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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
for the fiscal year ended December 31, 2001
Commission File No. 000-30681
DENDREON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3203193
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
3005 FIRST AVENUE SEATTLE, WASHINGTON 98121
(206) 256-4545
(Address, including zip code, of Registrant's principal executive offices and
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by a 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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [_] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing sale price of the Registrant's Common Stock on
March 1, 2002, as reported on the National Association of Securities Dealers
Automated Market, was approximately $49,075,929*.
As of March 1, 2002, the Registrant had outstanding 25,016,074 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's definitive Proxy Statement, which will be filed on or before April
30, 2002 with the Securities and Exchange Commission in connection with the
Registrant's annual meeting of stockholders to be held on May 15, 2002, is
incorporated by reference into Part III of this Report.
*Excludes 10,708,223 shares of common stock held by directors and officers and
stockholders whose beneficial ownership exceeds 5 percent of the shares
outstanding at March 1, 2002. Exclusion of shares held by any person should
not be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of
the Registrant, or that such person is controlled by or under common control
with the Registrant.
FORM 10-K DENDREON CORPORATION
INDEX
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PART I
Item 1. Business 4
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28
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PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions 29
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 30
Signatures 32
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements concerning matters that
involve risk and uncertainties. The statements contained in this report that
are not purely historical are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. These forward-looking statements
concern matters that involve risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Words such as believe, expects, likely, may and plans are intended
to identify forward-looking statements, although not all forward-looking
statements contain these words.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date hereof to conform such statements to
actual results or to changes in our expectations.
Readers are urged to carefully review and consider the various disclosures
made by us in this Report which attempt to advise interested parties of the
factors which affect our business, including without limitation the disclosures
made under the caption "Factors That May Affect Results of Operations and
Financial Condition" in Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth herein.
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PART I
ITEM 1.
BUSINESS
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OVERVIEW
Dendreon Corporation is dedicated to the discovery and development of novel
products for the treatment of diseases through its innovative manipulation of
the immune system. Dendreon's product pipeline is focused on cancer, and
includes therapeutic vaccines, monoclonal antibodies and a pathway to small
molecules.
The products most advanced in development are therapeutic vaccines that
stimulate a patient's immunity for the treatment of cancer. Provenge(TM) is a
therapeutic vaccine for the treatment of prostate cancer and is in Phase III
clinical trials, the final stage of product development. We are conducting
Phase II clinical trials for Mylovenge(TM), our therapeutic vaccine for the
treatment of multiple myeloma, and Phase I clinical trials for APC8024, our
therapeutic vaccine for the treatment of breast, ovarian and colon cancers. We
have received clearance from the Food and Drug Administration to begin a Phase
I clinical trial for CTL8004, our collaborative project with The Johnson &
Johnson Pharmaceutical Research and Development, L.L.C., or J&J PRD(A), for the
treatment of breast, ovarian and colon cancers. We have additional therapeutic
vaccines, monoclonal antibodies and a pathway to small molecule drug discovery
in preclinical development for the treatment of cancer. We also intend, over
time, to pursue the application of our technologies in the fields of autoimmune
diseases, allergies and infectious diseases.
Current Cancer Therapies
Cancer is characterized by abnormal cells that proliferate uncontrollably and
metastasize, or spread, throughout the body, producing deposits of tumor cells,
called metastases. These proliferating cells form masses called tumors. As the
tumors grow, they cause tissue and organ failure and ultimately death.
To be effective, therapy must eliminate the cancer both at its site of
origin and at sites of metastases. Metastatic disease is often responsible for
the relapse and ultimate death of patients with cancer. Current treatments for
cancer include surgery, radiation, hormone therapy and chemotherapy. Surgery
and radiation therapy treat cancer at its origin, but are limited because
certain tissues cannot be removed surgically and/or do not tolerate radiation.
Moreover, cancers frequently spread prior to detection, and surgery and
radiation cannot control all metastases. Chemotherapy and hormone therapy are
frequently used to treat tumor metastases. However, these therapies cause
severe damage to normal tissue. Additionally, chemotherapy and hormone therapy
may shrink tumors, but rarely eliminate them completely.
Treatments known as immunotherapy stimulate the body's natural mechanism for
fighting disease and may overcome many of the limitations of current cancer
therapies. Immunotherapy may be particularly useful for the treatment of
residual disease.
The Immune System
Tumor Antigens. The immune system, the body's natural defense against
disease, is composed of a variety of specialized cells. These cells, and in
particular the proteins produced by these cells, recognize specific chemical
structures, called antigens, that are found on disease-causing agents. Antigens
trigger an immune response, which results in the eventual removal of antigen
from the body.
Cells of the Immune System. A specialized class of immune system cells,
called antigen-presenting cells, start the immune response. The most potent
antigen-presenting cells are known as dendritic cells, which take up antigen
from their surroundings and process the antigen into fragments that are
recognized by specific classes of immune cells, called lymphocytes. During this
antigen processing, dendritic cells mature, enabling them to present the
processed antigen to lymphocytes. There are two main categories of lymphocytes:
B-lymphocytes, or B-cells, and T-lymphocytes, or T-cells. Each category of
lymphocytes has a different role in the immune response. T-cells combat disease
by killing antigen bearing cells directly. In this way, T-cells eliminate
cancers and virally infected tissue. T-cell immunity is also known as
cell-mediated immunity and commonly is thought to be a
(A) See Collaborations paragraph for discussion about assignment of rights from
R.W. Johnson Pharmaceutical Research Institute to Johnson & Johnson
Pharmaceutical Research and Development L.L.C.
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key defense against tumors and cells chronically infected by viruses. In
contrast, activation of B-cells leads to the production of specific antibodies.
The antibodies are secreted by B-cells and bind to antigen found on pathogens,
or tumor cells, resulting in their destruction.
Cancer Vaccines. The immune system recognizes and generates a strong
response to hundreds of thousands of different antigens introduced from the
environment. Tumors, however, frequently display antigens that are also found
on normal cells. Thus, the immune system may not distinguish between tumors and
normal cells and, therefore, may be unable to mount a strong anti-cancer
response. Tumors may also actively prevent dendritic cells from becoming
mature, thereby preventing full activation of the immune system. Thus, we
believe one key to directing the immune system to fight cancers is to modify,
or engineer, tumor antigens so that they are recognized by the immune system
and to manipulate dendritic cells to stimulate a vigorous cell-mediated
immunity.
Monoclonal Antibodies. Naturally-occurring antibodies are proteins that are
an essential component of the human immune system. They are produced in
response to the presence of foreign antigens in the body and are extremely
specific. Each antibody binds to and attacks one particular type of antigen
expressed on a cell, interfering with that cell's activity or causing cell
death. Monoclonal antibodies are manufactured antibodies that share
characteristics of naturally occurring antibodies. They may be created to
recognize a specific antigen present on tumor cells, but not on healthy cells,
and to bind to that antigen and cause the death of the tumor cell. Because each
monoclonal antibody targets only cells expressing a specific antigen, healthy
cells may be unaffected, and many of the harsh side effects of conventional
cancer therapies avoided. Monoclonal antibodies may be used alone or coupled
with drugs or radioisotopes in combination therapies that attack cancer cells
in several ways.
OUR THERAPEUTIC CANCER VACCINE APPROACH
We combine our expertise in antigen identification, antigen engineering and
dendritic cell processing to produce immunotherapeutic vaccines. Our ability to
both manipulate dendritic cells and engineer antigens allows us to develop
vaccines that are designed to generate effective cell-mediated immune
responses. We have vaccines in development for ten common cancers. Our approach
to therapeutic cancer vaccines is to:
. identify antigens on cancer cells that are suitable targets for cancer
therapy;
. create proprietary, genetically engineered, Antigen Delivery Cassettes(TM)
that will be optimally processed by dendritic cells;
. isolate and activate dendritic cells using proprietary methods; and
. create cancer vaccines that combine dendritic cells and engineered
antigens to trigger a cell-mediated immune response to destroy tumors.
Antigen Identification
Our objective is to identify antigens associated with as broad a population of
cancers as possible. We obtain antigens from several sources: our internal
discovery programs, public databases of genetic information and licenses from
third parties. Our internal antigen discovery programs begin by identifying
novel genes expressed in specific tissues or in malignant cells. We then
evaluate the expression of these genes in normal versus diseased tissue. We
consider the genes that we find localized in diseased tissue as candidates for
antigen engineering. Likewise, we also consider genes from external sources
that meet these criteria. In 2001, we were issued a patent on a gene designated
trp-p8, which is found expressed on multiple cancers, and we acquired through
licenses, the opportunity to work with the tumor antigens designated
carcinoembryonic antigen, or CEA, carbonic anhydrase IX, or MN, and telomerase.
Antigen Engineering
We engineer antigens to produce proprietary therapeutic vaccines for multiple
cancers as well as other diseases. We designed antigen engineering to trigger
and maximize cell-mediated immunity by augmenting the uptake and processing of
the target antigen by the dendritic cell. We can affect the quality and
quantity of the immune response that is generated by adding, deleting or
modifying selected sequences of the antigen gene, together with inserting the
modified antigen into our Antigen Delivery Cassette.
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Our Antigen Delivery Cassette is a protein that has three regions: the
region that enhances antigen binding and entry into dendritic cells; the region
that directs antigen processing along specific pathways for T-cell activation;
and the antigen itself. The Antigen Delivery Cassette targets each engineered
antigen to dendritic cells and provides a common key to unlock the potential to
process antigen.
The dendritic cell binding region is common to all of our Antigen Delivery
Cassettes and has the capability to recognize the dendritic cell and bind the
cassette to the dendritic cell surface. Binding stimulates the dendritic cell
to engulf the cassette. The antigen processing region then directs dendritic
cells to process antigen along pathways that stimulate cell-medicated immunity.
The antigen region of the Antigen Delivery Cassette thus gains access to
processing by the dendritic cell, which would otherwise be denied to
non-engineered antigen. We believe this process results in a potent
cell-mediated immune response.
Our Antigen Delivery Cassette technology provides us with a foundation on
which new proprietary antigens are built. An example of our antigen engineering
approach is the antigen HER-2/neu used for production of APC8024, our
therapeutic vaccine for the treatment of breast, ovarian, colorectal and
pancreatic cancers. The gene encoding a protein called HER-2/neu is known to be
associated with these cancers. Because HER-2/neu is poorly recognized as an
antigen by the immune system, we created a series of Antigen Delivery
Cassettes, each with a distinct version of the modified HER-2/neu gene
sequence. We then tested each of these cassettes in preclinical models and
identified and incorporated into our vaccine the one that generated the most
potent cell-mediated immune response and was most potent for treating cancer in
animals.
DENDRITIC CELL PROCESSING AND VACCINE PRODUCTION
Our vaccine manufacturing process incorporates two elements: the Antigen
Delivery Cassette and antigen-presenting cells, such as dendritic cells,
isolated from blood. To obtain dendritic cells, we first remove white blood
cells from a patient's blood through a standard blood collection process called
leukapheresis. Dendritic cells are then separated from other white blood cells
using our proprietary cell separation devices. Our process separates dendritic
cells from tumors, which may suppress dendritic cell function, and thereby
allows dendritic cells to become fully mature and activated.
We incubate the dendritic cells with the appropriate Antigen Delivery
Cassette under controlled conditions in which we have optimized conditions,
including concentration of the Antigen Delivery Cassette and dendritic cell
numbers. After 40 hours, the dendritic cells are optimally activated and are
ready to be used as a vaccine. We subject each vaccine to quality control
testing, including purity, potency and sterility testing. Our process requires
less than three days from white blood cell collection to vaccine administration.
VACCINE DELIVERY
Our vaccines are delivered as a 30-minute intravenous infusion given as an
outpatient procedure. A single vaccine infusion is sufficient to stimulate
cell-mediated immunity to the target antigen. Our clinical trials indicate that
maximum stimulation requires three infusions given at two-week intervals.
Patients in our trials typically complete a course of therapy in one month.
PRODUCTS
The following table summarizes the target indications and status of our
products and product candidates in development.
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Our Products and Product Candidates in Development(B)
Product Target Indication(s) Status
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Product Candidates in Clinical Trials
Provenge(TM) Hormone Refractory Phase III
Prostate cancer Hormone Phase III
Sensitive Prostate cancer
Mylovenge(TM) Multiple myeloma Phase II
Amyloidosis Phase II
APC8024 Breast cancer Phase I
Ovarian cancer Phase I
Endometrial Phase I
Gastrointestinal Phase I
Colorectal Phase I
CTL8004 (C) Breast cancer Phase I
Ovarian cancer Phase I
Product Candidates in Research and Development
Vaccine Targets
NY-ESO Bladder cancer, Lung Preclinical
cancer Preclinical
Breast cancer, Prostate Preclinical
cancer
Ovarian/Uterine cancer,
Melanoma
Trp-p8 Lung cancer, Breast cancer Preclinical
Prostate cancer, Colon Preclinical
cancer
CEA Breast cancer, Lung cancer Preclinical
Colon cancer Preclinical
MN Kidney cancer, Colon Preclinical
cancer Preclinical
Cervical cancer
Telomerase Multiple cancers Preclinical
Monoclonal Antibodies
DN1924 Non-Hodgkin's lymphoma Preclinical
Hodgkin's lymphoma Preclinical
B-cell leukemias Preclinical
DN1921 Autoimmune diseases, Preclinical
including rheumatoid
arthritis
Trp-p8 Lung cancer, Breast cancer Preclinical
Prostate cancer, Colon Preclinical
cancer
Products
Cell Separation Device
DACS(R)SC Kit Blood stem cell FDA Approved
preparation for
transplantation
(B) Status is as of March 1, 2002.
Preclinical means that a potential product is still in research undergoing
evaluation in disease models in preparation for potential human clinical
trials.
Phase I-III clinical trials denote safety and efficacy tests in humans as
follows:
Phase I: Evaluation of safety and dosing.
Phase II: Evaluation of safety and efficacy.
Phase III: Definitive evaluation of safety and efficacy.
(C) Product of the Johnson & Johnson Pharmaceutical Research and Development,
L.L.C. See discussion of our Research Collaboration and License Agreement
with the Johnson & Johnson Pharmaceutical Research and Development, L.L.C.
under "Collaborations" below.
7
PRODUCT CANDIDATES IN CLINICAL TRIALS
Provenge for Prostate Cancer
Prostate cancer is the most common solid tumor malignancy in men in the U.S.
with over one million currently diagnosed with this disease. In 2001, prostate
cancer was diagnosed in approximately 200,000 men in the U.S.; more than 32,000
died of the disease.
The antigen component of Provenge is derived from the gene encoding a marker
for prostate cancer, prostatic acid phosphatase, which is found in
approximately 95% of prostate cancers. We have subjected prostatic acid
phosphatase to our antigen engineering process and have created a proprietary
Antigen Delivery Cassette.
We initiated two double-blind placebo-controlled Phase III clinical trials
designed to demonstrate that Provenge is safe and effective for treating
hormone refractory prostate cancer, or HRPC. The trials will determine if
Provenge delays disease progression and its associated pain. The trials were
designed to enroll a total of 240 men. We are continuing to enroll patients in
our second Phase III trial for HRPC patients. Enrollment in the first Phase III
trial closed in September 2001. An interim analysis of this trial was performed
in which an independent third party provider of statistical analyses reported
its estimate relating to the probability of a treatment difference in the
primary endpoint of time to disease progression. The interim results were
inconclusive, and indicated that it is possible, but not probable, that the
primary endpoint of the trial will be achieved. Additional data is required for
a final analysis that is expected to be completed in mid-2002.
The interim analysis did not provide a sufficient basis upon which to make
definitive business decisions relating to the ongoing development of Provenge.
The final analysis will include patient-specific data that will provide the
basis for a determination of whether we will proceed with commercialization of
the product, conduct additional trials to determine the safety and efficacy of
Provenge in a different population of patients, or terminate the development of
Provenge.
In June 2001, we began a Phase III trial of Provenge to evaluate its safety
and effectiveness in treating men with early stage, hormone sensitive prostate
cancer. In this trial, the vaccine is administered following three months of
hormone therapy. The trial is designed to enroll 160 men.
Mylovenge for B-cell Malignancies: Multiple Myeloma and Amyloidosis
Approximately 15,000 people were diagnosed with multiple myeloma, a cancer of
the blood, in 2001 over 10,000 individuals died from this disease in the United
States. It accounts for approximately 10% of cancers of the blood. Amyloidosis
is a disease related to multiple myeloma, afflicting approximately 2,500
individuals in the United States annually. Amyloidosis is fatal in most cases.
Mylovenge utilizes a patient-specific antigen, called M protein, a unique
immunoglobulin, or antibody, produced by the patient's tumor and easily
collected from the blood. We are currently conducting a Phase II trial, in
collaboration with the Mayo Clinic, for the treatment of patients who have
residual myeloma after high dose chemotherapy and stem cell transplant. We are
also conducting a Phase II trial for the treatment of multiple myeloma patients
with high numbers of tumor cells that are resistant to standard therapy. We are
also conducting a Phase II trial designed to assess the ability of Mylovenge to
stimulate immunity in patients who are currently responding to thalidomide. We
have also treated patients with amyloidosis with Mylovenge as part of the Mayo
Clinic Phase II trial.
APC8024 for Treatment of Breast, Ovarian and Colon Cancers
APC8024 is our vaccine against tumors that have increased levels of a protein
called HER-2/neu on their surface. Increased levels of this protein are found
in approximately 25% of metastatic breast cancers, ovarian, and colon cancers.
We have identified por tions of the HER-2/neu molecule that stimulate a potent
cell-mediated immune response when engineered into our Antigen Delivery
Cassette.
Two Phase I trials are underway to evaluate APC8024 for the treatment of
patients with tumors that have HER-2/neu on their surface. The trials will
examine different doses and schedules of APC8024 for safety and ability to
stimulate immunity. If successful, we plan to use the results of these trials
to select one treatment regimen for Phase II trials that will examine the
effectiveness of APC8024 for the treatment of specific cancers. We are working
in collaboration with J&J PRD on this project.
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CTL8004 for Treatment of Breast, Ovarian and Colon Cancers
An Investigational New Drug application or IND, was cleared by the FDA late in
2001, allowing the initiation of Phase I clinical trials to evaluate the safety
and efficacy of the immunotherapy product designated CTL8004, an immunotherapy
product of J&J PRD. We are working in collaboration with J&J PRD on this trial.
PRODUCT CANDIDATES IN RESEARCH AND DEVELOPMENT
Vaccine Targets:
NY-ESO
NY-ESO is a protein that is present on many cancers, including melanoma,
breast, prostate, lung, ovarian/uterine and bladder cancers. We licensed the
NY-ESO antigen from the Ludwig Cancer Institute, where scientists performed a
series of preclinical studies that demonstrated NY-ESO is an excellent
immunotherapy target present in a wide variety of tumors. We are currently
engineering the NY-ESO antigen into our Antigen Delivery Cassette. This
involves identifying those regions of the molecule that stimulate the strongest
cell-mediated immunity and then combining those regions to yield a protein that
is most effectively presented by dendritic cells.
Trp-p8
The trp-p8 gene, and the protein encoded by this gene, is present on 100% of
prostate cancers and approximately 71% of breast cancers, 93% of colorectal
cancers and 80% of lung cancers. Trp-p8 is the first gene generated from our
internal antigen discovery program. A patent on the gene encoding trp-p8 was
issued to us in 2001. We plan to incorporate the trp-p8 antigen into our
vaccine technology, and we may include it with other targets to develop
multivalent therapeutic vaccines.
Carcinoembryonic Antigen (CEA)
The carcinoembryonic antigen, or CEA, is present on 70% of lung cancers,
virtually all cases of colon cancers and approximately 65% of breast cancers.
We licensed the CEA antigen from Bayer Corporation, Business Group Diagnostics.
We plan to incorporate the CEA antigen into our vaccine technology as described
for trp-p8.
MN Antigen
MN antigen is a protein also known as the carbonic anhydrase IX antigen. It is
present on approximately 75% of cervical and colon cancers and 95% of renal
cancers. We licensed the MN antigen from Bayer Corporation, Business Group
Diagnostics. We plan to incorporate the MN antigen into our vaccines.
Telomerase
The human telomerase antigen, or hTERT, is present on approximately 80% of
tumor samples. We licensed the hTERT antigen from Geron Corporation and plan to
incorporate it into our vaccine technology.
ADDITIONAL VACCINE PRODUCTS
We believe that our vaccine technologies have additional potential applications
that we plan to pursue in the fields of autoimmune diseases, allergies and
infectious diseases.
MONOCLONAL ANTIBODIES
DN1924 Antibody for Treatment of Cancer
DN1924, previously known as Danton(TM), is our monoclonal antibody that targets
a unique antigen present on normal and malignant blood cells and causes the
death of only malignant cells. The target for DN1924 is present on numerous
blood-borne tumors, such as Hodgkin's lymphoma, non-Hodgkin's lymphoma, and
B-cell leukemias. Current treatments for these cancers include chemotherapy,
radiation, and high dose chemotherapy with stem cell transplantation, all of
which are highly toxic. More
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recently, a monoclonal antibody, Retuximab, has been approved for use in some
of these patients. It is directed to a different antigen than the antigen to
which DN1924 binds. Preclinical studies suggest that DN1924 can kill human
cancer cells without apparent toxicity or immune suppressive side effects.
Furthermore, these preclinical studies suggest that cancer cells may not
develop resistance to this treatment over time.
DN1921 Antibody for Treatment of Autoimmune Disease
DN1921, previously known as Dantes(TM), is our monoclonal antibody that
suppresses activities of the immune system. Autoimmune diseases such as
rheumatoid arthritis, systemic lupus erythematosus, multiple sclerosis,
myasthenia gravis and pemphigus vulgaris, result from unwanted activities of
the immune system. Current therapeutics include nonspecific immune suppression
by corticosteroids, methotrexate and other drugs. Although these treatments may
reduce tissue damage in some patients, they are not curative.
DN1921 is specific for a well-known target for immunosuppression, HLA-DR.
Previously, other companies have attempted to develop drugs that targeted
HLA-DR. Although those drugs were usually effective immunosuppressants, they
failed in preclinical studies due to unacceptable toxicity. We have observed
that immunosuppression and toxicity are mediated by two separate parts of the
antibody molecule. We are developing DN1921 to take advantage of this
observation. DN1921 has shown encouraging immunosuppressive abilities in our
preclinical studies without producing toxicity.
Trp-p8
Trp-p8, the protein described in the previous section, is a voltage gated
calcium ion channel. It displays numerous characteristics that make it an
attractive target for immunotherapy, as well as for conventional drug therapy.
In normal human tissues, trp-p8 is expressed predominantly in the prostate and
is over-expressed in hyperplastic prostate. In cancerous tissues, trp-p8 is
expressed in cancers of the prostate, colon, lung and breast. The unique
molecular characteristics of trp-p8 make it an attractive candidate as a
therapeutic target for monoclonal antibodies, cancer vaccines and small
molecules. We are currently performing discovery and preclinical research to
find and characterize therapeutic candidates in these areas.
Cell Separation Products
We have developed proprietary cell separation technology that can be tailored
for specific cell types. This technology consists of two components: specially
engineered separation containers and solutions called buoyant density
solutions. We prepare our buoyant density solutions to match the buoyant
density of a particular cell type. By matching buoyant densities in this
manner, we are able to control whether or not a specific cell type floats or
sinks in the solution. This allows us to isolate the desired cells easily,
rapidly and without the need for the biological reagents used in conventional
cell separation techniques.
In 1996, we received a marketing authorization in the United States on a
family of our separation devices. In 1999, we obtained pre-marketing approval,
or a PMA, from the FDA for our DACS(R)SC kit. We also use our cell separation
technology to isolate dendritic cells for our cancer vaccines. For cell types
outside of our interests, we license our technology to third parties.
COLLABORATIONS
Kirin Brewery Co., Ltd.
Kirin Brewery Co., Ltd., or Kirin, is our collaborator for the marketing and
development of our vaccines in Asia. We have granted Kirin an exclusive license
to our proprietary dendritic cell technology for the development and
commercialization of our products in Japan and other Asian countries. We also
granted Kirin an option to obtain an exclusive license to commercialize in
these countries other products we develop with our dendritic cell technology.
In exchange, Kirin has granted us an option to obtain an exclusive license to
commercialize in North America any products developed by Kirin under this
agreement. In August 2001, we entered into a memorandum agreement with Kirin
modifying our existing agreements with Kirin. Under the new agreement, we will
provide Kirin with PA2024, the antigen used in Provenge, and additional
development and regulatory support.
We conduct collaborative research with Kirin intended to create improvements
in our dendritic cell technology and to develop new products. Under the terms
of our agreements with Kirin, we are reimbursed by Kirin for research and
development
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expenses pursuant to a mutually agreed development plan. By agreement, Kirin
will own all rights in these improvements and will exclusively license them to
us. We also supply Kirin with devices, reagents and some of our proprietary
antigens. Kirin, in turn, supplies us with some of its proprietary antigens and
other items. We and Kirin have also agreed to collaborate in the clinical
development and commercialization in the European Union of novel products
jointly developed under our agreements and to share equally in any profits.
The Johnson & Johnson Pharmaceutical Research and Development, L.L.C.
In October 2000, we entered into a Research Collaboration and License Agreement
with The R.W. Johnson Pharmaceutical Research Institute, a division of
Ortho-McNeil Pharmaceutical, Inc. and a member of the Johnson & Johnson family
of companies. R.W. Johnson assigned all its rights and obligations to Johnson &
Johnson Pharmaceutical Research and Development, L.L.C an affiliate, as of
January 1, 2002. The assignment did not change the terms of the agreement. The
agreement provides for studies of R.W. Johnson's technology and of our
technology to determine their respective feasibility as immunotherapy products
for the treatment of tumors which express a defined antigen, Her-2/neu, present
on breast, ovarian and colorectal cancers. Under the agreement, we have
received a study fee, option fee, and funding pursuant to an agreed research
plan. The agreement with J&J PRD terminates on December 31, 2002. We are
currently discussing continuing our collaboration with J&J PRD.
MANUFACTURING
We manufacture the Antigen Delivery Cassettes used to conduct preclinical and
clinical trials. We manufacture our Antigen Delivery Cassettes as recombinant
proteins using standard production methods in compliance with current good
manufacturing practices, or cGMP.
In March 2001, we contracted with Diosynth RTP, Inc., to assist us in the
scale-up to commercial level production of the antigen used in the preparation
of Provenge. At the inception of the agreement, we anticipated that a
substantial part of the work and corresponding expense for the scale-up program
would be incurred in 2002. Pursuant to procedures established in the agreement,
we have requested certain modifications to the program. The modifications would
require six to eight weeks for the review of data and an additional period to
establish regulatory strategy prior to proceeding with certain scheduled
program requirements. Diosynth has wound down certain of the program work and
has proposed a change order in response to our modification request. We intend
to negotiate with Diosynth regarding the terms of its proposed change
order.
We own and operate cell-processing centers in Mountain View, California and
Seattle, Washington. In addition, we use three third-party dendritic
cell-processing centers operated in conjunction with the Mayo Clinic in
Rochester, Minnesota, the American Red Cross in Philadelphia, Pennsylvania, and
Progenitor Cell Therapy in Hackensack, New Jersey.
We also manufacture cell separation devices that isolate cells from blood
and other bodily fluids. We rely on subcontractors to manufacture these devices
in full compliance with cGMP.
INTELLECTUAL PROPERTY
We protect our technology through numerous United States and foreign patent
filings, trademarks and trade secrets of our own or that we have licensed from
others. Our issued and allowed patents include patents that are directed to the
solutions and devices by which cells can be isolated and manipulated, including
claims that apply specifically to the isolation of dendritic cells, and claims
on the use of these cells for immunotherapy, for example, the treatment of
diseases such as B-cell malignancies. We have also received claims on treatment
methods covering a variety of immunostimulatory antigen compositions. These
include our Antigen Delivery Cassette for use with a variety of tumor antigens
and specifically, the prostate antigen containing cassette, for which we have
independent patent protection. We intend to continue using our scientific
expertise to pursue and patent new developments with respect to uses,
compositions and factors to enhance our position in the cancer vaccine field.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patent that we own or license from third parties may not provide adequate
protection against competitors. Our pending patent applications, those we may
file in the future, or those we may license from third parties may not result
in issued patents. Also, patents may not provide us with adequate proprietary
protection or advantages against competitors with similar or competing
technologies. For example, we are aware of others that have had patents issued
to them in the dendritic cell field relating to methods to isolate, culture or
activate dendritic cells and relating to the treatment with antigens of cancers
such as prostate cancer. As a result of potential conflicts with the
proprietary rights of oth-
11
ers, we may in the future have to prove we are not infringing the patent rights
of others or be required to obtain a license to the patent. We do not know
whether such a license would be available on commercially reasonable terms, or
at all.
We also rely on trade secrets and unpatentable know-how that we seek to
protect, in part, by confidentiality agreements. Our policy is to require our
officers, employees, consultants, contractors, manufacturers, outside
scientific collaborators and sponsored researchers and other advisors to
execute confidentiality agreements. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with us be kept con fidential and not
disclosed to third parties except in specific limited circumstances. We also
require signed confidentiality or material transfer agreements from companies
that are to receive our confidential data. In the case of employees,
consultants and contractors, confidentiality agreements with them generally
provide that all inventions conceived by the individual while rendering
services to us shall be assigned to us as our exclusive property. However, it
is possible that these parties may breach those agreements, and we may not have
adequate remedies for any breach. It is also possible that our trade secrets or
unpatentable know-how will otherwise become known or be independently developed
by competitors.
COMPETITION
The biotechnology and biopharmaceutical industries are characterized by rapidly
advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery, research and development of products that could
compete directly with our products under development. Companies, including AVI
Biopharma, Inc., Cell Genesys, Inc., Northwest Biotherapeutics, Inc., Therion
Biologics Corporation and Vical Incorporated, have disclosed that they are
developing cancer vaccines that may compete with Provenge. These competitors
may succeed in developing and marketing cancer vaccines that are more effective
than or marketed before Provenge.
Many companies, including major pharmaceutical companies, are also
developing alternative therapies that may compete with our other products in
the fields of cancer, autoimmune diseases, allergies and infectious diseases.
Many of the companies developing cancer vaccines and alternative treatments
have significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing. Others have partnered with large
established companies to obtain access to these resources. Smaller companies
may also prove to be significant competitors, particularly through the
establishment of collaborative arrangements with large, established companies.
Our ability to commercialize our products and compete effectively will
depend, in large part, on:
. our ability to advance Provenge and Mylovenge through clinical trials and
through the FDA approval process;
. the price of our vaccines relative to other products or competing
treatments;
. the effectiveness of our sales and marketing efforts and those of our
marketing partners;
. the perception by physicians and other members of the health care
community of the safety, efficacy and benefits of our vaccines compared to
those of competing products or therapies;
. the willingness of physicians to adopt a new treatment regimen represented
by our dendritic cell technology; and
. unfavorable publicity concerning cancer vaccines.
Competition among products approved for sale will be based, among other
things, upon efficacy, reliability, product safety, price and patent position.
Our competitiveness will also depend on our ability to advance our
technologies, license additional technology, maintain a proprietary position in
our technologies and products, obtain required government and other public and
private approvals on a timely basis, attract and retain key personnel and enter
into corporate relationships that enable us and our collaborators to develop
effective products that can be manufactured cost-effectively and marketed
successfully.
EMPLOYEES
As of December 31, 2001, we had 144 employees. None of our employees is subject
to a collective bargaining agreement, and we believe that our relations with
our employees are good.
12
EXECUTIVE OFFICERS AND EXECUTIVE MANAGEMENT OF THE REGISTRANT
Our executive officers and executive management and their ages as of March 18,
2002 were as follows:
Name Age Position
- ---------------------------------------------------------------------------------------------------------------
Christopher S. Henney, Ph.D., D.Sc. 61 Chief Executive Officer and Chairman of the Board of Directors
T. Dennis George, J.D. 63 Senior Vice President, Corporate Affairs, General Counsel and Secretary
Martin A. Simonetti, M.S., M.B.A. 44 Senior Vice President, Finance, Chief Financial Officer, and Treasurer
David L. Urdal, Ph.D. 52 President, Chief Scientific Officer, and Vice Chairman of the Board of
Directors
Mitchell H. Gold, M.D. 34 Vice President, Business Development
Reiner Laus, M.D. 41 Vice President, Research
Madhusudan V. Peshwa, Ph.D. 34 Vice President, Process Science
Grant E. Pickering, M.B.A. 34 Vice President, Operations
Christopher S. Henney, Ph.D., D.Sc., has served as our Chief Executive
Officer and Director since May 1995 and as our Chairman of the Board of
Directors since January 2001. Dr. Henney also served as our President from
December 1998 through December 2000. In 1989, Dr. Henney co-founded ICOS
Corporation, a publicly-held biotechnology company, where from 1989 to 1995,
Dr. Henney served as Executive Vice President, Scientific Director and
Director. In 1981, Dr. Henney co-founded Immunex Corporation, a publicly-held
biotechnology company, where from 1981 to 1989, he held various positions,
including Director, Vice Chairman and Scientific Director. Dr. Henney is also a
former academic immunologist. Dr. Henney currently serves as a director of
Techne Corporation, Sonus Pharmaceuticals Inc., Bionomics, Inc., Cerylid
Biosciences, and Structural Genomix, Inc. Dr. Henney received a B.Sc. with
Honors, a Ph.D. in experimental pathology and a D.Sc. for his contributions to
immunology from the University of Birmingham, England.
T. Dennis George, J.D., has served as our Senior Vice President of Corporate
Affairs, General Counsel and Secretary since December 1999. From 1977 until
joining us, Mr. George was a partner in the law firm George, Hull, Porter &
Kohli, P.S. in Seattle, Washington. Mr. George is a member of the Washington
State, King County and American Bar Associations and is a former president of
the Federal Bar Association of the Western District of Washington. Mr. George
is admitted to the U.S. Supreme Court, U.S. Court of Appeals for the Ninth
Circuit and U.S. District Courts for the Western and Eastern Districts of
Washington. Mr. George received a B.S. with honors from Northern Michigan
University and a J.D. with honors from the University of Wisconsin Law School.
Martin A. Simonetti, M.S. M.B.A. has served as our Chief Financial Officer
and Treasurer since joining us in January 1999 and Senior Vice President,
Finance since January 2001. From 1991 to 1998, Mr. Simonetti was employed at
Amgen Inc., a pharmaceutical company, where he held various positions,
including Vice-President Operations and Finance of Amgen BioPharma and their
Director of Colorado Operations. From 1984 to 1991, Mr. Simonetti was employed
at Genentech, Inc., a biotechnology company, first as a scientist in their
Medicinal and Analytical Chemistry Department and later, after obtaining an
M.B.A., as a financial analyst and quality group controller. Mr. Simonetti
received a B.S. and an M.S. in Nutrition from the University of California,
Davis and an M.B.A. from the University of Santa Clara.
David L. Urdal, Ph.D., has served as our President since January 2001 and as
our Chief Scientific Officer and Vice Chairman of our Board of Directors since
joining us in July 1995. Dr. Urdal served as our Executive Vice President from
January 1999 through December 2000. From 1982 until July 1995, Dr. Urdal held
various positions with Immunex Corporation, including President of Immunex
Manufacturing Corporation, Vice President and Director of Development, and head
of the departments of biochemistry and membrane biochemistry. Dr. Urdal
received a B.S. and M.S. in Public Health and a Ph.D. in Biochemical Oncology
from the University of Washington.
Mitchell H. Gold, M.D., has served as our Vice President of Business
Development since June 2001. From April 2000 to May 2001, Dr. Gold served as
Vice President of Business Development and Vice President of Sales and
Marketing for Data Critical Corporation, a company engaged in wireless
transmission of critical healthcare data, now a division of GE Medical. From
1995 to April 2000, Dr. Gold was the President and Chief Executive Officer, and
a founder of Elixis Corporation, a web-
13
based electronic medical records company. For the five prior years, Dr. Gold
was a resident physician in the Department of Urology at the University of
Washington. Dr. Gold received his B.S., Phi Beta Kappa, from the University of
Wisconsin-Madison in 1989 and his M.D. from Rush Medical College in 1993.
Reiner Laus, M.D., has served as our Vice President of Research since
January 2001. From 1999 to January 2001, Dr. Laus served as our Vice President
of Immunology after serving for five years as our Director, Molecular
Immunology. Dr. Laus joined the Company in 1993 as Senior Scientist in
Molecular Immunology. He held research appointments at the University of Kiel,
Germany between 1986 and 1993, and at Stanford University from 1989 through
1992. He received his M.D. from the University of Kiel, Germany in 1986.
Madhusudan V. Peshwa, Ph.D., has served as our Vice President of Process
Science since November 1999. For the five prior years, he served as our
Director of Cell Processing and Manager of Cell Process Engineering and Pilot
Plant Operations. Dr. Peshwa joined the Company in 1994 as a Scientist. Dr.
Peshwa obtained his Ph.D. in Chemical Engineering from the University of
Minnesota in 1993, and B. Tech. from the Indian Institute of Technology in
Kanpur, India in 1988. He is also a member of the Industrial Consortium
Advisory Board for the Bio-Processing Engineering Center at the Massachusetts
Institute of Technology.
Grant E. Pickering, M.B.A., was appointed Vice President of Operations in
March 2002. Prior to that he had served as our Vice President of Marketing
since May 2001, and Director of Marketing since joining us in January 2000.
From 1997 to the end of 1999, Mr. Pickering served as Director of Marketing and
Business Development for Algos Pharmaceutical Corporation, a company developing
a new class of pharmaceuticals for the treatment of cancer pain. Mr. Pickering
also held various sales and marketing positions with Glaxo, Inc. from 1992
through 1995 and the Ortho Pharmaceutical division of Johnson & Johnson from
1989 through 1992. Mr. Pickering obtained an M.B.A. with honors from Georgetown
University in 1997, and a B.S. in Marketing from the Pennsylvania State
University in 1989.
ITEM 2.
PROPERTIES
- --------------------------------------------------------------------------------
We lease approximately 70,650 square feet of laboratory, manufacturing and
office space in Seattle, Washington under a lease expiring in December 2008. We
sublease to a subtenant approximately 7,889 square feet of this leased space
under a sub-lease that expires on April 30, 2002. We also lease approximately
5,256 square feet of office space in another Seattle, Washington location,
under a lease expiring in 2008. Both leases may be extended at our option for
two consecutive five-year periods. We lease approximately 25,000 square feet of
laboratory, manufacturing and office space in Mountain View, California under a
lease expiring June 2006. This lease may be extended at our option for one five
year period.
ITEM 3.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
We are not a party to any material legal proceedings.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
None.
14
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
Our common stock is quoted on the Nasdaq National Market System under the
symbol "DNDN". Public trading of our common stock commenced on June 16, 2000.
Prior to that time, there was no public market for our stock. The following
table summarizes our common stock's high and low sales prices for the periods
indicated as reported by the Nasdaq National Market System.
High Low
------------------------------------------------------------------
2002
First Quarter (through March 1, 2002) $ 9.80 $ 3.25
2001
First Quarter 14.81 6.78
Second Quarter 16.73 5.81
Third Quarter 16.30 7.40
Fourth Quarter 11.76 8.05
2000
Second Quarter (from June 16, 2000 to June 30, 2000) 16.56 9.69
Third Quarter 25.00 12.25
Fourth Quarter 22.63 12.00
As of March 1, 2002, there were approximately 133 holders of record of our
common stock. We have never declared or paid cash dividends on our capital
stock. We currently intend to retain any future earnings to fund the
development and growth of our business and do not currently anticipate paying
any cash dividends in the foreseeable future. Future dividends, if any, will be
determined by our board of directors.
RECENT SALES OF UNREGISTERED SECURITIES
On October 22, 2001, we issued an aggregate of 14,516 shares of common stock to
Geron Corporation and 1,613 shares of common stock to University Technology
Corporation, a licensor to Geron Corporation, in payment of license fees in
connection with our nonexclusive license from Geron of human telomerase, or
hTERT. The sale and issuance of the above securities were deemed to be exempt
from registration under the Securities Act of 1933, as amended, in reliance
upon Section 4(2) of the Securities Act or Regulation D promulgated thereunder,
as transactions by an issuer not involving a public offering. The recipients of
securities in the above transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. The recipients had adequate access,
through their relationships with us, to information about the Company.
USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES
The Registration Statement (SEC File No. 333-31920) for our initial public
offering (the "Offering") became effective June 16, 2000, covering an aggregate
of 5,175,000 shares of our common stock, including the underwriters'
over-allotment option. Offering proceeds, net of underwriting discounts and
commissions and offering expenses of approximately $4.8 million, were
approximately $40.3 million. The completion of the Offering, including the
over-allotment option exercised in July 2000, resulted in the sale of an
aggregate of 4,885,732 shares of common stock, for total gross proceeds of
$48.9 million, which resulted in net proceeds to us of approximately $43.8
million, after deducting underwriting discounts and commissions and offering
expenses. From the effective date of the Registration Statement through
December 31, 2001, we used approximately $22.6 million of the Offering proceeds
to fund clinical trials, research, preclinical and commercialization activities
for our therapeutic vaccine products, to increase our dendritic cell processing
and antigen manufacturing capacity, and for general corporate purposes,
including working capital. The remaining proceeds from the Offering are
invested in commercial paper, money market securities, government securities,
certificates of deposit, and other long-term investments.
15
ITEM 6.
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
You should read the selected financial data set forth below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes appearing
elsewhere in this report.
Year Ended December 31,
-----------------------------------------------
(in thousands, except per share data) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations Data:
Total revenue $ 13,824 $ 6,519 $ 3,719 $ 866 $ 793
Operating expenses:
Research and development 31,314 17,191 10,222 8,064 5,290
General and administrative 8,117 7,262 6,110 2,893 2,894
Marketing 1,788 250 - - -
-----------------------------------------------
Total operating expenses 41,219 24,703 16,332 10,957 8,184
-----------------------------------------------
Loss from operations (27,395) (18,184) (12,613) (10,091) (7,391)
Interest and other income, net:
Interest income 4,795 2,828 414 361 267
Interest expense (558) (613) (351) (41) (47)
Other income (loss), net - - 32 (2) 8
-----------------------------------------------
Interest and other income, net 4,237 2,215 95 318 228
-----------------------------------------------
Loss before income taxes (23,158) (15,969) (12,518) (9,773) (7,163)
Provision for income taxes - 100 - 600 -
-----------------------------------------------
Net loss (23,158) (16,069) (12,518) (10,373) (7,163)
Deemed dividend upon issuance of convertible preferred stock - (4,110) (285) - -
-----------------------------------------------
Net loss attributable to common stockholders $(23,158) $(20,179) $(12,803) $(10,373) $(7,163)
===============================================
Basic and diluted net loss per common share $ (0.94) $ (1.57) $ (13.54) $ (16.48) $(21.37)
===============================================
Shares used in computation of basic and diluted net loss per common
share 24,760 12,840 946 630 335
===============================================
Pro forma basic and diluted net loss per share $ (1.04) $ (1.07)
==================
Pro forma shares used in computation of basic and diluted net loss
per share (D) 19,339 11,963
==================
December 31,
---------------------------------------
(in thousands) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Balance Sheets Data:
Cash, cash equivalents, short- and long-term investments $81,242 $ 97,155 $13,813 $ 9,930 $8,223
Working capital 59,685 74,560 9,738 6,465 7,471
Total assets 91,082 109,558 17,375 12,038 9,910
Long-term obligations, less current portion 2,013 1,469 2,799 531 -
Total stockholders' equity 65,211 85,519 5,569 2,779 8,306
(D) See Note 9 of notes to financial statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
16
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
Dendreon Corporation is dedicated to the discovery and development of novel
products for the treatment of diseases through its innovative manipulation of
the immune system. Dendreon's product pipeline is focused on cancer, and
includes therapeutic vaccines, monoclonal antibodies and a pathway to small
molecules.
The products most advanced in development are therapeutic vaccines that
stimulate a patient's immunity for the treatment of cancer. Provenge is a
therapeutic vaccine for the treatment of prostate cancer and is in Phase III
clinical trials, the final stage of product development. We are conducting
Phase II clinical trials for Mylovenge, our therapeutic vaccine for the
treatment of multiple myeloma, and Phase I clinical trials for APC8024, our
therapeutic vaccine for the treatment of breast, ovarian and colon cancers. We
have received clearance from the Food and Drug Administration to begin a Phase
I clinical trial for CTL8004, our collaborative project with J&J PRD, for the
treatment of breast, ovarian and colon cancers. We have additional therapeutic
vaccines, monoclonal antibodies and a pathway to small molecule drug discovery
in preclinical development for the treatment of cancer. We also intend, over
time, to pursue the application of our technologies in the fields of autoimmune
diseases, allergies and infectious diseases.
We have incurred significant losses since our inception. As of December 31,
2001, our accumulated deficit was $90.8 million. We have incurred net losses as
a result of research and development expenses, general and administrative
expenses in support of our operations, clinical trial expenses and marketing
expenses. We anticipate incurring net losses over at least the next several
years as we complete our clinical trials, apply for regulatory approvals,
continue development of our technology, expand our operations and develop the
systems that support commercialization.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments in certain circumstances that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
liabilities. In preparing these financial statements, management has made its
best estimates and judgments of certain amounts included in the financial
statements, giving due consideration to materiality. On an on-going basis, we
evaluate our estimates, including those related to revenue recognition,
investments, income taxes, financing operations, long-term service contracts,
and other contingencies. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances.
REVENUE RECOGNITION
Revenue has been derived from our collaborative research and development
agreements and from grant awards. We expect to continue to derive revenue from
our collaborative research and development agreements in future years.
Non-refundable, up-front payments received in connection with collaborative
research and development agreements are deferred and recognized on a
straight-line basis over the relevant periods specified in the agreement,
generally the research term.
Revenue related to collaborative research with our corporate collaborators
is recognized when research services are performed over the related funding
periods for each agreement. Under these agreements, we are required to perform
research and development activities as agreed or specified in each agreement.
The payments received under research collaboration agreements are not
refundable if the research effort is not successful. Payments received in
advance of the services provided are deferred and recognized as revenue over
the future performance periods.
Revenue related to grant agreements is recognized as related research and
development expenses are incurred.
Milestone payments are recognized based upon the achievement of the
specified milestone and as defined in the agreements. Revenue from product
supply agreements is recorded when the product is shipped and when all
obligations under the agreements are met.
As of December 31, 2001, we had deferred revenues of approximately $15.0
million.
17
RESULTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999
Revenue. Revenue increased to $13.8 million in 2001 from $6.5 million in
2000 and $3.7 in 1999. Collaborative and license revenue represented $13.6
million, $6.1 million and $3.5 million of total revenue in 2001, 2000 and 1999,
respectively. Grant revenue was $202,000 in 2001, $460,000 in 2000 and $261,000
in 1999, respectively. The year over year increases were primarily due to
agreements entered into with J&J PRD and Kirin. In 2002, we expect comparable
collaborative and license revenue and no grant funding.
In August 2001, we entered into a memorandum agreement with Kirin modifying
our existing agreements with them. Pursuant to the terms contained in the
memorandum, Kirin paid us $10.0 million, agreed to make an additional milestone
payment upon commencement of Kirin's first clinical trial of Mylovenge, and to
compensate us for supplies of Provenge and separation devices, and to reimburse
us for certain expenses relating to specified services provided for Kirin's
regulatory, clinical, and manufacturing activities relating to Provenge and
Mylovenge. The payment received in 2001 is being amortized over 41 months, the
term of the agreement. Under the terms of our initial agreement with Kirin, we
are reimbursed by Kirin for research and development expenses pursuant to a
mutually agreed development plan. Kirin will also make certain milestone
payments upon achieving specified objectives. In 2001, Kirin reimbursed us $2.4
million for such research and development expenses. In 2002, we anticipate
reimbursement from Kirin will be comparable to 2001 levels.
In October 2000, we entered into a collaborative development and license
agreement with J&J PRD for the study of the parties' respective products for
the treatment of tumors expressing Her-2/neu. The agreement reimburses us for
research and development expenses based on a mutually agreed research plan. In
2001, we were reimbursed $6.5 million by J&J PRD for these expenses and
anticipate that amount to decrease by 51% in 2002. The agreement with J&J PRD
terminates on December 31, 2002. We are currently in discussions with J&J PRD
about continuing our collaboration.
Research and Development Expenses. Research and development expenses
increased to $31.3 million in 2001 from $17.2 million in 2000 and $10.2 million
in 1999. The $14.1 million increase in 2001 over 2000, and the $7.0 million
increase in 2000 over 1999 were due to increased product development expenses,
including fees paid to third parties conducting clinical trials, increased
personnel-related expenses, facilities and depreciation expenses and supplies.
The 2000 increase over 1999 also included $1.2 million in non-cash stock-based
compensation expense.
Our research and development-related activities can be divided into two
areas:
1) research and pre-clinical programs, and
2) clinical programs.
We estimate the cost of the two areas as follows (in millions):
2001 2000 1999
-------------------------------------------------------------------
Research and pre-clinical programs $ 8.1 $ 5.7 $ 2.9
Clinical programs 23.2 11.5 7.3
-----------------
Total research and development $31.3 $17.2 $10.2
=================
We anticipate an increase in total research and development expense in 2002
over 2001. Clinical costs may grow at a faster rate compared to research and
pre-clinical expenses as products move to the next stage of development. Final
data results from our first Phase III Provenge trial may influence the
allocation of resources between the research, pre-clinical and clinical
programs.
Research and development costs by project are not tracked on an actual cost
basis, but rather are derived by the allocation of third party costs, personnel
related costs and other overheads to a project based on human resource time
incurred in each project. Research and pre-clinical projects primarily
represent the costs associated with our product pipeline generating activities,
including trp-P8, DN1924, DN1921, and APC80NY. The cost of clinical trial
programs represents the advancement of the pipeline into product candidates. It
is not possible to estimate the time to completion of the clinical trials and
their associated total costs as this is dependent on the outcome of each trial
event.
In September 2001, Dendreon licensed rights to the CEA and MN antigens from
Bayer Corporation in two separate agreements. We paid a license fee upon
execution of each agreement, and will make milestone payments of $100,000 on
each of the
18
products on the earlier of either the start of animal safety testing or April
1, 2002. Additional milestone payments will be due at the start of Phase III
clinical trials of products incorporating CEA or MN and the first FDA approval
of such products, if successful. Royalties on sales of any products
incorporating CEA or MN will be due to Bayer if and when commercial sales of
such products commence.
In October 2001, Dendreon licensed rights to hTERT from Geron. We paid a
license fee at inception of 16,129 shares of our Common Stock valued at
$150,000, and shall pay Geron a second license fee of $100,000 on the first
anniversary of the agreement. In addition, we are obligated to make certain
milestone payments to Geron. The first milestone payment is due upon the
submission of the first IND for a product incorporating hTERT and the second is
due upon submission of the first Biologics License Application to the FDA.
Three subsequent milestone payments are due upon submission of the second BLA
or equivalent, and upon the first and second product approvals, if any. The
agreement may be terminated by us without cause on sixty days written notice to
Geron.
In March 2001, we contracted with Diosynth RTP, Inc. to assist us in the
scale-up to commercial level production of the antigen used in the preparation
of Provenge. At the inception of the agreement, we anticipated that a
substantial part of the work and corresponding expense would be incurred in
2002. Pursuant to procedures established in the agreement, we requested certain
modifications to the program for scale-up to commercial level production. The
modification would require six to eight weeks for the review of data and an
additional period for establishment of regulatory strategy prior to proceeding
with certain scheduled program requirements. Diosynth has wound down certain of
the program work and has proposed a change order in response to our
modification request. Dendreon intends to negotiate with Diosynth regarding the
terms of its proposed change order.
We may terminate the agreement with Diosynth without cause on forty-five
days' written notice to Diosynth. The agreement provides for a cancellation fee
of 20% of the unpaid balance of the total estimated budget for the program at
the time the notice is given. The estimated cancellation fee in support of the
current work plan is $3.4 million.
General and Administrative Expenses. General and administrative expenses
increased to $8.1 million in 2001 from $7.3 million in 2000 and $6.1 million in
1999. The 2001 increase over 2000 was due to personnel related expenses and
consulting fees associated with commercialization activities. The 2000 increase
over 1999 was attributable to personnel related expenses and non-cash
stock-based compensation, offset by a decrease in facilities and depreciation
expense. We currently anticipate 2002 general and administrative spending to
increase slightly over 2001 levels.
Marketing. Marketing expenses increased to $1.8 million in 2001 from
$250,000 in 2000 and $0 in 1999. These increases were due to consulting
expenses primarily in connection with commercialization efforts, personnel-
related costs, marketing of our clinical trials for Provenge, and medical
education of physicians and clinicians with regard to our clinical products
under development. 2002 marketing expenses are expected to be at levels
comparable to 2001.
Interest Income. Interest income increased to $4.8 million in 2001 from $2.8
million in 2000 and $414,000 in 1999. These increases were attributable to
higher average balances of cash, cash equivalents, short-term and long- term
investments, offset by a lower average interest rate yield on the investment
portfolio. Interest income is expected to be lower in 2002 than 2001 due to the
decline in interest rates and a lower average cash balance.
Interest Expense. Interest expense decreased to $558,000 in 2001 from
$613,000 in 2000 and increased from $351,000 in 1999. The 2001 decrease over
2000 was attributable to lower average balances of debt and capital lease
obligation while the 2000 increase from 1999 was the result of the loan
obtained in June 1999.
Income Tax Expense. Due to operating losses there was no provision for
income taxes in 2001. Income tax expense in 2000 was $100,000 and related to a
withholding tax assessed by Japan on certain payments received from Kirin.
There was no provision for income taxes in 1999.
At December 31, 2001, we had net operating loss carryforwards of
approximately $58.4 million to offset any future federal taxable income. If not
utilized, the tax net operating loss carryforwards will expire at various dates
beginning in 2009 through 2021. We also had research and development tax credit
carryforwards at December 31, 2001 of approximately $2.1 million for federal
income tax purposes. Utilization of the net operating losses and credits may be
subject to a substantial annual limitation due to the change in the ownership
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
19
Stock-Based Compensation Expense
Stock-based compensation expense consists of the amortization of deferred
stock-based compensation resulting from the grant of stock options at exercise
prices subsequently deemed to be less than the fair value of the common stock
on the grant date. We recorded total deferred stock-based compensation of $0 in
2001, $3.1 million in 2000, and $2.1 million in 1999. We initially recorded
these amounts as a component of stockholders' equity and are amortizing them by
charges to operations over the vesting period of the options using the graded
vesting method. We recorded amortization of deferred stock-based compensation
of $1.2 million in 2001, $2.3 million in 2000, and $844,000 in 1999. We expect
amortization of deferred stock-based compensation expense to be $710,000 in
2002, $263,000 in 2003 and $14,000 in 2004.
Deemed Dividend Upon Issuance of Convertible Preferred Stock
We recorded a deemed dividend of $4.1 million and $285,000 in 2000 and 1999,
respectively, for the issuance of Series E convertible preferred stock. The
incremental fair value determined on the date of issuance for each closing of
Series E convertible preferred stock is deemed to be the equivalent of a
preferred stock dividend. We recorded the deemed dividend at the date of
issuance by offsetting charges and credits to additional paid-in capital,
without any effect on total stockholders' equity. The amount increased the loss
attributable to common stockholders in the calculation of net loss per share
for 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, short-term and long-term investments were $81.2 million
at December 31, 2001. We have financed our operations to date through our
initial public offering, follow-on public offering, the private placement of
equity securities, revenue from collaborative arrangements, grant revenue,
interest income earned on cash, cash equiv- alents and investments, equipment
lease line financings and loan facilities. From January 1, 2000 to December 31,
2001, we received net proceeds of $9.1 million from private financing
activities and $84.0 million from our public offerings of our common stock. In
1999, we received net proceeds of $13.1 million from private financing
activities. To date, inflation has not had a material effect on our business.
Net cash used in operating activities for the years ended December 31, 2001,
2000, and 1999 was $13.6 million, $8.8 million, and $12.1 million,
respectively. Expenditures in all periods were a result of increased research
and development expenses, general and administrative expenses in support of our
operations and marketing expenses. In 2000 and 2001, these expenditures were
offset by cash received from our corporate collaborators including research and
development expense reimbursements from Kirin and J&J PRD and from
non-refundable, upfront payments received from the memorandum entered into with
Kirin in 2001.
Investing activities, other than purchases and maturities of short-term and
long-term investments, consist primarily of purchases of property and
equipment. At December 31, 2001, our aggregate investment in equipment and
leasehold improvements was $8.1 million. We have an agreement with a financing
company under which we have financed purchases of $4.6 million of leasehold
improvements, laboratory, computer and office equipment. The terms are from 36
to 48 months and bear interest at rates ranging from 8.73% to 14.3% per year.
We also had a tenant improvement allowance of $3.5 million from the lessor of
our primary Seattle, Washington facility. As of December 31, 2001, we had
committed all of the allowance for laboratory and manufacturing space at this
facility. The improvement allowance bears interest at the rate of 12.5% per
year and is repaid monthly over the length of the original lease. In 2002, we
will continue to fund our capital equipment and leasehold improvements through
financing facilities.
In June 1999, we obtained a loan in the amount of $3.0 million from a
financial lender. The loan bore interest at an annual rate of 13.3%, and was
re-paid March 7, 2002.
20
The following are contractual commitments at December 31, 2001 associated
with debt and lease obligations, including interest (in thousands):
Contractual Commitments Total 1 year 2-3 years 4-5 years Thereafter
---------------------------------------------------------------------------
Long-term Obligations $ 284 $ 284 $ - $ - $ -
Capital Lease Obligations 3,785 1,469 2,316 - -
Operating Leases 21,594 3,973 8,136 5,237 4,248
---------------------------------------------
Total Contractual Commitments $25,663 $5,726 $10,452 $5,237 $4,248
=============================================
As of December 31, 2001, we anticipate that our cash on hand and cash generated
from our collaborative arrangements will be sufficient to enable us to meet our
anticipated expenditures for at least the next 24 months.
However, we may need additional financing prior to that time. Additional
financing may not be available on favorable terms, or at all. If we are unable
to raise additional funds should we need them, we may be required to delay,
reduce or eliminate some of our development programs and some of our clinical
trials.
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
We have a history of operating losses; we expect to continue to incur losses
and we may never be profitable.
As of December 31, 2001, we had an accumulated deficit of $90.8 million.
Operating losses have resulted principally from costs incurred in our research
and development programs and from our general and administrative costs. We have
earned no significant revenues from product sales or royalties. We do not
expect to achieve significant product sales or royalty revenue for several
years, and are not able to predict when we might do so, if ever. We expect to
incur additional operating losses in the future. These losses may increase
significantly in response to the expansion of our preclinical development
pipeline, the commencement of preclinical development and the associated
clinical trial efforts, and the continued development of the systems that
support commercialization, if it is pursued.
Our ability to achieve long-term profitability is dependent upon obtaining
regulatory approvals for our products and successfully commercializing our
products alone or with third parties. We may not be successful in obtaining
regulatory approval and commercializing our products, and our operations may
not be profitable even if any of our products under development are
commercialized.
We may take longer to complete our clinical trials than we project, or we may
not be able to complete them at all.
Although for planning purposes we project the commencement, continuation and
completion of our clinical trials, a number of factors, including scheduling
conflicts with participating clinicians and clinical institutions, and
difficulties in identifying and enrolling patients who meet trial eligibility
criteria, may cause significant delays. We may not commence or complete
clinical trials involving any of our products as projected or may not conduct
them successfully.
We rely on academic institutions or clinical research organizations to
conduct, supervise or monitor some or all aspects of clinical trials involving
our products. We have less control over the timing and other aspects of these
clinical trials than if we conducted them entirely on our own. Third party
clinical investigators may not perform our clinical trials on our anticipated
schedules or consistent with a clinical trial protocol, and may not perform
data collection and analysis in a timely manner.
If we fail to commence or complete, or experience delays in, any of our
planned clinical trials, our stock price and our ability to conduct our
business as currently planned could be harmed. In addition, our development
costs will increase if we have material delays in our clinical trials or if we
need to perform more or larger clinical trials than planned. If the delays are
significant, our financial results and the commercial prospects for our
products and product candidates will be adversely affected.
21
If testing of a particular product does not yield successful results, then we
will be unable to commercialize that product.
We must demonstrate our products' safety and efficacy in humans through
extensive preclinical and clinical testing. We may experience numerous
unforeseen events during, or as a result of, the testing process that could
delay or prevent commercialization of our products, including the following:
. safety and efficacy results obtained in early human clinical trials, as in
our prostate cancer and multiple myeloma trials, may not be indicative of
results that are obtained in later clinical trials;
. the results of preclinical studies may be inconclusive, or they may not be
indicative of results that will be obtained in human clinical trials;
. after reviewing test results, we or our collaborators may abandon projects
that we might previously have believed to be promising, including Provenge;
. we, our collaborators or regulators, may suspend or terminate clinical
trials if the participating subjects or patients are being exposed to
unacceptable health risks; and
. the effects of our potential products may not be the desired effects or
may include undesirable side effects or other characteristics that
preclude regulatory approval or limit their commercial use if approved.
Clinical testing is very expensive, takes many years, and the outcome is
uncertain. The interim results from the first of our two Phase III clinical
trials of Provenge in HRCP patients were inconclusive, and indicated that it is
possible, but not probable, that the primary endpoint of the trial will be
achieved. Additional data is required for a final analysis, and the final
analysis is expected to be completed in mid-2002. The final data from this
clinical trial and/or the second Phase III trial may not be sufficient to
support approval by the FDA of Provenge. Data from our other clinical trials
may not be sufficient to support approval by the FDA of our other potential
products. The clinical trials of Provenge, Mylvenge, and our other products
under development may not be completed on schedule and the FDA may not
ultimately approve any of our product candidates for commercial sale. If we
fail to adequately demonstrate the safety and efficacy of a cancer vaccine
under development, this would delay or prevent regulatory approval of the
vaccine, which could prevent us from achieving profitability.
If our products are not accepted by the market, we will not generate
significant revenues or become profitable.
The success of any product we may develop will depend upon the medical
community, patients and third party payors accepting our products as medically
useful, cost-effective, and safe. We cannot guarantee that any of our products
in development, if approved for commercialization, will be used by doctors to
treat patients. The degree of market acceptance for our products depends upon a
number of factors, including:
. the receipt and scope of regulatory approvals;
. demonstrating the efficacy and safety of our products to the medical and
patient community;
. the cost and advantages of our products compared to other available
therapies; and
. reimbursement policies of government and third party payors.
We may require additional funding, and our future access to capital is
uncertain.
It is expensive to develop cancer vaccines, conduct clinical trials for
vaccines, and commercialize products. We plan to continue to simultaneously
conduct clinical trials and preclinical research for many different cancer and
autoimmune disease vaccines, as well as products based on our monoclonal
antibody technology. We also may be investing resources in the development of a
commercial infrastructure. Each of these activities is costly. Our future
revenues may not be sufficient to support the expenses of our operations,
development of a commercial infrastructure, and the conduct of our clinical
trials and preclinical research. We may need to raise additional capital to:
. fund operations;
. continue the research and development of our therapeutic vaccines and
other products; and
. commercialize our vaccines.
22
We believe that our cash on hand and cash generated from our collaborative
arrangements will be sufficient to meet our projected operating and capital
requirements for at least the next 24 months. However, we may need additional
financing within this time frame depending on a number of factors, including
the following:
. our degree of success in developing and commercializing cancer vaccine
products;
. the amount of milestone payments we receive from our collaborators;
. the rate of progress and cost of our research and development and clinical
trial activities;
. the costs of preparing, filing, prosecuting, maintaining and enforcing
patent claims and other intellectual property rights;
. emergence of competing technologies and other adverse market developments;
. changes in or terminations of our existing collaboration and licensing
arrangements; and
. the cost of manufacturing scale-up and development of commercial
infrastructure and of marketing activities, to the extent that we
undertake them.
We may not be able to obtain additional financing on favorable terms or at all.
If we are unable to raise additional funds, we may be required to delay, reduce
or eliminate some of our development programs and some of our clinical trials
and other activities. If we raise additional funds by issuing equity
securities, dilution to existing stockholders will result.
We are subject to extensive regulation, which is costly, time-consuming and may
subject us to unanticipated delays; even if we obtain regulatory approval for
some of our products, those products may still face regulatory difficulties.
All of our potential products, cell processing and manufacturing activities,
are subject to comprehensive regulation by the Food and Drug Administration, or
FDA, in the United States and by comparable authorities in other countries. The
process of obtaining FDA and other required regulatory approvals, including
foreign approvals, is expensive and often takes many years and can vary
substantially based upon the type, complexity and novelty of the products
involved. Provenge, Mylovenge and our other products are novel; therefore,
regulatory agencies lack experience with them, which may lengthen the
regulatory review process, increase our development costs and delay or prevent
commercialization of Provenge, Mylovenge and our other products. No cancer
vaccine using dendritic cell technologies has been approved for marketing.
Consequently, there is no precedent for the successful commercialization of
products based on our technologies. In addition, we have had only limited
experience in filing and pursuing applications necessary to gain regulatory
approvals, which may impede our ability to obtain timely FDA approvals. We have
not yet sought FDA approval for any vaccine product. We will not be able to
commercialize any of our potential products until we obtain FDA approval.
Therefore, any delay in obtaining, or inability to obtain, FDA approval would
harm our business.
If we violate regulatory requirements at any stage, whether before or after
marketing approval is obtained, we may be fined, forced to remove a product
from the market and experience other adverse consequences, including delay,
which could materially harm our financial results. Additionally, we may not be
able to obtain the labeling claims necessary or desirable for the promotion of
our products. We may also be required to undertake post-marketing trials. In
addition, if we or others identify side effects after any of our vaccines are
on the market, or if manufacturing problems occur, regulatory approval may be
withdrawn and reformulation of our vaccines, additional clinical trials,
changes in labeling of our vaccines, and additional marketing applications may
be required.
An investigational new drug application must become effective before human
clinical trials may commence. The investigational new drug application is
automatically effective 30 days after receipt by the FDA, unless before that
time the FDA requests an extension to review the application, or raises
concerns or questions about the conduct of the trials as outlined in the
application. In the latter case, the sponsor of the application and the FDA
must resolve any outstanding concerns before clinical trials can proceed. Thus,
the submission of an investigational new drug application may not result in the
FDA authorizing us to commence clinical trials in any given case.
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, the FDA, in some cases, may invalidate the studies and require
that the sponsor replicate those studies.
23
The availability and amount of reimbursement for our potential products, and
the manner in which government and private payors may reimburse for our
potential products is uncertain; we may face challenges from government and
private payors that adversely affect reimbursement for our potential products.
We expect that many of the patients who seek treatment with our products, if
approved for marketing, will be eligible for Medicare benefits. Other patients
may be covered by private health plans or uninsured. The application of
existing Medicare regulations and interpretive rulings to newly-approved
products, especially novel products such as ours, is not certain and those
regulations and interpretive rulings are subject to change. If we are unable to
obtain or retain adequate levels of reimbursement from Medicare or from private
health plans, our ability to sell our potential products will be adversely
affected. Medicare regulations and interpretive rulings also may determine who
provides certain services. This may adversely affect our ability to market or
sell our products, if approved.
Federal and state governments, as well as foreign governments, continue to
propose legislation designed to contain or reduce health care costs.
Legislation and regulations affecting the pricing of biologics may change or be
adopted before any of our products are approved for marketing. Cost control
initiatives could decrease the price that we receive for any one or all of our
potential products or increase patient coinsurance to a level that makes our
products under development unaffordable. In addition, government and private
health plans persistently challenge the price and cost-effectiveness of
biologics and pharmaceuticals. Therefore, any one or all of our products under
development may ultimately not be considered cost effective by these third
party payors and thus not be covered under their health plans or covered only
at a lower price. Any of these initiatives or developments could prevent us
from successfully marketing and selling any of our potential products.
We rely on third parties to perform a variety of functions and have limited
manufacturing and cell processing capabilities, which could limit our ability
to commercialize our products.
We rely in part on collaborators and other third parties to perform for us or
assist us with a variety of important functions, including research and
development, manufacturing and clinical trials management. We also license
technology from others to enhance or supplement our technologies. We have never
manufactured our cancer vaccines and other products on a commercial scale. It
may be difficult or impossible to economically manufacture our products on a
commercial scale. We have contracted with Diosynth RTP, Inc. to assist us in
the scale-up to commercial level production of the antigen used in the
preparation of Provenge. We cannot be certain that this contract will result in
our ability to produce the antigen for Provenge on a commercial scale, if
Provenge is successful.
We intend to rely on third party contract manufacturers to produce large
quantities of materials needed for clinical trials and product
commercialization. Third party manufacturers may not be able to meet our needs
with respect to timing, quantity or quality. If we are unable to contract for a
sufficient supply of needed materials on acceptable terms, or if we should
encounter delays or difficulties in our relationships with manufacturers, our
clinical testing may be delayed, thereby delaying the submission of products
for regulatory approval or the market introduction and subsequent sales of our
products. Any delay may lower our revenues and potential profitability and
adversely affect our stock price.
In addition, we and any third-party manufacturers that we may use must
continually adhere to current Good Manufacturing Practices, or cGMP,
regulations enforced by the FDA through its facilities inspection program. If
our facilities or the facilities of these manufacturers cannot pass a
pre-approval plant inspection, the FDA pre market approval of our vaccines will
not be granted. In complying with cGMP and foreign regulatory requirements, we
and any of our third-party manufacturers will be obligated to expend time,
money and effort in production, record-keeping and quality control to assure
that our products meet applicable specifications and other requirements. If we
or any of our third-party manufacturers fail to comply with these requirements,
we may be subject to regulatory action.
We have constructed two facilities for cell processing, the manufacture of
antigens for our clinical trials, and final formulation of our cancer vaccines.
We also use three third-party cell processing centers. These five facilities
may not be sufficient to meet our needs for our prostate, multiple myeloma and
other clinical trials. Additionally, if we decide to manufacture our products
in commercial quantities ourselves, we will require substantial additional
funds and will be required to hire and train significant numbers of employees,
construct additional facilities and comply with applicable regulations for
these facilities, which are extensive. We may not be able to develop production
facilities that both meet regulatory requirements and are sufficient for all
clinical trials or commercial use.
24
If we lose or are unable to secure collaborators, or if our collaborators,
including Kirin, do not apply adequate resources to their collaboration with
us, our product development and potential for profitability may suffer.
We intend to enter into collaborations for one or more of the research,
development, manufacturing, marketing and other commercialization activities
relating to some of our products under development. We have entered into a
collaboration with Kirin relating to the development and commercialization of
our products based on our dendritic cell technologies in Asia. As our
collaborator, Kirin funds testing, makes regulatory filings and may manufacture
and market our products in Asia. The amount and timing of resources applied by
Kirin or other potential collaborators to our joint efforts are not within our
control.
If any collaborator breaches or terminates its agreement with us, or fails
to conduct its collaborative activities in a timely manner, the
commercialization of our products under development could be slowed down or
blocked completely. It is possible that Kirin or other collaborators will
change their strategic focus, pursue alternative technologies or develop
alternative products, either on their own or in collaboration with others, as a
means for developing treatments for the diseases targeted by our collaborative
programs. The effectiveness of our collaborators in marketing our products will
also affect our revenues and earnings.
Our collaboration with Kirin may not continue or be successful and we may
not receive any further research funding, milestone or royalty payments. We
recognized approximately 36% of our revenue in 2001 from our collabo ration
with Kirin. We intend to continue to enter into new collaborative agreements in
the future. However, we may not be able to successfully negotiate any
additional collaborative arrangements. If established, these relationships may
not be scientifically or commercially successful. Any additional collaborations
would likely subject us to some or all of the risks described above with
respect to our collaboration with Kirin. Disputes may arise between us and our
existing or potential collaborators, as to a variety of matters, including
financial or other obligations under our agreements. These disputes may be both
expensive and time-consuming and may result in delays in the development and
commercialization of products.
We are dependent on single-source vendors for some of our components.
We currently depend on single-source vendors for some of the components
necessary for our vaccine candidates such as cell culture media. There are, in
general, relatively few alternative sources of supply for these products. While
these vendors have produced our products with acceptable quality, quantity and
cost in the past, they may be unable or unwilling to meet our future demands.
Establishing additional or replacement suppliers for these products could take
a substantial amount of time. If we have to switch to a replacement vendor, the
manufacture and delivery of our vaccines could be interrupted for an extended
period.
If we are unable to protect our proprietary rights, we may not be able to
compete effectively or operate profitably.
Our success is dependent in part on obtaining, maintaining and enforcing our
patents and other proprietary rights and our ability to avoid infringing the
proprietary rights of others. Patent law relating to the scope of claims in the
biotechnology field in which we operate is still evolving and, consequently,
patent positions in our industry may not be as strong as in other more
well-established fields. Accordingly, the United States Patent and Trademark
Office may not issue patents from the patent applications owned by or licensed
to us. If issued, the patents may not give us an advantage over competitors
with similar technology. It is also possible that third parties may
successfully avoid our patents through design innovation.
The issuance of a patent is not conclusive as to its validity or
enforceability and it is uncertain how much protection, if any, will be given
to our patents if we attempt to enforce them and they are challenged in court
or in other proceedings, such as oppositions, which may be brought in domestic
or foreign jurisdictions to challenge the validity of a patent. A third party
may challenge the validity or enforceability of a patent after its issuance by
the Patent Office. It is possible that a third party may successfully challenge
our patents or patents licensed by us from others, or that a challenge will
result in limiting their coverage. The cost of litigation to uphold the
validity of patents and to prevent infringement can be substantial and, if the
outcome of litigation is adverse to us, third parties may be able to use our
patented invention without payment to us. Moreover, it is possible that third
parties may infringe our patents. To stop these activities we may need to file
a lawsuit. Even if we were successful in stopping the violation of our patent
rights, these lawsuits are expensive and consume time and other resources. In
addition, there is a risk that a court would decide that our patents are not
valid and that we do not have the right to stop the other party from using the
invention. There is also the risk that, even if the validity of our patents is
upheld, a court will refuse to stop the other party on the grounds that its
activities are not covered by, that is, do not infringe, our patents.
25
In addition to the intellectual property rights described above, we also
rely on unpatented technology, trade secrets and confidential information.
Therefore, others may independently develop substantially equivalent
information and techniques or otherwise gain access to or disclose our
technology. We may not be able to effectively protect our rights in unpatented
technology, trade secrets and confidential information. We require each of our
employees, consultants and advisors to execute a confidentiality agreement at
the commencement of an employment or consulting relationship with us. However,
these agreements may not provide effective protection for our information or,
in the event of unauthorized use or disclosure, they may not provide adequate
remedies.
The use of our technologies could potentially conflict with the rights of
others.
Our competitors or others may have or acquire patent rights that they could
enforce against us. If they do so, then we may be required to alter our
products, pay licensing fees or cease activities. If our products conflict with
patent rights of others, third parties could bring legal actions against us
claiming damages and seeking to enjoin manufacturing and marketing of the
affected products. If these legal actions are successful, in addition to any
potential liability for damages, we could be required to obtain a license in
order to continue to manufacture or market the affected products. We may not
prevail in any legal action and a required license under the patent may not be
available on acceptable terms or at all.
We may incur substantial costs as a result of litigation or other proceedings
relating to patent and other intellectual property rights.
The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial. Some of
our competitors may be better able to sustain the costs of complex patent
litigation because they have substantially greater resources. If there is
litigation against us, we may not be able to continue our operations as planned.
Should third parties file patent applications, or be issued patents claiming
technology also claimed by us in pending applications, we may be required to
participate in interference proceedings in the United States Patent and
Trademark Office to determine priority of invention. We may be required to
participate in interference proceedings involving our issued patents and
pending applications. We may be required to cease using the technology or to
license rights from prevailing third parties as a result of an unfavorable
outcome in an interference proceeding. A prevailing party in that case may not
offer us a license on commercially acceptable terms or at all.
We are exposed to potential product liability claims, and insurance against
these claims may not be available to us at a reasonable rate in the future.
Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. We have clinical trial coverage and we intend to obtain product
liability coverage in the future. However, insurance coverage may not be
available to us at an acceptable cost, if at all. We may not be able to obtain
insurance coverage that will be adequate to satisfy any liability that may
arise. Regardless of their merit or eventual outcome, product liability claims
may result in decreased demand for a product, injury to our reputation,
withdrawal of clinical trial volunteers and loss of revenues. Thus, whether or
not we are insured, a product liability claim or product recall may result in
losses that could be material.
Competition in our industry is intense and many of our competitors have
substantially greater resources than we do.
Competition in the cancer vaccine, infectious disease, autoimmune disease and
allergy fields is intense and is accentuated by the rapid pace of technological
development. Research and discoveries by others may result in breakthroughs
which may render our products obsolete even before they generate any revenue.
There are products currently under development by others that could compete
with the products that we are developing. Many of our competitors have
substantially greater research and development capabilities and manufacturing,
marketing, financial and managerial resources than we do. Our competitors may:
. develop safer or more effective immunotherapeutics and other therapeutic
products;
. each the market more rapidly, reducing the potential sales of our
products; or
. establish superior proprietary positions.
26
We understand that companies, including AVI BioPharma, Inc., Cell Genesys,
Inc., Northwest Biotherapeutics, Inc., Therion Biologics Corporation and Vical
Incorporated may be developing prostate cancer vaccines that could potentially
compete with Provenge, if Provenge is successfully developed. These competitors
may succeed in developing and marketing cancer vaccines that are more effective
than, or marketed before, Provenge. receive marketing approval but cannot
compete effectively in the marketplace, our profitability and financial
position would suffer.
We anticipate that we will face increased completion in the future as new
companies enter our markets and as scientific developments surrounding
immunotherapy and other cancer therapies continue to accelerate. If our
products receive marketing approval but cannot compete effectively in the
marketplace, our profitability and financial position would suffer.
We must expand our operations to commercialize our products, which we may not
be able to do.
We will need to expand and effectively manage our operations and facilities to
successfully pursue and complete future research, development and
commercialization efforts. To grow we will need to add personnel and expand our
capabilities, which may strain our existing managerial, operational, financial
and other resources. To complete effectively and manage our growth, we must:
. train, manage and motivate a growing employee base;
. accurately forecast demand for our products; and
. expand existing operational, financial and management information systems.
If we fail to manage our growth effectively, our product development and
commercialization efforts could be curtailed or delayed.
If we lose key employees or cannot recruit qualified employees, our product
development programs and our research and development efforts may be harmed.
Our success depends, to a significant extent, upon the efforts and abilities of
our key employees. The loss of the services of one or more of our key employees
may delay our product development programs and our research and development
efforts. We do not maintain key person life insurance on any of our officers,
employees or consultants.
Competition for qualified employees among companies in the biotechnology and
biopharmaceutical industry is intense. Our future success depends upon our
ability to attract, retain and motivate highly skilled employees. In order to
commercialize our products successfully, we may be required to expand
substantially our workforce, particularly in the areas of manufacturing,
clinical trials management, regulatory affairs, business development and sales
and marketing. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel.
Market volatility may affect our stock price and the value of an investment in
our common stock may be subject to sudden decreases.
The trading price for our common stock has been, and we expect it to continue
to be, volatile. The price at which our common stock trades depends upon a
number of factors, including our historical and anticipated operating results,
preclinical and clinical trial results, market perception of the prospects for
biotechnology companies as an industry sector and general market and economic
conditions, some of which are beyond our control. Factors such as fluctuations
in our financial and operating results, changes in government regulations
affecting product approvals reimbursement or other aspects of our or our
competitors' businesses, the results of preclinical and clinical trials,
announcements of technological innovations or new commercial products by us our
competitors, developments concerning key personnel and our intellectual
property rights, significant collaborations or strategic alliances and
publicity regarding actual or potential performance of products under
development by us or our competitors could also cause the market price of our
common stock to fluctuate substantially. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations. These broad
market fluctuations may lower the market price of our common stock. Moreover,
during periods of stock market price volatility, share prices of many
biotechnology companies have often fluctuated in a manner not necessarily
related to the companies' operating performance. Accordingly, our common stock
may be subject to greater price volatility than the stock market as a whole.
27
Anti-takeover provisions in our charter documents and under Delaware law could
make an acquisition of us, which may be beneficial to our stockholders, more
difficult.
Provisions of our certificate of incorporation and bylaws will make it more
difficult for a third party to acquire us on terms not approved by our Board of
Directors and may have the effect of deterring hostile takeover attempts. For
example, our certificate of incorporation authorizes our Board of Directors to
issue up to 10,000,000 shares of preferred stock and to fix the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of our common stock will be subject to, and may be harmed by, the
rights of the holders of any preferred stock that may be issued in the future.
The issuance of preferred stock could reduce the voting power of the holders of
our common stock and the likelihood that common stockholders will receive
payments upon liquidation. We are also subject to provisions of Delaware law
that could have the effect of delaying, deferring or preventing a change in
control of our company. One of these provisions prevents us from engaging in a
business combination with any interested stockholder, unless specified
conditions are satisfied. These and other impediments to a third-party
acquisition or change of control could limit the price investors are willing to
pay in the future for shares of our common stock.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
As of December 31, 2001, we had short-term investments of $57.0 million and
long-term investments of $10.4 million. Our short-term and long-term
investments are subject to interest rate risk and will decline in value if
market interest rates increase. The estimated fair value of our short- and
long-term investments, assuming a 100 basis point increase in market interest
rates, would decrease by $322,000, which would not materially impact our
operations. Our outstanding bank loans and capital lease obligations are all at
fixed interest rates and therefore have minimal exposure to changes in interest
rates.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Our financial statements, together with related notes are listed in Items 14(a)
and included herein beginning on page F-1.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
- --------------------------------------------------------------------------------
None.
28
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
The information required by this item concerning our directors and nominees is
incorporated by reference to our definitive Proxy Statement for our 2002 Annual
Meeting of Stockholders (the "2002 Proxy Statement") under the captions
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," and for our executive officers, to the extent not included in the
information incorporated by reference, in Part I, Item 1, under the caption
"Executive Officers of the Registrant."
ITEM 11.
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The information required by this item is incorporated by reference to the 2002
Proxy Statement under the caption "Executive Compensation."
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The information required by this item is incorporated by reference to the 2002
Proxy Statement under the caption "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The information required by this item is incorporated by reference to the 2002
Proxy Statement under the caption "Certain Transactions."
29
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Index to Financial Statements and Report of Independent Auditors.
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
Page
------------------------------------------------------
Index to Financial Statements F-1
Report of Ernst & Young LLP, Independent Auditors F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
(2) Index to Financial Statement Schedules.
None required.
(3) Exhibits.
Exhibit
Number Description
- ----------------------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation.(2)
3.2 Bylaws.(1)
4.1 Specimen Common Stock certificate.(1)
10.1 Indemnity Agreement between the Registrant and each of its directors and certain of its officers.(2)
10.2 2000 Equity Incentive Plan, as amended.(3)*
10.3 2000 Employee Stock Purchase Plan.(2)*
10.4 Fourth Amended and Restated Stockholders' Agreement, dated September 3, 1999, between the Registrant and
certain holders of the Registrant's securities.(1)
10.5 Registration Rights and Shareholder's Agreement, dated October 18, 1999, between the Registrant and Fresenius
AG.(1)
10.6 Warrant to purchase 250,000 shares of common stock issued by the Registrant to Fresenius AG, dated October 18,
1999.(1)
10.7 Letter dated September 3, 1998 regarding employment arrangement of Christopher S. Henney and David L.
Urdal.(1)
10.8 Lease Agreement, dated October 27, 1992 and commencing July 1, 1993, between the Registrant and Vanni
Business Park General Partnership.(1)
10.9 Lease Agreement, dated July 31, 1998, between the Registrant and ARE-3005 First Avenue, LLC.(1)
10.10 Loan and Security Agreement, dated July 30, 1999, between the Registrant and Transamerica Business Credit
Corporation.(1)
10.11 Amended and Restated Master Lease Agreement, dated May 28, 1999, between the Registrant and Transamerica
Business Credit Corporation.(1)
30
Exhibit
Number Description
- ---------------------------------------------------------------------------------------------------------------------
10.12 Second Amendment to Master Lease Agreement, dated January 31, 2000, between the Registrant and
Transamerica Business Credit Corporation.(1)
10.13+ Collaborative License Agreement, dated December 10, 1998, between the Registrant and Kirin Brewery Co.,
Ltd.(1)
10.14+ Research and License Agreement, dated February 1, 1999, between the Registrant and Kirin Brewery Co., Ltd.(1)
10.15+ Manufacturing and Supply Agreement, dated July 27, 1999, between the Registrant and Kirin Brewery Co.,
Ltd.(1)
10.16+ Joint Commercialization Agreement, dated February 1, 2000, between the Registrant and Kirin Brewery Co.,
Ltd.(1)
10.17 Stock Purchase Agreement, dated June 16, 2000, between the Registrant and Kirin Brewery, Co., Ltd.(2)
10.18+ Research Collaboration and License Agreement, dated October 1, 2000, between the Registrant and J&J PRD (2)
10.19+ Bioprocessing Services Agreement, dated March 16, 2001, between the Registrant and Covance Biotechnology
Services, Inc. (4)
10.20+ Memorandum of Modification to Kirin and Dendreon Collaboration, dated August 3, 2001. (5)
10.21++ Mononuclear Cell Collection Services Agreement dated October 26, 2001 between the Registrant and Gambro
Healthcare, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (contained on signature page).
(1) Filed as an exhibit to Registration Statement on Form S-1, File No. 333-
31920 and incorporated by reference herein.
(2) Filed as an exhibit to Registration Statement on Form S-1, File No.
333-47706 and incorporated by reference herein.
(3) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 and incorporated by reference herein.
(4) Filed as an exhibit to Registrant's Report on Form 10Q for the quarter
ended March 31, 2001 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Report on Form 10-Q for the quarter
ended September 30, 2001 and incorporated by reference herein.
+ Confidential treatment granted as to certain portions of this Exhibit.
++ Confidential treatment has been requested with the respect to certain
portions of this agreement.
* Management compensatory plans and arrangements required to be filed as
exhibits to this Report.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed in the fourth quarter of 2001.
(c) Exhibits
See exhibits listed under Item 14(a)(3).
(d) Financial Statement Schedules
The financial statement schedules required by this item are listed under
Item 14(a)(2).
31
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 on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, King County, State of Washington, on this 26/th/ day of March, 2002.
DENDREON CORPORATION
By: /s/ Christopher S. Henney, Ph.D., D.Sc.
- -----------------------------------
Christopher S. Henney, Ph.D., D.Sc.
Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Christopher S. Henney, Ph.D., D.Sc. and
Martin A. Simonetti, his or her true and lawful attorneys-in-fact each acting
alone, with full power of substitution and re-substitution, for him or her and
in his or her name, place and stead in any and all capacities to sign any or
all amendments to this report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact, or their substitutes, each
acting alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------------------------------------------------------------------------
/s/ Christopher S. Henney, Chief Executive Officer and March 26, 2002
Ph.D., D.Sc. Chairman of the Board of
- ----------------------------- Directors (Principal
Christopher S. Henney, Ph.D., Executive Officer)
D.Sc.
/s/ Martin A. Simonetti, Chief Financial Officer, March 26, 2002
M.B.A. Senior Vice President,
- ----------------------------- Finance, and Treasurer
Martin A. Simonetti, M.B.A. (Principal Financial and
Accounting Officer)
/s/ William Crouse Director March 26, 2002
- -----------------------------
William Crouse
/s/ Gerardo Canet Director March 26, 2002
- -----------------------------
Gerardo Canet
/s/ Bogdan Dziurzynski Director March 26, 2002
- -----------------------------
Bogdan Dziurzynski
/s/ Timothy Harris, Ph.D. Director March 26, 2002
- -----------------------------
Timothy Harris, Ph.D.
32
Signature Title Date
- --------------------------------------------------------------------------
/s/ Ruth Kunath Director March 26, 2002
- -----------------------------
Ruth Kunath
/s/ Ralph Shaw Director March 26, 2002
- -----------------------------
Ralph Shaw
/s/ David L. Urdal, Ph.D. Director March 26, 2002
- -----------------------------
David L. Urdal, Ph.D.
/s/ Douglas Watson Director March 26, 2002
- -----------------------------
Douglas Watson
33
INDEX TO FINANCIAL STATEMENTS DENDREON CORPORATION
Page
------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS DENDREON CORPORATION
The Board of Directors and Stockholders
Dendreon Corporation
We have audited the accompanying balance sheets of Dendreon Corporation as of
December 31, 2001 and 2000, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dendreon Corporation as of
December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Seattle, Washington
February 8, 2002
F-2
BALANCE SHEETS DENDREON CORPORATION
December 31,
------------------
(in thousands, except share and per share amounts) 2001 2000
- ------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,912 $ 50,493
Short-term investments 56,969 32,011
Accounts receivable 1,955 6,855
Other current assets 3,253 2,915
------------------
Total current assets 76,089 92,274
Property and equipment, net 3,858 1,762
Long-term investments 10,361 14,651
Deposits and other assets 774 871
------------------
Total assets $ 91,082 $109,558
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 932 $ 1,246
Accrued liabilities 4,524 2,400
Accrued compensation 1,975 1,969
Deferred revenue 7,572 9,924
Current portion of long-term debt 281 1,565
Current portion of capital lease obligations 1,120 610
------------------
Total current liabilities 16,404 17,714
Deferred revenue, less current portion 7,454 4,856
Long-term debt, less current portion - 281
Capital lease obligations, less current portion 2,013 1,188
Commitments
Stockholders' equity:
Common stock, $0.001 par value; 80,000,000 shares authorized, 24,919,696 and 24,449,958
shares issued and outstanding at December 31, 2001 and 2000, respectively 25 24
Additional paid-in capital 156,481 155,413
Deferred stock-based compensation (987) (2,442)
Accumulated other comprehensive income 486 160
Accumulated deficit (90,794) (67,636)
------------------
Total stockholders' equity 65,211 85,519
------------------
Total liabilities and stockholders' equity $ 91,082 $109,558
==================
See accompanying notes.
F-3
STATEMENTS OF OPERATIONS DENDREON CORPORATION
Year Ended December 31,
----------------------------------
(in thousands, except share and per share amounts) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Revenue:
Collaborative and license revenue $ 13,622 $ 6,059 $ 3,458
Grant revenue 202 460 261
----------------------------------
Total revenue 13,824 6,519 3,719
Operating expenses:
Research and development 31,314 17,191 10,222
General and administrative 8,117 7,262 6,110
Marketing 1,788 250 -
----------------------------------
Total operating expenses 41,219 24,703 16,332
----------------------------------
Loss from operations (27,395) (18,184) (12,613)
Interest and other income, net:
Interest income 4,795 2,828 414
Interest expense (558) (613) (351)
Other income, net - - 32
----------------------------------
Interest and other income, net 4,237 2,215 95
----------------------------------
Loss before income taxes (23,158) (15,969) (12,518)
Provision for income taxes - 100 -
----------------------------------
Net loss (23,158) (16,069) (12,518)
Deemed dividend upon issuance of convertible preferred stock - (4,110) (285)
----------------------------------
Net loss attributable to common stockholders $ (23,158) $ (20,179) $(12,803)
==================================
Basic and diluted net loss per share $ (0.94) $ (1.57) $ (13.54)
==================================
Shares used in computation of basic and diluted net loss per share 24,759,615 12,839,866 945,761
==================================
See accompanying notes.
F-4
STATEMENTS OF STOCKHOLDERS' EQUITY DENDREON CORPORATION
Convertible Preferred Stock Common Stock
------------------------- -----------------
(in thousands, except share and per share amounts) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1999 9,009,524 $ 9 694,482 $ 1
Exercise of stock options for cash - - 416,576 -
Issuance of Series E convertible preferred stock for cash at $4.25 per share
(net of issuance costs of $27) 3,098,845 3 - -
Issuance of stock warrants - - - -
Deferred stock-based compensation - - - -
Amortization of deferred stock-based compensation - - - -
Net loss - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 12,108,369 12 1,111,058 1
Exercise of stock options for cash - - 810,366 1
Issuance of Series E convertible preferred stock for cash at $4.25 per share
(net of issuance costs of $15) 970,708 1 - -
Conversion of preferred stock to common stock on a 1 to 1.1 basis (13,079,077) (13) 14,386,945 14
Proceeds from initial public offering (net of issuance costs of $5,023) - - 4,885,732 5
Issuance of common stock for cash - - 500,000 1
Proceeds from follow-on public offering (net of issuance costs of $2,872) - - 2,753,000 2
Exercise of stock warrants - - 2,857 -
Deferred stock-based compensation - - - -
Amortization of deferred stock-based compensation - - - -
Comprehensive loss:
Net loss - - - -
Net unrealized gain on securities available-for-sale - - - -
Comprehensive loss
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 - - 24,449,958 24
Exercise of stock options for cash - - 375,872 1
Issuance of common stock under the Employee Stock Purchase Plan - - 77,737 -
Issuance of stock warrants for capital leases - - - -
Issuance of stock options for services - - - -
Issuance of common stock for license arrangement - - 16,129 -
Amortization of deferred stock-based compensation - - - -
Reversal of deferred stock-based compensation due to Terminations - - - -
Comprehensive loss
Net loss - - - -
Net unrealized gain on securities available-for-sale - - - -
Comprehensive loss
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 - $ - 24,919,696 $25
==============================================================================================================================
Accumulated
Additional Deferred Other
Paid-in Stock-Based Comprehensive
(in thousands, except share and per share amounts) Capital Compensation Income
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1999 $ 42,258 $ (440) $ -
Exercise of stock options for cash 217 - -
Issuance of Series E convertible preferred stock for cash at $4.25 per share
(net of issuance costs of $27) 13,140 - -
Issuance of stock warrants 1,104 - -
Deferred stock-based compensation 2,119 (2,119) -
Amortization of deferred stock-based compensation - 844 -
Net loss - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 58,838 (1,715) -
Exercise of stock options for cash 423 - -
Issuance of Series E convertible preferred stock for cash at $4.25 per share
(net of issuance costs of $15) 4,109 - -
Conversion of preferred stock to common stock on a 1 to 1.1 basis (1) - -
Proceeds from initial public offering (net of issuance costs of $5,023) 43,829 - -
Issuance of common stock for cash 4,999 - -
Proceeds from follow-on public offering (net of issuance costs of $2,872) 40,141 - -
Exercise of stock warrants - - -
Deferred stock-based compensation 3,075 (3,075) -
Amortization of deferred stock-based compensation - 2,348 -
Comprehensive loss:
Net loss - - -
Net unrealized gain on securities available-for-sale - - 160
Comprehensive loss
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 155,413 (2,442) 160
Exercise of stock options for cash 343 - -
Issuance of common stock under the Employee Stock Purchase Plan 661 - -
Issuance of stock warrants for capital leases 60 - -
Issuance of stock options for services 60 - -
Issuance of common stock for license arrangement 150 - -
Amortization of deferred stock-based compensation - 1,249 -
Reversal of deferred stock-based compensation due to Terminations (206) 206 -
Comprehensive loss
Net loss - - -
Net unrealized gain on securities available-for-sale - - 326
Comprehensive loss
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $156,481 $ (987) $486
=======================================================================================================================
Total
Accumulated Stockholders'
(in thousands, except share and per share amounts) Deficit Equity
- -----------------------------------------------------------------------------------------------------------
Balance, January 1, 1999 $(39,049) $ 2,779
Exercise of stock options for cash - 217
Issuance of Series E convertible preferred stock for cash at $4.25 per share
(net of issuance costs of $27) - 13,143
Issuance of stock warrants - 1,104
Deferred stock-based compensation - -
Amortization of deferred stock-based compensation - 844
Net loss (12,518) (12,518)
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 (51,567) 5,569
Exercise of stock options for cash - 424
Issuance of Series E convertible preferred stock for cash at $4.25 per share
(net of issuance costs of $15) - 4,110
Conversion of preferred stock to common stock on a 1 to 1.1 basis - -
Proceeds from initial public offering (net of issuance costs of $5,023) - 43,834
Issuance of common stock for cash - 5,000
Proceeds from follow-on public offering (net of issuance costs of $2,872) - 40,143
Exercise of stock warrants - -
Deferred stock-based compensation - -
Amortization of deferred stock-based compensation - 2,348
Comprehensive loss:
Net loss (16,069) (16,069)
Net unrealized gain on securities available-for-sale - 160
--------
Comprehensive loss (15,909)
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 (67,636) 85,519
Exercise of stock options for cash - 344
Issuance of common stock under the Employee Stock Purchase Plan - 661
Issuance of stock warrants for capital leases - 60
Issuance of stock options for services - 60
Issuance of common stock for license arrangement - 150
Amortization of deferred stock-based compensation - 1,249
Reversal of deferred stock-based compensation due to Terminations - -
Comprehensive loss
Net loss (23,158) (23,158)
Net unrealized gain on securities available-for-sale - 326
--------
Comprehensive loss (22,832)
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $(90,794) $ 65,211
===========================================================================================================
See accompanying notes
F-5
STATEMENTS OF CASH FLOWS DENDREON CORPORATION
Year Ended December 31,
----------------------------
(in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Operating Activities:
Net loss $(23,158) $(16,069) $(12,518)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,315 705 485
Non-cash stock-based compensation expense 1,249 2,348 844
Non-cash interest expense 110 93 38
Non-cash research and development expense 192 - 190
Changes in assets and liabilities:
Accounts receivable 4,900 (6,042) (534)
Other current assets (338) (2,339) (283)
Deposits and other assets 97 (290) (79)
Deferred revenue 246 8,803 (294)
Accounts payable (314) 869 (187)
Accrued liabilities and compensation 2,130 3,107 235
----------------------------
Net cash used in operating activities (13,571) (8,815) (12,103)
----------------------------
Investing Activities:
Purchases of investments (88,678) (94,358) (6,211)
Maturities of investments 68,304 54,583 2,530
Purchases of property and equipment (3,411) (968) (850)
----------------------------
Net cash used in investing activities (23,785) (40,743) (4,531)
----------------------------
Financing Activities:
Proceeds from capital lease financing arrangement 2,088 1,172 700
Proceeds from (payments on) long-term debt (1,565) (1,154) 3,000
Payments on capital lease obligations (753) (564) (224)
Proceeds from sale of common stock - 88,978 -
Proceeds from sale of preferred stock - 4,110 13,143
Proceeds from exercise of stock options 344 424 217
Proceeds from employee stock purchase plan 661 - -
----------------------------
Net cash provided by financing activities 775 92,966 16,836
----------------------------
Net increase in cash and cash equivalents (36,581) 43,408 202
Cash and cash equivalents at beginning of year 50,493 7,085 6,883
----------------------------
Cash and cash equivalents at end of year $ 13,912 $ 50,493 $ 7,085
============================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 448 $ 520 $ 308
============================
Cash paid during the period for foreign taxes $ - $ 100 $ -
============================
See accompanying notes.
F-6
NOTES TO FINANCIAL STATEMENTS DENDREON CORPORATION
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization
Dendreon Corporation (the Company) was founded in 1992 as a Delaware-based
corporation headquartered in Mountain View, California. The Company relocated
to Seattle, Washington in 1999.
The Company is dedicated to the discovery and development of novel products
for the treatment of diseases through its innovative manipulation of the immune
system. Dendreon's product pipeline is focused on cancer, and includes
therapeutic vaccines, monoclonal antibodies and a pathway to small molecules.
The products most advanced in development are therapeutic vaccines that
stimulate a patient's immunity for the treatment of cancer.
Cash, Cash Equivalents, Short- and Long-Term Investments
The Company considers investments in highly liquid instruments purchased with a
remaining maturity of 90 days or less to be cash equivalents. The amounts are
recorded at cost, which approximate fair market value. The Company's cash
equivalents, short- and long-term investments consist principally of commercial
paper, money market securities, corporate bonds/notes and certificates of
deposit.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity and included in accumulated other comprehensive income.
The amortized cost of investments is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion are
included in interest income. Interest earned on securities is included in
interest income.
The cost of securities sold is based on the specific identification method.
There were no gross realized gains or losses during the years ended December
31, 2001, 2000, and 1999.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which is
generally three to four years. Computers and equipment leased under capital
leases are amortized over the shorter of the useful lives of the related assets
or the lease term. Leasehold improvements are stated at cost and amortized
using the straight-line method over the remaining life of the lease or five
years, whichever is shorter.
Concentrations of Risk
The Company is subject to concentration of risk from its investments and
single-source vendors for some components necessary for our vaccine product
candidates. Risk for investments is managed by purchase of investment grade
securities, A1/P1 for money market instruments and A or better for debt
instruments, and diversification of the investment portfolio among issuers and
maturities. Risk for single-source vendors is managed by maintaining safety
stock of components and a continued effort of establishing additional suppliers.
Revenue Recognition
Non-refundable, up-front payments received in connection with collaborative
research and development agreements are deferred and recognized on a
straight-line basis over the relevant periods specified in the agreement,
generally the research term.
Revenue related to collaborative research with the Company's corporate
collaborators is recognized as research services are performed over the related
funding periods for each agreement. Under these agreements, the Company is
required to perform research and development activities as agreed or specified
in each agreement. The payments received under research collaboration
agreements are not refundable if the research effort is not successful.
Payments received in advance of the services provided are deferred and
recognized as revenue over the future performance periods.
Revenue related to grant agreements is recognized as related research and
development expenses are incurred.
Milestone and royalty payments are recognized in full at such time as the
specified milestone has been achieved. Revenue from product supply agreements
is recorded when the product is shipped and when all obligations under the
agreements are met.
F-7
1. Organization and summary of significant accounting policies (continued)
Research and Development Expenses
Research and development expenses consist of costs incurred for proprietary and
collaborative research and development and costs incurred under product supply
agreements prior to product approval. These costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. On an on-going basis, we evaluate our estimates, including those related
to revenue recognition, investments, income taxes, financing operations,
long-term service contracts, and other contingencies. Actual results could
differ from those estimates.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations, in
accounting for employee stock options rather than the alternative fair value
accounting allowed by Statement of Financial Accounting Standards (SFAS) No.
123 "Accounting for Stock-Based Compensation." Under APB No. 25, compensation
expense related to the Company's employee stock options is measured based on
the intrinsic value of the stock option. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide pro forma disclosure of the impact of
applying the fair value method of SFAS No. 123. The Company recognizes
compensation expense for options granted to non-employees in accordance with
the provisions of SFAS No. 123 and the Emerging Issues Task Force consensus
Issue 96-18, "Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,"
which require using a Black-Scholes option pricing model and re-measuring such
stock options to the current fair market value as the underlying option vests.
Deferred stock-based compensation consists of amounts recorded when the
exercise price of an option is lower than the subsequently determined fair
value of the underlying common stock on the date of grant. Deferred stock-based
compensation is amortized over the vesting period of the underlying option
using the graded vesting method.
Net Loss Per Share
Basic and diluted net loss per share of common stock are presented in
conformity with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (FAS 128). The calculation of basic and diluted net loss per share
has been detailed in Note 9.
Fair Value of Financial Instruments
At December 31, 2001, the carrying value of accounts receivable, accounts
payable, and accrued liabilities approximates fair value based on the liquidity
of these financial instruments or their short-term nature. The carrying value
of debt approximates fair value based on the market interest rates available to
the Company for debt of similar risk and maturities.
Recent Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS
141 requires all business combinations to be accounted for using the purchase
method of accounting and became effective for all business combinations
initiated after June 20, 2001. SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written off when impaired, rather
than being amortized as previous standards required. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. The adoption of these new
standards as of January 1, 2002, will not have an effect on the Company's
operating results or financial condition.
In October 2001, FASB issued Statement of Financial Accounting Standards N.
144, Accounting for Impairment or Disposal of Long-Lived Assets effective for
fiscal years beginning after December 15, 2001, with transition provisions for
certain matters. The FASB's new rules on asset impairment supersedes FASB
Statement No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, and provide a single accounting model for
long-lived assets to be disposed of. The Company does not expect that the
adoption of SFAS No. 144 will have a material impact on its operating results
or financial condition.
F-8
2. SIGNIFICANT AGREEMENTS
- --------------------------------------------------------------------------------
In October 2000, the Company entered into a Research Collaboration and License
Agreement with J&J PRD. The agreement provides for studies of J&J PRD's
technology and the Company's technology to determine their respective
feasibility as immunotherapy products for the treatment of tumors which express
a defined antigen present on breast, ovarian and colorectal cancers. The
research plan, covering a defined territory and field, will be performed
jointly by the Company and J&J PRD. The research plan will involve at least two
Phase I clinical trials of human subjects. The Company received a
non-refundable study fee of $3.0 million upon signing the agreement. The
Company also received a $1.0 million payment in December 2000 after the Company
received FDA acceptance on an Investigational New Drug application. These
payments have been deferred and are being recognized on a straight line basis
over the 27-month term of the agreement. J&J PRD will also provide funding to
the Company for research and development on a full time equivalent basis,
capital purchases related to the agreement, and contract costs as provided for
in the collaboration research plan. During the years ended December 31, 2001
and 2000, the Company recognized revenue of $8.3 and $1.5 million related to
this agreement, respectively, of which $6.1 and $1.1 million related to the
research and development funding, respectively. The agreement terminates on
December 31, 2002. The Company and J&J PRD are engaged in on-going discussions
about continuing their collaboration.
J&J PRD paid the Company $1.1 million to acquire capital assets provided for
in the collaboration research plan. The Company purchased $498,000 and $0 in
capital assets under this agreement in 2001 and 2000, respectively. This unused
cash balance of $1.1 million and $642,000 is included in the cash and cash
equivalents balance at December 31, 2001 and 2000.
In December 1998, the Company and Kirin Brewery Co., Ltd. (Kirin) entered
into a collaborative license agreement. The Company granted Kirin an exclusive
license to employ the Company's dendritic cell technology in the development of
therapeutic products for commercialization in Japan and certain other Asian
countries. The Company also granted Kirin an option to obtain an exclusive
license to commercialize in those countries, other products developed by the
Company. In exchange, Kirin granted the Company an option to obtain an
exclusive license to commercialize in North America any products developed by
Kirin under this agreement. The Company received a nonrefundable, up-front fee
of $5.0 million upon signing the agreement for the license rights granted under
the agreement. In February 1999, the Company and Kirin also entered into a
joint research agreement relating to dendritic cell product development. Under
the terms of the agreement, Kirin will fund a minimum of $1.4 million per year
for up to five years. In July 1999, the Company and Kirin entered into a
manufacturing and supply agreement. Under the agreement, each party may supply
the other with antigens or other supplies.
In December 1998 and April 2000, Kirin exercised options under the
collaboration agreement to receive rights to the Company's prostate program and
multiple myeloma program, respectively. Kirin is solely responsible for the
development and clinical trials of the prostate and multiple myeloma programs
in Japan. The Company received a $1.0 million non-refundable, up-front option
fee on exercise of each of the options. The up-front option fees have been
deferred and are being recognized on a straight-line basis over the five year
research term. The Company will also receive royalties on sales of any products
that utilize the licensed technology.
Under the terms of the agreement, Kirin made a $2.0 million equity
investment in the Company as part of the Company's Series D preferred stock
offering in 1998. In February 2000, the Company exercised its right under the
collaboration agreement to require Kirin to purchase $5 million of the
Company's common stock. The purchase was closed in a private placement
concurrent with the closing of the Company's initial public offering at the
initial public offering price.
In August 2001, the Company entered into a memorandum agreement with Kirin
Brewery Co., Ltd. (Kirin) modifying its existing agreements with Kirin.
Pursuant to the terms contained in the memorandum, Kirin paid the Company a
non-refundable $10.0 million payment for additional rights granted to Kirin.
The payment is being amortized over 41 months, the term of the agreement. In
the memorandum agreement, Kirin agreed to make an additional milestone payment
upon commencement of Kirin's first clinical trial of Mylovenge, to compensate
the Company for supplies of Provenge and separation devices, and to reimburse
the Company for its out-of-pocket expenses relating to specified support
provided by the Company with regard to Kirin's regulatory, clinical and
manufacturing activities relating to Provenge and Mylovenge.
During the years ended December 31, 2001, 2000, and 1999, the Company
recognized revenue of $5.0 million, $4.1 million and $3.1 million,
respectively, related to the Kirin agreements.
F-9
3. INVESTMENTS
- --------------------------------------------------------------------------------
Securities available-for-sale, short- and long-term, consisted of the following:
Cost or Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
------------------------------------------------------------------
December 31, 2001
Corporate debt securities $49,746 $465 $ - $50,211
Government securities 17,098 22 (1) 17,119
---------------------------------------
$66,844 $487 $ (1) $67,330
=======================================
December 31, 2000
Corporate debt securities $46,502 $190 $(30) $46,662
=======================================
Securities available-for-sale at cost or amortized cost and fair market value
by contractual maturity were as follows:
Cost or Fair
Amortized Market
(in thousands) Cost Value
--------------------------------------------------------
December 31, 2001
Due in one year or less $56,702 $56,969
Due after one year through five years 10,142 10,361
-----------------
$66,844 $67,330
=================
4. PROPERTY AND EQUIPMENT
- --------------------------------------------------------------------------------
Property and equipment consisted of the following:
December 31,
-------------
(in thousands) 2001 2000
------------------------------------------------------------
Furniture and office equipment $ 458 $ 364
Laboratory and manufacturing equipment 4,599 2,931
Computer equipment 1,395 643
Leasehold improvements 1,662 773
-------------
8,114 4,711
Less accumulated depreciation and amortization 4,256 2,949
-------------
$3,858 $1,762
=============
Property and equipment included assets under financed leases of $4.6 million
and $2.5 million at December 31, 2001 and 2000, respectively. Depreciation
expense related to assets under finance leases was $1.7 million, and $843,000
at December 31, 2001 and 2000, respectively.
5. EMPLOYEE NOTES RECEIVABLE
- --------------------------------------------------------------------------------
The Company has made loans to certain employees in connection with individual
employment agreements. The loans bear interest at annual rates from 4.7% to
5.5% per year and are either forgiven over five years based on continued
employment, or due immediately upon each employee's termination. During the
years ended December 31, 2001, 2000 and 1999, the Company recognized $15,000,
$15,000, and $24,000, respectively, as compensation expense associated with
these notes. The balance was $105,000 at December 31, 2001 and 2000, and has
been classified in deposits and other assets on the accompanying balance sheets.
F-10
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
- --------------------------------------------------------------------------------
In June 1999, the Company obtained a term loan in an amount of $3.0 million
from a financial lender. The loan bears interest at an annual rate of 13.3% and
is collateralized by the Company's assets including receivables and equipment.
Interest-only payments were paid monthly for six months and 24 payments of
principal and interest have been due monthly thereafter. In connection with the
term loan, the Company issued a warrant to purchase 85,800 shares of common
stock at an exercise price of $4.55 per share. The warrant expires in 2006. The
Company valued the warrant using the Black-Scholes valuation method with the
following assumptions: no dividend yield; expected life of seven years;
risk-free interest rate of 6.1%; and volatility of 0.75. The fair value
assigned to the warrant of $232,000 is being amortized using the effective
interest method, as additional interest expense over the term of the loan.
Future principal payments under the term loan agreement and the future
minimum lease payments under finance lease obligations were as follows as of
December 31, 2001:
Capital
Term Lease
(in thousands) Loan Obligations
----------------------------------------------------
Year ending December 31:
2002 281 1,469
2003 - 1,260
2004 - 1,056
---- ------
Total payments $281 3,785
====
Less amount representing interest 652
------
Present value of payments 3,133
Less current portion of obligations 1,120
------
Long-term portion of obligations $2,013
======
The Company has a $5.0 million lease line agreement. As of December 31, 2001,
$4.6 million was advanced under the agreement and $404,000 was available under
the agreement. All of the assets leased under the agreement were sold and
leased back by the Company. No gains or losses were recognized as a result of
the sale or leaseback. The Company has the right to repurchase the leased
assets at the end of the lease term for 10% of the original equipment cost. In
connection with the original lease line, the Company issued a warrant to
purchase 9,167 shares of common stock exercisable at a price of $3.27 per
share, expiring in 2004. In connection with the lease extension in 1999, the
Company issued a warrant to purchase 3,300 shares of common stock exercisable
at a price of $4.55 per share, expiring in 2006. Both warrants were valued
using the Black-Scholes valuation method and the resulting fair values were
determined to be insignificant.
In 2001, the Company issued a warrant to purchase 8,688 shares of common
stock in connection with the lease extension in June 2001, exercisable at a
price of $11.51 per share, expiring in June 2008. The Company valued the
warrant issued in 2001 using the Black-Scholes valuation method with the
following assumptions: no dividend yields, an expected life of seven years, and
a risk-free interest rate of 6% and volatility of 1.06. The value of the
warrant was determined to be $60,000, of which $12,000 was recognized in 2001
as additional interest expense.
7. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Convertible Preferred Stock
In June 2000, immediately upon the closing of the Company's initial public
offering, 13,079,077 shares of convertible preferred stock were converted to
14,386,945 shares of common stock on a 1 to 1.1 basis. The Company has
10,000,000 shares, $0.001 par value, authorized preferred stock. No preferred
stock was issued or outstanding as of December 31, 2001 or 2000.
In August 1999, the Company offered Series E preferred stock at a per-share
price of $4.25. Through December 31, 1999, 3,098,845 shares of preferred stock
were issued for net proceeds of $13.1 million. The offering was completed in
February 2000 when an additional 970,708 shares of preferred stock were issued
for net proceeds of $4.1 million.
F-11
7. Stockholders' equity (continued)
At the date of issuance, the Company believed the per share price of $4.25
represented the fair value of the preferred stock. The subsequently determined
fair value of the Company's common stock ranged from $5.45 to $9.09 per share,
and was in excess of the fair value of the preferred stock. Accordingly, the
incremental fair value determined on the date of issuance for each closing of
Series E preferred stock, is deemed to be the equivalent of a preferred stock
dividend, limited to the extent of the proceeds from the issuance for each
closing. The Company recorded a deemed dividend of $4.1 million, and $285,000
for the years ended December 31, 2000 and 1999, respectively, by offsetting
charges and credits to additional paid-in capital, without any effect on total
stockholders' equity. The amount increased the loss attributable to common
stockholders in the calculation of net loss per share for the years ended
December 31, 2000 and 1999.
Warrants
In February 1998, the Company issued an exclusive license for its cell
collection and isolation technology for the use in the field of hematopoetic
stem cell reconstitution of cancer patients, for which the Company received a
non-refundable, up front fee of $1.0 million. The agreement was terminated in
October 1999. In connection with the termination, the Company issued a warrant
to purchase 275,000 shares of the Company's common stock for nominal
consideration. The warrant is exercisable at an exercise price of $4.55 per
share, expiring in 2004. The warrant has been valued using the Black-Scholes
valuation method with the following assumptions: no dividend yield; expected
life of five years; risk-free interest rate of 6.1%; and volatility of 0.75. As
of the date of the termination of the agreement, the Company had recognized
$317,000 in revenue under the agreement during 1998 and 1999. The fair value
assigned to the warrant of $873,000 has been offset against the remaining
deferred revenue of $683,000 and the remainder of $190,000 has been charged to
research and development expense. The warrants remain outstanding at December
31, 2001.
Additional warrants for 263,338 shares of common stock were outstanding and
exercisable at December 31, 2001, with exercise prices ranging from $0.18 to
$18.18 per share, and expire beginning August 2004 through June 2008.
The Employee Stock Purchase Plan
Upon the completion of its initial public offering, the Company implemented the
2000 Employee Stock Purchase Plan (the Purchase Plan), which was approved by
the Board of Directors on March 1, 2000 and approved by the stockholders on May
1, 2000. A total of 1,485,000 shares of common stock were reserved for issuance
under the Purchase Plan. Each year, the number of shares reserved for issuance
under the Purchase Plan will automatically be increased by the least of (i) 1%
of the total number of dilutive shares of the Company's common stock then
outstanding including convertible securities, (ii) 440,000 shares, or (iii) a
number determined by the Company's Board of Directors. On January 1, 2002, the
number of shares reserved for issuance under the Purchase Plan was
automatically increased by 277,574 shares, to an aggregate of 2,035,506 shares.
The Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions during defined offering periods.
The price at which common stock is purchased under the Purchase Plan is equal
to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date. Other
than the first offering which was from the effective date of the initial public
offering to July 31, 2002, all following offerings are twenty four months long.
In 2001, 77,737 shares were issued under the Purchase Plan at a price of
$8.50 each.
Stock Option Plans
In 2000, the Board of Directors and the Company's stockholders approved the
2000 Equity Incentive Plan (the 2000 Plan), which amended and restated the
Company's 1996 Equity Incentive Plan. A total of 4,400,000 shares of common
stock were authorized and reserved for issuance under the 2000 Plan, an
increase of 550,000 shares over that previously authorized under the 1996 Plan.
Each year, the number of shares reserved for issuance under the 2000 Plan is
automatically increased by the lessor of (i) 5% of the total number of shares
of the Company's common stock then outstanding, (ii) 550,000 shares, or (iii) a
number to be determined by the Company's Board of Directors. On January 1,
2002, the number of shares reserved for issuance under the 2000 Plan was
automatically increased by 550,000 shares, to an aggregate of 5,500,000 shares.
The options granted under the 2000 Plan may be either incentive stock
options or nonqualified stock options. Options granted under the 2000 Plan
expire no later than 10 years from the date of grant. The option price shall be
at least 100% of the
F-12
7. Stockholders' equity (continued)
fair value on the date of grant for incentive stock options, and no less than
85% of the fair value for nonqualified stock options. The options generally
become exercisable in increments over a period of four years from the date of
grant, with the first increment vesting after one year. Options may be granted
with different vesting terms from time to time.
At December 31, 2001, the Company had 6,600 options outstanding under a
prior stock option plan. A summary of the Company's stock option activity
follows:
Year Ended December 31,
-----------------------------------------------------------------------------
1999 2000 2001
------------------------- ------------------------- -------------------------
Shares Weighted- Shares Weighted- Shares Weighted-
Under Average Under Average Under Average
Option Exercise Price Option Exercise Price Option Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of period 1,876,199 $0.54 1,888,873 $ 0.67 2,313,543 5.78
Options granted at fair value - - 1,275,433 9.87 466,988 11.15
Options granted at less than fair value 665,720 0.95 - - - -
Options exercised (416,576) 0.55 (810,366) 0.52 (375,872) 0.92
Options forfeited (236,470) 0.62 (40,397) 1.32 (108,148) 9.40
--------- --------- ---------
Outstanding at end of period 1,888,873 0.67 2,313,543 5.78 2,296,511 7.49
========= ========= =========
Exercisable at end of period 881,075 0.50 607,789 1.03 882,812 4.43
========= ========= =========
Weighted-average fair value of options granted
during the period 4.34 12.36 9.76
At December 31, 2001, there were 651,984 shares available for future grant
under the 2000 Plan.
Information regarding the weighted-average remaining contractual life and
weighted-average exercise price of options outstanding and options exercisable
at December 31, 2001 for selected price ranges was as follows:
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------------------
Weighted-Average
Number Outstanding Remaining Contractual Weighted-Average Number Exercisable Weighted-Average
Exercise Prices As of 12/31/01 Life (in years) Exercise Price As of 12/31/01 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
$ 0.18-$ 0.91 674,176 6.41 $ 0.76 484,624 $ 0.70
1.82-$ 9.25 587,273 8.44 3.97 181,893 2.50
9.30-$14.00 240,063 9.39 11.19 16,250 9.91
14.06-$20.69 794,999 8.96 14.68 200,045 14.77
----- -------
0.18-$20.69 2,296,511 8.13 7.49 882,812 4.43
========= =======
During the years ended December 31, 2000 and 1999, in connection with the grant
of certain options to employees, the Company recorded deferred stock-based
compensation of $3.1 million and $2.1 million, respectively, representing the
difference between the exercise price and the subsequently determined fair
value of the Company's common stock on the date such stock options were
granted. Deferred stock-based compensation is being amortized on a graded
vesting method. During the years ended December 31, 2001, 2000 and 1999, the
Company recorded non-cash deferred stock-based compensation expense of $1.2
million, $2.3 million and $844,000, respectively. The Company expects
amortization of the deferred stock-based compensation expense to be $710,000,
$263,000 and $14,000 for the years ending 2002, 2003, and 2004, respectively.
Pro Forma Information
Pro forma information regarding net loss is required by SFAS No. 123 as if the
Company had accounted for its employee stock options under the fair value
method. The fair value of the Company's options was estimated at the date of
grant using the minimum value method for periods prior to the Company's initial
public offering and the Black-Scholes method for subsequent
F-13
7. Stockholders' equity (continued)
periods, with the following assumptions for 2001, 2000 and 1999, and no
dividend yields; expected lives of the options of four years; and risk-free
interest rates of 4.0%, 6.0% and 6.1%, respectively; and volatility of 118%,
145% and 0%, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
table illustrates what net loss would have been had the Company accounted for
its stock options under the provisions of FAS 123.
Year Ended December 31,
----------------------------
(in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------------
Net loss as reported $(23,158) $(20,179) $(12,803)
Pro forma net loss attributable to common Stockholders $(28,894) $(20,998) $(12,882)
============================
Net loss per share as reported $ (0.94) $ (1.57) $ (13.54)
============================
Pro forma net loss per share $ (1.17) $ (1.64) $ (13.62)
============================
Common Stock Reserved
As of December 31, 2001, common stock was reserved as follows:
Employee stock purchase plan 1,680,195
Common stock warrants 538,338
Common stock options 2,948,495
---------
5,167,028
=========
8. INCOME TAXES
- --------------------------------------------------------------------------------
Due to operating losses and the inability to recognize the benefits therefrom,
there was no provision for income taxes, other than a $100,000 withholding tax
in Japan in 2000. The Company was subject to a withholding tax of $0, $100,000
and $0, in Japan related to certain payments received from Kirin for the years
ended December 31, 2001, 2000 and 1999, respectively.
As of December 31, 2001, the Company had federal net operating loss
carryforwards of approximately $58.4 million. The Company also had federal
research and development tax credit carryforwards of approximately $2.1
million. The net operating loss and credit carryforwards will expire at various
dates beginning in 2009 through 2021, if not utilized.
Utilization of the net operating losses and credits may be subject to annual
limitations due to the ownership change limitations provided by the Internal
Revenue Code of 1986. The annual limitations may result in the expiration of
net operating losses and credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets were as follows:
December 31,
------------------
(in thousands) 2001 2000
--------------------------------------------------------
Net operating loss carryforwards $ 20,446 $ 10,341
Deferred revenue 5,259 3,047
Research credits 2,047 2,094
Foreign tax credits 100 100
Capitalized research and development 8,594 9,279
Other 2,124 759
-------- --------
Total deferred tax assets 38,600 25,620
Valuation allowance (38,600) (25,620)
-------- --------
Net deferred tax assets $ - $ -
======== ========
F-14
8. Income taxes (continued)
The net deferred tax asset has been fully offset by a valuation allowance. The
valuation allowance increased by $13.0 million,$4.3 million and $4.9 million
during the years ended December 31, 2001, 2000 and 1999, respectively.
9. NET LOSS PER SHARE
- --------------------------------------------------------------------------------
In accordance with FAS 128, the Company has determined the basic and diluted
net loss per share using the weighted-average number of shares of common stock
outstanding during the period. Pro forma basic and diluted net loss per share
of common stock gives effect to the conversion of the convertible preferred
stock which was automatically converted to common stock immediately prior to
the completion of the Company's initial public offering from the original date
of issuance using the as-if-converted method.
The following table presents the calculation of basic, diluted, and pro
forma basic and diluted net loss per share:
(in thousands except share and per share information) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net loss attributable to common stockholders $ (23,158) $ (20,179) $ (12,803)
=====================================
Basic and diluted:
Weighted-average number of shares used for basic and diluted per share
amounts 24,759,615 12,839,866 945,761
Basic and diluted net loss per share $ (0.94) $ (1.57) $ (13.54)
=====================================
Pro forma (unaudited):
Shares used above 12,839,866 945,761
Pro forma adjustment to reflect weighted effect of assumed conversion of
convertible preferred stock 6,498,771 11,017,615
------------------------
Shares used in computing pro forma basic and diluted net loss per share 19,338,637 11,963,376
========================
Pro forma basic and diluted net loss per share $ (1.04) $ (1.07)
The Company has excluded all preferred stock and outstanding stock options and
warrants from the calculation of diluted net loss per common share because all
such securities are antidilutive for the periods presented. The total number of
shares related to preferred stock, outstanding options and warrants, that was
excluded from the calculations of diluted net loss per common share, prior to
the application of the treasury stock method for options, was 2,837,739
2,843,193; and 15,662,818 for December 31, 2001, 2000, and 1999, respectively.
10. COMMITMENTS
- --------------------------------------------------------------------------------
In March 2001, the Company contracted with Diosynth RTP, Inc. to assist in the
scale-up to commercial level production of the antigen used in the preparation
of Provenge. At the inception of the agreement, the Company anticipated that a
substantial part of the work and corresponding expense would be incurred in
2002. Pursuant to procedures established in the agreement, the Company has
requested certain modifications to the program for scale-up to commercial level
production. The modification would require six to eight weeks for the review of
data and an additional period for establishment of a regulatory strategy prior
to proceeding with certain scheduled program requirements. Diosynth has wound
down certain of the program work and has proposed a change order in response to
the Company's modification request. The Company intends to negotiate with
Diosynth regarding the terms of its proposed change order.
The Company may terminate the agreement with Diosynth without cause on
forty-five days written notice to Diosynth. The agreement provides for a
cancellation fee of 20% of the unpaid balance of the total estimated budget for
the program. The estimated cancellation fee in support of the current work plan
is $3.4 million.
The Company leases a facility in Seattle, Washington under a noncancelable
operating lease that expires December 2008. The lease term is ten years and the
Company has the option to extend the lease term for two five-year periods with
the same terms and conditions except for rent, which adjusts to market rate.
The Company has subleased a portion of this facility under a lease expiring
April 30, 2002. The lessor has also provided the Company a tenant improvement
allowance of up to $3.5 million.
F-15
10. Commitments (continued)
At December 31, 2001, the Company had expended or committed $3.5 million, which
will be repaid monthly as an addition to the base rent expense over the term of
the lease, with interest at 12.5% per year.
In November 2001, the Company entered into a lease agreement for another
facility in Seattle, Washington, under a non-cancelable operating lease. The
lease term is eight years, and the Company has the option to extend the lease
term for two five-year periods, with the same terms and conditions except for
rent, which adjusts to market rate. The lessor has also provided the Company a
tenant improvement allowance of up to $237,000. The Company also leases a
facility in Mountain View, California under a lease that expires in 2006.
Sublease rental income is accounted for as a deduction of rent expense. Rent
expense for the years ended December 31, 2001, 2000 and 1999 was $3.2 million,
$2.1 million and $3.2 million, respectively, which is net of sublease rental
income of $1.2 million, $1.3 million and $561,000, respectively.
Future minimum lease payments under noncancelable operating leases and
future minimum rentals to be received under noncancelable subleases at December
31, 2001, were as follows:
Operating Noncancelable
(in thousands) Leases Subleases
----------------------------------------------------
Year ending December 31:
2002 $ 3,973 $64
2003 4,039 -
2004 4,097 -
2005 3,119 -
2006 2,118 -
Thereafter 4,248 -
-----------------------
Total minimum lease payments $21,594 $64
=======================
11. RELATED-PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Two founders provided consulting services to the Company in 2001. The Company
incurred $15,000, $25,000, and $120,000, in consulting fees during the years
ended December 31, 2001, 2000, and 1999, respectively, under these agreements.
Both agreements expired October 2001.
12. EMPLOYEE BENEFIT PLAN
- --------------------------------------------------------------------------------
The Company has a 401(k) plan for those employees who meet eligibility
requirements. Eligible employees may contribute up to 20% of their eligible
compensation, subject to IRS limitations. Company contributions to the plans
are discretionary as determined by the Board of Directors. Effective January 1,
2001, the Company implemented a matching program to match employee
contributions fifty cents for each dollar, up to a maximum of $2,000 per person
per year. Prior to that, Company contributions to the plans were discretionary
as determined by the Board of Directors. Employer contributions in 2001, 2000
and 1999 were $173,000, $0 and $0, respectively.
13. MAJOR CUSTOMERS
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Revenues from the following customers represented greater than 10% of total
revenues:
Year Ended December 31,
-----------------------
2001 2000 1999
----------------------------------
Customer A 1% 8% 7%
Customer B 36% 63% 84%
Customer C 1% 2% 4%
Customer D - - 4%
Customer E 60% 23% -
F-16
14. SUBSEQUENT EVENTS
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On February 27, 2002, the Board of Directors adopted the 2002 Broad Based
Equity Incentive Plan (the 2002 Plan or Plan). The 2002 Plan provides for the
award of options, stock bonuses, and rights to acquire restricted stock. The
stock options granted under the Plan are nonqualified options and expire no
later than 10 years from the date of the grant. The exercise price for each
option must not be less than 85% of the fair market value of the Common Stock
on the date of the grant. Employees, officers, members of the Board of
Directors, and consultants are eligible to receive awards under the 2002 Plan.
However, no more than 49% of the number of shares underlying options granted
under the Plan may be awarded to directors and senior officers of the Company.
A total of 1,500,000 shares of common stock were authorized and reserved for
issuance under the 2002 Plan. The Compensation Committee of the Board of
Directors will determine the terms of each option, including the number of
shares, the option price, the term of the option, the vesting period, and the
purchase price.
15. QUARTERLY INFORMATION (UNAUDITED)
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The following table summarizes the unaudited statement of operations for each
quarter of 2001 and 2000.
(in thousands, except per share amounts) March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------
2001
Total revenue $ 3,117 $ 3,071 $ 3,789 $ 3,847
Total operating expenses 7,533 9,382 10,602 13,702
Loss from operations (4,416) (6,311) (6,813) (9,855)
Net loss attributable to common stockholders (3,042) (5,221) (5,794) (9,101)
Basic and diluted net loss per share (0.12) (0.21) (0.23) (0.37)
(in thousands, except per share amounts) March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------
2000
Total revenue $ 1,181 $ 1,105 $ 1,318 $ 2,915
Total operating expenses 4,905 5,311 6,498 7,989
Loss from operations (3,724) (4,206) (5,180) (5,074)
Net loss attributable to common stockholders (7,772) (4,185) (4,386) (3,836)
Basic and diluted net loss per share (6.10) (0.88) (0.20) (0.16)
F-17
INDEX TO EXHIBITS DENDREON CORPORATION
Exhibit
Number Description
- ----------------------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation.(2)
3.2 Bylaws.(1)
4.1 Specimen Common Stock certificate.(1)
10.1 Indemnity Agreement between the Registrant and each of its directors and certain of its officers.(2)
10.2 2000 Equity Incentive Plan, as amended.(3)
10.3 2000 Employee Stock Purchase Plan.(2)
10.4 Fourth Amended and Restated Stockholders' Agreement, dated September 3, 1999, between the Registrant and
certain holders of the Registrant's securities.(1)
10.5 Registration Rights and Shareholder's Agreement, dated October 18, 1999, between the Registrant and Fresenius
AG.(1)
10.6 Warrant to purchase 250,000 shares of common stock issued by the Registrant to Fresenius AG, dated October 18,
1999.(1)
10.7 Letter dated September 3, 1998 regarding employment arrangement of Christopher S. Henney and David L.
Urdal.(1)
10.8 Lease Agreement, dated October 27, 1992 and commencing July 1, 1993, between the Registrant and Vanni
Business Park General Partnership.(1)
10.9 Lease Agreement, dated July 31, 1998, between the Registrant and ARE--3005 First Avenue, LLC.(1)
10.10 Loan and Security Agreement, dated July 30, 1999, between the Registrant and Transamerica Business Credit
Corporation.(1)
10.11 Amended and Restated Master Lease Agreement, dated May 28, 1999, between the Registrant and Transamerica
Business Credit Corporation.(1)
10.12 Second Amendment to Master Lease Agreement, dated January 31, 2000, between the Registrant and
Transamerica Business Credit Corporation.(1)
10.13+ Collaborative License Agreement, dated December 10, 1998, between the Registrant and Kirin Brewery Co.,
Ltd.(1)
10.14+ Research and License Agreement, dated February 1, 1999, between the Registrant and Kirin Brewery Co., Ltd.(1)
10.15+ Manufacturing and Supply Agreement, dated July 27, 1999, between the Registrant and Kirin Brewery Co.,
Ltd.(1)
10.16+ Joint Commercialization Agreement, dated February 1, 2000, between the Registrant and Kirin Brewery Co.,
Ltd.(1)
10.17 Stock Purchase Agreement, dated June 16, 2000, between the Registrant and Kirin Brewery, Co., Ltd.(2)
10.18+ Research Collaboration and License Agreement, dated October 1, 2000, between the Registrant and The R.W.
Johnson Pharmaceutical Research Institute, a division of Ortho-McNeil Pharmaceutical, Inc.(2)
10.19+ Bioprocessing Services Agreement, dated March 16, 2001, between the Registrant and Covance Biotechnology
Services Inc.(4)
10.20+ Memorandum of Modification to Kirin and Dendreon Collaboration dated August 3, 2001.(5)
10.21++ Mononuclear Cell Collection Services Agreement dated October 22, 2001 between the Registrant and Gambro
Healthcare, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (contained on signature page).
(1) Filed as an exhibit to Registration Statement on Form S-1, File No. 333-
31920 and incorporated by referenced herein.
(2) Filed as an exhibit to Registration Statement on Form S-1, File No.
333-47706 and incorporated by referenced herein.
(3) Filed as an exhibit to the Registrant's Report on Form 10-K for the fiscal
year ended December 31, 2000 and incorporated by reference herein.
(4) Filed as an exhibit to Registrant's Report on Form 10-Q for the quarter
ended March 31, 2001 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Report on Form 10-Q for the quarter
ended September 30, 2001 and incorporated by reference herein.
+ Confidential treatment granted as to certain portions of this Exhibit.
++ Confidential treatment has been requested with respect to certain portions
of this agreement.
* Management compensatory plans and arrangements required to be filed as
exhibits to this Report.