connecticut and is a Professor of Immunology at
the University of Connecticut. He has held positions at Fordham
University and the Mount Sinai School of Medicine.
Dr. Srivastava serves on the Scientific Advisory Council of
the Cancer Research Institute, New York. Dr. Srivastava is
a director of CambriaTech Holding S.A.
RUSSELL H. HERNDON has served as our President of Commercial
Operations since November 2003. Prior to this position,
Mr. Herndon served as our President from January 2002 and
as our Chief Operating Officer from January 2001.
Mr. Herndon was with Genzyme Corporation from 1989 through
2000,
24
holding various management positions including, most recently,
President of the Genzyme Tissue Repair Division and, from 1997
to 1999, Senior Vice President of Genzyme. During his tenure at
Genzyme, Mr. Herndon identified and organized major
programs to streamline and improve operations, implement cost
reductions and flexibly and efficiently expand production
capacity. Mr. Herndon received a Bachelors Degree in
biology from Barton College and attended Harvard Business School
for its Program in Management and Development.
PETER THORNTON has served as our Senior Vice President and Chief
Financial Officer since June 2004. His professional experience
includes 17 years of financial and operating experience in
the United States and Europe. Mr. Thornton joined the
company from the global biopharmaceutical company Elan
Corporation, plc., having held senior management positions in
accounting, finance and operations. He was most recently
Elans senior vice president of business operations,
focusing on general management and operational leadership of
several business units, and restructuring and divestiture
activities. Prior to joining Elan in 1994, Mr. Thornton
worked at the international accounting firm of KPMG in Ireland
and France for approximately seven years. Mr. Thornton is a
director of CyDex, Inc. Mr. Thornton earned his
bachelors degree in commerce from University College,
Cork, Ireland, and is a fellow of the Institute of Chartered
Accountants in Ireland.
RENU GUPTA, MD joined Antigenics as Senior Vice President of
Development in November 2003. During the period 2001 through
2003, Dr. Gupta worked as a self-employed consultant for a
range of bio-pharmaceutical companies. During the years 2000 to
2001, Dr. Gupta was employed at Novartis where she was the
vice president and head of US clinical research and development.
Dr. Gupta also spent 1998 through 2000 at Covance as Vice
President, and head of Medical, Safety and Therapeutics and from
1989 through 1998 at Bristol-Myers Squibb, where she was
responsible for high-level global marketing strategy, clinical
research and business development. Dr. Gupta received her
bachelor and medical degrees from the University of Zambia and
completed her medical training at Albert Einstein Medical Center
in Philadelphia and the University of Pennsylvanias
Childrens Hospital of Philadelphia.
ROMAN M. CHICZ, PH.D. joined Antigenics as Senior Vice President
of Research and Pre-Clinical Development in July 2004. Prior to
this position Dr. Chicz was a co-founder and Vice President
of Discovery Research at ZYCOS Inc. from its inception in 1996
until its acquisition in 2004. During his tenure at ZYCOS,
Dr. Chicz was responsible for the identification and
validation of novel anti-viral and oncology drugs, product
development support and management of the Aventis Pasteur
oncology alliance. He also played a key role in business
development and private financing of the company. Prior to
ZYCOS, Dr. Chicz served as a principal scientist and
postdoctoral fellow at Harvard University. Dr. Chicz
received his Bachelors degree in chemistry from Occidental
College and his doctorate in biochemistry from Purdue University.
NOUBAR AFEYAN, PH.D. has been a director since 1998.
Dr. Afeyan is Managing Partner and CEO of Flagship Ventures
a leader in creating, funding and developing new ventures in
both life science and information technology sectors. He is also
a Senior Lecturer at the Massachusetts Institute of
Technologys Sloan School of Management. In addition, he is
a member of the Board of Governors of Boston University Medical
School, the Board of Advisors for the Whitehead Institute at
MIT, and the Advisory Council of the McGowan Institute for
Regenerative Medicine. Dr. Afeyan also serves on the board
of Color Kinetics, Inc.
FRANK V. ATLEE III has been a director since July 2002.
Mr. AtLee is a director of Monsanto Company since 2000.
From December 2002 to May 2003, Mr. AtLee was Interim CEO
and President, as well as the Chairman of the Board of Directors
of Monsanto Company. Mr. AtLee is also on the board of
Nereus Pharmaceuticals Inc.
GAMIL G. de CHADAREVIAN has been a director since 1995 and
served as our Executive Vice President International from 1998
to 2001. Until April 1998, Mr. de Chadarevian was Managing
Director of
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Special Projects at Alza International and the Vice President of
Corporate Development for Corange London Limited, two
pharmaceutical companies. Prior to 1992, he held positions at
Pasfin Servizi Finanziara SpA, GEA Consulenza and Credit Suisse.
Mr. de Chadarevian is the founder and Lead Director of
OphthalmoPharma Ltd. and a co-founder of Ikonisys Inc. and
CambriaTech Holding SA. He serves on the advisory board of
Syntek Capital AG and Venture Valuation AG and is a
non-executive board member of Friends of San Patrignano,
Inc., a charitable organization. In Italy, he is an advisor for
biotechnology to Sviluppo Italia, a government agency dedicated
to promoting Italian investment opportunities, and to Lay Line
Genomics SpA, a biotechnology company. Mr. de Chadarevian
received his degree from the University of Zurich in Switzerland.
TOM DECHAENE has been a director since 1999. Mr. Dechaene
is a partner at Anchor Partners, a London-based advisory
boutique focusing on Telecoms, Media & technology
clients. From 2000 to 2002, Mr. Dechaene was the Chief
Financial Officer of SurfCast, Inc., a software development
company. He was with Deutsche Bank from 1991 through 1999, most
recently as a director in the Principal Investments Group within
the Equity Capital Markets division. Mr. Dechaene holds a
law degree from Ghent University, Belgium, a degree in Applied
Economics from the University of Antwerp and a MBA from INSEAD,
France.
MARGARET EISEN has been a director since March 2003.
Ms. Eisen joined Harbor Hills Capital in July 2003 as Chief
Investment Officer and subsequently formed EAM International,
LLC to provide corporate finance and asset management services
to entrepreneurs and wealthy individuals. Before forming EAM
International, from 2001 to 2002, Ms Eisen was Managing Director
of an investment bank specializing in mergers and acquisitions
of investment management firms. From 1995 to 2001,
Ms. Eisen was Managing Director of North American Equities
of General Motors Investment Management Corporation, a
registered investment advisor. Ms. Eisen is a member of the
Board of Trustees of the Acorn family of mutual funds of Wagner
Asset Management and a Trustee of the Lehman Brothers/First
Trust Income Opportunity Fund and the Lehman Liquid Assets
Trust. Ms. Eisen is a Director of Global Financial Group, a
venture capital fund of funds, and is a member of the Investment
Committee of the Board of Trustees of Smith College.
Ms. Eisen previously served as Chair of the Institute for
Financial Markets. Ms. Eisen received a bachelors
degree in government from Smith College, a masters in
education from Lesley College, and a MBA from Babson College.
She also holds the Chartered Financial Analyst designation.
WADIH (BILL) JORDAN has been a director since March 2003.
Mr. Jordan has served as president of NearEast Pharma since
1996, before which he spent 20 years at Cyanamid
International.
MARK KESSEL has been a director since March 2003.
Mr. Kessel is Chief Executive Officer and managing director
of Symphony Capital LLC, a firm which manages a private equity
fund which invests in the clinical development of
biopharmaceutical products that he co-founded in 2002. From 1979
to 2001, Mr. Kessel was a partner at the international law
firm of Shearman & Sterling and served as the
firms managing partner from 1990 to 1994.
ALASTAIR J.J. WOOD, MD, has been a director since September
2004. He is an associate dean, attending physician and tenured
professor of medicine and pharmacology at Vanderbilt Medical
School in Nashville, Tenn., where he has been a faculty member
for more than 20 years. A 2002 nominee for commissioner of
the US Food and Drug Administration (FDA), Dr. Wood served
as a member of the FDAs cardiovascular and renal advisory
committee and is currently a member of the agencys
nonprescription drug advisory committee. He has also been a
member and chairman of the National Institutes of Health study
sections, and served in a similar capacity for various
philanthropic grant-giving bodies, having acted as consultant to
several pharmaceutical companies, investors, venture capital
funds and major academic institutions.
26
We signed a lease agreement, effective August 2003, for a
162,000 square-foot facility in Lexington, Massachusetts,
which terminates in August 2013. We have an option to renew this
lease for two additional ten-year periods. We began occupying
approximately 94,000 square-feet of this new facility,
beginning in October 2003. We expect to expand to
132,000 square feet on or before August 2005 with a second
expansion to 162,000 square feet on or before March 2006.
We also lease approximately 40,000 square feet of
laboratory, office and manufacturing space in Framingham,
Massachusetts under a lease agreement that terminates in
September 2010. We have an option to renew the lease for two
additional five-year periods. We have sublet this entire
facility.
In addition, we lease approximately 30,000 square feet of
laboratory and office space in The Woodlands, Texas, a suburb of
Houston, under a lease that expires in January 2008. We are not
actively using this facility and have sublet the majority of
this facility to other tenants.
We maintain our executive offices in New York, New York, in an
office building in which we lease approximately
10,000 square feet. Our New York lease terminates in
December 2006.
The Company believes substantially all of its property and
equipment is in good condition and that it has sufficient
capacity to meet its current operational needs. We do not
anticipate experiencing significant difficulty in retaining
occupancy of any of our manufacturing or office facilities and
will do so through lease renewals prior to expiration or through
replacing them with equivalent facilities.
|
|
Item 3. |
Legal Proceedings |
Antigenics, our Chairman and Chief Executive Officer Garo Armen,
and two investment banking firms that served as underwriters in
our initial public offering have been named as defendants in a
civil class action lawsuit filed on November 5, 2001 in the
Federal District Court for the Southern District of New York on
behalf of a class of purchasers of our stock between
February 3, 2000 and December 6, 2000. Similar
complaints were filed against about 300 other issuers, their
underwriters, and in many instances directors and officers.
These cases have been coordinated under the caption In re
Initial Public Offering Securities Litigation,
Civ. No. 21 MC 92 (SAS), by order dated
August 9, 2001. The suit against Antigenics and
Dr. Armen alleges that the brokerage arms of the investment
banking firms charged secret excessive commissions to certain of
their customers in return for allocations of our stock in the
offering. The suit also alleges that shares of our stock were
allocated to certain of the investment banking firms
customers based upon agreements by such customers to purchase
additional shares of our stock in the secondary market. The
complaint alleges that Antigenics is liable under
Section 11 of the Securities Act of 1933, as amended, and
Dr. Armen is liable under Sections 11 and 15 of the
Securities Act because our registration statement did not
disclose these alleged practices. On April 19, 2002, the
plaintiffs in this action filed an amended class action
complaint, which contains new allegations. Similar amended
complaints were filed with respect to about 300 companies.
In addition to the claims in the earlier complaint, the amended
complaint alleged that Antigenics and Dr. Armen violated
Sections 10(b) and 20 of the Securities Exchange Act and
SEC Rule 10b-5 by making false and misleading statements
and/or omissions in order to inflate our stock price and conceal
the investment banking firms alleged secret arrangements.
The claims against Dr. Armen, in his individual capacity,
have been dismissed without prejudice. On July 15, 2002,
Antigenics and Dr. Armen joined the Issuer Defendants
Motion to Dismiss the Consolidated Amended Complaints. By order
of the Court, this motion set forth all common
issues, i.e., all grounds for dismissal common to all
or a significant number of Issuer Defendants. The hearing on the
Issuer Defendants Motion to Dismiss and the other
Defendants motions to Dismiss was held on November 1,
2002. On February 19, 2003, the Court issued its opinion
and order on the Issuer Defendants Motion to Dismiss. The
Court granted Antigenics motion to dismiss the
Rule 10b-5 and Section 20 claims with leave to amend
and denied our motion
27
to dismiss the Section 11 and Section 15 claims. On
June 14, 2004, papers formalizing a proposed settlement
among the plaintiffs, Issuer Defendants, and issuers were
presented to the Federal District Court for the Southern
District of New York, and Antigenics anticipates that a
settlement will be reached without incurring significant
out-of-pocket costs, after considering insurance. Accordingly,
an accrual has not been recorded at December 31, 2004.
We currently are a party to other legal proceedings as well.
While our management currently believes that the ultimate
outcome of any of these proceedings will not have a material
adverse effect on our consolidated financial position, results
of operations, or liquidity, litigation is subject to inherent
uncertainty. Litigation also consumes both cash and management
attention.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to stockholders for a vote during the
fourth quarter of 2004.
PART II
|
|
Item 5. |
Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Our common stock has been traded on The NASDAQ National Market
under the symbol AGEN since February 4, 2000.
The following table sets forth, for the periods indicated, the
high and low sale prices per share of our common stock as
reported on the NASDAQ National Market.
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
2003
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
11.87 |
|
|
|
7.08 |
|
Second Quarter
|
|
|
16.00 |
|
|
|
7.75 |
|
Third Quarter
|
|
|
15.70 |
|
|
|
10.40 |
|
Fourth Quarter
|
|
|
13.75 |
|
|
|
9.22 |
|
|
2004
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
12.46 |
|
|
|
9.21 |
|
Second Quarter
|
|
|
11.61 |
|
|
|
7.01 |
|
Third Quarter
|
|
|
8.75 |
|
|
|
5.94 |
|
Fourth Quarter
|
|
|
11.38 |
|
|
|
4.51 |
|
|
2005
|
|
|
|
|
|
|
|
|
First Quarter (through March 17, 2005)
|
|
|
10.24 |
|
|
|
6.10 |
|
As of March 15, 2005, there were approximately 2,600
holders of record and approximately 41,500 beneficial holders of
our common stock.
We have never paid cash dividends on our common stock and we do
not anticipate paying any cash dividends in the foreseeable
future. We currently intend to retain future earnings, if any,
for the future operation and expansion of our business. Any
future payment of dividends on our common stock will be at the
discretion of our board of directors and will depend upon, among
other things, our earnings, financial condition, capital
requirements, level of indebtedness and other factors that our
board of directors deem relevant.
28
|
|
|
Securities Authorized For Issuance Under Equity
Compensation Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
Remaining Available for |
|
|
Number of Securities to be |
|
Weighted-average |
|
Future Issuance under |
|
|
Issued Upon Exercise of |
|
Exercise Price of |
|
Equity Compensation Plan |
|
|
Outstanding Options, |
|
Outstanding Options, |
|
(Excluding Securities |
Plan Category |
|
Warrants and Rights(1) |
|
Warrants and Rights |
|
Reflected in Column(a))(2) |
|
|
|
|
|
|
|
|
|
(a) |
|
(b) |
|
(c) |
Equity compensation plans approved by security holders
|
|
|
5,633,358 |
|
|
$ |
9.53 |
|
|
|
4,121,509 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,633,358 |
|
|
|
|
|
|
|
4,121,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes (i) 2,197 options outstanding at a weighted
average exercise price of $68.91 assumed in connection with our
merger with Aronex Pharmaceuticals, Inc. in July 2001;
(ii) 53,604 options outstanding at a weighted average
exercise price of $11.74 assumed in our merger with Aquila
Biopharmaceuticals Inc. in November 2000. |
|
(2) |
Includes 204,980 shares that may be issued under our 1999
Employee Stock Purchase Plan. |
|
|
Item 6. |
Selected Financial Data |
We have derived the consolidated balance sheet data set forth
below as of December 31, 2004 and 2003, and the
consolidated statement of operations data for each of the years
in the three-year period ended December 31, 2004, from our
audited consolidated financial statements included elsewhere in
this annual report. The consolidated balance sheet data as of
December 31, 2002, 2001, 2000 and the consolidated
statement of operations data for the years ended
December 31, 2001 and 2000, is unaudited. It is based on
audited data for the relevant periods as adjusted for
discontinued operations accounting treatment related to the sale
of manufacturing rights to our feline leukemia virus vaccine and
certain other assets in March 2004, which adjustments have
not been audited as of these dates or for these years.
You should read the selected consolidated financial data in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
consolidated financial statements and the notes to those
consolidated financial statements included elsewhere in this
report.
Given our history of incurring operating losses, management
believes that it is more likely than not that any deferred tax
assets, net of deferred tax liabilities, will not be realized.
Therefore, there is no income tax benefit in the consolidated
financial statements for periods ended after February 2000
because of a loss before income taxes and the need to recognize
a valuation allowance on net deferred tax assets (see
(3) below).
Changes in cash, cash equivalents and short-term investments,
total current assets, total assets, and stockholders
equity in the periods presented below include the effects of the
receipt of net proceeds from our equity offerings, the exercise
of stock options and warrants, and employee stock purchases that
totaled approximately $54.6 million, $92.5 million,
$56.7 million, $0.9 million, and $66.8 million in
2004, 2003, 2002, 2001, and 2000, respectively.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
|
|
|
|
(Unaudited) | |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
707 |
|
|
$ |
985 |
|
|
$ |
784 |
|
|
$ |
2,949 |
|
|
$ |
79 |
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(41,718 |
) |
|
|
(46,264 |
) |
|
|
(37,478 |
) |
|
|
(31,259 |
) |
|
|
(17,563 |
) |
|
|
General and administrative
|
|
|
(25,784 |
) |
|
|
(21,682 |
) |
|
|
(20,673 |
) |
|
|
(13,762 |
) |
|
|
(9,189 |
) |
|
|
Acquired in-process research and development(1)
|
|
|
(2,888 |
) |
|
|
|
|
|
|
|
|
|
|
(34,596 |
) |
|
|
(25,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(69,688 |
) |
|
|
(66,961 |
) |
|
|
(57,367 |
) |
|
|
(76,668 |
) |
|
|
(52,473 |
) |
Interest income, net
|
|
|
929 |
|
|
|
919 |
|
|
|
1,225 |
|
|
|
2,684 |
|
|
|
5,756 |
|
Non-operating income
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(68,751 |
) |
|
|
(66,042 |
) |
|
|
(56,142 |
) |
|
|
(73,984 |
) |
|
|
(46,717 |
) |
Income (loss) from discontinued operations, net of tax of $617
in 2004 (including gain before tax on disposal of $14,132 in
2004)(2)
|
|
|
12,589 |
|
|
|
108 |
|
|
|
264 |
|
|
|
443 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(56,162 |
) |
|
|
(65,934 |
) |
|
|
(55,878 |
) |
|
|
(73,541 |
) |
|
|
(46,729 |
) |
Dividends on series A convertible preferred stock
|
|
|
(790 |
) |
|
|
(224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders(3)(4)(5)
|
|
$ |
(56,952 |
) |
|
$ |
(66,158 |
) |
|
$ |
(55,878 |
) |
|
$ |
(73,541 |
) |
|
$ |
(46,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations per common share, basic and
diluted
|
|
$ |
(1.56 |
) |
|
$ |
(1.70 |
) |
|
$ |
(1.71 |
) |
|
$ |
(2.63 |
) |
|
$ |
(1.90 |
) |
Income (loss) from discontinued operations, per common share,
basic and diluted
|
|
$ |
0.28 |
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
|
|
Net loss attributable to common stockholders per common share,
basic and diluted
|
|
$ |
(1.27 |
) |
|
$ |
(1.70 |
) |
|
$ |
(1.70 |
) |
|
$ |
(2.61 |
) |
|
$ |
(1.90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic and diluted
|
|
|
44,685 |
|
|
|
38,989 |
|
|
|
32,905 |
|
|
|
28,143 |
|
|
|
24,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
86,921 |
|
|
$ |
87,978 |
|
|
$ |
57,720 |
|
|
$ |
60,868 |
|
|
$ |
99,139 |
|
|
Total current assets
|
|
|
92,604 |
|
|
|
91,821 |
|
|
|
62,395 |
|
|
|
63,987 |
|
|
|
101,593 |
|
|
Total assets
|
|
|
133,058 |
|
|
|
140,080 |
|
|
|
89,063 |
|
|
|
93,546 |
|
|
|
127,966 |
|
|
Total current liabilities
|
|
|
19,204 |
|
|
|
22,105 |
|
|
|
9,971 |
|
|
|
16,208 |
|
|
|
8,611 |
|
|
Long-term debt, less current portion
|
|
|
4,512 |
|
|
|
10,245 |
|
|
|
12 |
|
|
|
194 |
|
|
|
2,643 |
|
|
Stockholders equity
|
|
|
106,443 |
|
|
|
105,246 |
|
|
|
77,757 |
|
|
|
75,925 |
|
|
|
116,703 |
|
|
|
(1) |
We recorded charges to operations for the write-off of
in-process research and development acquired with the purchase
of intellectual property from Mojave Therapeutics Inc. in
July 2004, in our merger with Aronex Pharmaceuticals Inc.
in July 2001 and in our merger with Aquila
Biopharmaceuticals Inc. in November 2000. |
|
(2) |
In March 2004, we sold our manufacturing rights and related
assets for a feline leukemia virus vaccine to Virbac S.A. This
sale and activity related to these assets has been treated as a
discontinued operation for all periods presented. |
|
(3) |
Given our history of incurring operating losses, no income tax
benefit is recognized in our consolidated financial statements
because of a loss before income taxes and the need to recognize
a valuation allowance on net deferred tax assets. |
|
(4) |
Effective July 1, 2001, we adopted Statement of Financial
Accounting Standards (SFAS) No. 141, Business
Combinations and effective January 1, 2002 adopted
SFAS No. 142, Goodwill and Other
Intangibles. As a result, we have ceased amortization of
all goodwill beginning January 1, 2002. Had
SFAS No. 142 been adopted by us effective
January 1, 2000, net loss attributable to common
stockholders and net loss attributable to common stockholder per
common share, basic and diluted, would have been as follows (in
thousands, except per share data): |
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2000 | |
|
|
| |
|
| |
Net loss attributable to common stockholders, as reported
|
|
$ |
(73,541 |
) |
|
$ |
(46,729 |
) |
Goodwill and assembled workforce amortization
|
|
|
480 |
|
|
|
39 |
|
|
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$ |
(73,061 |
) |
|
$ |
(46,690 |
) |
|
|
|
|
|
|
|
Net loss attributable to common stockholders per common share,
basic and diluted:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(2.61 |
) |
|
$ |
(1.90 |
) |
|
Pro forma
|
|
|
(2.60 |
) |
|
|
(1.89 |
) |
31
|
|
(5) |
Effective January 1, 2003, we adopted
SFAS No. 143 Accounting for Asset Retirement
Obligations. As a result, we have recorded the fair value
of an asset retirement obligation of long-lived assets and the
corresponding capitalized cost, effective January 1, 2003.
Had SFAS No. 143 been in effect for the years
presented below, net loss attributable to common stockholders
per common share, basic and diluted, would have been as follows
(in thousands, except per share data): |
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
Net loss attributable to common stockholders, as reported
|
|
$ |
(55,878 |
) |
|
$ |
(73,541 |
) |
Depreciation expense
|
|
|
(43 |
) |
|
|
(43 |
) |
Accretion expense
|
|
|
(18 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$ |
(55,939 |
) |
|
$ |
(73,601 |
) |
|
|
|
|
|
|
|
Net loss attributable to common stockholders per common share,
basic and diluted:
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(1.70 |
) |
|
$ |
(2.61 |
) |
Pro forma
|
|
|
(1.70 |
) |
|
|
(2.62 |
) |
The pro forma liability for asset retirement obligations would
have been as follows (in thousands):
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2002 | |
|
|
| |
Long-term liabilities, less current portion, as reported
|
|
$ |
1,335 |
|
Asset retirement obligation
|
|
|
367 |
|
|
|
|
|
Pro forma long-term liabilities, less current portion
|
|
$ |
1,702 |
|
|
|
|
|
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
OVERVIEW
We are currently researching and/or developing product
candidates to treat cancers, infectious diseases and autoimmune
disorders. Since our inception in March 1994, our activities
have primarily been associated with the development of our heat
shock protein technology and our most advanced product
candidate, Oncophage. Our business activities have included,
product research and development, intellectual property
prosecution, manufacturing therapeutic vaccines for clinical
trials, regulatory and clinical affairs, corporate finance and
development activities, marketing and integration of our
acquisitions.
We have incurred significant losses since our inception. As of
December 31, 2004, we had an accumulated deficit of
$335,860,000. We continue to finance the majority of our
operations through the sale of equity. For the years ended
December 31, 2004 and 2003, we raised through the sale of
equity, exercises of stock options and proceeds from our
employee stock purchase plan approximately $54,617,000 and
$92,531,000, respectively. On January 25, 2005, we raised
gross proceeds of $50,000,000 through the issuance of
5.25% Convertible Senior Notes due 2025.
We expect, as we have in the past, to attempt to raise
additional funds in advance of depleting our current funds.
Satisfying long-term liquidity needs will require the successful
commercialization of Oncophage or other products and may require
substantial additional capital. We expect that we will be able
to fund our
32
growing operations and capital expenditures into 2006 with our
current working capital, and the proceeds from our January 2005
offering of 5.25% Convertible Senior Notes due 2025.
On March 17, 2004, we sold our manufacturing rights for
feline leukemia virus, also know as FeLV, vaccine and related
assets to French veterinary pharmaceutical manufacturer Virbac
S.A., also known as Virbac. Pursuant to this arrangement, in
exchange for the transfer of our manufacturing rights and
related equipment for FeLV, we received $14,552,000 in cash. In
addition, we entered into a sublease agreement with PP
Manufacturing, a subsidiary of Virbac, for a portion of the
manufacturing facility in Framingham, MA. In April 2004, upon
the satisfaction of a contingency of the arrangement, we
recorded a gain on the divestiture of these assets. The gain
recorded before tax in 2004 was approximately $14,132,000. The
carrying value of the assets sold and liabilities assumed were
approximately $409,000 and $15,000, respectively.
Virbac has held exclusive, perpetual, worldwide, marketing
rights to the FeLV vaccine since 1983. The supply agreement was
due for renewal in July 2002, at which point we began to supply
product to Virbac through month-to-month supply agreements until
the sale of our FeLV manufacturing rights to them in March 2004.
During the years ended December 31, 2004, 2003 and 2002, we
had research and development revenues of $690,000, $985,000, and
$784,000, respectively, representing grant payments and license
fees earned, and shipments of our adjuvant QS-21 to our QS-21
licensees. In addition, during the year ended December 31,
2004, we also had product sales of our veterinary adjuvant QA-21
of $17,000. To date, we have generated product sales revenues
substantially from one product, the feline leukemia virus
vaccine, the rights to which we sold to Virbac. As a result of
the sale, we will not generate further sales revenue from this
product. Our revenues from this product were $338,000,
$3,465,000, and $2,627,000 for the years ended December 31,
2004, 2003, and 2002 respectively. These amounts are included in
our income from discontinued operations presented in the
consolidated statements of operations.
Forward-Looking Statements
This report contains forward-looking statements. Generally,
these statements can be identified by the use of terms like
believe, expect, anticipate,
plan, may, will,
could, estimate, potential,
opportunity, future, project
and similar terms. Forward-looking statements may include
statements about our time lines for completing clinical trials,
time lines for releasing data from clinical trials, time lines
for initiating new clinical trials, expectations regarding
clinical trials and regulatory processes, expectations regarding
test results, future product research and development
activities, the expected effectiveness of therapeutic drugs and
vaccines in treating diseases, applicability of our heat shock
protein technology to multiple cancers and infectious diseases,
competitive position, plans for regulatory filings, possible
receipt of future regulatory approvals, expected cash needs,
plans for sales and marketing, implementation of corporate
strategy and future financial performance. These forward-looking
statements involve a number of risks and uncertainties that
could cause actual results to differ materially from those
suggested by the forward-looking statements. These risks and
uncertainties include, among others, that clinical trials may
not demonstrate that our products are both safe and more
effective than current standards of care; that we may be unable
to obtain the regulatory approvals necessary to conduct
additional clinical trials; that we may not be able to enroll
sufficient numbers of patients in our clinical trials; that we
may be unable to obtain the regulatory approvals necessary to
commercialize our products because the United States Food and
Drug Administration (FDA) or other regulatory agencies are
not satisfied with our trial protocols or the results of our
trials; that we may fail to adequately protect our intellectual
property or that we are determined to infringe on the
intellectual property of others; changes in financial markets
and geopolitical developments; and the solvency of
counter-parties under subleases and general real estate risks.
Forward-looking statements, therefore, should be considered in
light of all of the information included or referred to in this
report, including the information set forth under
33
the heading Factors That May Impact Future Results.
You are cautioned not to place significant reliance on these
forward-looking statements, which speak only as of the date of
this report. We undertake no obligation to update these
statements.
Historical Results of Operations
|
|
|
Year Ended December 31, 2004 Compared To The Year
Ended December 31, 2003 |
Revenue: We generated $690,000 of research and
development revenue and $17,000 of QA-21 product revenue during
the year ended December 31, 2004 and $985,000 of research
and development revenue and no product revenue during the year
ended December 31, 2003. Revenues from research and
development activities include revenues earned on shipments of
QS-21 to our QS-21 licensees, grant payments and license fees
earned. The decrease in research and development revenue is
attributable to lower shipments of QS-21 during the year ended
December 31, 2004 compared to the year ended
December 31, 2003 and to a large non-recurring shipment of
QS-21 during the first half of 2003.
Cost of Sales: Cost of sales, which is related entirely
to product revenue on the sale of QA-21, was $4,800, or 28% of
product sales, for the year ended December 31, 2004.
Research and Development: Research and development
expenses include the costs associated with our internal research
and development activities including salaries and benefits,
occupancy costs, clinical manufacturing costs, related
administrative costs and research and development conducted for
us by outside advisors, such as sponsored university-based
research partners, including the University of Connecticut where
we sponsor research, and clinical research organizations, as
well as expenses related to grant revenue. Research and
development expense decreased 10% to $41,718,000 for the year
ended December 31, 2004 from $46,264,000 for the year ended
December 31, 2003. The decrease was primarily due to
reduced clinical trial related expenses as we completed
enrollment for part I of our Phase 3 renal cell
carcinoma trial and our Phase 3 metastatic melanoma trial
during 2004. As compared to the year ended December 31,
2003, trial related expenses have decreased $5,250,000. In
addition, depreciation expense decreased $2,061,000 due mostly
to the exiting of the Woburn and Framingham facilities during
the first quarter of 2004 following the consolidation of these
activities into a single larger facility in Lexington adequate
to meet our long-term needs. Offsetting these expense decreases
was a $1,820,000 increase in research and development payroll
related expenses due to growth in headcount and employee payroll
expense, including a severance payment for a terminated
executive, and a $945,000 increase in other research and
development expenses for the year ended December 31, 2004
when compared to the year ended December 31, 2003.
General and Administrative: General and administrative
expenses consist primarily of personnel costs, office expenses
and professional fees. General and administrative expenses
increased 19% to $25,784,000 for the year ended
December 31, 2004 from $21,682,000 for the year ended
December 31, 2003. This increase is attributable to a
$1,026,000 increase in personnel compensation associated with
the growth of our operations including a non-recurring severance
payment to one of our executives, and a $411,000 increase in
non-payroll personnel related expenses primarily related to
travel costs. Professional fees increased $2,820,000 due mainly
to increased consulting services, accounting and legal fees, and
additional recruiting expenses driven by the growth of our
business and increased regulatory compliance costs. Offsetting
these increases is a decrease in facility related expenses of
$650,000 primarily due to the sublease of the Framingham
facility. Other general and administrative expenses increased
$495,000.
Acquired In-Process Research and Development: Acquired
in-process research and development of $2,888,000 for the year
ended December 31, 2004 related to the charge for the
purchase from Mojave Therapeutics Inc. (Mojave) of all of their
intellectual property and certain scientific assets relating to
their heat shock protein based antigen delivery system and other
technologies. The total purchase price of the assets
34
(comprised of a cash payment of $200,000 and the value of common
stock issued of $2,688,000) was allocated to incomplete acquired
technologies under development but not yet technologically
feasible or commercialized and which had no alternative future
uses. At the date of the acquisition, none of the purchased
technologies under development by Mojave had achieved
technological feasibility and none were being sold on the
market. There still remains substantial risk and significant
uncertainty concerning the remaining course of technical
development. Because of the great uncertainty associated with
these issues and the remaining effort associated with
development of these technologies, the development projects had
not established technological feasibility at the acquisition
date.
Interest Income: Interest income increased 25% to
$1,460,000 for the year ended December 31, 2004 from
$1,166,000 for the year ended December 31, 2003. This
increase is due primarily to an increased average monthly cash
and investment balance as well as rising interest rates. Our
average interest rate increased from 1.2% for the year ended
December 31, 2003 to 1.4% for the year ended
December 31, 2004.
Interest expense: Interest expense increased 115% to
$531,000 for the year ended December 31, 2004 from $247,000
for the year ended December 31, 2003. This increase relates
to the increase of the average balance of our interest bearing
debt relating to the new facility in Lexington, Massachusetts.
Discontinued Operations: Due to the sale of our
manufacturing rights for the FeLV vaccine and related assets to
Virbac, we have reported the results of those operations as
discontinued in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.
|
|
|
Year Ended December 31, 2003 Compared To The Year
Ended December 31, 2002 |
Revenue: We had $985,000 and $784,000 of research and
development revenue during the years ended December 31,
2003 and 2002, respectively. Revenues from research and
development activities include shipments of our adjuvant QS-21
to be used in clinical trials by our partners and grant payments
earned.
Research and Development: Research and development
expenses include the costs associated with our internal research
and development activities including, salaries and benefits,
occupancy costs, clinical manufacturing costs, related
administrative costs, and research and development conducted for
us by outside advisors, such as sponsored university-based
research partners, including the University of Connecticut where
we sponsor research, and clinical research organizations. In
addition, research and development expenses include the cost of
clinical material shipped to our research partners and expenses
related to grant revenue. Research and development expense
increased 23% to $46,264,000 for the year ended
December 31, 2003 from $37,478,000 for the year ended
December 31, 2002. This increase reflected the continued
advancement of our Oncophage Phase 3 clinical trials in
renal cell carcinoma and metastatic melanoma, including
increased monitoring of these Phase 3 trials during the
clinical hold, increased costs due to the interim analysis of
part I of our Phase 3 trial in renal cell carcinoma,
and other heat shock protein related research. Expenses related
to our Oncophage clinical trials increased $4,426,000 for the
year ended December 31, 2003 over the same period in 2002.
Also adding to the increase was a $1,292,000 depreciation charge
for machinery and equipment related to the exit from our Woburn,
Massachusetts facility. In addition, salary and personnel
related expenses increased $1,759,000 during the year ended
December 31, 2003 over the same period of 2002. This
increase in salary expense was due to our hiring of personnel to
assist with our expanding research activities. Our other
research and development expenses increased by $1,309,000 for
the year ended December 31, 2003 over the same period in
2002.
General and Administrative: General and administrative
expenses consist primarily of personnel compensation, office
expenses and professional fees. General and administrative
expenses increased 5% to $21,682,000 for the year ended
December 31, 2003 from $20,673,000 for the year ended
December 31, 2002. The increase was primarily due to a
$986,000 increase in rent expense due to a settlement with our
Woburn
35
facility landlord, and rent related to our Lexington,
Massachusetts facility. In addition, advisory services and
employee training expenses increased $819,000 primarily to
support our expanding market development operations. Also added
to the increase in general and administrative expenses was the
$135,000 increase in our directors and officers insurance
premium. These increases were offset by a $611,000 increase in
sublease income. The remainder of our general and administrative
expenses decreased by $320,000 for the year ended
December 31, 2003 over the same period.
Interest Income: Interest income decreased 27% to
$1,166,000 for the year ended December 31, 2003 from
$1,590,000 for the year ended December 31, 2002. This
decrease was attributable to declining interest rates during
2003. Our average interest rate decreased from 1.9% for the year
ended December 31, 2002, to 1.2% for the year ended
December 31, 2003.
Interest expense: Interest expense decreased 32% to
$247,000 for the year ended December 31, 2003 from $365,000
for the year ended December 31, 2002. The decrease was
attributable to our reduced debt balance for the majority of the
2003 fiscal year. The majority of our debt balance at
December 31, 2003 corresponds with the build-out of the
Lexington facility, which did not occur until the second half of
2003.
Discontinued Operations: Due to the sale of our
manufacturing rights for the FeLV vaccine and related assets to
Virbac, we have reported the results of those operations as
discontinued in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.
Research and Development Programs
Prior to 2002, we did not track costs on a per project basis,
and therefore have estimated the allocation of our total
research and development costs to each of our three largest
research and development programs. These research and
development programs contain our four lead product candidates,
Oncophage®, AG-858, AG-702/707, and
Aroplatintm,
as indicated in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
|
|
| |
Research and Development Program |
|
Lead Product | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
Prior to 2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Heat Shock Proteins for Cancer
|
|
|
Oncophage & AG-858 |
|
|
$ |
35,462,000 |
|
|
$ |
40,052,000 |
|
|
$ |
31,046,000 |
|
|
$ |
23,277,000 |
|
|
$ |
36,798,000 |
|
Heat Shock Proteins for Infectious Diseases
|
|
|
AG-702/707 |
|
|
|
2,682,000 |
|
|
|
2,376,000 |
|
|
|
1,248,000 |
|
|
|
735,000 |
|
|
|
2,085,000 |
|
Liposomal Cancer Treatments*
|
|
|
Aroplatin |
|
|
|
1,112,000 |
|
|
|
1,263,000 |
|
|
|
2,061,000 |
|
|
|
1,442,000 |
|
|
|
|
|
Other Research and Development Programs
|
|
|
|
|
|
|
2,462,000 |
|
|
|
2,573,000 |
|
|
|
3,123,000 |
|
|
|
5,805,000 |
|
|
|
2,578,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development Expenses
|
|
|
|
|
|
$ |
41,718,000 |
|
|
$ |
46,264,000 |
|
|
$ |
37,478,000 |
|
|
$ |
31,259,000 |
|
|
$ |
41,461,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Prior to 2001 costs were incurred by Aronex Pharmaceuticals
Inc., a company we acquired in July 2001. |
We have allocated direct and indirect costs to each program
based on certain assumptions and our review of the status of
each program, payroll related expenses and other overhead costs
based on estimated usage by each program. Each of our lead
product candidates is in various stages of completion as
described below. Significant additional expenditures will be
required if we complete our clinical trials, start new trials,
apply for regulatory approvals, continue development of our
technologies, expand our operations and bring our product
candidates to market. The eventual total cost of each clinical
trial is dependent on a number of uncertainties such as trial
design, the length of the trial, the number of clinical sites
and the number of patients. The process of obtaining and
maintaining regulatory approvals for new therapeutic products is
lengthy, expensive and uncertain. Because the successful
development of our most advanced product candidate, Oncophage,
is uncertain, and because AG-858, AG-702/707, and Aroplatin are
in early-stage clinical development, we are
36
unable to reliably estimate the cost of completing our research
and development programs, the timing of bringing such programs
to market and, therefore, when material cash inflows are likely
to commence.
We started enrolling patients in our first clinical trial
studying Oncophage in November 1997. To date, over
700 patients have been treated with Oncophage in our
various clinical trials. We have ongoing Phase 1 and
Phase 2 trials in several types of cancer, and we have
completed enrollment in part I of a Phase 3 trial for
renal cell carcinoma and a Phase 3 trial for metastatic
melanoma. Because Oncophage is a novel cancer therapeutic
vaccine that is personalized for each patient, it may experience
a longer regulatory review process and higher development costs,
either of which could delay or prevent our commercialization
efforts. For additional information regarding regulatory risks
and uncertainties, please read the factors identified under
Factors That May Impact Future Results.
On September 3, 2003, we announced that the FDA placed our
Phase 3 Oncophage clinical trials on partial clinical hold
because of inadequate data to support specifications for our
product purity, identity, potency and pH. With FDA consent, we
continued to treat and monitor patients who were already
enrolled in the trials as of that date. On October 22, 2003
we provided information in response to the FDA comments received
September 2, 2003, and on November 23, 2003, the
agency lifted the partial clinical hold.
On December 22, 2003, we announced the result of the
planned interim analysis of the data from our Phase 3 trial
of Oncophage in renal cell carcinoma. Based on its review of the
safety data, efficacy data, and other information regarding the
trial, the independent Data Monitoring Committee (DMC) for
the trial, a panel of cancer specialists who are reviewing the
safety and conduct of the trial at regular intervals but are not
otherwise involved in the study, recommended that the trial
proceed as planned and did not require that we change the number
of patients we planned to enroll in this trial for a successful
analysis of part I of the Phase 3 trial. At the interim
analysis, the DMC also declared the design and conduct of the
trial sound and raised no safety concerns.
In July 2004, we held a meeting with the medical team of the FDA
for Oncophage in renal cell carcinoma. The medical review team
is specifically focused on the review of patient safety, product
efficacy, clinical protocols and clinical development
plan-related issues. The purpose of the meeting was to address
issues surrounding the clinical development plan for product
registration of Oncophage in renal cell carcinoma. The FDA
expressed agreement with our overall proposed registration plan.
This plan includes our ability to use part I of the Phase 3
trial as part of our product registration strategy as well as
starting a second part of the trial in the same patient
population. We commenced enrollment activities for part II
of this Phase 3 trial in renal cell carcinoma in February
2005. The FDA has indicated that, by itself, part I of our
Phase 3 clinical trial in renal cell carcinoma is not
sufficient to support a biologics license application, also
known as a BLA, filing as they consider part II of the
trial as potentially providing the definitive evidence of safety
and efficacy; however, we expect that part I will be accepted as
part of the BLA filing. We intend to complete part I,
perform final analysis and review the data closely. Should the
results from the first part of the trial be clearly positive in
terms of clinical outcomes, we plan to submit data to the FDA
and request that the agency reconsider its position regarding
the use of the data from part I of the trial alone to support a
BLA filing, while part II of the study is continuing. There
is no assurance that we will be successful in demonstrating that
our product is sufficiently characterized or that the FDA would
accept such a strategy.
During the quarter ended September 30, 2004, this trial was
closed to enrollment. The final analysis for our part I
Phase 3 trial in renal cell carcinoma will be triggered
once a pre-specified number of events occur. An event is defined
as a recurrence of a patients renal cell carcinoma or a
death of a patient. Events are reviewed and confirmed, on a
blinded basis, by an independent Clinical Events Committee
comprised of
37
expert radiologists and an expert oncologist. Based on the
overall trend of events in this trial to date, we believe that
the earliest the final analysis for this trial could be
triggered is in mid 2005. If the efficacy data demonstrates a
statistically significant improvement in the primary endpoint
for patients treated with Oncophage, and if the FDA accepts the
data from this trial as being pivotal and sufficient to support
product registration, we would expect to file a biologics
license application, or BLA, within six months after completing
the final analysis.
During the quarter ended September 30, 2004 we completed
enrollment of our ongoing Phase 3 trial in metastatic
melanoma. We had a meeting with the DMC during the first quarter
of 2004 to review the safety and conduct of our Phase 3
metastatic melanoma trial of Oncophage. This meeting was not an
interim analysis of the efficacy data from this trial. Our
overall manufacturing success rate for this trial is
approximately 70%. Our inability to manufacture adequate amounts
of Oncophage for approximately 30% of the patients randomized in
the Oncophage treatment arm will jeopardize the potential for
the trial, as currently designed, to meet its pre-specified
clinical endpoints. We believe this study will not qualify as
registrational, primarily due to the relatively high failure
rate in vaccine manufacturing.
We initiated a Phase 2 trial of Oncophage in lung cancer
during 2004. We intend to initiate a Phase 1/2 trial in
breast cancer during the second half of 2005, as well as
Phase 1/2 trials of Oncophage in combination with other
molecules for advanced disease in multiple tumor types.
In December 2002, interim data were reported from a pilot
Phase 1 clinical trial conducted at the University of
Connecticut School of Medicine using HSPPC-70, a purified HSP70
and its associated antigens, for the treatment of chronic
myelogenous leukemia, or CML. In April 2003, we initiated a
Phase 2 trial in CML combining AG-858, our HSP70 based
product candidate, with Gleevec in patients with CML refractory
to Gleevec. In May 2004, we voluntarily placed enrollment of
this study on hold to modify the cell collection procedure. The
study resumed on July 24, 2004. The trial will evaluate the
safety and cytogenetic response (changes in the amount of tumor
cells in the patients blood) of this combination treatment
in up to 40 patients with chronic phase CML who are
currently receiving Gleevec treatment but are cytogenetically
positive. We expect to complete enrollment in this trial by mid
2005 and to release the data from this trial approximately
12-15 months after completion of enrollment.
We initiated a proof-of principle Phase 1 trial for AG-702
in the fourth quarter of 2001, we plan to file an
investigational new drug application (IND) during the first half
of 2005 for AG-707, and we plan to initiate a Phase 1
clinical trial of AG-707 shortly thereafter. We have experienced
delays in the animal experiments performed to support the basis
of clinical development and IND filing. Delays in animal
experiments are common. We continue to work towards achieving an
effective formulation from our animal studies and expect to
complete these studies in the first half of 2005. We do not
anticipate further developing AG-702 given that AG-707 should be
beneficial to a larger number of patients with genital herpes.
We initiated a Phase 2 trial for advanced colorectal cancer
unresponsive to medical treatment (refractory) in 2002.
This single-arm, open-label trial, conducted at the Arizona
Cancer Center, was designed to evaluate the effect of Aroplatin
alone in patients whose disease is not responsive to standard
first-line cancer treatments (5-fluorouracil/leucovorin or
capecitabine and irinotecan). In September 2003, the
investigators presented findings from this trial at ECCO. One
out of the 15 evaluable patients demonstrated a partial
38
clinical response and two experienced disease stabilization.
Because this was a single-arm study without a comparator arm,
statistical significance is not calculable. In addition,
researchers observed that Aroplatin appears well tolerated in
this pretreated patient population. This trial is closed to
enrollment.
In January 2003, we also initiated at the John Wayne Cancer
Center, in Santa Monica, California, a Phase 1/2 trial of
Aroplatin for a variety of advanced solid tumors amenable to
platinum therapy. This study is closed to enrollment.
We have developed a new formulation of Aroplatin and a bridging
GLP toxicology study comparing the old and new formulations of
Aroplatin was initiated in early January 2005 and is on schedule
to be completed during the second quarter of 2005. The results
from this study and studies describing characterization of the
new formulation will form the basis of an IND amendment that is
expected to be filed with the FDA during the second quarter of
2005.
Liquidity and Capital Resources
We have incurred annual operating losses since inception, and,
as of December 31, 2004, we had an accumulated deficit of
$335,860,000. We expect to incur increasing and significant
losses over the next several years as we continue our clinical
trials, apply for regulatory approvals, continue development of
our technologies, and expand our operations. Phase 3 trials
are particularly expensive to conduct, and we initiated
part II of our Phase 3 clinical trial in renal cell
carcinoma during February 2005. Since our inception, we have
financed our operations primarily through the sale of equity,
interest income earned on cash, cash equivalents, and short-term
investment balances and debt provided through secured lines of
credit. From our inception through December 31, 2004, we
have raised aggregate net proceeds of $350,890,000 through the
sale of equity, the exercise of stock options and warrants and
proceeds from our employee stock purchase plan, and borrowed
$20,523,000 under two credit facilities. At December 31,
2004, we had debt outstanding of approximately $9,922,000. In
February 2004, we sold 5,400,000 shares of our common stock
for net proceeds of approximately $54 million. In August
2004, we filed a registration statement with the Securities and
Exchange Commission for the registration and potential issuance
of up to $100 million of registered securities. On
January 25, 2005, we raised net proceeds of approximately
$48 million through the issuance of 5.25% Convertible
Senior Notes due 2025.
We expect that we will be able to fund our capital expenditures
and growing operations into 2006 with our current working
capital and the proceeds from our 2005 convertible note
offering. In order to fund our needs subsequently, we may need
to raise additional money and may attempt to do so by:
(1) out-licensing technologies or products to one or more
corporate partners, (2) renegotiating license agreements
with current corporate partners, (3) completing an outright
sale of assets, (4) securing additional debt financing
and/or (5) completing securities offerings. Our ability to
successfully enter into any such arrangements is uncertain and
if funds are not available, or not available on terms acceptable
to us, we may be required to revise our planned clinical trials,
other development activities, capital expenditures and/or the
scale of our operations. We expect to attempt to raise
additional funds in advance of depleting our current funds;
however, we may not be able to raise funds or raise amounts
sufficient to meet the long-term needs of the business.
Satisfying long-term liquidity needs will require the successful
commercialization of Oncophage or other product candidates and,
at this time, we cannot reliably estimate if or when that will
occur, and the process may require substantial additional
capital as discussed above. Please see the Forward-Looking
Statements section and the factors highlighted in the
Factors That May Impact Future Results section.
Our future cash requirements include, but are not limited to,
supporting our clinical trial efforts and continuing our other
research and development programs. Since inception we have
entered into various agreements with institutions and clinical
research organizations to conduct and monitor our current
clinical
39
studies. Under these agreements, subject to the enrollment of
patients and performance by the applicable institution of
certain services, we have estimated our payments to be
$55,965,000 over the term of the studies. Through
December 31, 2004, approximately $31,374,000 has been
expensed as research and development expenses in the
accompanying consolidated statements of operations and
$26,314,000 has been paid related to these clinical studies. The
timing of our expense recognition and future payments related to
these agreements are subject to the enrollment of patients and
performance by the applicable institution of certain services.
The actual amounts we pay out, if any, will depend on a range of
factors outside of our control, including the success of our
pre-clinical and clinical development efforts with respect to
product candidates being developed which incorporate the
patents, the content and timing of decisions made by the United
States Patent and Trademark Office (USPTO), the FDA and other
regulatory authorities, the existence and scope of third party
intellectual property, the reimbursement and competitive
landscape around such products, and other factors affecting
operating results. As we expand our clinical studies we plan to
enter into additional agreements. We anticipate significant
additional expenditures will be required to complete our
clinical trials, apply for regulatory approvals, continue
development of our technologies and expand our operations and
bring our product candidates to market. In addition, we have
entered into sponsored research agreements related to our
product candidates that require payments of approximately
$9,217,000, of which $3,563,000 has been paid through
December 31, 2004. Part of our strategy is to develop and
commercialize some of our product candidates by continuing our
existing collaborative arrangements with academic and corporate
partners and licensees, and by entering into new collaborations.
As a result of our collaborative agreements, we will not
completely control the efforts to attempt to bring those product
candidates to market. We have various agreements, for example,
with corporate partners that allow the use of our QS-21 adjuvant
in numerous vaccines. These agreements grant exclusive worldwide
rights in some fields of use, and co-exclusive or non-exclusive
rights in others. The agreements call for royalties to be paid
to us by the partner on its future sales of licensed vaccines
that include QS-21, which may or may not be achieved.
Our cash, cash equivalents and short-term investments at
December 31, 2004 were $86,921,000, a decrease of
$1,057,000 from December 31, 2003. During the year ended
December 31, 2004, we used cash primarily to finance our
operations, including our Oncophage clinical trials. Net cash
used in operating activities for the years ended
December 31, 2004 and 2003 was $60,225,000 and $51,683,000,
respectively. The increase resulted primarily from the increase
in the activity to support our Oncophage clinical trials and
on-going development activities. As we develop our technologies
and further our clinical trial programs we expect to increase
our spending. Our future ability to generate cash from
operations will depend on achieving regulatory approval of our
products, market acceptance of such products, achieving
benchmarks as defined in existing collaborative agreements, and
our ability to enter into new collaborations. Please see the
Forward-Looking Statements section and the factors
highlighted in the Factors That May Impact Future
Results section.
Net cash provided by investing activities for the year ended
December 31, 2004 was $3,934,000 as compared to net cash
used in investing activities of $52,181,000 for the year ended
December 31, 2003. During the year ended December 31,
2004 we had net purchases of $7,690,000 in short-term
investments. Additionally, our investment in the purchase of
equipment, furniture and fixtures decreased $14,567,000 to
$3,970,000 for the year ended December 31, 2004 from
$18,537,000 for the year ended December 31, 2003. This
decrease in investment is primarily due to the 2003 build-out of
our Lexington, Massachusetts facility. We anticipate capital
expenditures of up to $3,000,000 during 2005. We also received
proceeds of $12,552,000 for the divestiture of our manufacturing
and certain intellectual property rights to the feline leukemia
vaccine during 2004, which represents a non-recurring gain, and
we received $3,399,000 pertaining to the reduction of our
restricted cash balance. In addition, we made a $375,000
contribution to Applied Genomic Technology Capital Fund (AGTC),
a limited partnership, during the year ended December 31,
2004. Our remaining
40
commitment to AGTC on December 31, 2004 is $750,000 with
contributions made as requested by the general partner.
Net cash provided by financing activities was $47,854,000 for
the year ended December 31, 2004 as compared to
$107,800,000 for the year ended December 31, 2003. Since
inception, our primary source of financing has been from equity
sales. During the years ended December 31, 2004 and 2003,
sales of equity, exercises of stock options and proceeds from
our employee stock purchase plan totaled approximately
$54,506,000 and $92,531,000, respectively. These proceeds will
continue to fund our research and product development and other
activities. In July 2003 we entered into a $17,100,000 debt
facility to finance the first phase of build-out of our
Lexington facility. Through December 31, 2004, we have
borrowed $17,042,000 under this facility. Specific assets,
including leasehold improvements, which they finance, and a cash
security deposit of $5,122,000 secure the loans drawn on the
credit facility. At December 31, 2004, we had a $9,776,000
debt balance under this credit facility.
The tables below summarize our contractual obligations as of
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
|
|
| |
|
|
|
|
Less than | |
|
|
|
More than | |
|
|
Total | |
|
1 Year | |
|
13 Years | |
|
35 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long-Term Debt(1)
|
|
$ |
10,281,000 |
|
|
$ |
5,688,000 |
|
|
$ |
4,593,000 |
|
|
$ |
|
|
|
$ |
|
|
Operating Leases
|
|
|
24,238,000 |
|
|
|
3,178,000 |
|
|
|
7,099,000 |
|
|
|
5,778,000 |
|
|
|
8,183,000 |
|
Research Agreement(2)
|
|
|
5,400,000 |
|
|
|
1,350,000 |
|
|
|
2,700,000 |
|
|
|
1,350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
39,919,000 |
|
|
$ |
10,216,000 |
|
|
$ |
14,392,000 |
|
|
$ |
7,128,000 |
|
|
$ |
8,183,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes fixed interest payments. |
|
(2) |
Represents research agreement with the University of Connecticut
Health Center. |
Effective July 19, 2002, we sublet part of our Framingham
manufacturing, research and development, and office space to GTC
Biotherapeutics, Inc and we have leased related leasehold
improvements and equipment under agreements which expire on
December 31, 2006. GTC Biotherapeutics has an option to
extend this lease until September 2010. Under the terms of our
original lease, we are obligated to pay our landlord
approximately 7% of our rental income. Effective March 17,
2004, we sublet an additional part of our Framingham
manufacturing, research and development, and office space to PP
Manufacturing whose lease expires on September 30, 2010. As
a result of the PP Manufacturing lease agreement, we amended our
agreement with GTC effective March 16, 2004, adjusting the
leaseable square footage. In addition, we sublet part of our
Texas facility to a few small private companies under agreements
that expire in 2008. We had sublet part of our New York facility
to a private company under an agreement that expired during July
2004. We are contractually entitled to receive rental income of
$1,292,000 in 2005; $1,375,000 in 2006; $753,000 in 2007;
$535,000 in 2008, $515,000 in 2009 and $386,000 thereafter; the
collection of this income, however, is subject to uncertainty.
We are currently involved in certain legal proceedings as
detailed in Item 3 above and Note 16 to our
consolidated financial statements. We do not believe these
proceedings will have a material adverse effect on our
consolidated financial position, results of operations or
liquidity. Litigation however, is subject to inherent
uncertainty.
Related Parties
As of December 31, 2004 and 2003, we had invested
$2,250,000 and $1,875,000 in a limited partnership, AGTC. Our
total capital commitment to AGTC is $3,000,000. One of our
directors, Noubar Afeyan, Ph.D., is
41
the Chairman and Senior Managing Director and CEO of a
partnership of funds that includes the general partner of AGTC
and, until its dissolution during 2004, NewcoGen Group, Inc. For
details refer to Note 5 to our consolidated financial
statements. Garo H. Armen, Ph.D., our chairman and chief
executive officer, was a director of NewcoGen Group, Inc. until
its dissolution during 2004.
As detailed in Note 11 to our consolidated financial
statements, our predecessor company, Founder Holdings, Inc.,
which, indirectly, remains a significant stockholder, approved a
stock option plan pursuant to which our officers, directors,
employees and consultants may be granted options in the
predecessor company. In accordance with U.S. generally
accepted accounting principles, options granted under this plan
are accounted for as compensation expense by us and treated as a
contribution to stockholders equity.
We currently have a QS-21 license and supply agreement with
Neuralab Limited, a wholly owned subsidiary of Elan Corporation,
plc, for use of QS-21 with an antigen in the field of
Alzheimers disease. Garo H. Armen, Ph.D., our
Chairman and Chief Executive Officer, is a director of Elan. For
the years ended December 31, 2004 and 2003, no revenues
were earned under these agreements and accordingly, at
December 31, 2004 and 2003, we had no amounts due to us
under these agreements.
In March 1995, we entered into a consulting agreement with
Dr. Pramod Srivastava, our scientific founder and one of
our directors. This agreement was to expire in March 2005 but
was extended for an additional one-year period until March 2006.
This agreement will automatically renew for additional one year
periods unless either party decides not to extend the agreement.
We paid Dr. Srivastava cash bonuses of $135,000 and
$100,000 in 2004 and 2003, respectively, and granted him options
to purchase 120,000, 120,000 and 50,000 shares of our
common stock for services performed in 2004, 2003 and 2002,
respectively.
In February 1998, we entered into a research agreement with the
University of Connecticut Health Center (UConn) to fund research
in Dr. Pramod Srivastavas laboratory at UConn.
Dr. Srivastava is a member of the faculty of the University
of Connecticut School of Medicine and one of our directors. The
research agreement was amended on December 30, 2003, to
extend the term to December 31, 2008 and calls for payments
to UConn totaling a minimum of $6,750,000, payable quarterly at
the rate of $337,500 (contingent on the continuing employment of
Dr. Srivastava by UConn). In return, we have an option to
obtain an exclusive license to new inventions (as defined in the
research agreement) subject to our payment to UConn of royalties
at varying rates upon commercialization of a product utilizing
technology discovered under the research agreement.
In September 2004, we entered into a $60,000 one-year service
agreement with Techsoft, Inc. d.b.a Medical Systems and NG
Techsoft Pvt. for data management services. Navin Gupta is the
President and CEO of Techsoft, Inc. d.b.a Medical Systems,
Director and Chairman of the Board of NG Techsoft Pvt Ltd. and
is the spouse of Renu Gupta, our Senior Vice President of
Development. As of December 31, 2004, approximately $35,000
due under this agreement is included in accrued expenses. No
amounts were paid under this agreement for the year ended
December 31, 2004.
On October 22, 2004, we executed a letter of intent with
Symphony Capital LLC for a potential transaction to provide
funding for certain of our research programs. Mr. Mark
Kessel, one of our directors, is a managing director of Symphony
Capital LLC. During February 2005 this potential transaction was
terminated. During 2004, we made payments to Symphony Capital
LLC of $125,000 for development planning activities. At
December 31, 2004, we had accrued $159,000 due to Symphony
Capital LLC. During 2005, $196,000, related to such activities,
was paid to Symphony Capital LLC for activities up to
termination, including amounts accrued at December 31, 2004.
42
Factors That May Impact Future Results
Our future operating results could differ materially from the
results described above due to the risks and uncertainties
described below.
Risks Related to our Business
If we incur operating losses for longer than we expect, we
may be unable to continue our operations.
From our inception through December 31, 2004, we have
generated net losses totaling approximately $336 million.
Our net losses for the years ended December 31, 2004, 2003,
and 2002, were approximately $56.2 million,
$65.9 million, and $55.9 million, respectively. We
expect to incur significant losses over the next several years
as we continue our clinical trials, apply for regulatory
approvals, continue development of our technologies, and expand
our operations. Phase 3 clinical trials are particularly
expensive to conduct, and in February 2005 we initiated
part II of our Phase 3 clinical trial in renal cell
carcinoma. Furthermore, our ability to generate cash from
operations is dependent on if and when we will be able to
commercialize our product candidates. We expect that the
earliest we may be able to commercialize Oncophage would be in
early 2006. If we incur operating losses for longer than we
expect, we may be unable to continue our operations.
If we fail to obtain the capital necessary to fund our
operations, we will be unable to advance our development
programs and complete our clinical trials.
On December 31, 2004, we had approximately
$86.9 million in cash, cash equivalents and short-term
investments. In January 2005, we sold 5.25% Convertible
Senior Notes due 2025 raising net proceeds of approximately
$48 million. With our current capital we expect that we
could fund our development programs, clinical trials, and other
operating expenses into 2006. We plan to raise additional funds
prior to that time. For the year ended December 31, 2004,
the sum of our average monthly cash used in operating activities
plus our average monthly capital expenditures was approximately
$5.3 million. Total capital expenditures for the year ended
December 31, 2004 were $4.0 million and we anticipate
capital expenditures of up to $3.0 million during 2005.
Since our inception, we have financed our operations primarily
through the sale of equity. In order to finance our future
operations, we will be required to raise additional funds in the
capital markets, through arrangements with corporate partners,
or from other sources. Additional financing, however, may not be
available on favorable terms or at all. If we are unable to
raise additional funds when we need them, we will be required to
delay, reduce, or eliminate some or all of our development
programs and some or all of our clinical trials, including the
development programs and clinical trials supporting our most
advanced product candidate, Oncophage. We also may be forced to
license technologies to others under agreements that allocate to
third parties substantial portions of the potential value of
these technologies.
Because the FDA has indicated to us that part I of
our current Phase 3 trial in renal cell carcinoma, by
itself, will not be sufficient to support a biologics license
application for product approval, unless the FDA changes its
position, we would not expect to generate product revenue from
sales of Oncophage for at least several years, if ever.
On September 3, 2003, the FDA placed our Phase 3
Oncophage clinical trials in renal cell carcinoma and in
melanoma on partial clinical hold. The FDAs written
correspondence instituting the partial clinical hold indicated
that Oncophage was not sufficiently characterized. Product
characterization represents our products specifications
for purity, identity, potency and pH. On October 24, 2003,
we submitted to the FDA additional specifications for purity,
identity, potency and pH, which represent product
characterization data, and on November 24, 2003, we
announced that the FDA had lifted the partial clinical hold.
Even though the FDA lifted the partial clinical hold, the FDA
has informed us that, for purposes of part I of our
Phase 3 trial in renal
43
cell carcinoma (study C-100-12) and our Phase 3 trial
in melanoma (study C-100-21), Oncophage has been insufficiently
characterized and that the results obtained with an
insufficiently characterized product could not be used to
provide efficacy data in support of a biologics license
application, or BLA. The FDA deemed the Oncophage provided to
patients before December 2003 as insufficiently characterized
because it had not undergone the full battery of tests required
for drugs used in pivotal trials. Some of these tests, such as
potency assays, were not fully developed until after September
2003. The imposition of the partial clinical hold prevented us
from enrolling new patients in our Phase 3 clinical trials
between September 3, 2003 and November 21, 2003. We
believe that we addressed the comments the FDA raised in
connection with the partial clinical hold. After the clinical
hold was lifted, the FDA asked us to implement the use of the
qualified potency assays to release vaccine lots for all trials
of Oncophage, including our Phase 3 trials. After the
clinical hold was lifted, we submitted, during 2004, our
validation package to the FDA for the qualified potency assays
and await their response. Validation of the assays refers, in
general terms, to establishing the robustness and
reproducibility of the assays on an ongoing basis and under
various different conditions to demonstrate that the qualified
potency assays, accepted by the FDA for continuation of the
clinical trial, work consistently.
The FDA has indicated that, by itself, part I of our
ongoing Phase 3 clinical trial in renal cell carcinoma is
not sufficient to support a BLA filing. We have expanded our
clinical development plan by initiating a part II to this
Phase 3 trial in a similar patient population. The FDA has
approved this registration plan, which comprises two
components part I and part II. The FDA has
indicated that part I alone will not be sufficient for
approval, as they consider part II of the trial as
potentially providing the definitive evidence of safety and
efficacy; however, we expect that part I will be accepted
as part of the BLA filing. While the FDA has expressly excluded
the possibility that part I of our renal cell carcinoma
trial alone can support a BLA filing, we intend to complete
part I, which is a large, controlled study, perform final
analysis, and review the data closely. Should the results from
the first part of the trial be clearly positive in terms of
clinical outcomes, we plan to submit the data to the FDA and
request that the agency reconsider its position regarding the
use of the data from part I of the trial alone to support a
BLA filing, while part II of the study is continuing. We
expect to support that position with data which may demonstrate
that Oncophage used in part I of the study should be
considered sufficiently characterized. We would expect to derive
that data from additional tests we plan to perform on frozen
portions of the administered product. We plan on commencing
these additional tests and have them completed in time for any
BLA filing. We believe that the FDA is unlikely to reverse its
position unless part I of the trial demonstrates
significant benefit to patients. We believe that demonstration
of efficacy might be persuasive given (1) part I of our
Phase 3 renal cell carcinoma trial is designed to show that
patients being treated with Oncophage have a statistically
significant benefit in terms of recurrence-free survival over
patients in the observation arm, (2) Oncophage has a
favorable safety profile, particularly when compared with the
toxicity associated with many cancer drugs, (3) part I
of the trial represents the largest single randomized trial to
date in this patient population and was designed to show
statistically significant results, and (4) the patients
with the stage of renal cell carcinoma addressed in this trial
have no approved post-surgical treatment options. Other
companies have submitted BLAs, and obtained approvals, based on
data from non-definitive Phase 2 and Phase 3 studies
while they complete confirmatory studies. We are not aware of a
situation in which the FDA has reconsidered its position that a
clinical trial could not be considered pivotal, and therefore
would not support licensure, because of its determination that
the product candidate was insufficiently characterized. However,
as noted previously, we plan to perform additional tests of
Oncophage product samples produced prior to December 2003 and
attempt to demonstrate that our product candidate should be
considered sufficiently characterized. There is no assurance
that we will be successful in demonstrating that our product
candidate is sufficiently characterized or that the FDA would
accept such a strategy.
Even if we are able to demonstrate that the Oncophage used in
part I of the trial should be considered sufficiently
characterized and part I of the trial demonstrates
significant benefit to patients, the FDA may
44
continue to adhere to its current position that the data from
this part of the trial cannot, by itself, support a BLA. In
addition, the results of our two potency tests may
not indicate that the Oncophage used in part I of the
trial is sufficiently characterized. Furthermore, part I
may not meet its statistical endpoint, or the FDA could
determine that making Oncophage available based on the
part I results is not in the best interests of
patients. We estimate that completing part II of the study
will take at least 3 years and cost between
$20 million and $40 million. Furthermore, we intend to
continue with part II of the renal cell carcinoma study
unless and until the FDA indicates that is not necessary.
We may not be able to secure additional financing to complete
part II of the renal cell carcinoma trial even if the
results from part I of the trial are positive. If we cannot
raise funding because we are unable to convince the FDA that the
data from part I should be deemed sufficient, by itself, to
support a BLA filing, we may become insolvent.
Because we expect to conduct additional Phase 3
clinical trials of Oncophage in the treatment of melanoma prior
to submitting a BLA for this indication, we will not
commercialize Oncophage in this indication for several years, if
ever.
We have concluded enrollment in our Phase 3 trial of
Oncophage in patients with metastatic melanoma (C-100-21). We
believe that, due to a relatively high failure rate in vaccine
manufacturing, this study will not, by itself, support a BLA
filing. Even if we had not experienced the high manufacturing
failure rate, the FDA has indicated that this study, like
part I of our Phase 3 renal cell carcinoma study,
could not, by itself, support a BLA filing because the FDA views
the Oncophage administered to patients in this study prior to
December 2003 as insufficiently characterized. We have not yet
had any specific discussions with the FDA regarding our clinical
development plan for melanoma. Accordingly, we do not know the
types of studies that the FDA will require to support a BLA
filing. We did not discuss our regulatory strategy for melanoma
during our meeting in July 2004 with the FDA to discuss
Oncophage for renal cell carcinoma. Even if the FDA were to
indicate agreement with our clinical development plan, that plan
may fail to support a BLA filing for many reasons, including
failure of the trials to demonstrate that Oncophage is safe and
effective in this indication, failure to conduct the studies in
compliance with the clinical trial protocols, or a change in the
FDAs views.
Our commercial launch of Oncophage may be delayed or
prevented, which would diminish our business prospects.
In December 2003, we announced that the Data Monitoring
Committee, or DMC, had convened as scheduled for the interim
analysis of our ongoing Phase 3 clinical trial of Oncophage
in the treatment of renal cell carcinoma, C-100-12. The DMC is a
panel of cancer specialists who review the safety and conduct of
the trial at regular intervals but are not otherwise involved in
the study. The DMC has no direct relationship with the FDA but
can make recommendations regarding the further conduct of the
trial, which recommendations are reported to the FDA. The use of
the DMC is intended to enhance patient safety and trial conduct.
The DMC recommended that the trial proceed as planned and did
not require that we change the number of patients required to
meet the trials objectives. Part I of our
Phase 3 renal cell carcinoma trial is designed to show that
patients in the Oncophage arm demonstrate a statistically
significant benefit in recurrence-free survival over the
patients in the observation arm. We interpreted the
recommendation by the DMC that we would not need to add patients
in order to potentially achieve a statistically significant
benefit as an encouraging development, indicating that the trial
could demonstrate efficacy goals without increasing the number
of patients in the trial. The DMCs recommendations do not
assure either that the trial will demonstrate statistically
significant results or that the trial will prove adequate to
support approval of Oncophage for commercialization in the
treatment of patients with renal cell carcinoma. The assessment
of
45
the interim analysis is preliminary. The final data from the
trial may not demonstrate efficacy and safety. Furthermore, data
from clinical trials are subject to varying interpretations.
Inconclusive or negative final data from part I of our
Phase 3 renal cell carcinoma trial would have a significant
negative impact on our prospects. If the results in any of our
clinical trials are not positive, we may abandon development of
Oncophage for the applicable indication.
The regulatory approval process is uncertain,
time-consuming and expensive.
The process of obtaining and maintaining regulatory approvals
for new therapeutic products is lengthy, expensive and
uncertain. It also can vary substantially, based on the type,
complexity and novelty of the product. Our most advanced product
candidate, Oncophage, is a novel therapeutic cancer vaccine that
is personalized for each patient. To date, the FDA has not
approved any therapeutic cancer vaccines for commercial sale,
and foreign regulatory agencies have approved only a limited
number. Both the FDA and foreign regulatory agencies,
particularly the European Medicines Agency responsible for
product approvals in Europe, have relatively little experience
in reviewing personalized oncology therapies, and the partial
clinical hold that the FDA had placed, and subsequently lifted,
on our current Phase 3 Oncophage clinical trials primarily
related to product characterization issues partially associated
with the personalized nature of Oncophage. Oncophage may
experience a long regulatory review process and high development
costs, either of which could delay or prevent our
commercialization efforts. We have not held discussions with
regulatory agencies other than the FDA regarding product
approval strategies. As of December 31, 2004, we have spent
approximately 10 years and $167 million on our
research and development program in heat shock proteins for
cancer.
To obtain regulatory approvals, we must, among other
requirements, complete carefully controlled and well-designed
clinical trials demonstrating that a particular product
candidate is safe and effective for the applicable disease.
Several biotechnology companies have failed to obtain regulatory
approvals because regulatory agencies were not satisfied with
the structure or conduct of clinical trials or the ability to
interpret the data from the trials; similar problems could delay
or prevent us from obtaining approvals. We initiated
part II of our Phase 3 trial for Oncophage in renal
cell carcinoma in early 2005. Even after reviewing our protocols
for these trials, the FDA and other regulatory agencies may not
consider the trials to be adequate for registration and may
disagree with our overall strategy to seek approval for
Oncophage in renal cell carcinoma. In this event, the potential
commercial launch of Oncophage would be at risk, which would
likely have a materially negative impact on our ability to
generate revenue and our ability to secure additional funding.
The timing and success of a clinical trial is dependent on
enrolling sufficient patients in a timely manner, avoiding
adverse patient reactions and demonstrating in a statistically
significant manner the safety and efficacy of the product
candidate. Because we rely on third-party clinical investigators
and contract research organizations to conduct our clinical
trials, we may encounter delays outside our control,
particularly if our relationships with any third-party clinical
investigators or contract research organizations are
adversarial. The timing and success of our Phase 3 trials,
in particular, are also dependent on the FDA and other
regulatory agencies accepting each trials protocol,
statistical analysis plan, product characterization tests, and
clinical data. If we are unable to satisfy the FDA and other
regulatory agencies with such matters, including the specific
matters noted above, and/or our Phase 3 trials yield
inconclusive or negative results, we will be required to modify
or expand the scope of our Phase 3 studies or conduct
additional Phase 3 studies to support BLA filings,
including additional studies beyond the new part II
Phase 3 trial in renal cell carcinoma and additional
Phase 3 trials in melanoma. In addition, the FDA may
request additional information or data to which we do not have
access. Delays in our ability to respond to such an FDA request
would delay, and failure to adequately address all FDA concerns
would prevent, our commercialization efforts.
46
In addition, we, or the FDA, might further delay or halt our
clinical trials for various reasons, including but not limited
to:
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we may fail to comply with extensive FDA regulations; |
|
|
|
a product candidate may not appear to be more effective than
current therapies; |
|
|
|
a product candidate may have unforeseen or significant adverse
side effects or other safety issues; |
|
|
|
the time required to determine whether a product candidate is
effective may be longer than expected; |
|
|
|
we may be unable to adequately follow or evaluate patients after
treatment with a product candidate; |
|
|
|
patients may die during a clinical trial because their disease
is too advanced or because they experience medical problems that
may not be related to the product candidate; |
|
|
|
sufficient numbers of patients may not enroll in our clinical
trials; or |
|
|
|
we may be unable to produce sufficient quantities of a product
candidate to complete the trial. |
Furthermore, regulatory authorities, including the FDA, may have
varying interpretations of our pre-clinical and clinical trial
data, which could delay, limit, or prevent regulatory approval
or clearance. Any delays or difficulties in obtaining regulatory
approvals or clearances for our product candidates may:
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adversely affect the marketing of any products we or our
collaborators develop; |
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impose significant additional costs on us or our collaborators; |
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diminish any competitive advantages that we or our collaborators
may attain; and |
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limit our ability to receive royalties and generate revenue and
profits. |
If we do not receive regulatory approval for our product
candidates in a timely manner, we will not be able to
commercialize them in the timeframe anticipated, and, therefore,
our business will suffer.
We must receive separate regulatory approvals for each of
our product candidates for each type of disease indication
before we can market and sell them in the United States or
internationally.
We and our collaborators cannot sell any drug or vaccine until
we receive regulatory approval from governmental authorities in
the United States, and from similar agencies in other
jurisdictions. Oncophage and any other drug candidate could take
a significantly longer time to gain regulatory approval than we
expect or may never gain approval or may gain approval for only
limited indications.
Even if we do receive regulatory approval for our product
candidates, the FDA or international regulatory authorities will
impose limitations on the indicated uses for which our products
may be marketed or subsequently withdraw approval, or take other
actions against us or our products adverse to our
business.
The FDA and international regulatory authorities generally
approve products for particular indications. If an approval is
for a limited indication, this limitation reduces the size of
the potential market for that product. Product approvals, once
granted, may be withdrawn if problems occur after initial
marketing. Failure to comply with applicable FDA and other
regulatory requirements can result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production,
refusal of the government to renew marketing applications and
criminal prosecution.
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Delays enrolling patients and/or the timing of clinical
events in our studies will slow or prevent completion of
clinical trials.
We have encountered in the past, and may encounter in the
future, delays in initiating trial sites and in enrolling
patients into our clinical trials. Future enrollment delays will
postpone the dates by which we expect to complete the impacted
trials and the potential receipt of regulatory approvals. If we
fail to enroll sufficient numbers of patients in clinical
trails, the trials may fail to demonstrate the efficacy of a
product candidate at a statistically significant level. While
such trials may help support our efforts to obtain marketing
approval, they generally would not, by themselves, be sufficient
for obtaining approval. In our cancer trials, enrollment
difficulties may arise due to many factors, including the novel
nature of Oncophage, the identification of patients
meeting the specific criteria for inclusion in our trials, the
speed by which participating clinical trial sites review our
protocol and allow enrollment and any delay in contract
negotiations between us and the participating clinical trial
sites. In addition, we may encounter problems in our clinical
trials due to the advanced disease state of the target patient
population. Even if our patient enrollment is adequate, patients
may die during a clinical trial if their disease is too advanced
or because they experience problems that may be unrelated to the
product candidate. A high dropout rate in a trial may undermine
the ability to gain statistically significant data from the
study.
Our part I and part II trials in renal cell carcinoma
are event driven trials. Therefore, final analysis of the trials
will be triggered once a specified number of events occur. An
event is defined as a recurrence of a patients renal cell
carcinoma or death of a patient. We currently anticipate that
the earliest the final event to trigger final analysis of our
C-100-12 part I renal cell carcinoma trial will occur is in
mid-2005. While this time estimate is based on our current
expectations, we do not control the timing of occurrence of
events in the trial and there can be no assurance that the total
number of required events will occur when predicted.
If new data from our research and development activities
continues to modify our strategy, then we expect to continually
adjust our projections of timelines and costs of programs; this
uncertainty may depress the market price of our stock and
increase our expenses.
Because we are focused on novel technologies, our research and
development activities, including our clinical trials, involve
the ongoing discovery of new facts and the generation of new
data, based on which, we determine next steps for a relevant
program. These developments are sometimes a daily occurrence and
constitute the basis on which our business is conducted. We need
to make determinations on an ongoing basis as to which of these
facts or data will influence timelines and costs of programs. We
may not always be able to make such judgments accurately, which
may increase the costs we incur attempting to commercialize our
product candidates. These issues are pronounced in our efforts
to commercialize Oncophage, which represents an unprecedented
approach to the treatment of cancer.
We will not generate further product sales revenue from
Quilvax-FELV.
To date, we have generated product sales revenue from only one
product, a feline leukemia virus vaccine, the manufacturing
rights to which we sold in March 2004 to Virbac, S.A., our
former marketing partner. Prior to the sale, our revenues from
the feline leukemia vaccine for the years ended
December 31, 2004, 2003, and 2002 were $338,000,
$3.5 million, and $2.6 million, respectively. We no
longer sell that product.
Failure to enter into significant collaboration agreements
may hinder our efforts to commercialize Oncophage and will
increase our need to rely on equity sales to fund our
operations.
We are engaged in efforts to partner Oncophage, our most
advanced product candidate, with a pharmaceutical or larger
biotech company to assist us with global commercialization.
While we have been
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pursuing these business development efforts for several years,
we have not negotiated a definitive agreement relating to the
potential commercialization of Oncophage. Many larger companies
may be unwilling to commit to a substantial agreement prior to
receipt of additional clinical data or, in the absence of such
data, may demand economic terms that are unfavorable to us. Even
if Oncophage generates favorable clinical data, we may not be
able to negotiate a transaction that provides us with favorable
economic terms. While some other biotechnology companies have
negotiated large collaborations, we may not be able to negotiate
any agreements with terms that replicate the terms negotiated by
those other companies. We may not, for example, obtain
significant upfront payments or substantial royalty rates. Some
larger companies are skeptical of the commercial potential and
profitability of a personalized product candidate like
Oncophage. If we fail to enter into such collaboration
agreements, our efforts to commercialize Oncophage may be
undermined. In addition, if we do not raise funds through
collaboration agreements, we will need to rely on sales of
additional securities to fund our operations. Sales of
additional equity may substantially dilute the ownership of
existing stockholders.
We may not receive significant payments from
collaborators, including due to unsuccessful results in existing
collaborations or failure to enter into future
collaborations.
Part of our strategy is to develop and commercialize some of our
product candidates by continuing our existing arrangements with
academic and corporate collaborators and licensees and by
entering into new collaborations. Our success depends on our
ability to negotiate such agreements and on the success of the
other parties in performing research, preclinical and clinical
testing. Our collaborations involving QS-21, for example, depend
on our licensees successfully completing clinical trials and
obtaining regulatory approvals. These activities frequently fail
to produce marketable products. For example, in March 2002, Elan
Corporation and Wyeth Ayerst Laboratories announced a decision
to cease dosing patients in their Phase 2A clinical trial
of their AN-1792 Alzheimers vaccine containing our QS-21
adjuvant after several patients experienced clinical signs
consistent with inflammation in the central nervous system.
Several of our agreements also require us to transfer important
rights to our collaborators and licensees. As a result of
collaborative agreements, we will not completely control the
nature, timing or cost of bringing these product candidates to
market. These collaborators and licensees could choose not to
devote resources to these arrangements or, under certain
circumstances, may terminate these arrangements early. They may
cease pursuing the programs or elect to collaborate with
different companies. In addition, these collaborators and
licensees, outside of their arrangements with us, may develop
technologies or products that are competitive with those that we
are developing. From time to time we may also become involved in
disputes with our collaborators. As a result of these factors,
our strategic collaborations may not yield revenues. In
addition, we may be unable to enter into new collaborations or
enter into new collaborations on favorable terms. Failure to
generate significant revenue from collaborations would increase
our need to fund our operations through sales of equity.
If we are unable to purify heat shock proteins from some
cancer types, we may have difficulty successfully completing our
clinical trials and, even if we do successfully complete our
clinical trials, the size of our potential market would
decrease.
Our ability to successfully develop and commercialize Oncophage
or AG-858 for a particular cancer type depends on our ability to
purify heat shock proteins from that type of cancer. If we
experience difficulties in purifying heat shock proteins for a
sufficiently large number of patients in our clinical trials,
including our Phase 3 clinical trials, it may lower the
probability of a successful analysis of the data from these
trials and ultimately the ability to obtain FDA approval. Our
overall manufacturing success rate to date for our Phase 3
trial, C-100-12, in renal cell carcinoma is 92%; for our
Phase 3 trial in metastatic melanoma, C-100-21, it is 70%.
Our inability to manufacture adequate amounts of Oncophage for
approximately 30% of the patients
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randomized to date in the Oncophage treatment arm of the
metastatic melanoma trial undermines the potential for the
trial, as currently designed, to meet its pre-specified clinical
endpoints. To address this lower success rate for melanoma we
instituted an inhibitor process to avoid the breakdown of
proteins. Subsequent to the implementation of this change we
successfully produced Oncophage for 19 of 25 patients, a
success rate of approximately 76%, whereas previously we had
produced Oncophage for 123 of 179 patients. The small
sample size used subsequent to our process change may make the
reported improvement in our manufacturing success unreliable as
a predictor of future success.
Based on our completed earlier clinical trials and our ongoing
clinical trials conducted in renal cell carcinoma (including our
C-100-12 trial), we have been able to manufacture Oncophage from
93% of the tumors delivered to our manufacturing facility; for
melanoma (including our C-100-21 trial), 78%; for colorectal
cancer, 98%; for gastric cancer, 81%; for lymphoma, 89%; and for
pancreatic cancer, 46%. The relatively low rate for pancreatic
cancer is due to the abundance of proteases in pancreatic
tissue. Proteases are enzymes that break down proteins. These
proteases may degrade the heat shock proteins during the
purification process. We have made process development advances
that have improved the manufacture of Oncophage from pancreatic
tissue. In an expanded Phase 1 pancreatic cancer study,
Oncophage was manufactured from five of five tumor samples
(100%), bringing the aggregate success rate for this cancer
type, which was previously 30%, to 46%. We have successfully
manufactured AG-858 from approximately 81% of the patient
samples received.
We may encounter problems with other types of cancers as we
expand our research. If we cannot overcome these problems, the
number of cancer types that our heat shock protein product
candidates could treat would be limited. In addition, if we
commercialize our heat shock protein product candidates, we may
face claims from patients for whom we are unable to produce a
vaccine.
If we fail to sustain and further build our intellectual
property rights, competitors will be able to take advantage of
our research and development efforts to develop competing
products.
If we are not able to protect our proprietary technology, trade
secrets, and know-how, our competitors may use our inventions to
develop competing products. We currently have exclusive rights
to at least 80 issued US patents and 112 foreign patents. We
also have rights to at least 70 pending US patent applications
and 199 pending foreign patent applications. However, our
patents may not protect us against our competitors. The
standards which the United States Patent and Trademark Office
uses to grant patents, and the standards which courts use to
interpret patents, are not always applied predictably or
uniformly and can change, particularly as new technologies
develop. Consequently, the level of protection, if any, that
will be provided by our patents if we attempt to enforce them,
and they are challenged, is uncertain. In addition, the type and
extent of patent claims that will be issued to us in the future
is uncertain. Any patents that are issued may not contain claims
that permit us to stop competitors from using similar technology.
In addition to our patented technology, we also rely on
unpatented technology, trade secrets and confidential
information. We may not be able to effectively protect our
rights to this technology or information. Other parties may
independently develop substantially equivalent information and
techniques or otherwise gain access to or disclose our
technology. We generally require each of our employees,
consultants, collaborators and certain contractors to execute a
confidentiality agreement at the commencement of an employment,
consulting, collaborative or contractual relationship with us.
However, these agreements may not provide effective protection
of our technology or information or, in the event of
unauthorized use or disclosure, they may not provide adequate
remedies.
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We may incur substantial costs as a result of litigation
or other proceedings relating to patent and other intellectual
property rights, and we may be unable to protect our rights to,
or use, our technology.
If we choose to go to court to stop someone else from using the
inventions claimed in our patents, that individual or company
has the right to ask a court to rule that our patents are
invalid and should not be enforced against that third party.
These lawsuits are expensive and would consume time and other
resources even if we were successful in stopping the
infringement of our patents. In addition, there is a risk that
the court will decide that our patents are not valid and that we
do not have the right to stop the other party from using the
inventions. There is also the risk that, even if the validity of
our patents is upheld, the court will refuse to stop the other
party on the grounds that such other partys activities do
not infringe our patents.
Furthermore, a third party may claim that we are using
inventions covered by such third partys patents or other
intellectual property rights and may go to court to stop us from
engaging in our normal operations and activities. These lawsuits
are expensive and would consume time and other resources. There
is a risk that a court would decide that we are infringing the
third partys patents and would order us to stop the
activities covered by the patents. In addition, there is a risk
that a court will order us to pay the other party substantial
damages for having violated the other partys patents. The
biotechnology industry has produced a proliferation of patents,
and it is not always clear to industry participants, including
us, which patents cover various types of products. The coverage
of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. We know of patents issued
to third parties relating to heat shock proteins and alleviation
of symptoms of cancer, respectively. We have reviewed these
patents, and we believe, as to each claim in those patents, that
we either do not infringe the claim of the patents or that the
claim is invalid. Moreover, patent holders sometimes send
communications to a number of companies in related fields,
suggesting possible infringement, and we, like a number of
biotechnology companies, have received this type of
communication, including with respect to the third-party patents
mentioned above, as well as a communication alleging
infringement of a patent relating to certain gel-fiberglass
structures. If we are sued for patent infringement, we would
need to demonstrate that our products either do not infringe the
patent claims of the relevant patent and/or that the patent
claims are invalid, which we may not be able to do. Proving
invalidity, in particular, is difficult since it requires a
showing of clear and convincing evidence to overcome the
presumption of validity enjoyed by issued patents. Additionally,
two of the patent applications licensed to us contain claims
that are substantially the same as claims in a third-party
patent relating to heat shock proteins. We will ask the United
States Patent and Trademark Office to declare an interference
with this third-party patent, US Patent No. 6,713,608 which
we believe is owned by the Science & Technology
Corporation @UNM (University of New Mexico). We believe that the
invention of US Patent No. 6,713,608 is the same as that of
earlier-filed US Patents No. 5,747,332, 6,066,716, and
6,433,141, which we believe are owned by the University of New
Mexico, and which were involved in a previous interference
proceeding with one of those two applications. During that
interference proceeding, we were awarded priority based upon our
earlier effective filing date. Accordingly, we believe that the
United States Patent and Trademark Office would declare an
interference between our pending patent applications and this
latest third-party patent and that the claims of US Patent
No. 6,713,608 would be deemed invalid. Although we believe
that we should prevail against this third-party patent in an
interference proceeding, there is no guarantee that that will be
the outcome.
Some of our competitors may be able to sustain the costs of
complex patent litigation more effectively than we can because
they have substantially greater resources. In addition, any
uncertainties resulting from the initiation and continuation of
any litigation could have a material adverse effect on our
ability to enter into collaborations with other entities.
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If we fail to maintain positive relationships with
particular individuals, we may be unable to successfully develop
our product candidates, conduct clinical trials and obtain
financing.
Pramod K. Srivastava, Ph.D., a member of our board of
directors, the chairman of our scientific and medical advisory
board, and a consultant to us, and Garo H. Armen, Ph.D.,
the chairman of our board of directors and our chief executive
officer, who together founded Antigenics in 1994, have been, and
continue to be, integral to building the company and developing
our technology. If either of these individuals decreases his
contributions to the company, our business could be adversely
impacted. Dr. Srivastava is not an employee of Antigenics
and has other professional commitments. We sponsor research in
Dr. Srivastavas laboratory at the University of
Connecticut Health Center in exchange for the right to license
discoveries made in that laboratory with our funding.
Dr. Srivastava is a member of the faculty of the University
of Connecticut School of Medicine. The regulations and policies
of the University of Connecticut Health Center govern the
relationship between a faculty member and a commercial
enterprise. These regulations and policies prohibit
Dr. Srivastava from becoming our employee. Furthermore, the
University of Connecticut may modify these regulations and
policies in the future to further limit
Dr. Srivastavas relationship with us.
Dr. Srivastava has a consulting agreement with Antigenics,
which includes financial incentives for him to remain associated
with us, but these may not prove sufficient to prevent him from
severing his relationship with Antigenics, even during the time
covered by the consulting agreement. In addition, this agreement
does not restrict Dr. Srivastavas ability to compete
against us after his association with Antigenics is terminated.
This agreement was to expire in March 2005 but was extended for
an additional one-year period until March 2006. This agreement
will automatically renew for additional one-year periods unless
either party decides not to extend the agreement. If
Dr. Srivastava were to terminate his affiliation with us or
devote less effort to advancing our technologies, we may not
have access to future discoveries that could advance our
technologies.
We do not have an employment agreement with Dr. Armen. In
addition, we do not carry key employee insurance policies for
Dr. Armen or any other employee.
We also rely greatly on employing and retaining other highly
trained and experienced senior management and scientific
personnel. Since our manufacturing process is unique, our
manufacturing and quality control personnel are very important.
The competition for these and other qualified personnel in the
biotechnology field is intense. If we are not able to attract
and retain qualified scientific, technical and managerial
personnel, we probably will be unable to achieve our business
objectives.
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We face litigation that could result in substantial
damages and may divert managements time and attention from
our business. |
Antigenics, our chairman and chief executive officer, Garo H.
Armen, Ph.D., and two brokerage firms that served as
underwriters in our initial public offering have been named as
defendants in a federal civil class action lawsuit. The suit
alleges that the brokerage arms of the investment banking firms
charged secret excessive commissions to certain of their
customers in return for allocations of our stock offering. The
suit also alleges that shares of our stock were allocated to
certain of the investment banking firms customers based
upon agreements by such customers to purchase additional shares
of our stock in the secondary market. To date, the plaintiffs
have not asserted a specific amount of damages. We have
submitted settlement papers with the Federal District Court for
the Southern District of New York; however, a failure to
finalize a settlement could require us to pay substantial
damages. Regardless of the outcome, participation in a lawsuit
may cause a diversion of our managements time and
attention from our business.
In addition, we are involved in other litigation, and may become
involved in additional litigation. Any such litigation could be
expensive in terms of out-of-pocket costs and management time,
and the outcome of any such litigation will be uncertain.
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If we fail to obtain adequate levels of reimbursement for
our product candidates from third-party payers, the commercial
potential of our product candidates will be significantly
limited. |
Our profitability will depend on the extent to which government
authorities, private health insurance providers and other
organizations provide reimbursement for the cost of our product
candidates. Many patients will not be capable of paying for our
product candidates by themselves. A primary trend in the United
States health care industry is toward cost containment. Large
private payers, managed care organizations, group purchasing
organizations, and similar organizations are exerting increasing
influence on decisions regarding the use of particular
treatments. Furthermore, many third-party payers limit
reimbursement for newly approved health care products. Cost
containment measures may prevent us from becoming profitable.
It is not clear that public and private insurance programs will
determine that Oncophage or our other product candidates come
within a category of items and services covered by their
insurance plans. For example, although the federal Medicare
program covers drugs and biological products, the program takes
the position that the FDAs treatment of a product as a
drug or biologic does not require the Medicare program to treat
the product in the same manner. Accordingly, it is possible that
the Medicare program will not cover Oncophage or our other
product candidates if they are approved for commercialization.
It is also possible that there will be substantial delays in
obtaining coverage of Oncophage or our other product candidates
and that, if coverage is obtained, there may be significant
restrictions on the circumstances in which there would be
reimbursement. Where insurance coverage is available, there may
be limits on the payment amount. Congress and the Medicare
program periodically propose significant reductions in the
Medicare reimbursement amounts for drugs and biologics. Such
reductions could have a material adverse effect on sales of any
of our product candidates that receive marketing approval. In
December 2003, the President of the United States signed the
Medicare Prescription Drug, Improvement, and Modernization Act
of 2003. The future impact of this legislation on our product
candidates is uncertain. Effective January 1, 2004,
Medicare payments for many drugs administered in
physicians offices were reduced significantly. This
provision impacts many drugs used in cancer treatment by
oncologists and urologists. The payment methodology changes in
future years, and it is unclear how the payment methodology will
impact reimbursement for Oncophage, if it receives regulatory
approval, and incentives for physicians to recommend Oncophage
relative to alternative therapies.
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Product liability and other claims against us may reduce
demand for our products or result in substantial damages. |
We face an inherent risk of product liability exposure related
to testing our product candidates in human clinical trials and
will face even greater risks if we sell our product candidates
commercially. An individual may bring a product liability claim
against us if one of our product candidates causes, or merely
appears to have caused, an injury. Product liability claims may
result in:
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decreased demand for our product candidates; |
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injury to our reputation; |
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withdrawal of clinical trial volunteers; |
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costs of related litigation; and |
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substantial monetary awards to plaintiffs. |
We manufacture Oncophage and AG-858 from a patients cancer
cells, and a medical professional must inject Oncophage or
AG-858 into that same patient. A patient may sue us if we, a
hospital, or a delivery company fails to deliver the removed
cancer tissue or that patients Oncophage or AG-858. We
anticipate that the logistics of shipping will become more
complex if the number of patients we treat increases, and it is
possible that all shipments will not be made without incident.
In addition, administration of Oncophage or AG-858 at a hospital
poses risk of delivery to the wrong patient. Currently, we do
not have insurance that
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covers loss of or damage to Oncophage or AG-858, and we do not
know whether insurance will be available to us at a reasonable
price or at all. We have limited product liability coverage for
clinical research use of product candidates. Our product
liability policy provides $10 million aggregate coverage
and $10 million per occurrence. This limited insurance
coverage may be insufficient to fully cover us for future claims.
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We may incur significant costs complying with
environmental laws and regulations. |
We use hazardous, infectious, and radioactive materials in our
operations, which have the potential of being harmful to human
health and safety or the environment. We store these hazardous
(flammable, corrosive, toxic), infectious, and radioactive
materials, and various wastes resulting from their use, at our
facilities pending use and ultimate disposal. We are subject to
a variety of federal, state and local laws and regulations
governing use, generation, storage, handling, and disposal of
these materials. We may incur significant costs complying with
both current and future environmental health and safety laws and
regulations. In particular, we are subject to regulation by the
Occupational Safety and Health Administration, the Environmental
Protection Agency, the Drug Enforcement Agency, the Department
of Transportation, the Centers for Disease Control and
Prevention, the National Institutes of Health, the International
Air Transportation Association, and various state and local
agencies. At any time, one or more of the aforementioned
agencies could adopt regulations that may affect our operations.
We are also subject to regulation under the Toxic Substances
Control Act and the Resource Conservation Development programs.
Although we believe that our current procedures and programs for
handling, storage, and disposal of these materials comply with
federal, state, and local laws and regulations, we cannot
eliminate the risk of accidents involving contamination from
these materials. Although we have limited pollution liability
coverage ($2 million) and a workers compensation
liability policy, in the event of an accident or accidental
release, we could be held liable for resulting damages, which
could be substantially in excess of any available insurance
coverage and could substantially disrupt our business.
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Our competitors in the biotechnology and pharmaceutical
industries may have superior products, manufacturing capability
or marketing expertise. |
Our business may fail because we face intense competition from
major pharmaceutical companies and specialized biotechnology
companies engaged in the development of product candidates and
other therapeutic products, including heat shock proteins
directed at cancer, infectious diseases, and autoimmune
disorders. Several of these companies have products that utilize
similar technologies and/or personalized medicine techniques,
such as CancerVaxs Canvaxin, currently in a Phase 3
trial for melanoma and a Phase 2 trial in colon cancer,
Dendreons Provenge, with Fast Track designation and
currently in a Phase 3 trial for prostate cancer, and
Mylovenge in a Phase 2 trial for multiple myeloma,
Stressgens HspE7 currently in a Phase 2 trial in
HPV-internal genital warts, AVAXs M-Vax in melanoma, L-Vax
currently in Phase 2 trials for acute myelogenous leukemia
(AML) and O-Vax, currently in a Phase 2 for ovarian
cancer, Intracels OncoVax, currently approved for
administration in the Netherlands, Switzerland and Israel and in
a Phase 3 trial in the US for colon cancer, and Cell
Genesys GVAX vaccines currently in trials for prostate
(Phase 3), AML (Phase 2), pancreas (Phase 2),
lung cancer (Phase 2), and myeloma (Phase 1/2).
Patents have been issued in both the US and Europe related to
Stressgens heat shock protein technology. In particular,
US patents 6,797,491, 6,657,055, 6,524,825, 6,495,347, 6,338,952
and 6,335,183; and European patents EP700445 and EP1002110 are
issued. Additionally, many of our competitors, including large
pharmaceutical companies, have greater financial and human
resources and more experience than we do. Our competitors may:
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commercialize their product candidates sooner than we
commercialize our own; |
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develop safer or more effective therapeutic drugs or preventive
vaccines and other therapeutic products; |
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implement more effective approaches to sales and marketing; |
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establish superior intellectual property positions; or |
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discover technologies that may result in medical insights or
breakthroughs which render our drugs or vaccines obsolete,
possibly before they generate any revenue. |
More specifically, if we receive regulatory approvals, some of
our product candidates will compete with well-established,
FDA-approved therapies such as interleukin-2 and
interferon-alpha for renal cell carcinoma and melanoma, which
have generated substantial sales over a number of years. We
anticipate that we will face increased competition in the future
as new companies enter markets we seek to address and scientific
developments surrounding immunotherapy and other cancer
therapies continue to accelerate.
Risks Related to our Common Stock
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Our officers and directors may be able to block proposals
for a change in control. |
Antigenics Holdings L.L.C. is a holding company that owns shares
of our common stock, and, as of December 31, 2004,
Antigenics Holdings L.L.C. controlled approximately 25% of our
outstanding common stock. Due to this concentration of
ownership, Antigenics Holdings L.L.C. may be able to prevail on
all matters requiring a stockholder vote, including:
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the election of directors; |
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the amendment of our organizational documents; or |
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the approval of a merger, sale of assets, or other major
corporate transaction. |
Certain of our directors and officers, including our chief
executive officer, directly and indirectly own approximately 74%
of Antigenics Holdings L.L.C. and, if they elect to act
together, can control Antigenics Holdings L.L.C. In addition,
several of our directors and officers directly and indirectly
own approximately 4% of our outstanding common stock.
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A single, otherwise unaffiliated, stockholder holds a
substantial percentage of our outstanding capital stock. |
According to publicly filed documents, Mr. Brad M. Kelley
beneficially owns 5,546,240 shares of our outstanding
common stock and 31,620 shares of our series A
convertible preferred stock. The shares of preferred stock are
currently convertible at any time into 2,000,000 shares of
common stock at an initial conversion price of $15.81, are
non-voting, and carry a 2.5% annual dividend yield. If
Mr. Kelley had converted all of the shares of preferred
stock on December 31, 2004, he would have held
approximately 16% of our outstanding common stock. We currently
have a right of first refusal agreement with Mr. Kelley
that provides us with limited rights to purchase certain of
Mr. Kelleys shares if he proposes to sell them to a
third party.
Mr. Kelleys substantial ownership position provides
him with the ability to substantially influence the outcome of
matters submitted to our stockholders for approval. Furthermore,
collectively, Mr. Kelley and Antigenics Holdings L.L.C.
control approximately 37% of our outstanding common stock,
providing substantial ability, if they vote in the same manner,
to determine the outcome of matters submitted to a stockholder
vote. If Mr. Kelley were to convert all of his preferred
stock into common stock, the combined percentage would increase
to 39%. Additional purchases of our common stock by
Mr. Kelley also would increase both his own percentage of
outstanding voting rights and the percentage combined with
Antigenics Holdings L.L.C. (Mr. Kelleys shares of
preferred stock do not carry voting rights; the common stock
issuable upon conversion, however, carries the same voting
rights as other shares of common stock.)
55
|
|
|
Provisions in our organizational documents could prevent
or frustrate attempts by stockholders to replace our current
management. |
Our certificate of incorporation and bylaws contain provisions
that could make it more difficult for a third party to acquire
us without consent of our board of directors. Our certificate of
incorporation provides for a staggered board and removal of
directors only for cause. Accordingly, stockholders may elect
only a minority of our board at any annual meeting, which may
have the effect of delaying or preventing changes in management.
In addition, under our certificate of incorporation, our board
of directors may issue shares of preferred stock and determine
the terms of those shares of stock without any further action by
our stockholders. Our issuance of preferred stock could make it
more difficult for a third party to acquire a majority of our
outstanding voting stock and thereby effect a change in the
composition of our board of directors. Our certificate of
incorporation also provides that our stockholders may not take
action by written consent. Our bylaws require advance notice of
stockholder proposals and director nominations, and permit only
our president or a majority of the board of directors to call a
special stockholder meeting. These provisions may have the
effect of preventing or hindering attempts by our stockholders
to replace our current management. In addition, Delaware law
prohibits a corporation from engaging in a business combination
with any holder of 15% or more of its capital stock until the
holder has held the stock for three years unless, among other
possibilities, the board of directors approves the transaction.
Our board of directors may use this provision to prevent changes
in our management. Also, under applicable Delaware law, our
board of directors may adopt additional anti-takeover measures
in the future.
|
|
|
Our stock has low trading volume and its public trading
price has been volatile. |
Between our initial public offering on February 4, 2000 and
March 18, 2005, and for the twelve months ended
March 18, 2005, the closing price of our common stock has
fluctuated between $4.72 and $52.63 per share, and $4.72
and $11.46 per share, respectively, with an average daily
trading volume for the year ended December 31, 2004 of
approximately 579,891 shares. The market has experienced
significant price and volume fluctuations that are often
unrelated to the operating performance of individual companies.
In addition to general market volatility, many factors may have
a significant adverse effect on the market price of our stock,
including:
|
|
|
|
|
continuing operating losses, which we expect over the next
several years as we continue our clinical trials; |
|
|
|
announcements of decisions made by public officials; |
|
|
|
results of our preclinical and clinical trials; |
|
|
|
announcements of technological innovations or new commercial
products by our competitors; |
|
|
|
developments concerning proprietary rights, including patent and
litigation matters; |
|
|
|
publicity regarding actual or potential results with respect to
products under development by us or by our competitors; |
|
|
|
regulatory developments; and |
|
|
|
quarterly fluctuations in our financial results. |
|
|
|
The sale of a significant number of shares could cause the
market price of our stock to decline. |
The sale by us or the resale by stockholders of a significant
number of shares of our common stock could cause the market
price of our common stock to decline. As of December 31,
2004, we had approximately 45,536,000 shares of common
stock outstanding. All of these shares are eligible for sale on
the NASDAQ National Market, although certain of the shares are
subject to sales volume and other limitations.
56
We have filed registration statements to permit the sale of
10,436,831 shares of common stock under our equity
incentive plan, and certain equity plans that we assumed in the
acquisitions of Aquila Biopharmaceuticals, Inc. and Aronex
Pharmaceuticals, Inc. We have also filed a registration
statement to permit the sale of 300,000 shares of common
stock under our employee stock purchase plan. We have also filed
a registration statement to permit the sale of
100,000 shares of common stock under our directors
deferred compensation plan. As of December 31, 2004,
options to purchase approximately 5,633,000 shares of our
common stock upon exercise of options with a weighted average
exercise price per share of $9.53 were outstanding. Many of
these options are subject to vesting that generally occurs over
a period of up to five years following the date of grant. As of
December 31, 2004, warrants to purchase approximately
92,000 shares of our common stock with a weighted average
exercise price per share of $40.69 were outstanding. On
August 12, 2004, we filed a registration statement relating
to the resale of 350,000 shares of our common stock that we
issued in a private placement on July 30, 2004 in
connection with our acquisition of assets from Mojave
Therapeutics, Inc. That registration statement has become
effective, and those shares may be offered and sold from time to
time by the selling security holders listed in the related
prospectus. The market price of our common stock may decrease
based on the expectation of such sales. Similarly, on
August 12, 2004, we filed a registration statement with
respect to an aggregate of $100 million of our common
stock, preferred stock, and debt. That registration statement
has become effective, and we may offer and sell any of those
securities from time to time. The market price of our common
stock may decrease based on investor expectations that we will
issue a substantial number of shares of common stock or
securities convertible into common stock at low prices.
|
|
|
Because we are a relatively small company and are cash
flow negative, we have been disproportionately negatively
impacted by the Sarbanes-Oxley Act of 2002 and related
regulations, which have increased our costs and required
additional management resources. |
The Sarbanes-Oxley Act of 2002, which became law in July 2002,
has required changes in some of our corporate governance,
securities disclosure and compliance practices. In response to
the requirements of that Act, the SEC and the NASDAQ have
promulgated new rules and listing standards covering a variety
of subjects. Compliance with these new rules and listing
standards has significantly increased our legal and financial
and accounting costs, which we expect to continue to increase as
we continue to develop our product candidates and seek to
commercialize these product candidates. In addition, the
requirements have taxed a significant amount of
managements and the board of directors time and
resources. Likewise, these developments have made it more
difficult for us to attract and retain qualified members of our
board of directors, particularly independent directors, or
qualified executive officers. Because we are a relatively small
company and are cash flow negative, we expect to be
disproportionately negatively impacted by these changes in
securities laws and regulations, which have increased our costs
and required additional management resources.
Our internal control over financial reporting (as defined in
Rules 13a-15 of the Exchange Act of 1934, as amended) is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our
financial statements for external purposes in accordance with
generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect all deficiencies or weaknesses in our
financial reporting. While our management has concluded in this
report on Form 10-K that there were no material weaknesses
in our internal control over financial reporting as of
December 31, 2004, our procedures are subject to the risk
that our controls may become inadequate because of changes in
conditions or as a result of a deterioration in compliance with
such procedures. No assurance is given that our procedures and
processes for detecting weaknesses in our internal control over
financial reporting will be effective.
57
Critical Accounting Policies and Estimates
The SEC defines critical accounting policies as
those that require application of managements most
difficult, subjective, or complex judgments, often as a result
of the need to make estimates about the effect of matters that
are inherently uncertain and may change in subsequent periods.
The preparation of consolidated financial statements in
conformity with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. We base those
estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.
The following listing is not intended to be a comprehensive list
of all of our accounting policies. Our significant accounting
policies are described in Note 2 to our consolidated
financial statements. In many cases, the accounting treatment of
a particular transaction is dictated by U.S. generally
accepted accounting principles , with no need for our judgment
in their application. There are also areas in which our judgment
in selecting an available alternative would not produce a
materially different result. We have identified the following as
our critical accounting policies:
Research and development expenses include the costs associated
with our internal research and development activities, including
salaries and benefits, occupancy costs, clinical manufacturing
costs, related administrative costs, and research and
development conducted for us by outside advisors, such as
sponsored university-based research partners, and clinical study
partners. We account for our clinical study costs by estimating
the total cost to treat a patient in each clinical trial and
recognizing this cost as we estimate when the patient receives
treatment, beginning when the patient enrolls in the trial. This
estimated cost includes payments to the trial site and
patient-related costs, including laboratory costs, related to
the conduct of the trial. Cost per patient varies based on the
type of clinical trial, the site of the clinical trial and the
length of the treatment period for each patient. As we become
aware of the actual costs, we adjust our accrual; such changes
in estimate may be a material change in our clinical study
accrual, which could also materially affect our results of
operations. Research and development costs are expensed as
incurred and were $41,718,000, $46,264,000, and $37,478,000 for
the years ended December 31, 2004, 2003, and 2002,
respectively.
We classify investments in marketable securities at the time of
purchase. At December 31, 2004, all marketable securities
were classified as available-for-sale and as such, changes in
the fair value of the available-for-sale securities are reported
as a separate component of accumulated other comprehensive
income (loss) until realized. If we were to classify future
investments as trading securities rather than
available-for-sale, our financial results would be subject to
greater volatility. If declines in the fair value of
available-for-sale securities are determined to be other than
temporary, accumulated other comprehensive income is reduced and
the impairment is charged to operations.
Investments of less than 20% of the voting control of companies
or other entities over whose operating and financial policies we
do not have the power to exercise significant influence, are
accounted for by the cost method. Pursuant to this method, we
currently account for our investment in AGTC under the cost
method and, as of December 31, 2004, we have included it in
non-current other assets on the consolidated balance sheet, as
more fully disclosed in Note 5 to our consolidated
financial statements. The general partner of AGTC determines the
timing of our additional contributions. Our investment
represents an approximate ownership of 2%. We continue to assess
the realizability of this investment. In order to assess whether
or not
58
there has been an other than temporary decline in the value of
this investment, we analyze several factors including:
(1) the carrying value of the limited partnerships
investments in its portfolio companies, (2) how recently
the investments in the portfolio companies had been made,
(3) the post-financing valuations of those investments,
(4) the level of un-invested capital held by the limited
partnership, and (5) the overall trend in venture capital
valuations. Based on this analysis, during the year ended
December 31, 2004, we concluded that an other than
temporary decline of $67,494 had occurred. Our investment
balance aggregated $1,844,000 at December 31, 2004.
Revenue from product sales is recognized at the time of product
shipment. Revenue for services under research and development
grants and contracts are recognized as the services are
performed, milestones are achieved, or clinical trial materials
are provided.
We account for options granted to employees and directors in
accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such,
compensation expense is recorded on fixed stock option grants
only if the current fair value of the underlying stock exceeds
the exercise price of the option at the date of grant and it is
recognized on a straight-line basis over the vesting period. We
account for stock options granted to non-employees on a
fair-value basis in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation and Emerging
Issues Task Force Issue (EITF) No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. As a result, the non-cash charge to
operations for non-employee options with vesting or other
performance criteria is affected each reporting period by
changes in the fair value of our common stock. As required, we
also provide pro forma net loss attributable to common
stockholders and pro forma net loss attributable to common
stockholders per common share disclosures for employee and
director stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied (see
Note 2 to our consolidated financial statements).
Recently Issued Accounting Standards
In October 1995, the FASB issued SFAS No. 123, which
establishes financial accounting and reporting standards for
stock-based employee compensation plans. In December 2004, the
FASB issued a revision of SFAS 123, Share-Based
Payment (SFAS No. 123R).
SFAS No. 123R is focused primarily on the accounting
for transactions in which a company obtains employee services in
exchange for stock options or share-based payments. Currently,
we grant stock options to our employees and disclose the pro
forma effect of compensation expense for these stock options.
SFAS 123R requires that companies recognize compensation
expense associated with these grants of stock options in the
Companys results of operations effective as of the
beginning of the first interim or annual reporting period that
begins after June 15, 2005. Compensation expense will be
measured based on the fair value of the instrument on the grant
date and will be recognized over the vesting period. This
pronouncement applies to all grants after the effective date and
to the unvested portion of stock options outstanding as of the
effective date. SFAS 123R eliminates our ability to account
for such transactions using the intrinsic method currently used.
SFAS 123R also requires that companies recognize
compensation expense associated with purchases of shares of
common stock by employees at a discount to market value under
employee stock purchase plans that meet certain criteria. We are
required to adopt SFAS 123R as of July 1, 2005. We
have not yet determined the impact of adoption on our
consolidated financial statements. However, we anticipate
incurring material non-cash charges in our consolidated results
of operations.
59
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs. This statement amends the
guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). This statement requires that those
items be recognized as current-period charges regardless of
whether they meet the criterion of so abnormal. In
addition, this statement requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities. This statement is
effective for fiscal years beginning after June 15, 2005.
We do not expect that the adoption of this pronouncement will
have a material impact on our financial position or results of
operations.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
In the normal course of business, we are exposed to fluctuations
in interest rates as we seek debt financing to make capital
expenditures and invest excess cash and also foreign currency
exchange rate fluctuation risk related to our transactions
denominated in foreign currencies. We do not employ specific
strategies, such as the use of derivative instruments or
hedging, to manage these exposures. Our currency exposures vary,
but are primarily concentrated in the Euro. Further, we do not
expect our market risk exposures to change in the near term.
The information below summarizes our market risks associated
with debt obligations as of December 31, 2004. Fair value
included herein has been estimated taking into consideration the
nature and terms of each instrument and the prevailing economic
and market conditions at December 31, 2004. The tables
present cash flows by year of maturity and related interest
rates based on the terms of the debt.
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity |
|
|
Estimated |
|
Carrying Amount |
|
|
|
|
Fair Value |
|
December 31, 2004 |
|
2005 |
|
2006 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
$ |
9,875,000 |
|
|
$ |
9,922,000 |
|
|
$ |
5,410,000 |
|
|
$ |
4,468,000 |
|
|
$ |
44,000 |
|
|
|
(1) |
Fixed interest rates from 3.92% to 7% |
In addition, we have cash equivalents and short-term investments
at December 31, 2004, which are exposed to the impact of
interest rate changes and our interest income fluctuates as
interest rates change. Due to the short-term nature of our
investments in money market funds, corporate debt securities,
taxable auction preferred and government backed securities, our
carrying value approximates the fair value of these investments
at December 31, 2004.
We invest our cash, cash equivalents and short-term investments
in accordance with our Investment Policy. The primary objectives
of our Investment Policy are to preserve principal, maintain
proper liquidity to meet operating needs and maximize yields.
Although our investments are subject to credit risk, our
Investment Policy specifies credit quality standards for our
investments and limits the amount of credit exposure from any
single issue, issuer or type of investment. Our investments are
also subject to interest rate risk and will decrease in value if
market interest rates increase. However, due to the conservative
nature of our investments and relatively short duration,
interest rate risk is mitigated. We do not own derivative
financial instruments in our investment portfolio. Accordingly,
we do not believe that there is any material market risk
exposure with respect to derivative or other financial
instruments that would require disclosure under this item.
60
Item 8. Financial
Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Antigenics Inc.:
We have audited the accompanying consolidated balance sheets of
Antigenics Inc. and subsidiaries as of December 31, 2004
and 2003, and the related consolidated statements of operations,
stockholders equity and comprehensive loss, and cash flows
for each of the years in the three-year period ended
December 31, 2004. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Antigenics Inc. and subsidiaries as of
December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Antigenics Inc.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 (COSO), and our report dated
March 29, 2005, expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.
Princeton, New Jersey
March 29, 2005
62
ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
December 31, 2003 |
|
|
|
|
|
ASSETS |
Cash and cash equivalents
|
|
$ |
15,979,714 |
|
|
$ |
24,416,311 |
|
Short-term investments
|
|
|
70,941,163 |
|
|
|
63,561,347 |
|
Accounts receivable
|
|
|
75,631 |
|
|
|
41,624 |
|
Inventories
|
|
|
169,743 |
|
|
|
227,897 |
|
Prepaid expenses
|
|
|
1,925,051 |
|
|
|
1,899,558 |
|
Restricted cash
|
|
|
2,865,665 |
|
|
|
|
|
Other current assets
|
|
|
647,299 |
|
|
|
483,230 |
|
Assets of discontinued operations
|
|
|
|
|
|
|
1,191,433 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
92,604,266 |
|
|
|
91,821,400 |
|
Plant and equipment, net of accumulated amortization and
depreciation of $10,559,935 and $15,267,718 at December 31,
2004 and 2003, respectively
|
|
|
24,987,730 |
|
|
|
24,845,966 |
|
Goodwill
|
|
|
2,572,203 |
|
|
|
3,081,703 |
|
Core and developed technology, net of accumulated amortization
of $4,216,792 and $3,107,963 at December 31, 2004 and 2003,
respectively
|
|
|
6,855,837 |
|
|
|
7,964,666 |
|
Restricted cash
|
|
|
2,256,018 |
|
|
|
8,521,049 |
|
Other long-term assets
|
|
|
3,781,893 |
|
|
|
3,657,879 |
|
Assets of discontinued operations
|
|
|
|
|
|
|
186,872 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
133,057,947 |
|
|
$ |
140,079,535 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current portion, long-term debt
|
|
$ |
5,409,966 |
|
|
$ |
5,622,736 |
|
Accounts payable
|
|
|
2,923,890 |
|
|
|
3,179,567 |
|
Accrued liabilities
|
|
|
10,861,710 |
|
|
|
11,302,367 |
|
Other current liabilities
|
|
|
8,525 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
19,204,091 |
|
|
|
22,104,670 |
|
Long-term debt, less current portion
|
|
|
4,512,035 |
|
|
|
10,244,796 |
|
Other long-term liabilities
|
|
|
2,898,487 |
|
|
|
2,484,317 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share;
25,000,000 shares authorized; Series A convertible
preferred stock, par value $0.01 per share;
31,620 shares designated, issued and outstanding at
December 31, 2004 and 2003, respectively; liquidation value
of $31,817,625 at December 31, 2004
|
|
|
316 |
|
|
|
316 |
|
Common stock, par value $0.01 per share;
100,000,000 shares authorized; 45,536,012 and
39,522,699 shares issued and outstanding at
December 31, 2004 and 2003, respectively
|
|
|
455,360 |
|
|
|
395,227 |
|
Additional paid-in-capital
|
|
|
442,021,962 |
|
|
|
384,457,556 |
|
Deferred compensation
|
|
|
(27,134 |
) |
|
|
(72,081 |
) |
Accumulated other comprehensive (loss) income
|
|
|
(147,377 |
) |
|
|
162,802 |
|
Accumulated deficit
|
|
|
(335,859,793 |
) |
|
|
(279,698,068 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
106,443,334 |
|
|
|
105,245,752 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
133,057,947 |
|
|
$ |
140,079,535 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
63
ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$ |
16,698 |
|
|
$ |
|
|
|
$ |
|
|
|
Research and development
|
|
|
690,375 |
|
|
|
984,662 |
|
|
|
784,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
707,073 |
|
|
$ |
984,662 |
|
|
$ |
784,277 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(4,799 |
) |
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(41,717,626 |
) |
|
|
(46,264,220 |
) |
|
|
(37,478,133 |
) |
|
General and administrative
|
|
|
(25,784,360 |
) |
|
|
(21,681,522 |
) |
|
|
(20,673,385 |
) |
|
Acquired in-process research and development
|
|
|
(2,888,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(69,687,712 |
) |
|
|
(66,961,080 |
) |
|
|
(57,367,241 |
) |
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(530,880 |
) |
|
|
(247,072 |
) |
|
|
(365,166 |
) |
|
Interest income
|
|
|
1,459,976 |
|
|
|
1,165,911 |
|
|
|
1,590,033 |
|
|
Other non-operating income
|
|
|
7,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(68,750,962 |
) |
|
|
(66,042,241 |
) |
|
|
(56,142,374 |
) |
Income from discontinued operations, net of tax of $617,145 in
2004 (including gain on disposal of $14,132,028 in 2004)
|
|
|
12,589,237 |
|
|
|
108,661 |
|
|
|
264,469 |
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(56,161,725 |
) |
|
|
(65,933,580 |
) |
|
|
(55,877,905 |
) |
Dividends on series A convertible preferred stock
|
|
|
(790,500 |
) |
|
|
(224,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$ |
(56,952,225 |
) |
|
$ |
(66,157,720 |
) |
|
$ |
(55,877,905 |
) |
|
|
|
|
|
|
|
|
|
|
Per common share data, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1.56 |
) |
|
|
(1.70 |
) |
|
|
(1.71 |
) |
Income from discontinued operations
|
|
|
0.28 |
|
|
|
|
|
|
|
0.01 |
|
Net loss attributable to common stockholders
|
|
|
(1.27 |
) |
|
|
(1.70 |
) |
|
|
(1.70 |
) |
Weighted average number of common shares outstanding, basic and
diluted
|
|
|
44,685,023 |
|
|
|
38,989,304 |
|
|
|
32,905,314 |
|
See accompanying notes to consolidated financial statements.
64
ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE LOSS
For the Years Ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock | |
|
Common Stock | |
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
| |
|
| |
|
Additional | |
|
|
|
Other | |
|
|
|
|
|
|
Number of | |
|
|
|
Number of | |
|
|
|
Paid-In | |
|
Deferred | |
|
Comprehensive | |
|
Accumulated | |
|
|
|
|
Shares | |
|
Par Value | |
|
Shares | |
|
Par Value | |
|
Capital | |
|
Compensation | |
|
Loss | |
|
Deficit | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at December 31, 2001
|
|
|
|
|
|
$ |
|
|
|
|
29,014,616 |
|
|
$ |
290,146 |
|
|
$ |
234,238,808 |
|
|
$ |
(529,547 |
) |
|
$ |
(187,706 |
) |
|
$ |
(157,886,583 |
) |
|
$ |
75,925,118 |
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,877,905 |
) |
|
|
(55,877,905 |
) |
|
Unrealized gain on marketable securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,761 |
|
|
|
|
|
|
|
125,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(55,752,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant and recognition of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416,731 |
|
|
|
418,530 |
|
|
|
|
|
|
|
|
|
|
|
835,261 |
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
77,496 |
|
|
|
775 |
|
|
|
561,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562,584 |
|
Issuance of common stock in follow-on offering in January 2002,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
$15.00 per share (net of issuance costs of $3,989,000)
|
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
40,000 |
|
|
|
55,971,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,011,000 |
|
Employee stock purchases
|
|
|
|
|
|
|
|
|
|
|
20,987 |
|
|
|
210 |
|
|
|
174,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
33,113,099 |
|
|
|
331,131 |
|
|
|
291,363,259 |
|
|
|
(111,017 |
) |
|
|
(61,945 |
) |
|
|
(213,764,488 |
) |
|
|
77,756,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,933,580 |
) |
|
|
(65,933,580 |
) |
|
Unrealized gain on marketable securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,747 |
|
|
|
|
|
|
|
224,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(65,708,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant and recognition of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852,290 |
|
|
|
38,936 |
|
|
|
|
|
|
|
|
|
|
|
891,226 |
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
130,667 |
|
|
|
1,307 |
|
|
|
1,113,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,115,150 |
|
Issuance of common stock in follow-on offering in January 2003,
$9.92 per share (net of issuance costs of $2,458,000)
|
|
|
|
|
|
|
|
|
|
|
6,250,000 |
|
|
|
62,500 |
|
|
|
59,475,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,538,456 |
|
Issuance of series A convertible preferred stock, net of
expenses of $13,556
|
|
|
31,620 |
|
|
|
316 |
|
|
|
|
|
|
|
|
|
|
|
31,606,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,606,444 |
|
Employee stock purchases
|
|
|
|
|
|
|
|
|
|
|
28,933 |
|
|
|
289 |
|
|
|
270,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,509 |
|
Dividend on series A convertible preferred stock
($7.09 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
31,620 |
|
|
|
316 |
|
|
|
39,522,699 |
|
|
|
395,227 |
|
|
|
384,457,556 |
|
|
|
(72,081 |
) |
|
|
162,802 |
|
|
|
(279,698,068 |
) |
|
|
105,245,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,161,725 |
) |
|
|
(56,161,725 |
) |
|
Unrealized loss on marketable securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310,179 |
) |
|
|
|
|
|
|
(310,179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(56,471,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant and recognition of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221,450 |
|
|
|
44,947 |
|
|
|
|
|
|
|
|
|
|
|
1,266,397 |
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
248,706 |
|
|
|
2,487 |
|
|
|
876,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878,913 |
|
Issuance of common stock in follow-on offering in February 2004,
$10.50 per share (net of issuance costs of $3,179,516)
|
|
|
|
|
|
|
|
|
|
|
5,400,000 |
|
|
|
54,000 |
|
|
|
53,466,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,520,484 |
|
Employee stock purchases
|
|
|
|
|
|
|
|
|
|
|
14,607 |
|
|
|
146 |
|
|
|
106,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,192 |
|
Dividend on series A convertible preferred stock
($25 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(790,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(790,500 |
) |
Issuance of stock in asset acquisition
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
3,500 |
|
|
|
2,684,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,688,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
31,620 |
|
|
$ |
316 |
|
|
|
45,536,012 |
|
|
$ |
455,360 |
|
|
$ |
442,021,962 |
|
|
$ |
(27,134 |
) |
|
$ |
(147,377 |
) |
|
$ |
(335,859,793 |
) |
|
$ |
106,443,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
65
ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(56,161,725 |
) |
|
$ |
(65,933,580 |
) |
|
$ |
(55,877,905 |
) |
|
(Loss) Income from discontinued operations
|
|
|
(925,646 |
) |
|
|
108,661 |
|
|
|
264,469 |
|
|
Gain on disposal of discontinued operations
|
|
|
13,514,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(68,750,962 |
) |
|
|
(66,042,241 |
) |
|
|
(56,142,374 |
) |
|
Adjustments to reconcile net loss from continuing operations to
net cash used in continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,809,663 |
|
|
|
6,485,355 |
|
|
|
5,466,145 |
|
|
|
Acquired in-process research and development
|
|
|
2,688,000 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
|
1,266,397 |
|
|
|
891,226 |
|
|
|
835,261 |
|
|
|
Write-down of inventory & investments
|
|
|
67,495 |
|
|
|
325,871 |
|
|
|
1,040,941 |
|
|
|
Write-down of fixed assets
|
|
|
|
|
|
|
27,065 |
|
|
|
513,605 |
|
|
|
Effect of accounting for asset retirement obligations
|
|
|
|
|
|
|
282,148 |
|
|
|
|
|
|
|
Loss on sale of fixed assets
|
|
|
78,737 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(34,007 |
) |
|
|
364,880 |
|
|
|
(332,419 |
) |
|
|
Inventories
|
|
|
58,154 |
|
|
|
(42,419 |
) |
|
|
(712,406 |
) |
|
|
Prepaid expenses
|
|
|
(25,493 |
) |
|
|
(201,228 |
) |
|
|
(1,057,004 |
) |
|
|
Accounts payable
|
|
|
(255,677 |
) |
|
|
1,744,477 |
|
|
|
(1,513,327 |
) |
|
|
Accrued expenses and other current liabilities
|
|
|
(498,476 |
) |
|
|
3,142,376 |
|
|
|
685,447 |
|
|
|
Other operating assets and liabilities
|
|
|
322,657 |
|
|
|
1,035,837 |
|
|
|
(1,144,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(60,273,512 |
) |
|
|
(51,986,653 |
) |
|
|
(52,361,054 |
) |
|
Net cash provided by discontinued operations
|
|
|
48,599 |
|
|
|
303,349 |
|
|
|
522,465 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(60,224,913 |
) |
|
|
(51,683,304 |
) |
|
|
(51,838,589 |
) |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available for sale securities
|
|
|
126,054,000 |
|
|
|
100,225,000 |
|
|
|
60,950,000 |
|
|
Purchases of available for sale securities
|
|
|
(133,743,995 |
) |
|
|
(126,597,236 |
) |
|
|
(98,158,926 |
) |
|
Investment in AGTC
|
|
|
(375,000 |
) |
|
|
(750,000 |
) |
|
|
(300,000 |
) |
|
Purchases of plant and equipment
|
|
|
(3,970,043 |
) |
|
|
(18,537,216 |
) |
|
|
(2,307,850 |
) |
|
Proceeds from sale of property and equipment
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
Proceeds from divestiture of assets
|
|
|
12,552,011 |
|
|
|
2,000,000 |
|
|
|
|
|
|
Decrease (Increase) in restricted cash
|
|
|
3,399,366 |
|
|
|
(8,521,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
3,934,339 |
|
|
|
(52,180,501 |
) |
|
|
(39,816,776 |
) |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of equity
|
|
|
53,631,418 |
|
|
|
91,208,562 |
|
|
|
56,139,334 |
|
|
Proceeds from exercise of stock options
|
|
|
878,913 |
|
|
|
1,115,150 |
|
|
|
562,584 |
|
|
Proceeds from employee stock purchases
|
|
|
106,192 |
|
|
|
270,509 |
|
|
|
175,121 |
|
|
Deferred offering costs
|
|
|
|
|
|
|
(110,934 |
) |
|
|
(63,662 |
) |
|
Payments of series A convertible preferred stock dividend
|
|
|
(817,015 |
) |
|
|
|
|
|
|
|
|
|
Proceeds of long-term debt
|
|
|
|
|
|
|
17,042,100 |
|
|
|
(5,545,344 |
) |
|
Payments of long-term debt
|
|
|
(5,945,531 |
) |
|
|
(1,725,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
47,853,977 |
|
|
|
107,799,940 |
|
|
|
51,268,033 |
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(8,436,597 |
) |
|
|
3,936,135 |
|
|
|
(40,387,332 |
) |
Cash and cash equivalents, beginning of year
|
|
|
24,416,311 |
|
|
|
20,480,176 |
|
|
|
60,867,508 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
15,979,714 |
|
|
$ |
24,416,311 |
|
|
$ |
20,480,176 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
579,199 |
|
|
$ |
198,754 |
|
|
$ |
470,794 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of Statement of Financial Accounting
Standards No. 143:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
$ |
|
|
|
$ |
532,234 |
|
|
$ |
|
|
|
|
Asset retirement obligation
|
|
$ |
|
|
|
$ |
814,472 |
|
|
$ |
|
|
|
Issuance of equity for acquired in-process research and
development
|
|
$ |
2,688,000 |
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
66
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1) |
Organization and Business |
The business was formed on March 31, 1994 through the
creation of a Delaware corporation (Founder Holdings Inc.). In
July 1995, the founders of Founder Holdings Inc. formed
Antigenics Inc., formerly, Antigenics LLC (Antigenics or the
Company), a Delaware limited liability company, and subsequently
transferred to the Company all of the assets, liabilities,
properties and rights of the Delaware corporation in exchange
for an initial 81.5% equity interest in the Company. The
accounting for this recapitalization was recorded at Founder
Holdings Inc.s historical cost.
Since the reorganization in 1995, Founder Holdings Inc. has
directly or indirectly (through Antigenics Holdings LLC) owned a
significant portion of our common stock. As of December 31,
2004, Founder Holdings Inc. owns approximately 79% of Antigenics
Holdings LLC that in turn owns approximately 25% of our
outstanding common stock. As of December 31, 2004, Founder
Holdings Inc. had no direct ownership of our common stock.
Certain of our board members and executive officers own
significant interests in these related parties.
We are a biotechnology company developing products to treat
cancers, infectious diseases and autoimmune disorders. Our most
advanced product candidate is Oncophage®, a personalized
therapeutic cancer vaccine being tested in several types of
cancer, including in Phase 3 clinical trials for the
treatment of renal cell carcinoma (the most common type of
kidney cancer) and for metastatic melanoma. Our product
candidate portfolio also includes (1) AG-858, a
personalized cancer vaccine in a Phase 2 clinical trial for
the treatment of chronic myelogenous leukemia, (2) AG-702/
AG-707, a therapeutic vaccine program in Phase 1 clinical
development for the treatment of genital herpes, and
(3) Aroplatintm,
a liposomal chemotherapeutic currently completing pre-clinical
reformulation and testing. Our related business activities
include research and development, regulatory and clinical
affairs, clinical manufacturing, business development, marketing
and administrative functions that support these activities.
We have incurred annual operating losses since inception and, as
a result, at December 31, 2004 have an accumulated deficit
of $335,860,000. Our operations have been funded principally by
sales of equity. We believe that our working capital resources
at December 31, 2004, in addition to the net proceeds
received from our convertible debt offering on January 25,
2005 (see Note 19), are sufficient to satisfy our liquidity
requirements into 2006. Satisfying our long-term liquidity needs
will require the successful commercialization of Oncophage or
other product candidates and may require additional capital.
Our lead product candidates require clinical trials and
approvals from regulatory agencies as well as acceptance in the
marketplace. We are conducting clinical trials in various
cancers and in one infectious disease indication. Although we
believe our patents, patent rights and patent applications are
valid, the invalidation of our patents or failure of certain of
our pending patent applications to issue as patents could have a
material adverse effect upon our business. Part of our strategy
is to develop and commercialize some of our products by
continuing our existing collaborative arrangements with academic
and corporate collaborators and licensees and by entering into
new collaborations. Our success depends, in part, on the success
of these parties in performing research, preclinical and
clinical testing. We compete with specialized biotechnology
companies, major pharmaceutical companies, universities and
research institutions. Many of these competitors have
substantially greater resources than we do.
67
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(2) |
Summary of Significant Accounting Policies |
|
|
|
(a) Basis of Presentation and Principles of
Consolidation |
The consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting
principles and include the accounts of Antigenics Inc. and our
wholly owned subsidiaries. All intercompany transactions and
accounts have been eliminated in consolidation. Certain amounts
in the prior year consolidated financial statements have been
reclassified to conform to the current year presentation. We
previously classified our investments in auction rate notes and
similar instruments as cash and cash equivalents in the
consolidated balance sheet. At December 31, 2004, we
determined that these instruments are not cash equivalents and
therefore, we have made a reclassification as of
December 31, 2003 and 2002 in order to conform to the
current years presentation. The reclassification resulted
in a decrease in cash and cash equivalents and a corresponding
increase in short-term investments as of December 31, 2003
and 2002 of $32,300,000 and $12,650,000, respectively.
We are managed and operated as one business. The entire business
is managed by a single executive operating committee that
reports to the chief executive officer. We do not operate
separate lines of business with respect to any of our product
candidates. Accordingly, we do not prepare discrete financial
information with respect to separate product areas or by
location and do not have separately reportable segments as
defined by Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments
of an Enterprise and Related Information.
The preparation of consolidated financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Management bases its
estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.
|
|
(d) |
Cash and Cash Equivalents |
We consider all highly liquid investments purchased with
maturities at acquisition of three months or less to be cash
equivalents. As of December 31, 2004 and 2003 cash
equivalents consist primarily of money market funds.
We classify investments in marketable securities at the time of
purchase. At December 31, 2004 and 2003, all marketable
securities are classified as available-for-sale and as such, the
investments are recorded at fair value with changes in fair
value reported as a component of accumulated other comprehensive
income (loss). Gains and losses on the sale of marketable
securities are recognized in operations based on the specific
identification method.
68
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments of less than 20% of the voting control of companies
or other entities over whose operating and financial policies we
do not have the power to exercise significant influence are
accounted for by the cost method. Pursuant to this method, we
record our investment at cost and recognize dividends received
as income. The carrying values of investments are periodically
reviewed to determine whether any decline in value is other than
temporary. Other than temporary declines in the value of
available-for-sale securities and other investments are charged
to operations.
|
|
(f) |
Concentrations of Credit Risk |
Financial instruments that potentially subject us to
concentration of credit risk are primarily cash and cash
equivalents, marketable securities and accounts receivable. We
invest our cash and cash equivalents in accordance with our
Investment Policy, which specifies high credit quality standards
and limits the amount of credit exposure from any single issue,
issuer or type of investment. Credit risk on accounts receivable
is minimized by the financial position of the entities with
which we do business. Credit losses from our customers have been
immaterial.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost has
been determined using standard costs that approximate the
first-in, first-out method.
Plant and equipment, including software developed for internal
use, are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets. Amortization of leasehold improvements is computed over
the shorter of the lease term or estimated useful life of the
asset. Additions and improvements are capitalized, while repairs
and maintenance are charged to expense as incurred.
During the year ended December 31, 2004, we capitalized
$1,745,000, including $295,000 of internal costs, in accordance
with the American Institute of Certified Public Accountants
Statement of Position 98-1 Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use, related to the ongoing implementation of new enterprise
resource planning and related software to manage certain
business processes.
|
|
(i) |
Fair Value of Financial Instruments |
The fair value of a financial instrument represents the amount
at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale
or liquidation. Significant differences can arise between the
fair value and carrying amounts of financial instruments that
are recognized at historical cost amounts. The estimated fair
values of all of our financial instruments, excluding debt,
approximate their carrying amounts in the consolidated balance
sheets. The fair value of our long-term debt was derived by
evaluating the nature and terms of each note and considering the
prevailing economic and market conditions at the balance sheet
date. The carrying amount of debt, including current portions,
is approximately $9,922,000 and $15,868,000 at December 31,
2004 and 2003, respectively; and the fair value is estimated to
be approximately $9,875,000 and $15,882,000 at December 31,
2004 and 2003, respectively.
69
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue from product sales is recognized at the time of product
shipment. Revenue for services under research and development
grants and contracts are recognized as the services are
performed, or as clinical trial materials are provided.
Non-refundable milestone payments that represent the completion
of a separate earnings process are recognized as revenue when
earned. For the year end December 31, 2004, two research
partners represented 67% and 25% of our research and development
revenue, while for the year ended December 31, 2003, one
research partner represented 93% of our research and development
revenue, and for the year ended December 31, 2002 two
partners represented 50% and 35% of total research and
development revenues.
|
|
(k) |
Research and Development |
Research and development expenses include the costs associated
with our internal research and development activities, including
salaries and benefits, occupancy costs, clinical manufacturing
costs and administrative costs, and research and development
conducted for us by outside advisors, sponsored research
partners, clinical research organizations and clinical
investigators and institutions. Research and development
expenses also include all expenses related to any grant revenue
recognized as well as the cost of clinical trial materials
shipped to our research partners. All research and development
costs are expensed as incurred.
|
|
(l) |
Stock-Based Compensation |
We account for options granted to employees and directors in
accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such,
compensation expense is recorded on fixed stock option grants
only if the current fair value of the underlying stock exceeds
the exercise price of the option at the date of grant and it is
recognized on a straight-line basis over the vesting period.
We account for stock options granted to non-employees on a
fair-value basis in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation and Emerging Issues Task Force
Issue No. 96-18, Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. As a result,
any non-cash charge to operations for non-employee options with
vesting or other performance criteria is affected each reporting
period by changes in the market price of our common stock.
In December 2002, the Financial Accounting Standards Board
(FASB) issued SFAS No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosure, an amendment of SFAS No. 123. This
statement amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair-value
method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements, which annual
disclosures are included below. Other than the disclosure
modification, the adoption of SFAS No. 148 did not
have a material effect on our consolidated financial statements.
70
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net loss
attributable to common stockholders and net loss attributable to
common stockholders per common share, basic and diluted, had
compensation cost for options granted to employees and directors
and rights under our employee stock purchase plan been
determined consistent with the fair value method of
SFAS No. 123 (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net loss attributable to common stockholders, as reported
|
|
$ |
(56,952 |
) |
|
$ |
(66,158 |
) |
|
$ |
(55,878 |
) |
Add: Stock-based employee and director compensation recognized
under APB Opinion No. 25
|
|
|
463 |
|
|
|
358 |
|
|
|
482 |
|
Deduct: total stock-based employee and director compensation
expense determined under fair-value based method for all awards
|
|
|
(6,238 |
) |
|
|
(4,545 |
) |
|
|
(3,935 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$ |
(62,727 |
) |
|
$ |
(70,345 |
) |
|
$ |
(59,331 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per common share,
basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(1.27 |
) |
|
$ |
(1.70 |
) |
|
$ |
(1.70 |
) |
Pro forma
|
|
$ |
(1.40 |
) |
|
$ |
(1.80 |
) |
|
$ |
(1.80 |
) |
The effects of applying SFAS No. 123, for either
recognizing or disclosing compensation cost under such
pronouncement, may not be representative of the effects on
reported net income or loss for future years. The fair value of
each option and employee stock purchase rights granted is
estimated on the date of grant using an option-pricing model
with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Estimated volatility
|
|
|
47 |
% |
|
|
62 |
% |
|
|
63 |
% |
Expected life in years employee and director options
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Expected life in years employee stock purchase rights
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Risk-free interest rate
|
|
|
3.3 |
% |
|
|
1.2 |
% |
|
|
2.4 |
% |
Dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
The expected life used to estimate the fair value of
non-employee options is equal to the contractual life of the
option granted.
Income taxes are accounted for under the asset and liability
method with deferred tax assets and liabilities recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be reversed or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in operations in the period that includes the
enactment date. Deferred tax assets are recorded when they more
likely than not are expected to be realized.
71
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic earnings or loss per common share (EPS) is
calculated by dividing the applicable earnings or loss by the
weighted average number of common shares outstanding. Diluted
EPS is calculated by dividing the applicable earnings or loss by
the weighted average common shares outstanding plus the dilutive
effect of outstanding stock options, stock warrants and the
series A convertible preferred stock. Because we have
reported a loss from continuing operations for all periods,
diluted loss per common share is the same as basic loss per
common share as the effect of including the outstanding stock
options, stock warrants and the convertible preferred stock in
the calculation would have reduced the loss from continuing
operations per common share. Therefore, the 5,633,000
outstanding stock options, the 92,000 outstanding stock warrants
and the 31,620 outstanding shares of series A convertible
preferred stock are not included in the calculation of diluted
loss per common share.
|
|
(o) |
Goodwill and Acquired Intangible Assets |
Goodwill represents the excess of cost over the fair value of
net assets of businesses acquired. We adopted the provisions of
SFAS No. 141, Business Combinations, as of
July 1, 2001 and SFAS No. 142, Goodwill and
Other Intangible Assets, as of January 1, 2002.
SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations and specifies
the criteria that intangible assets acquired in a business
combination must meet to be recognized and reported separately
from goodwill. In accordance with SFAS No. 142,
goodwill and acquired intangible assets determined to have an
indefinite useful life are not amortized, but instead tested for
impairment at least annually. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets.
SFAS No. 142 requires us to assess annually whether
there is an indication that goodwill is impaired, or more
frequently if events and circumstances indicate that the asset
might be impaired during the year. We perform our annual
impairment test on October 31 of each year. We consider
ourselves as a single reporting unit for purposes of the
impairment test. We determine our fair value using the quoted
market price of our common stock and compare it to our net book
value at the date of our evaluation. To the extent the carrying
amount exceeds the fair value, there is an indication that the
reporting unit goodwill may be impaired and a second step of the
impairment test is performed to determine the amount of the
impairment to be recognized, if any.
Identifiable intangible assets deemed to have an indefinite life
are tested annually for impairment, or more frequently if events
and circumstances indicate that the asset might be impaired
during the year. An impairment loss is recognized to the extent
that the carrying amount exceeds the assets fair value as
determined based on discounted cash flows associated with the
asset. We have not identified any indefinite life intangible
assets.
The costs of core and developed technology are presented at
estimated fair value at acquisition date. These costs are being
amortized on a straight-line basis over their estimated useful
lives of ten years.
72
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(p) |
Accounting for Asset Retirement Obligations |
In June 2001, FASB issued SFAS No. 143, Accounting
for Asset Retirement Obligations. SFAS No. 143
requires us to record the fair value of an asset retirement
obligation as a liability in the period in which we incur a
legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. A
legal obligation is a liability that a party is required to
settle as a result of an existing or enacted law, statute,
ordinance or contract. We are also required to record a
corresponding asset that is depreciated over the life of the
asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the
end of each period to reflect the passage of time
(accretion) and changes in the estimated future cash flows
underlying the obligation. Changes in the liability due to
accretion will be charged to the consolidated statement of
operations, whereas changes due to the timing or amount of cash
flows will be an adjustment to the carrying amount of the
related asset. We have adopted SFAS No. 143 effective
January 1, 2003, the impact of which was immaterial to our
consolidated financial statements. Our asset retirement
obligations primarily relate to the expiration of our facility
leases and anticipated costs to be incurred based on our lease
terms. Had SFAS No. 143 been in effect during the year
presented below, net loss attributable to common stockholders
and net loss attributable to common stockholders per share,
basic and diluted, would have been as follows (amounts in
thousands, except per share data):
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2002 | |
|
|
| |
Net loss attributable to common stockholders, as reported
|
|
$ |
(55,878 |
) |
Depreciation expense
|
|
|
(43 |
) |
Accretion expense
|
|
|
(18 |
) |
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$ |
(55,939 |
) |
|
|
|
|
Net loss attributable to common stockholders per common share,
basic and diluted:
|
|
|
|
|
As reported
|
|
$ |
(1.70 |
) |
Pro forma
|
|
$ |
(1.70 |
) |
SFAS No. 144 requires that long-lived assets, except
goodwill and intangible assets not being amortized, be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
the undiscounted future net cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its
estimated future undiscounted cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset.
SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by
sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
73
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(r) |
Recent Accounting Pronouncements |
In October 1995, the FASB issued SFAS No. 123, which
establishes financial accounting and reporting standards for
stock-based employee compensation plans. In December 2004, the
FASB issued a revision of SFAS 123, Share-Based
Payment (SFAS No. 123R).
SFAS No. 123R is focused primarily on the accounting
for transactions in which a company obtains employee services in
exchange for stock options or share-based payments. Currently,
we grant stock options to our employees in accordance with APB
No. 25 and disclose the pro forma effect of compensation
expense for these stock options as if the fair value method
under SFAS No. 123 had been used. SFAS 123R
requires that companies recognize compensation expense
associated with these grants of stock options in the
Companys results of operations effective as of the
beginning of the first interim or annual reporting period that
begins after June 15, 2005. Compensation expense will be
measured based on the fair value of the instrument on the grant
date and will be recognized over the vesting period. This
pronouncement applies to all grants after the effective date and
to the unvested portion of stock options outstanding as of the
effective date. SFAS 123R eliminates our ability to account
for such transactions using the intrinsic value method currently
used. SFAS 123R also requires that companies recognize
compensation expense associated with purchases of shares of
common stock by employees at a discount to market value under
employee stock purchase plans that meet certain criteria. We are
required to adopt SFAS 123R as of July 1, 2005 and
have not yet determined the full impact of adoption on our
consolidated financial statements. We anticipate that
implementation of SFAS No. 123R will result in
material non-cash charges to our consolidated operating results.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs. This Statement amends the
guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). This Statement requires that those
items be recognized as current-period charges. In addition, this
Statement requires that allocation of fixed production overheads
to inventory based on the normal capacity of the production
facilities. This statement is effective for fiscal years
beginning after June 15, 2005. We do not expect that the
adoption of this pronouncement will have a material impact on
our financial position or results of operations prior to
commercializing Oncophage.
|
|
(3) |
Discontinued Operations |
On March 17, 2004, we sold our manufacturing rights for
feline leukemia virus (FeLV) vaccine to French veterinary
pharmaceutical manufacturer Virbac S.A. (Virbac). Pursuant to
this arrangement, in exchange for the transfer of our
manufacturing rights and related equipment for FeLV, we received
$14,552,000 in cash. In addition, we entered into a sublease
agreement with PP Manufacturing, a subsidiary of Virbac, for a
portion of the manufacturing facility in Framingham, MA.
In April 2004, upon the satisfaction of a contingency of the
sale, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, we recorded a gain on the divestiture of these
assets. The gain recorded in 2004 was approximately $14,132,000
before tax. The carrying value of the assets sold and
liabilities assumed were approximately $409,000 and $15,000,
respectively. In addition, we have classified the results of
operations of the FeLV activity as discontinued operations in
the accompanying
74
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated financial statements, for all periods presented.
The income (loss) from the results of the discontinued
operations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Revenue
|
|
$ |
338 |
|
|
$ |
3,465 |
|
|
$ |
2,627 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
594 |
|
|
|
1,942 |
|
|
|
1,337 |
|
|
Research and development
|
|
|
193 |
|
|
|
837 |
|
|
|
873 |
|
|
General and administrative
|
|
|
477 |
|
|
|
577 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$ |
(926 |
) |
|
$ |
109 |
|
|
$ |
264 |
|
|
|
|
|
|
|
|
|
|
|
Virbac has held exclusive perpetual worldwide marketing rights
to the FeLV vaccine since 1983. The supply agreement was due for
renewal in July 2002, at which point we began to supply product
to Virbac through month-to-month supply agreements until the
sale of our FeLV manufacturing rights to them in March 2004.
Subsequent to the completion of the sale there will be no
further product sales of the FeLV vaccine.
Inventories consist solely of finished goods at
December 31, 2004. During the year ended December 31,
2003, we wrote off finished goods inventory of approximately
$109,000, representing the cost of research and development
product we may not realize. The inventory write-off was charged
to research and development expenses.
|
|
|
Cash Equivalents and Short-term Investments |
Our unrealized holding gains and losses in available for sale
securities are as follows at December 31, 2004 and 2003 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Unrealized | |
|
Unrealized | |
|
|
Holding | |
|
Holding | |
|
|
| |
|
| |
|
|
Gains |
|
Losses | |
|
Gains | |
|
Losses | |
|
|
|
|
| |
|
| |
|
| |
Government backed securities
|
|
$ |
|
|
|
$ |
128 |
|
|
$ |
|
|
|
$ |
19 |
|
Corporate debt securities
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
147 |
|
|
$ |
182 |
|
|
$ |
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Available-for-sale securities consisted of the following at
December 31, 2004 and 2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
Estimated | |
|
|
|
Estimated | |
|
|
Cost | |
|
Fair Value | |
|
Cost | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
Institutional money market funds
|
|
$ |
4,054 |
|
|
$ |
4,054 |
|
|
$ |
15,513 |
|
|
$ |
15,513 |
|
Corporate debt securities
|
|
|
9,519 |
|
|
|
9,390 |
|
|
|
1,001 |
|
|
|
1,001 |
|
Taxable auction preferreds
|
|
|
10,746 |
|
|
|
10,750 |
|
|
|
20,900 |
|
|
|
20,900 |
|
Government backed securities
|
|
|
43,216 |
|
|
|
42,995 |
|
|
|
28,980 |
|
|
|
28,961 |
|
Short term municipals
|
|
|
9,900 |
|
|
|
9,900 |
|
|
|
12,700 |
|
|
|
12,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,435 |
|
|
$ |
77,089 |
|
|
$ |
79,094 |
|
|
$ |
79,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available for sale securities
amounted to $126,054,000, $100,225,000 and $60,950,000 for the
years ended December 31, 2004, 2003, and 2002,
respectively. No available for sale securities were sold before
their maturity in 2004, 2003 and 2002. Gross realized gains and
gross realized losses included in earnings as a result of those
maturities were immaterial for each of the years ended
December 31, 2004, 2003 and 2002, respectively. The amount
of net unrealized holding gains (losses) included in
comprehensive income amounted to $(310,000), $225,000 and
$126,000 for the years ended December 31, 2004, 2003 and
2002, respectively.
Of the available-for-sale securities listed above, at
December 31, 2004 and 2003, approximately $6,148,000 and
$15,514,000, respectively have been classified as cash and cash
equivalents on our consolidated balance sheet. Approximately
$70,941,000, and $63,561,000 have been classified as short-term
investments at December 31, 2004 and 2003, respectively.
The contractual maturities of available for sale securities at
December 31, 2004 are $57,908,000 in 2005, $4,289,000 in
2006, $992,000 in 2007 and $13,900,000 between 2025 and 2043.
Securities with contractual maturities between 2025 and 2043 are
auction rate notes and similar instruments and are classified as
short term investments as the Company has the intent to sell
these securities as needed.
On May 18, 2000, we committed $3,000,000 to become a
limited partner in a limited partnership, called Applied Genomic
Technology Capital Fund (AGTC), which will invest principally in
companies that apply genomic technologies and information in
their offerings of products and services or that are engaged in
research and development involving genomic technologies. Capital
contributions to the limited partnership are made as requested
by the general partner. As of December 31, 2004, we have
invested $2,250,000 in this entity ($1,875,000 as of
December 31, 2003) and have included this amount in
non-current other assets. This investment is accounted for under
the cost method, as our ownership is approximately 2%. In
order to assess whether or not there has been an other than
temporary decline in the value of this investment, we analyze
several factors including: (i) the carrying value of the
limited partnerships investments in its portfolio
companies, (ii) how recently the investments in the
portfolio companies have been made, (iii) the
post-financing valuations of those investments, (iv) the
level of un-invested capital held by the limited partnership and
(v) the overall trend in venture capital valuations. Based
on these analyses, during the years ended December 31,
2004, 2003, and 2002, we concluded that an other than temporary
decline in the value of this
76
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
investment has occurred and have reduced the carrying value (the
cost of our investment in this partnership) by $67,000,
$217,000, and $121,000, respectively. Our investment balance
aggregated $1,844,000 and $1,537,000 at December 31, 2004
and 2003, respectively. The general partner of the limited
partnership is AGTC Partners, L.P. Noubar
Afeyan, Ph.D., who is one of our directors, is the Chairman
and Senior Managing Director and CEO of Flagship Ventures, a
partnership of funds including AGTC and, until its dissolution
during 2004, NewcoGen Group Inc. Garo H. Armen, Ph.D., our
chairman and chief executive officer, was a director of NewcoGen
Group Inc. until its dissolution during 2004.
|
|
(6) |
Plant and Equipment, net |
Plant and equipment, net at December 31, 2004 and 2003
consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Depreciable |
|
|
2004 |
|
2003 |
|
Lives |
|
|
|
|
|
|
|
Furniture, fixtures and other
|
|
$ |
1,523 |
|
|
$ |
1,278 |
|
|
|
3 to 10 years |
|
Laboratory and manufacturing equipment
|
|
|
6,428 |
|
|
|
9,142 |
|
|
|
4 to 10 years |
|
Leasehold improvements
|
|
|
22,324 |
|
|
|
26,641 |
|
|
|
2 to 12 years |
|
Software and computer equipment
|
|
|
5,273 |
|
|
|
3,053 |
|
|
|
3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,548 |
|
|
|
40,114 |
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(10,560 |
) |
|
|
(15,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,988 |
|
|
$ |
24,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment, net retired and removed from the accounts
aggregated $72,000 and $27,000 (net book value) for the years
ended December 31, 2004 and 2003, respectively.
|
|
(7) |
Goodwill and Other Intangible Assets |
During 2004, we realized a gain on our sale of the
manufacturing rights to the feline leukemia virus vaccine. We
utilized acquired state net operating loss carryforwards to
reduce the taxable gain and accordingly we have reduced goodwill
by $509,500 as the associated deferred tax asset had a 100%
valuation allowance recorded against it at acquisition.
The following table presents (in thousands) certain information
on our intangible assets as of December 31, 2004. Our
intangible assets are being amortized over their estimated
useful lives of ten years, with no estimated residual values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004 |
|
As of December 31, 2003 |
|
|
Weighted |
|
|
|
|
|
|
Average |
|
Gross |
|
|
|
Net |
|
Gross |
|
|
|
Net |
|
|
Amortization |
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
Accumulated |
|
Carrying |
|
|
Period |
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core and developed technology
|
|
|
10 years |
|
|
$ |
11,073 |
|
|
$ |
4,217 |
|
|
$ |
6,856 |
|
|
$ |
11,073 |
|
|
$ |
3,108 |
|
|
$ |
7,965 |
|
Amortization expense related to core and developed technology
amounted to $1,109,000, $1,107,000, and $1,107,000 for 2004,
2003 and 2002, respectively. Amortization expense is estimated
as $1,107,000 for each of the years 2005 2009 and
$1,320,000 thereafter.
77
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2004, we have available net operating
loss carryforwards of approximately $311,305,000 and
$221,380,000 for federal and state income tax purposes,
respectively, which are available to offset future federal and
state taxable income, if any, and expire between 2008 and 2024,
and 2005 and 2024, respectively. These net operating loss
carryforwards include approximately $88,035,000 for federal
income tax purposes, acquired in our mergers. Our ability to use
such net operating losses is limited by change in control
provisions under Internal Revenue Code Section 382 or may
expire unused. In addition, we have approximately $5,539,000 and
$2,827,000 of federal and state research and development
credits, respectively, available to offset future taxable
income. These federal and state research and development credits
expire between 2020 and 2025, and 2015 and 2020, respectively.
The potential impacts of such provisions are among the items
considered and reflected in managements assessment of our
valuation allowance requirements.
The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31, 2004 and 2003, are presented
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Net operating loss carryforwards
|
|
$ |
118,994 |
|
|
$ |
104,126 |
|
Start-up expenses
|
|
|
80 |
|
|
|
634 |
|
Research and development tax credit
|
|
|
8,366 |
|
|
|
7,652 |
|
Other temporary differences, net
|
|
|
(2,107 |
) |
|
|
282 |
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
125,333 |
|
|
|
112,694 |
|
Less: valuation allowance
|
|
|
(125,333 |
) |
|
|
(112,694 |
) |
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
In assessing the realizablility of deferred tax assets, we
consider whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible. We consider
projected future taxable income and tax planning strategies in
making this assessment. In order to fully realize the deferred
tax asset, we will need to generate future taxable income
sufficient to utilize net operating losses prior to their
expiration. Based upon our history of not generating taxable
income due to our business activities focused on product
development, we believe that it is more likely than not that the
deferred tax assets will not be realized due to the uncertainty
of future earnings. Accordingly, a valuation allowance has been
established for the full amount of the deferred tax assets. The
valuation allowance on the deferred tax asset has increased by
$12,639,000 during the year ended December 31, 2004 and
increased by $31,209,000 during the year ended December 31,
2003. The valuation allowance includes amounts pertaining to tax
deductions relating to stock exercises for which any
subsequently recognized tax benefit will be recorded as an
increase to additional paid-in capital. Of the deferred tax
assets related to the federal net operating loss carryforwards,
approximately $29,932,000, at December 31, 2004, relates to
net operating loss carryforwards acquired in our mergers. If
adjustments are made to the valuation allowance related to these
net operating loss carryforwards, such adjustment will result in
reductions to our goodwill and other acquired intangible assets.
Due to the gain realized on our sale of the manufacturing rights
to the feline leukemia virus vaccine in March 2004, and the
use of acquired state net operating loss carryforwards to reduce
the estimated taxable gain, we have reduced goodwill by $509,500
representing the tax
78
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
benefit realized as the associated deferred tax asset had a 100%
valuation allowance recorded against it at acquisition.
Income tax benefit attributable to loss from continuing
operations was nil for each of the years ended December 31,
2004, 2003, and 2002, and differed from the amounts computed by
applying the U.S. Federal income tax rate of 35% to loss
before income taxes as a result of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Computed expected federal tax benefit
|
|
$ |
(19,440 |
) |
|
$ |
(23,077 |
) |
|
$ |
(19,557 |
) |
(Increase) reduction in income taxes benefit resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
12,639 |
|
|
|
31,209 |
|
|
|
(23,957 |
) |
|
Adjustment to deferred tax asset for net operating loss
carryforward waiver election
|
|
|
|
|
|
|
|
|
|
|
41,858 |
|
|
State and local income benefit net of Federal income tax benefit
|
|
|
(3,249 |
) |
|
|
(3,751 |
) |
|
|
(3,319 |
) |
|
Other, net
|
|
|
10,050 |
|
|
|
(4,381 |
) |
|
|
4,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consist of the following at
December 31, 2004 and 2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Clinical trials
|
|
$ |
3,219 |
|
|
$ |
3,063 |
|
Professional fees
|
|
|
2,600 |
|
|
|
1,434 |
|
Payroll
|
|
|
1,880 |
|
|
|
1,506 |
|
Clinical contractors
|
|
|
1,334 |
|
|
|
1,928 |
|
Accrued loss on Aronex Pharmaceuticals Inc. property lease
|
|
|
502 |
|
|
|
497 |
|
Lexington facility construction
|
|
|
|
|
|
|
1,338 |
|
Other
|
|
|
1,327 |
|
|
|
1,536 |
|
|
|
|
|
|
|
|
|
|
$ |
10,862 |
|
|
$ |
11,302 |
|
|
|
|
|
|
|
|
Our authorized capital stock consists of 100,000,000 shares
of common stock, $0.01 par value per share, and
25,000,000 shares of preferred stock, $0.01 par value
per share. Our board of directors is authorized to issue the
preferred stock and to set the voting, conversion and other
rights.
As part of the Aronex Pharmaceuticals Inc. merger in 2001, we
assumed warrants to purchase our common stock that are
exercisable for approximately 104,000 shares of our common
stock with a weighted average exercise price of $52.94 per
share of which approximately 38,000 expired during 2004, while
57,000 expire in 2005, and 9,000 expire in 2007. In addition, we
issued warrants to purchase approximately 26,000 shares of
our common stock at a weighted average exercise price of $13.96,
which expire during 2005.
79
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In January 2002, we sold 4,000,000 shares of our common
stock, $0.01 par value, at $15.00 per share and
received net proceeds of approximately $56,011,000.
In January 2003, we sold 6,250,000 shares of our common
stock, $0.01 par value, at an average price of
$9.92 per share. We received net proceeds of approximately
$59,538,000.
In February 2004, we sold 5,400,000 shares of our common
stock, $0.01 par value, at an average price of
$10.50 per share. We received net proceeds of approximately
$53,520,000.
In August 2004, we filed a Form S-3 universal registration
statement with the Securities and Exchange Commission for the
registration and potential issuance of up to $100 million
of our securities (see Note 19).
In a private placement in September 2003, we sold
31,620 shares of our series A convertible preferred
stock, par value $0.01 per share, for proceeds of
approximately $31,606,000, after deducting offering costs of
approximately $14,000. Under the terms and conditions of the
Certificate of Designation creating the series A
convertible preferred stock, this stock is convertible by the
holder at any time into our common stock, is non-voting, carries
a 2.5% annual dividend yield, has an initial conversion price of
$15.81, per common share, subject to adjustment, and is
redeemable by us at its face amount ($31,620,000) on or after
September 24, 2013. The Certificate of Designation does not
contemplate a sinking fund. The series A preferred stock
ranks senior to our common stock. In a liquidation, dissolution
or winding up of us, the series A preferred stocks
liquidation preference must be fully satisfied before any
distribution could be made to the common stock. Other than in
such a liquidation, no terms of the series A preferred
stock affect our ability to declare or pay dividends on our
common stock as long as the series A preferred stocks
dividends are accruing. Prior to September 24, 2005, unless
there remain fewer than 16,000 shares of series A
preferred stock still outstanding, we cannot create a class of
stock senior to the series A preferred stock without the
approval of a majority of record holders of that stock. The
liquidation value of this series A convertible preferred
stock is equal to $1,000 per share outstanding plus any
accrued unpaid dividends. Accrued and unpaid dividends of
Series A Convertible preferred stock aggregated $197,625 or
$6.25 per share at December 31, 2004.
|
|
(11) |
Stock-based Compensation Plans |
Our 1999 Equity Incentive Plan, as amended, (the 1999 equity
plan) authorizes the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified stock options for the
purchase of an aggregate of 10,000,000 shares (subject to
adjustment for stock splits and similar capital changes and
exclusive of options exchanged at the consummation of mergers)
to employees and, in the case of non-qualified stock options, to
consultants and directors as defined in the equity plan. The
board of directors has appointed the compensation committee to
administer the 1999 equity plan.
The following summarizes activity for options granted to
directors and employees, including those with an exercise price
equal to the fair value of the underlying shares of common stock
at the date of grant (at-the-money exercise price),
those with an exercise price greater than the fair value of the
underlying
80
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
share of common stock at the date of grant, and those with an
exercise price less than the fair value of the underlying share
of common stock at the date of grant (in-the-money
exercise price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
Weighted | |
|
Weighted | |
|
|
|
|
Exercisable | |
|
Average | |
|
Average | |
|
|
|
|
at End of | |
|
Grant-Date | |
|
Exercise | |
|
|
Options | |
|
Year | |
|
Fair Value | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding December 31, 2001
|
|
|
2,427,997 |
|
|
|
1,160,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
936,150 |
|
|
|
|
|
|
$ |
6.92 |
|
|
$ |
11.72 |
|
|
Exercised
|
|
|
(29,328 |
) |
|
|
|
|
|
|
|
|
|
|
8.70 |
|
|
Forfeited
|
|
|
(320,307 |
) |
|
|
|
|
|
|
|
|
|
|
15.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2002
|
|
|
3,014,512 |
|
|
|
1,492,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,125,000 |
|
|
|
|
|
|
|
5.30 |
|
|
|
9.23 |
|
|
Exercised
|
|
|
(129,262 |
) |
|
|
|
|
|
|
|
|
|
|
8.61 |
|
|
Forfeited
|
|
|
(620,017 |
) |
|
|
|
|
|
|
|
|
|
|
21.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2003
|
|
|
3,390,233 |
|
|
|
1,357,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,056,617 |
|
|
|
|
|
|
|
5.07 |
|
|
|
8.81 |
|
|
Exercised
|
|
|
(193,706 |
) |
|
|
|
|
|
|
|
|
|
|
4.12 |
|
|
Forfeited
|
|
|
(808,502 |
) |
|
|
|
|
|
|
|
|
|
|
10.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2004
|
|
|
4,444,642 |
|
|
|
1,381,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2002, 2003 and 2004 all options were granted to employees
and directors at exercise prices equal to the fair value of the
shares of common stock on the grant date. Compensation expense
recognized with respect to options granted to employees and
directors totaled approximately $463,000, $358,000 and $482,000
for the years ended December 31, 2004, 2003 and 2002,
respectively. These charges relate to options granted prior to
2002 with exercise prices which were less than the fair value of
the shares of common stock at the date of grant and
modifications to outstanding options. Deferred compensation at
December 31, 2004 of $27,000 will be recognized over the
remaining vesting period of the options.
81
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes activity for options granted to outside
advisors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
Weighted | |
|
Weighted | |
|
|
|
|
Exercisable | |
|
Average | |
|
Average | |
|
|
|
|
at End of | |
|
Grant-Date | |
|
Exercise | |
|
|
Options | |
|
Year | |
|
Fair Value | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding December 31, 2001
|
|
|
861,349 |
|
|
|
860,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
115,288 |
|
|
|
|
|
|
$ |
8.26 |
|
|
$ |
12.98 |
|
|
Exercised
|
|
|
(48,168 |
) |
|
|
|
|
|
|
|
|
|
|
6.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2002
|
|
|
928,469 |
|
|
|
846,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
63,000 |
|
|
|
|
|
|
|
5.44 |
|
|
|
7.78 |
|
|
Exercised
|
|
|
(1,405 |
) |
|
|
|
|
|
|
|
|
|
|
1.45 |
|
|
Forfeited
|
|
|
(1,334 |
) |
|
|
|
|
|
|
|
|
|
|
11.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2003
|
|
|
988,730 |
|
|
|
846,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
210,000 |
|
|
|
|
|
|
|
8.21 |
|
|
|
9.98 |
|
|
Exercised
|
|
|
(55,000 |
) |
|
|
|
|
|
|
|
|
|
|
1.45 |
|
|
Forfeited
|
|
|
(2,666 |
) |
|
|
|
|
|
|
|
|
|
|
11.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2004
|
|
|
1,141,064 |
|
|
|
947,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding options exclude 47,652 options granted to
outside advisors with an exercise price which was determined
based on the fair value of the underlying shares of common stock
beginning on the second anniversary of the grant date as the
options vest; these options vested prior to December 31,
1998 with an exercise price of approximately $11.17 per
share and compensation expense was charged at such time.
The charge to operations related to options we granted to
outside advisors totaled approximately $804,000, $533,000 and
$353,000 for the years ended December 31, 2004, 2003, and
2002, respectively.
At December 31, 2004, unrecognized expense for options
granted to outside advisors for which performance
(vesting) has not yet been completed but the exercise price
of the option is known is approximately $1,121,000; such amount
is subject to change each reporting period based upon changes in
the fair value of our common stock, estimated volatility and the
risk free interest rate until the outside advisor completes his
or her performance under the option agreement.
A summary of our options outstanding and exercisable, as of
December 31, 2004, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
Weighted |
|
|
|
|
Average |
|
Average |
|
|
|
Average |
Range of Exercise |
|
Number |
|
Remaining |
|
Exercise |
|
Number |
|
Exercise |
Prices |
|
Outstanding |
|
Life (Years) |
|
Price |
|
Exercisable |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
$ 1.45 - $ 5.00
|
|
|
543,706 |
|
|
|
2.0 |
|
|
$ |
1.97 |
|
|
|
540,956 |
|
|
$ |
1.95 |
|
$ 5.01 - $10.00
|
|
|
2,042,464 |
|
|
|
8.5 |
|
|
|
7.75 |
|
|
|
370,774 |
|
|
|
7.96 |
|
$10.01 - $15.00
|
|
|
2,889,235 |
|
|
|
6.9 |
|
|
|
11.81 |
|
|
|
1,297,480 |
|
|
|
12.38 |
|
$15.01 - $20.00
|
|
|
155,756 |
|
|
|
5.9 |
|
|
|
16.37 |
|
|
|
118,954 |
|
|
|
16.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,631,161 |
|
|
|
|
|
|
$ |
9.51 |
|
|
|
2,328,164 |
|
|
$ |
9.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We had 4,426,615 and 3,997,092 options outstanding at
December 31, 2003 and 2002 respectively with weighted
average exercise prices of $9.70 and $11.84 respectively.
The preceding table excludes 2,197 options assumed in our merger
with Aronex Pharmaceuticals, Inc. As of December 31, 2004,
all of these options were outstanding and exercisable with a
weighted average remaining life of 1.6 years and a weighted
average exercise price of $68.91 per share.
Since the 1995 reorganization described in Note 1, Founder
Holdings Inc. has directly or indirectly owned a significant
portion of our common stock. During 1996, Founder Holdings Inc.
approved a stock option plan (Founders Plan). In
accordance with U.S. generally accepted accounting
principles, the Founders Plan is accounted for as if it
had been adopted by us and treated as a contribution to
stockholders equity. Pursuant to the provisions of the
Founders Plan, Founder Holdings Inc. may grant options to
our officers, directors, employees, and consultants to purchase
common stock of Founder Holdings Inc. The terms of the options,
including exercise price and vesting period, are set at the date
of grant. The options have a contractual life of ten years and
may not have an exercise price less than the fair value of a
share of common stock of Founder Holdings Inc. at date of grant.
Options to purchase a maximum of 300 shares may be granted
under the Founders Plan.
During 1996, Founder Holdings Inc. granted options to purchase
approximately 160 shares to directors and employees at a
weighted average exercise price of $9,006 per share and a
weighted average grant-date fair value of approximately
$4,301 per share. During 1997, Founder Holdings Inc.
granted options to purchase approximately 14 shares to a
director at a weighted average grant-date fair value of
$16,407 per share. All the options were immediately vested
and exercisable. All of the options remain outstanding and none
have been exercised.
During 1996, Founder Holdings Inc. granted options to purchase
approximately 76 shares to consultants at a weighted
average exercise price of $9,006 per share and a weighted
average grant-date fair value of approximately $5,535 per
share. All of the consultants options were immediately
vested and exercisable. All of the consultants options
remain outstanding and none have been exercised.
Under the 1999 Employee Stock Purchase Plan, employees may
purchase shares of common stock at a discount from fair value.
There are 300,000 shares of common stock reserved for
issuance under the purchase plan. The purchase plan is intended
to qualify as an employee stock purchase plan within the meaning
of Section 423 of the Internal Revenue Code of 1986, as
amended. Rights to purchase common stock under the purchase plan
are granted at the discretion of the compensation committee,
which determines the frequency and duration of individual
offerings under the plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may
withdraw from any offering at any time before the stock is
purchased. Participation terminates automatically upon
termination of employment. The purchase price per share of
common stock in an offering will not be less than 85% of the
lesser of its fair value at the beginning of the offering period
or on the applicable exercise date and may be paid through
payroll deductions, periodic lump sum payments or a combination
of both. The plan terminates on November 15, 2009. As of
December 31, 2004, 95,020 shares of common stock have
been purchased under the plan.
Effective June 11, 2003, our stockholders approved our
Directors Deferred Compensation Plan permitting each
outside director to defer all, or a portion of, their cash
compensation until their service as a director ends or until a
specified date. 100,000 shares of our common stock have
been reserved for issuance under this plan. As of
December 31, 2004, no shares have been issued. The plan
allows eligible directors to
83
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
defer all, or a portion, of their cash compensation into a cash
account or a stock account. Amounts deferred to a cash account
will earn interest at the rate paid on one-year Treasury bills
with interest added to the account annually. Amounts deferred to
a stock account will be converted on an annual basis into a
number of units representing shares of our common stock equal to
the amount of compensation which the participant has elected to
defer to the stock account divided by the applicable stock price
for our common stock. The applicable price for our common stock
means the average of the closing price of our common stock for
all trading days during the calendar year preceding the
conversion date as reported by the Nasdaq National Market.
Pursuant to this plan 17,265 units, each representing a
share of our common stock based on a common stock price of
$8.63, were credited to participants stock accounts as of
December 31, 2004. The compensation charge related to this
plan was immaterial in 2004.
|
|
(12) |
License, Research and Other Agreements |
In November 1994, we entered into a Patent License Agreement
with the Mount Sinai School of Medicine, or Mount Sinai (the
Mount Sinai Agreement). Through the Mount Sinai Agreement, we
obtained an exclusive worldwide license to patent rights
relating to the heat shock protein technology that resulted from
the research and development performed by Dr. Pramod
Srivastava, our founding scientist and one of our directors. We
agreed to pay Mount Sinai a royalty on the net sales of products
covered by the licensed patent rights and also provided Mount
Sinai with a 0.45% equity interest in the company (approximately
62,000 shares valued at approximately $90,000 at the time
of issuance). The term of the Mount Sinai Agreement ends when
the last of the licensed patents expires (2018) or becomes
no longer valid. If we fail to pay royalties that are due under
the agreement, Mount Sinai may issue written notice to us. If we
continue to fail to pay royalties after 60 days of the
written notice, Mount Sinai can terminate the agreement. The
Mount Sinai Agreement requires us to use due diligence to make
the products covered by the licensed patent rights commercially
available, including a requirement for us to use best efforts to
reach a number of developmental milestones which have been
achieved. If we fail to comply with the diligence provisions of
the agreement, Mount Sinai could take actions to convert our
exclusive license to a non-exclusive license after six months
written notice. The Mount Sinai Agreement does not contain any
milestone payment provisions.
During 1995, Dr. Srivastava moved his research to Fordham
University (Fordham). We entered into a sponsored research and
technology license agreement with Fordham in March 1995 (the
Fordham Agreement) relating to the continued development of the
heat shock protein technology and agreed to make payments to
Fordham to sponsor Dr. Srivastavas research. Through
the Fordham Agreement, we obtained an exclusive, perpetual,
worldwide license to all of the intellectual property, including
all the patent rights that resulted from the research and
development performed by Dr. Srivastava at Fordham. We also
agreed to pay Fordham a royalty on the net sales of products
covered by the Fordham Agreement through the last expiration
date on the patents under the agreement (2018) or when the
patents become no longer valid. The agreement does not contain
any milestone payment provisions or any diligence provisions.
Dr. Srivastava moved his research to the University of
Connecticut Health Center during 1997 and, accordingly, the
parts of the agreement related to payments for sponsored
research at Fordham terminated in mid-1997. During the term of
the agreement we paid approximately $2,374,000.
We have two agreements with the University of Connecticut Health
Center, or UConn: (1) a research agreement under which we
pay UConn to sponsor research in Dr. Srivastavas
laboratory and which provides us with an option to license
technologies discovered and developed as a result of that
research, and (2) a license agreement that provides us with
the exclusive, worldwide rights to technologies discovered and
84
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
developed under the research agreement, the License Agreement.
Each agreement is discussed in more detail below.
In February 1998, we entered into a research agreement with
UConn, and Dr. Srivastava (the Research Agreement) relating
to the continued development of the heat shock protein
technology. The Research Agreement provides us with an option to
license inventions stemming from the research that we sponsor at
UConn and provides certain pre-determined royalty rates for
licensed inventions. The Research Agreement had an initial term
of five years and called for minimum payments to UConn totaling
$5,000,000, payable quarterly at a rate of $250,000 (contingent
upon the continuing employment of Dr. Srivastava by UConn).
The Research Agreement was amended during 2002 and again on
December 31, 2003 to: (1) extend the term of the
Research Agreement to December 31, 2003 and then to
December 31, 2008, and (2) provide for an annual
payment of $1,200,000 payable quarterly at the rate of $300,000
during 2003 and then an annual payment of $1,350,000 payable
quarterly at the rate of $337,500 from 2004 thru 2008. UConn may
terminate the Research Agreement upon 60 days written
notice if it is unable to fulfill the terms of the Research
Agreement. We can terminate the Research Agreement by giving
30 days written notice in the event that
Dr. Srivastava terminates his employment by UConn or is
otherwise unable to continue his research at UConn. Research and
development expense in the accompanying 2004, 2003 and 2002
consolidated statements of operations includes approximately
$1,350,000, $1,200,000, and $1,000,000, respectively, of costs
incurred under the Research Agreement.
In May 2001, we entered into a License Agreement with UConn.
Through the License Agreement, we obtained an exclusive
worldwide license to patent rights resulting from inventions
discovered under the Research Agreement. The term of the License
Agreement ends when the last of the licensed patents expires
(2019) or becomes no longer valid. UConn may terminate the
License Agreement: (1) if, after 30 days written
notice for breach, we continue to fail to make any payments due
under the License Agreement, or (2) we cease to carry on
our business related to the patent rights or if we initiate or
conduct actions in order to declare bankruptcy. We may terminate
the License Agreement upon 90 days written notice. The
License Agreement contains aggregate milestone payments of
approximately $1.2 million for each product we develop
covered by the licensed patent rights. These milestone payments
are contingent upon regulatory filings, regulatory approvals and
commercial sales of products. We have also agreed to pay UConn a
royalty on the net sales of products covered by the License
Agreement as well as annual license maintenance fees beginning
in May 2006. Royalties otherwise due on the net sales of
products covered by the License Agreement may be credited
against the annual license maintenance fee obligations. To date,
we have paid approximately $55,000 to UConn under the License
Agreement. The License Agreement gives us complete discretion
over the commercialization of products covered by the licensed
patent rights but also requires us to use commercially
reasonable diligent efforts to introduce commercial products
within and outside the United States. If we fail to meet these
diligence requirements, UConn may be able to terminate the
License Agreement.
In March 2003, we entered into an Amendment Agreement that
amended certain provisions of both the Research Agreement and
the License Agreement. The Amendment Agreement provides that any
time we elect to exercise our option to license inventions
discovered or developed as a result of research we sponsor at
UConn, such inventions will be automatically covered under the
terms of our existing License Agreement with UConn. In
consideration for execution of the Amendment Agreement and for
the license of additional patent rights, we agreed to pay UConn
an up-front payment and to make future payments for each patent
or patent application with respect to which we exercise our
option under the Research Agreement. Through December 31,
2004, we have paid approximately $94,000 to UConn under the
Amendment Agreement.
85
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We entered into various additional research agreements with
educational and medical institutions expiring through August
2005. These agreements require initial and quarterly payments
totaling approximately $2,467,000 (of which $130,000, $237,000,
and $426,000 was paid during the years ended December 31,
2004, 2003 and 2002, respectively, and $254,000 remains
committed).
We have entered into various agreements with institutions and
contract research organizations to conduct our clinical studies.
Under these agreements, subject to the enrollment of patients
and performance by the institution of certain services, we have
estimated our payments to be approximately $55,965,000 over the
term of the studies. For the years ended December 31, 2004,
2003 and 2002, approximately, $7,080,000, $12,180,000, and
$7,902,000, respectively, have been expensed in the accompanying
consolidated statements of operations related to these clinical
studies. Through December 31, 2004, approximately
$26,314,000 of this estimate has been paid or accrued. The
timing of our expense recognition and future payments related to
these agreements is dependent on the enrollment of patients and
documentation received from the institutions.
In December 2000, Aronex Pharmaceuticals Inc., a company we
acquired in July 2001, entered into a license agreement with
Sumitomo Pharmaceuticals Co., Ltd., the Sumitomo Agreement. In
September 2003, this agreement was amended and restated. The
Sumitomo Agreement grants us the exclusive right to an allowed
U.S. patent application that contains certain claims
related to Aroplatin. Except for the treatment of hepatoma, the
Sumitomo Agreement gives us the exclusive right to make, use,
develop, import and sell Aroplatin in the United States. The
term of the Sumitomo Agreement ends when the licensed patent
expires in 2020. Either party may terminate the Sumitomo
Agreement by giving written notice to the other party upon the
occurrence of the following events: (1) if the other party
makes an assignment for the benefit of creditors, is the subject
of bankruptcy proceedings, or has a trustee or receiver
appointed for substantially all of its assets, (2) if the
other party becomes insolvent, or (3) if the other party
materially defaults in its performance under the Sumitomo
Agreement. Prior to our acquisition of Aronex Pharmaceuticals
Inc., Sumitomo received a $500,000 up-front payment in 2001 from
Aronex Pharmaceuticals Inc. and will receive subsequent
milestone payments from us in the aggregate of up to $3,500,000
if regulatory filings, regulatory approval and sales in
connection with Aroplatin occur. We agreed to pay Sumitomo
royalties on the net sales of Aroplatin in the United States
upon commercialization of the product.
In June 1988, a predecessor to Aronex Pharmaceuticals Inc.
entered into an exclusive license agreement with: (1) The
Board of Regents of The University of Texas System, and
(2) The University of Texas System Cancer Center,
collectively referred to as the University of Texas.
As amended, the exclusive license agreement grants us the
exclusive, worldwide license to patents containing claims that
relate to Aroplatin. The term of the exclusive license agreement
expires when the last licensed patent expires (2010). Either
party may terminate the agreement upon 60 days written
notice if the other party materially breaches any material terms
of the exclusive license agreement. The agreement requires that
we meet certain diligence provisions, specifically the conduct
of ongoing and active research, developmental activities,
marketing, clinical testing, or a licensing program, directed
towards the production and sale of Aroplatin. If we fail to
comply with these diligence provisions, the University of Texas
may be able to terminate the exclusive license agreement upon
90 days written notice. The University of Texas also has
the right to terminate the exclusive license agreement in the
event that: (1) we discontinue our business, (2) we
have a receiver or trustee appointed for our assets, or
(3) we are the subject of a bankruptcy proceeding. We
agreed to pay the University of Texas royalties on the net sales
of Aroplatin. The applicable royalty percentage is dependent on
the level of net sales of Aroplatin. We have also agreed to make
a $200,000 milestone payment to the University of Texas if
the FDA approves a
86
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
new drug application for Aroplatin. To date, we have not made
any payments to the University of Texas under the exclusive
license agreement.
We have various comprehensive agreements with corporate partners
that allow the partners to use our QS-21 adjuvant in numerous
vaccines including, but not limited to, hepatitis, lyme disease,
human immunodeficiency virus (HIV), influenza, cancer, and
malaria. These agreements grant exclusive worldwide rights in
some fields of use, and co-exclusive or non-exclusive rights in
others. The agreements call for royalties to be paid to us by
the partner on its future sales of licensed vaccines that
include QS-21.
|
|
(13) |
Certain Related Party Transactions |
Garo H. Armen, Ph.D., our Chairman and Chief Executive
Officer, is a director of Elan Corporation, p.l.c., and is a
nominal employee of a different wholly-owned subsidiary of Elan.
For the year ended December 31, 2004, no revenues were
earned under our agreements with these entities (as noted above)
and accordingly, at December 31, 2004, we had no amounts
due to us under these agreements.
In March 1995, we entered into a consulting agreement with
Dr. Pramod Srivastava, our scientific founder and one of
our directors. This agreement was to expire in March 2005 but
was extended for an additional one-year period. This agreement
will automatically renew for additional on-year periods unless
either party decides not to extend the agreement. In 2005, 2004
and 2003, we paid Dr. Srivastava cash bonuses of $135,000,
$135,000 and $100,000, respectively and granted him options to
purchase 120,000, 120,000 and 50,000, shares, respectively
of our common stock for services performed in 2004, 2003 and
2002. These options vest over 4 and 5 years and are
exercisable at $6.92, $10.18 and $7.45 per share,
respectively.
In September 2004, we entered into a $60,000 one-year service
agreement with Techsoft, Inc. d.b.a Medical Systems and NG
Techsoft Pvt. for data management services. Navin Gupta is the
President and CEO of Techsoft, Inc. d.b.a Medical Systems,
Director and Chairman of the Board of NG Techsoft Pvt Ltd. and
is the spouse of Renu Gupta, our Senior Vice President of
Development. As of December 31, 2004, approximately $35,000
due under this agreement is included in accrued expenses. No
amounts were paid under this agreement for the year ended
December 31, 2004.
On October 22, 2004, we executed a letter of intent with
Symphony Capital LLC for a potential transaction to provide
funding for certain of our research programs. One of our
directors, Mr. Mark Kessel, is a managing director of
Symphony Capital LLC. During February 2005, this potential
transaction was terminated. During 2004, we made payments to
Symphony Capital LLC of $125,000 for development planning
activities. At December 31, 2004, we had accrued $159,000
due to Symphony Capital LLC. During 2005, $196,000 related to
such activities, was paid to Symphony Capital LLC for activities
up to termination, including amounts accrued at
December 31, 2004.
We lease manufacturing, research and development, and office
facilities under various long-term lease arrangements. Rent
expense (before sublease income) included in loss from
continuing operations was approximately $3,685,000, $4,691,210,
and $3,189,000 for the years ended December 31, 2004, 2003,
and 2002, respectively.
On December 6, 2002, we entered into a lease agreement,
effective August 2003, to lease a 162,000 square foot
facility in Lexington, Massachusetts. We currently occupy
94,000 square feet and plan to
87
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expand to 132,000 square feet on or before August 2005 with
a second planned expansion to 162,000 square feet on or
before March 2006. We have transferred our Woburn operations
into this facility. Our Woburn manufacturing operations were
transferred during the first quarter of 2004 and accordingly,
the Woburn lease was extended through March 14, 2004. The
future minimum rental payments under our leases of our
Framingham and Lexington facilities, which expire in 2010 and
2013, respectively, our Texas facility, which expires 2008, and
our New York City Headquarters, which expires in 2006, are as
follows (in thousands):
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
2005
|
|
$ |
3,178 |
|
2006
|
|
|
3,723 |
|
2007
|
|
|
3,376 |
|
2008
|
|
|
2,885 |
|
2009
|
|
|
2,893 |
|
Thereafter
|
|
|
8,183 |
|
|
|
|
|
|
Total
|
|
$ |
24,238 |
|
|
|
|
|
In connection with the New York City office space and the
Framingham and Lexington facilities we maintain fully
collateralized letters of credit of $78,000, $375,000 and
$1,005,000, respectively. No amounts have been drawn on the
letters of credit as of December 31, 2004.
Included in accrued liabilities and other long-term liabilities
on the consolidated balance sheet at December 31, 2004 and
2003 is approximately $1,378,000 and $1,835,000, respectively,
representing amounts due under our non-cancelable lease (net of
sub-lease income) of the manufacturing, research, and office
facility located in The Woodlands, Texas assumed in the Aronex
Pharmaceuticals Inc. merger. The liability represents the
estimated future amounts due (net of sublease income) at the
balance sheet date through to expiry of the lease. During the
year ended December 31, 2004, the liability decreased by
$457,000 primarily related to payments made for rent and
expenses. During the year ended December 31, 2003, the
liability increased by $109,000 primarily related to payments
made for rent and expenses of approximately $577,000 off-set by
an increase in the liability of $686,000 due to a reduction in
expected future sub-lease income. During the year ended
December 31, 2002, the liability decreased by $393,000
primarily related to payments made for rent and expenses of
approximately $621,000 off-set by a net increase in the
liability of $228,000 due to a reduction in costs and expected
future income related to sub-lease income. Remaining minimum
payments (before sub-lease income) are: in 2005 through 2007,
$578,000 per year; and $48,000 for 2008.
Beginning in 2002, we have subleased part of our Framingham and
Texas facilities and are currently entitled to receive
approximately $1,292,000, $1,375,000, $753,000, $535,000, and
$516,000 for the years 2005, 2006, 2007, 2008 and 2009,
respectively, of sub-lease rental payments. For the year ended
December 31, 2004, 2003 and 2002, we earned rental income
of $1,356,000, $883,000 and $272,000, respectively, from our
subleased facilities which income is recorded in operating
expenses as an offset to rental expense.
88
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2004 we have approximately $9,922,000 of
debt outstanding.
On July 17, 2003, we entered into a $17,100,000 debt
facility with GE Capital pursuant to which we have borrowed
$17,042,000 to finance the build-out of our Lexington,
Massachusetts facility. As we utilized the debt facility,
separate promissory notes were executed. Each note has a term of
thirty-six months with the interest rate based on the Federal
Reserves three year Treasury Constant Maturities Rate plus
1.875% fixed at the closing of each note, ranging from 3.92% to
4.42%. Each note is collateralized by a 50% cash security
deposit (classified as restricted cash in the accompanying
consolidated balance sheets ) as well as our fixed assets,
accounts receivable, inventory and intangible assets excluding
our intellectual property. As of December 31, 2004 we had
approximately $9,776,000 outstanding. The aggregate maturities
of our outstanding debt for each of the years subsequent to
December 31, 2004 are as follows 2005
$5,264,000, 2006 $4,468,000 and 2007
$44,000.
At December 31, 2004, approximately $146,000 of debentures
we assumed in our merger with Aquila Biopharmaceuticals are
outstanding. These debentures carry interest at 7% and are
callable, accordingly they are classified as part of our
short-term debt.
Antigenics, our Chairman and Chief Executive Officer Garo Armen,
and two investment banking firms that served as underwriters in
our initial public offering have been named as defendants in a
civil class action lawsuit filed on November 5, 2001 in the
Federal District Court for the Southern District of New York on
behalf of a class of purchasers of our stock between
February 3, 2000 and December 6, 2000. Similar
complaints were filed against about 300 other issuers, their
underwriters, and in many instances their directors and
officers. These cases have been coordinated under the caption
In re Initial Public Offering Securities Litigation, Civ.
No. 21 MC 92 (SAS), by order dated August 9,
2001. The suit against Antigenics and Dr. Armen alleges
that the brokerage arms of the investment banking firms charged
secret excessive commissions to certain of their customers in
return for allocations of our stock in the offering. The suit
also alleges that shares of our stock were allocated to certain
of the investment banking firms customers based upon
agreements by such customers to purchase additional shares of
our stock in the secondary market. The complaint alleges that
Antigenics is liable under Section 11 of the Securities Act
of 1933, as amended (the Securities Act), and Dr. Armen is
liable under Sections 11 and 15 of the Securities Act
because our registration statement did not disclose these
alleged practices. On April 19, 2002, the plaintiffs in
this action filed an amended class action complaint, which
contains new allegations. Again, similar amended complaints were
filed with respect to the other 300 companies. In addition
to the claims in the earlier complaint, the amended complaint
alleges that Antigenics and Dr. Armen violated
Sections 10(b) and 20 of the Securities Exchange Act and
SEC Rule 10b-5 by making false and misleading statements
and/or omissions in order to inflate our stock price and conceal
the investment banking firms alleged secret arrangements.
The claims against Dr. Armen, in his individual capacity,
have been dismissed without prejudice. On July 15, 2002,
Antigenics and Dr. Armen joined the Issuer Defendants
Motion to Dismiss the Consolidated Amended Complaints. By order
of the Court, this motion set forth all common
issues, i.e., all grounds for dismissal common to all or a
significant number of Issuer Defendants. The hearing on the
Issuer Defendants Motion to Dismiss and the other
Defendants motions to Dismiss was held on November 1,
2002. On February 19, 2003, the Court issued its opinion
and order on the Issuer Defendants Motion to Dismiss. The
Court granted
89
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Antigenics motion to dismiss the Rule 10(b)-5 and
Section 20 claims with leave to amend and denied our motion
to dismiss the Section 11 and Section 15 claims. On
June 14, 2004, papers formalizing a proposed settlement
among the plaintiffs, Issuer Defendants, and issuers were
presented to the Federal District Court for the Southern
District of New York, and Antigenics anticipates that a
settlement will be reached without incurring significant
out-of-pocket costs, after considering insurance. Accordingly,
an accrual has not been recorded at December 31, 2004.
On February 19, 2004, Jonathan Lewis, M.D., our former
Chief Medical Officer, filed a complaint against us in the
United States District Court for the Southern District of New
York. The suit alleges that we terminated Dr. Lewis without
cause and have failed to pay severance benefits to which
Dr. Lewis believes he is entitled. This suit was settled
during October 2004. For the year ended December 31, 2004
we recorded a charge in the accompanying consolidated financial
statements related to this settlement.
We currently are a party to other legal proceedings as well.
While we currently believe that the ultimate outcome of any of
these proceedings will not have a material adverse effect on our
financial position, results of operations or liquidity,
litigation is subject to inherent uncertainty. Furthermore,
litigation consumes both cash and management attention.
We sponsor a defined contribution 401(k) savings plan for all
eligible employees, as defined. Participants may contribute up
to 60% of their compensation, as defined, with a maximum of
$13,000 in 2004. Each participant is fully vested in his or her
contributions and related earnings and losses. Effective
January 1, 2001 we match 75% of the participants
contribution, and effective January 1, 2003, the percentage
of participant compensation subject to our matching contribution
was changed from 15% to 8% of compensation. Such matching
contributions vest over four years. For the years ended
December 31, 2004, 2003 and 2002, we charged approximately
$477,000, $448,000 and $469,000 to operations for the 401(k)
plan.
|
|
(18) |
Acquired In-process Research and Development |
On July 30, 2004 we issued 350,000 shares of our
common stock and paid $200,000 in cash to Mojave Therapeutics
Inc. as consideration to purchase all of its intellectual
property and certain scientific assets relating to its heat
shock protein based antigen delivery system and other
technologies. The total purchase price of the assets was
allocated to incomplete acquired technologies under development
but not yet technologically feasible or commercialized and which
had no alternative future uses. At the date these assets were
acquired, none of the purchased technologies under development
had achieved technological feasibility and none were being sold
on the market. There still remains substantial risk and
uncertainty concerning the remaining course of technical
development. Because of the great uncertainty associated with
these issues and the remaining effort associated with
development of these technologies, technological feasibility had
not been established at the acquisition date. Accordingly, the
value of these purchased assets, $2,888,000, has been charged to
acquired in-process research and development during 2004 in the
accompanying consolidated statements of operations.
On January 25, 2005, we issued $50 million of
convertible senior notes in a private placement. Net proceeds
from the sale of the notes were approximately $48 million.
The notes, which mature in 2025, bear
90
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest semi-annually on February 1 and August 1 each
year, at a rate of 5.25% per annum and are initially
convertible into common stock at any time at a conversion price
of approximately $10.76 per share. Notes surrendered for
conversion in connection with certain fundamental changes, as
defined, that occur before February 1, 2012 may in certain
circumstances be entitled to an increase in the conversion rate
per $1,000 principal amount of notes. From February 1,
2012, we may redeem the notes for cash, at a redemption price
equal to 100% of the principal amount of the notes, plus any
accrued and unpaid interest. On each of February 1, 2012,
February 1, 2015 and February 1, 2020, holders may
require us to purchase their notes for cash equal to 100% of the
principal amount of the notes, plus any accrued and unpaid
interest. Holders may require us to repurchase their notes upon
a fundamental change, at a repurchase price, in cash, equal to
100% of the principal amount of the notes to be repurchased,
plus any accrued and unpaid interest. The notes are senior
unsecured obligations and will rank equally with all of our
existing and future senior unsecured indebtedness. The notes
will be effectively subordinated to all of our existing and
future secured indebtedness and all existing and future
liabilities of our subsidiaries. The notes do not contain any
financial covenants and will not limit our ability to incur
additional indebtedness, including senior or secured
indebtedness, issue securities, pay dividends or repurchase our
securities. The notes and underlying shares of common stock have
not been registered under the Securities Act and may not be
offered or sold within the United States or to, or for, the
account or benefit of, US persons expect pursuant to an
exemption form or in a transaction not subject to, the
registration requirement of the Securities Act. We are required
within 120 days of January 25, 2005 to file a shelf
registration statement with the SEC for resales of the notes and
the shares of common stock issuable upon conversion of the notes.
|
|
(20) |
Quarterly Financial Data (Unaudited) |
The following tables reflects reclassifications of the results
of operations of the FeLV activity as discontinued operations
for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended, | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
109 |
|
|
$ |
187 |
|
|
$ |
282 |
|
|
$ |
129 |
|
|
Loss from continuing operations
|
|
|
(16,229 |
) |
|
|
(17,044 |
) |
|
|
(18,474 |
) |
|
|
(17,004 |
) |
|
Income (loss) from discontinued operations
|
|
|
(926 |
) |
|
|
13,960 |
|
|
|
|
|
|
|
(445 |
) |
|
Net loss attributable to common stockholders
|
|
|
(17,353 |
) |
|
|
(3,281 |
) |
|
|
(18,672 |
) |
|
|
(17,646 |
) |
|
Per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(0.38 |
) |
|
$ |
(0.38 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.38 |
) |
|
Income (loss) from discontinued operations
|
|
$ |
(0.02 |
) |
|
$ |
0.31 |
|
|
$ |
|
|
|
$ |
(0.01 |
) |
|
Net loss attributable to common stockholders
|
|
$ |
(0.41 |
) |
|
$ |
(0.07 |
) |
|
|
(0.41 |
) |
|
$ |
(0.39 |
) |
91
ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended, | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
895 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
57 |
|
|
Loss from continuing operations
|
|
|
(13,495 |
) |
|
|
(16,758 |
) |
|
|
(17,805 |
) |
|
|
(17,984 |
) |
|
Income (loss) from discontinued operations
|
|
|
4 |
|
|
|
139 |
|
|
|
37 |
|
|
|
(71 |
) |
|
Net loss attributable to common stockholders
|
|
|
(13,491 |
) |
|
|
(16,619 |
) |
|
|
(17,794 |
) |
|
|
(18,254 |
) |
|
Per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(0.36 |
) |
|
$ |
(0.43 |
) |
|
$ |
(0.45 |
) |
|
$ |
(0.46 |
) |
|
Income (loss) from discontinued operations
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net loss attributable to common stockholders
|
|
$ |
(0.36 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.45 |
) |
|
$ |
(0.46 |
) |
92
|
|
Item 9. |
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure |
Not Applicable.
|
|
Item 9A. |
Controls and Procedures |
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures
|
|
|
Under the supervision and with the participation of our
management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the
effectiveness of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange Act).
Based on this evaluation, our chief executive officer and our
chief financial officer concluded that our disclosure controls
and procedures were functioning effectively as of the end of the
period covered by this annual report to provide reasonable
assurance that the Company can meet its disclosure obligations. |
Managements Report on Internal Control Over Financial
Reporting
|
|
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the
supervision and with the participation of our management,
including our chief executive officer and chief financial
officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in
Internal Control Integrated Framework, issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, our management concluded that our internal control
over financial reporting was effective as of December 31,
2004. |
|
|
KPMG LLP, an independent registered public accounting firm, has
audited the consolidated financial statements included in this
Annual Report on Form 10-K and, as part of their
audit, has issued their report, included herein, (1) on our
managements assessment of the effectiveness of our
internal control over financial reporting and, (2) on the
effectiveness of our internal control over financial reporting. |
Changes in Internal Controls Over Financial Reporting
|
|
|
There were no changes in our internal control over financial
reporting that occurred during the fourth quarter of 2004 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. |
93
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Antigenics Inc.:
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Antigenics Inc. 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
(COSO). Antigenics Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements 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 companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Antigenics
Inc. maintained effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all
material respects, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, Antigenics Inc. maintained, in all
material respects, 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 (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Antigenics Inc. and subsidiaries
as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders equity
and comprehensive loss, and cash flows for each of the years in
the three-year period ended December 31, 2004, and our
report dated March 29, 2005 expressed an unqualified
opinion on those consolidated financial statements.
Princeton, New Jersey
March 29, 2005
94
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Portions of the response to this item is contained in
Item 1A: Directors and Executive Officers of the
Registrant of Part I of this Annual Report on
Form 10-K and the remainder is incorporated from the
discussion responsive thereto under the caption Election
of Directors in our Proxy Statement relating to our 2005
Annual Meeting of Stockholders scheduled for June 1, 2005.
We have adopted a written code of business conduct and ethics
that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller,
or persons performing similar functions. A copy of this code is
available, free of charge, upon written request to our legal
department at 630 Fifth Avenue, Suite 2100, New York, NY
10111. We intend to disclose on our website (www.antigenics.com)
any amendments to, or waivers from, our code of business conduct
and ethics that apply to those officers. The contents of our
website are not part of, or incorporated into, this document.
|
|
Item 11. |
Executive Compensation |
The response to this item is incorporated by reference into this
Annual Report on Form 10-K from the discussion responsive
thereto under the caption Executive Compensation in
our Proxy Statement relating to our 2005 Annual Meeting of
Stockholders scheduled for June 1, 2005.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The response to this item is incorporated by reference into this
Annual Report on Form 10-K from the discussion responsive
thereto under the caption Principal Stockholders in
our Proxy Statement relating to our 2005 Annual Meeting of
Stockholders scheduled for June 1, 2005.
|
|
Item 13. |
Certain Relationships and Related Transactions |
The response to this item is incorporated by reference into this
Annual Report on Form 10-K from the discussion responsive
thereto under the captions Compensation Committee
Interlocks and Insider participation and Certain
Relationships and Related Transactions in our Proxy
Statement relating to our 2005 Annual Meeting of Stockholders
scheduled for June 1, 2005.
|
|
Item 14. |
Principal Accounting Fees and Services |
The response to this item is incorporated by reference into this
Annual Report on Form 10-K from the discussion responsive
thereto under the caption Information Concerning
Auditors in our Proxy Statement relating to our Annual
Meeting of Stockholders scheduled for June 1, 2005.
95
PART IV
|
|
Item 15. |
Exhibits, Financial Statement Schedules |
(a) 1. Consolidated Financial Statements
The consolidated financial statements are listed under
Item 8 of this report.
2. Consolidated Financial
Statement Schedules
The consolidated financial statement schedules required under
this Item and Item 8 are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or the footnotes thereto.
3. Exhibits
The exhibits are listed below under Part IV Item 15(b).
96
(b) Exhibits
Exhibit Index
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of Antigenics.
Filed as Exhibit 3.1 to our Current Report on Form 8-K
(File No. 0-29089) dated June 10, 2002 and
incorporated herein by reference. |
|
3 |
.2 |
|
Amended and Restated By-laws of Antigenics Inc. Filed as
Exhibit 3.2 to our Current Report on Form 8-K (File
No. 0-29089) dated June 10, 2002 and incorporated
herein by reference. |
|
3 |
.3 |
|
Certificate of Designation, Preferences and Rights of the
Series A Convertible Preferred Stock of Antigenics Inc.
filed with the Secretary of State of the State of Delaware on
September 24, 2003. Filed as Exhibit 3.1 to our
Current Report on Form 8-K (File No. 0-29089) dated
September 25, 2003 and incorporated herein by reference. |
|
4 |
.1 |
|
Form of Common Stock Certificate. Filed as Exhibit 4.1 to
our registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
4 |
.2 |
|
Form of Warrant to purchase Common Stock, together with a list
of holders. Filed as Exhibit 4.2 to our registration
statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference. |
|
4 |
.3 |
|
Right of First Refusal Agreements dated as of May 21, 2004
between Antigenics Inc. and Brad M. Kelly. Filed as
Exhibit 4.1 to our Current Report on Form 8-K (File
No. 0-29089) dated May 27, 2004 and incorporated
herein by reference. |
|
4 |
.4 |
|
Form of Debenture. Filed as exhibit 4.1 to the Current
Report on Form 8-K dated April 13, 1998 of Aquila
Biopharmaceuticals, Inc. (File No. 0-12081) and
incorporated herein by reference. |
|
4 |
.5 |
|
Form of Common Stock Purchase Warrant. Filed as Exhibit 4.2
to the Current Report on Form 8-K (File No. 0-20111)
of Aronex Pharmaceuticals, Inc. dated May 25, 2000 and
incorporated herein by reference. |
|
4 |
.6 |
|
Form of Common Stock Purchase Warrant to Paramount Capital Inc.
Filed as Exhibit 4.3 to the Current Report on Form 8-K
(File No. 0-20111) of Aronex Pharmaceuticals, Inc. dated
May 25, 2000 and incorporated herein by reference. |
|
4 |
.7 |
|
Registration Rights Agreement dated August 2, 1989 by and
among Aronex Pharmaceuticals, Inc. and certain of its
stockholders. Filed as Exhibit 10.1 to the registration
statement on Form S-1 (File No. 333-47418) of Aronex
Pharmaceuticals, Inc. and incorporated herein by reference. |
|
4 |
.8 |
|
First Amendment to Registration Rights Agreement dated
April 18, 1990, by and among Aronex Pharmaceuticals, Inc.
and certain of its stockholders. Filed as Exhibit 10.2 to
the registration statement on Form S-1 (File
No. 333-47418) of Aronex Pharmaceuticals, Inc. and
incorporated herein by reference. |
|
4 |
.9 |
|
Second Amendment to Registration Rights Agreement dated
October 31, 1991, by and among Aronex Pharmaceuticals, Inc.
and certain of its stockholders. Filed as Exhibit 10.3 to
the registration statement on Form S-1 (File
No. 333-47418) of Aronex Pharmaceuticals, Inc. and
incorporated herein by reference. |
|
4 |
.10 |
|
Third Amendment to Registration Rights Agreement, dated
September 10, 1993, among Aronex Pharmaceuticals, Inc. and
certain of its stockholders. Filed as Exhibit 10.4 to the
registration statement on Form S-1 (File
No. 333-71166) of Aronex Pharmaceuticals, Inc. and
incorporated herein by reference. |
97
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
4 |
.11 |
|
Fourth Amendment to Registration Rights Agreement dated
January 20, 1994, among Aronex Pharmaceuticals and certain
of its stockholders. Filed as Exhibit 10.5 to the Annual
Report on Form 10-K/A for the year ended December 31,
1999 (File No. 0-20111) of Aronex Pharmaceuticals, Inc. and
incorporated herein by reference. |
|
4 |
.12 |
|
Indenture, dated January 25, 2005, between the Registrant
and HSBC Bank USA, National Association. Filed as
Exhibit 4.1 to Current Report on Form 8-K dated
January 25, 2005 and incorporated herein by reference. |
|
4 |
.13 |
|
Registration Rights Agreement, dated January 25, 2005,
between the Registrant and the initial purchasers. Filed as
Exhibit 4.2 to Current Report on Form 8-K dated
January 25, 2005 and incorporated herein by reference. |
|
10 |
.1* |
|
1999 Equity Incentive Plan. Filed as Exhibit 10.1 to our
registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.1.1* |
|
Amendment No. 1 to Antigenics Inc. 1999 Equity Incentive
Plan. Filed as Exhibit 4.1 to our Current Report on
Form 8-K (File No. 0-29089) dated June 11, 2003
and incorporated herein by reference. |
|
10 |
.1.2* |
|
Amendment No. 2 to Antigenics Inc. 1999 Equity Incentive
Plan. Filed as Exhibit 4.1 to our Current Report on
Form 8-K (File No. 0-29089) dated May 27, 2004
and incorporated herein by reference. |
|
10 |
.1.3 |
|
Form of Non-Statutory Stock Option. Filed as Exhibit 10.1
to our Current Report on Form 8-K (File No. 0-29089)
dated December 15, 2004 and incorporated herein by
reference. |
|
10 |
.2* |
|
1999 Employee Stock Purchase Plan. Filed as Exhibit 10.2 to
our registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.3 |
|
Founding Scientists Agreement between Antigenics and
Pramod K. Srivastava, Ph.D. dated March 28, 1995.
Filed as Exhibit 10.3 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein
by reference. |
|
10 |
.4 |
|
Form of Indemnification Agreement between Antigenics and its
directors and executive officers. These agreements are
materially different only as to the signatories and the dates of
execution. Filed as Exhibit 10.4 to our registration
statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference. Current schedule identifying
the directors and executive officers filed herewith. |
|
10 |
.5 |
|
Lease Agreement between Antigenics and Cummings Property
Management, Inc. dated May 28, 1998, as amended on
December 10, 1998. Filed as Exhibit 10.5 to our
registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.6(1) |
|
Patent License Agreement between Antigenics and Mount Sinai
School of Medicine dated November 1, 1994, as amended on
June 5, 1995. Filed as Exhibit 10.8 to our
registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.7(1) |
|
Sponsored Research and Technology License Agreement between
Antigenics and Fordham University dated March 28, 1995, as
amended on March 22, 1996. Filed as Exhibit 10.9 to
our registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.8(1) |
|
Research Agreement between Antigenics and The University of
Connecticut Health Center dated February 18, 1998. Filed
herewith. |
|
10 |
.9(1) |
|
License Agreement between Antigenics and Duke University dated
March 4, 1999. Filed as Exhibit 10.11 to our
registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.10(1) |
|
License Agreement between Antigenics and University of Miami
dated April 12, 1999. Filed as Exhibit 10.12 to our
registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
98
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
10 |
.11* |
|
Antigenics 401(k) Plan. Filed as Exhibit 10.17 to our
registration statement on Form S-1 (File
No. 333-91747) and incorporated herein by reference. |
|
10 |
.12* |
|
Antigenics L.L.C. Incentive Equity Plan. Filed as
Exhibit 10.18 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein
by reference. |
|
10 |
.13 |
|
Subscription Agreement dated May 18, 2000 between
Antigenics and Applied Genomic Technology Capital Fund L.P.
Filed as Exhibit 10.1 to our Quarterly Report on
Form 10-Q (File No. 0-29089) for the quarter ended
June 30, 2000 and incorporated herein by reference. |
|
10 |
.14 |
|
Assignment Agreement among RCPI Trust, GHA Management
Corporation and Antigenics dated August 24, 2000. Filed as
Exhibit 10.20 to our registration statement on
Form S-4 (File No. 333-46168) and incorporated herein
by reference. |
|
10 |
.15 |
|
Lease Agreement by and between Aquila Biopharmaceuticals, Inc.
and NDNE 9/90 Corporate Center LLC effective
September 9, 1998. Filed as Exhibit 10.2 to Amendment
No. 1 to registration statement on Form S-3 of Aquila
Biopharmaceuticals, Inc. (File No. 333-46641) and
incorporated herein by reference. |
|
10 |
.16(1) |
|
Exclusive License Agreement, dated October 15, 1986,
between Aronex Pharmaceuticals, Inc., The University of Texas
System Board of Regents and The University of Texas M.D.
Anderson Cancer Center. Filed as Exhibit 10.8 to the
registration statement on Form S-1 (File
No. 333-47418) of Aronex Pharmaceuticals, Inc. and
incorporated herein by reference. |
|
10 |
.17(1) |
|
Exclusive License Agreement, dated July 1, 1988, between
Aronex Pharmaceuticals, The University of Texas System Board of
Regents and The University of Texas M.D. Anderson Cancer Center,
together with amendments and extensions thereto. Filed as
Exhibit 10.10 to the registration statement on
Form S-1 (File No. 333-47418) of Aronex
Pharmaceuticals, Inc. and incorporated herein by reference. |
|
10 |
.18(1) |
|
Amendment No. 2 to Exclusive License Agreement, dated
July 9, 1993, among Aronex Pharmaceuticals, The University
of Texas System Board of Regents and The University of Texas
M.D. Anderson Cancer Center. Filed as Exhibit 10.20 to the
registration statement on Form S-1 (File
No. 333-71166) of Aronex Pharmaceuticals, Inc. and
incorporated herein by reference. |
|
10 |
.19(1) |
|
License Agreement, dated December 12, 2000 between Aronex
Pharmaceuticals and Sumitomo Pharmaceuticals Co., Ltd. Filed as
Exhibit 10.1 to the Current Report on Form 8-K (File
No. 0-20111) of Aronex Pharmaceuticals, Inc. dated
December 12, 2000 and incorporated herein by reference. |
|
10 |
.20 |
|
Sublease Agreement between Antigenics Inc., a Massachusetts
corporation (formerly Aquila Biopharmaceuticals, Inc.) and
wholly owned subsidiary of Antigenics, and
GTC Biotherapeutics, Inc. dated July 16, 2002. Filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q
(File No. 0-29089) for the quarter ended June 30, 2002
and incorporated herein by reference. |
|
10 |
.21 |
|
Lease of Premises at 3 Forbes Road, Lexington,
Massachusetts dated as of December 6, 2002 from BHX, LLC,
as Trustee of 3 Forbes Realty Trust, to Antigenics. Filed
as Exhibit 10.1 to our Current Report on Form 8-K
(File No. 0-29089) dated January 8, 2003 and
incorporated herein by reference. |
|
10 |
.21.1 |
|
First Amendment of Lease dated as of August 15, 2003 from
BHX, LLC as trustee of 3 Forbes Road Realty, to Antigenics
Inc. Filed as Exhibit 10.1 to our Quarterly Report on
Form 10-Q (File No. 0-29089) for the quarter ended
March 31, 2004 and incorporated herein by reference. |
|
10 |
.22 |
|
Master Security Agreement dated July 17, 2003, between
General Electric Capital Corporation and Antigenics Inc. Filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q
(File No. 0-29089) for the quarter ended June 30, 2003
and incorporated herein by reference. |
99
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
10 |
.24* |
|
Antigenics Inc. Directors Deferred Compensation Plan.
Filed as Exhibit 4.2 to our Current Report on Form 8-K
(File No. 0-29089) dated June 11, 2003 and
incorporated herein by reference. |
|
10 |
.25(1) |
|
Amendment to Founding Scientists Agreement dated
January 1, 2003. Filed as Exhibit 10.29 to our Annual
Report on Form 10-K (File No. 0-29089) for the year
ended December 31, 2002 and incorporated herein by
reference. |
|
10 |
.26 |
|
Amendment No. 1 of Research Agreement between Antigenics
and the University of Connecticut Health Center dated
April 10, 2002. Filed herewith. |
|
10 |
.27(1) |
|
Amendment No. 2 of Research Agreement between Antigenics
and the University of Connecticut Health Center dated
December 31, 2003. Filed as Exhibit 10.27(1) to our
Annual Report on Form 10-K (file number 0-29089) for the
year ended December 31, 2003 and incorporated herein by
reference. |
|
10 |
.28 |
|
Letter agreement, Additional Costs Approved Under Research
Agreement between Antigenics and the University of Connecticut
Health Center dated February 10, 2005. Filed herewith. |
|
21 |
|
|
Subsidiaries of Antigenics. Filed herewith. |
|
23 |
|
|
Consent of KPMG LLP, independent registered public accounting
firm. Filed herewith. |
|
31 |
.1 |
|
Certification of Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as amended. |
|
31 |
.2 |
|
Certification of Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as amended. |
|
32 |
.1(2) |
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
* |
Indicates a management contract or
compensatory plan. |
|
|
(1) |
Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of
1933, as amended or Rule 24b-2 of the Securities Exchange
Act of 1934, as amended. |
|
(2) |
This certification accompanies the Annual Report on
Form 10-K and is not filed as part of it. |
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
By: |
/s/ Garo H.
Armen, Ph.D.
|
|
|
|
|
|
Garo H. Armen, Ph.D. |
|
Name: Garo H. Armen, Ph.D. |
|
Title: Chief Executive Officer and |
|
Chairman of the Board |
Dated: March 31, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities indicated as of
March 31, 2005.
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
/s/ Garo H.
Armen, Ph.D.
Garo
H. Armen, Ph.D. |
|
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer) |
|
/s/ Peter Thornton
Peter
Thornton |
|
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer) |
|
/s/ Noubar
Afeyan, Ph.D.
Noubar
Afeyan, Ph.D. |
|
Director |
|
/s/ Frank V.
AtLee, III
Frank
V. AtLee, III |
|
Director |
|
/s/ Gamil de
Chadarevian
Gamil
de Chadarevian |
|
Director |
|
/s/ Tom Dechaene
Tom
Dechaene |
|
Director |
|
/s/ Margaret Eisen
Margaret
Eisen |
|
Director |
|
/s/ Wadih Jordan
Wadih
Jordan |
|
Director |
|
/s/ Mark Kessel
Mark
Kessel |
|
Director |
101
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
/s/ Pramod
Srivastava, Ph.D.
Pramod
Srivastava, Ph.D. |
|
Director |
|
/s/ Alastair J. J. Wood,
MD
Alastair
J. J. Wood, MD |
|
Director |
102