|
Years Ended December 31,
|
|---|
|
2003
|
|
2004
| |
2005
| |
Thereafter
|
|
Total
| |
|
(in thousands) |
|---|
Convertible promissory note |
|
|
$ |
-- |
|
$ |
-- |
|
$ |
12,104 |
|
$ |
-- |
|
$ |
12,104 |
|
Convertible line of credit promissory note . | | |
|
-- |
|
|
-- |
|
|
4,024 |
|
|
-- | |
|
4,024 |
|
Operating leases |
|
|
|
89 |
|
|
180 |
|
|
5 |
|
|
-- |
|
|
274 |
|
|
| |
| |
| |
| |
| |
Total | | |
$ |
89 |
|
$ |
180 |
|
$ |
16,133 |
|
$ |
-- | |
$ |
16,402 |
|
|
| |
| |
| |
| |
| |
Rent
expense incurred for office space and equipment leases amounted to $263,000 and $188,000
for the nine months ended September 30, 2003 and 2002, respectively.
Upon
entering into the office lease agreement, a letter of credit in the amount of $67,000 was
issued for the buildout of the office space, which expires May 31, 2005. A certificate of
deposit is being held as collateral for the letter of credit, which is included in cash
and cash equivalents.
In
May 1998, we licensed from Wyeth, on an exclusive, worldwide basis, indiplon,
bicifadine, ocinaplon and DOV 216,303 for any indication, including insomnia, pain,
anxiety and depression. We have the right to develop and commercialize these compounds,
including the right to grant sublicenses to third parties, subject to Wyeth’s right
of first refusal. If we sublicense a compound to a third party, we are obligated to pay
Wyeth 35% of all payments we receive based upon that compound. This payment drops to 25%
if a new drug application has been filed by us before the sublicense grant. These payment
obligations are subject to minimum royalties of 2.5% of net sales for indiplon, ocinaplon
and DOV 216,303 and 4.5% of net sales for bicifadine, and minimum milestones of
$2.5 million for indiplon, ocinaplon and DOV 216,303 and $5.0 million for
bicifadine. Our sublicense agreement with Neurocrine is structured so that we can satisfy
these minimum milestone obligations.
On
March 28, 2003, we entered into a separation agreement with Biovail that provided for
the return of our December 2000 patent for the immediate and controlled release
formulation of diltiazem and termination of the 2001 exclusive license agreement with
Biovail for development of the DOV compound for the treatment of angina and hypertension.
The separation agreement establishes contingent payments to Biovail of $3.0 million upon
issuance of marketing authority for the drug and up to $7.5 million based upon sales.
On
October 21, 2003, we entered into a agreement with Elan to acquire 100% ownership of
Nascime Limited, the joint venture’s operating company, formed by Elan and us in 1999
to develop controlled release formulations of bicifadine and ocinaplon. In connection with
the acquisition, Elan granted to the operating company a non-exclusive, royalty free,
perpetual, worldwide license to make and sell the two product candidates in controlled
release formulations using the Elan intellectual property licensed to the joint venture,
including that developed during the venture. The license agreement establishes contingent
payments to Elan of up to an aggregate of $3.0 million when the products are licensed
or come to market.
Recent Accounting
Pronouncements
In May
2003, the FASB issued Statement Number 150 “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity” (SFAS150). This
Statement establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. SFAS 150 generally requires liability classification for two
broad classes of financial instruments: (1) instruments that represent, or are indexed to,
an obligation to buy back the issuer’s shares, and (2) obligations that can be
settled in shares, but are subject to certain conditions. SFAS 150 is generally
effective to all
financial instruments created or modified after May 31, 2003, and generally to other
instruments at the beginning of the first interim period beginning after July 1, 2003.
Unless new transactions are entered into, the adoption of SFAS 150 is not expected to have
a material impact on our financial statements.
21
In
January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
“Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51.” FIN 46 requires certain variable interest entities to
be consolidated by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all new
variable interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual period beginning after
December 15, 2003. As Elan’s participating rights expired as of January 2003, we
began to consolidate the results of DOV Bermuda as of January 1, 2003. As a
result, with respect to the joint venture the adoption of FIN 46 will not have a material
effect on our financial position or results of operations.
In
November 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
00-21, “Revenue Arrangements with Multiple Deliverables.” It provides guidance
on how to account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. We will be required to adopt this
provision for revenue arrangements entered into on or after June 15, 2003. Unless new
transactions are entered into, the adoption of EITF 00-21 is not expected to have a
material impact on our financial position or results of operations.
Item 3. Quantitative and
Qualitative Disclosures About Market Risks
To
date, we have invested our cash balances with significant financial institutions. In the
future, the primary objective of our investment activities will be to maximize the income
we receive from our investments consistent with preservation of principal and minimum
risk. Some of the securities that we invest in may have market risk. This means that a
change in prevailing interest rates may cause the principal amount of the investment to
fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of
cash equivalents and investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and corporate
obligations. Due to the short holding period of these types of investments, we have
concluded that we do not have a material financial market risk exposure.
Item 4. Controls and
Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the
end of the period covered by this report, we carried out an evaluation under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. In designing and evaluating our disclosure
controls and procedures, we and our management recognize that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management necessarily was required to
apply its judgment in evaluating and implementing possible controls and procedures. The
effectiveness of our disclosure controls and procedures is necessarily limited by the
staff and other resources available to us and, although we have designed our disclosure
controls and procedures to address these constraints, they inherently may limit the
effectiveness of those controls and procedures. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of
the end of the period covered by this report, our disclosure controls and procedures were
effective to provide reasonable assurance that information required to be disclosed by us
in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. There has been no change in our internal controls over
financial reporting during our most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal controls over financial reporting.
In connection with the rules of the Securities and Exchange Commission, we intend to
continue to review and document our disclosure controls and procedures and our internal
control over financial reporting on an ongoing basis, and we may from time to time make
changes aimed at enhancing their effectiveness and to ensure that our systems evolve with
our business.
22
PART II — OTHER
INFORMATION
Item 1. Legal Proceedings
Securities Class Action
Lawsuits
From
April 30, 2002, a number of class action lawsuits were filed naming us as defendants,
certain of our officers and directors and certain of the underwriters in our April 24,
2002 initial public offering of 5,000,000 shares of our common stock. The lawsuits were
based upon our alleged failure to disclose the filing of a revised registration statement
and prospectus for our initial public offering reflecting changes to the 1999 financial
statements of our joint venture with Elan, DOV (Bermuda), Ltd. These class actions were
brought on behalf of purchasers of our common stock in or traceable to our initial public
offering and sought money damages or rescission. On December 20, 2002, we entered into an
agreement, which was approved by the court on April 16, 2003, to settle these lawsuits.
The settlement includes all defendants and covers as a class all those who purchased
common stock of DOV in or traceable to our initial public offering through December 20,
2002 and suffered damages. We paid in the aggregate to the class members (inclusive of
their attorneys’ fees and costs) $250,000 and issued 500,000 six-year warrants to
purchase our common stock exercisable at $10.00 per share. Upon issuance, we determined
the value of these warrants at $2.2 million.
We
are not a party to any other material legal proceedings.
Item 2. Changes in
Securities and Use of Proceeds
Recent Sales of
Unregistered Securities
On
July 2, 2003, we concluded a private placement to a group of funds managed by OrbiMed
Advisors, LLC, who, in the aggregate, purchased 1,428,571 shares of our common stock for
total gross proceeds to us of $15.0 million. They also received three-year warrants to
purchase an aggregate of 392,857 shares of our common stock. These warrants are
exercisable at any time until July 1, 2006 at an exercise price of $16.00 per share. No
underwriters were involved in this offering. We believe that this offering was exempt from
the registration requirements of the Securities Act of 1933, as amended (the
“Securities Act”) by reason of Rule 506 of Regulation D and Section 4(2) of the
Securities Act, based upon the fact that the offer and sale of the securities satisfied
all the terms and conditions of Rules 501 and 502 of the Securities Act, the purchasers,
of which there were three, were financially sophisticated and had access to complete
information concerning us and acquired the securities for investment and not with a view
to the distribution thereof.
23
Item 5. Other Information
Risk Factors and Factors
Affecting Forward-Looking Statements
If
any of the events covered by the following risks occur, our business, results of
operations and financial condition could be harmed. In that case, the trading price of our
common stock could decline. In addition, our actual results may differ materially from our
forward-looking statements as a result of the following factors.
Risks Related to Our
Business
Our stock price is likely to be
volatile and the market price of our common stock may decline.
Prior
to our April 24, 2002 initial public offering of 5,000,000 shares of our common
stock, there had been no public market for our common stock and an active public market
for our common stock may cease at any time. Market prices for securities of
biopharmaceutical companies have been particularly volatile. In particular, our stock
price experienced a substantial decline after our initial public offering and, in the past
12 months, the market price for our common stock has ranged from a low of $4.28 to a
high of $18.78 per share. Some of the factors that may cause the market price of our
common stock to fluctuate include:
- results of clinical trials conducted by us or on our behalf, or by our competitors;
- business or legal developments concerning our collaborators or licensees, including Pfizer and
Neurocrine;
- regulatory developments in the United States and foreign countries;
- developments or disputes concerning patents or other proprietary rights;
- changes in estimates or recommendations by securities analysts;
- public concern over our drugs;
24
- litigation;
- future sales of our common stock;
- general market conditions;
- changes in the structure of health care payment systems;
- failure of any of our product candidates, if approved, to achieve commercial success;
- economic and other external factors or other disasters or crises; and
- period-to-period fluctuations in our financial results.
If
any of the foregoing risks occur, it could cause our stock price to fall and may expose us
to class action lawsuits that, even if unsuccessful, could be costly to defend and a
distraction to management. In this regard, following a decline in the aftermarket trading
price of our common stock in connection with our initial public offering, beginning on
April 30, 2002, a number of class action lawsuits were filed naming us as defendants,
certain of our officers and directors and certain of the underwriters. On December 20,
2002, we entered into an agreement, which was approved by the court on April 16, 2003, to
settle these lawsuits. Pursuant to the settlement agreement, we have paid in the aggregate
to the class members (inclusive of their attorneys’ fees and costs) $250,000 and
issued them 500,000 six-year warrants to purchase our common stock exercisable at $10.00
per share. Upon issuance, we determined the value of these warrants at $2.2 million.
We have incurred losses since our
inception and expect to incur significant losses for the foreseeable future, and we may
never reach profitability.
Since
our inception in April 1995 through September 30, 2003, we have incurred significant
operating losses and, as of September 30, 2003, we had an accumulated deficit of $55.4
million. We have not yet completed the development, including obtaining regulatory
approvals, of any product candidate and, consequently, have not generated any revenues
from the sale of products. Even if we succeed in developing and commercializing one or
more of our product candidates, we may never achieve significant sales revenue and we
expect to incur operating losses for the foreseeable future. We also expect to continue to
incur significant operating expenses and capital expenditures and anticipate that our
expenses will increase substantially in the foreseeable future as we:
- conduct research and development on existing and new product candidates;
- make milestone and royalty payments;
- seek regulatory approvals for our product candidates;
- commercialize our product candidates, if approved;
- hire additional clinical, scientific and management personnel;
- add operational, financial and management information systems and personnel; and
- identify
additional compounds or product candidates and acquire rights from third
parties to those compounds or product candidates through a grant of a license
to us, referred to as in-licensing.
We
must generate significant revenue to achieve and maintain profitability. We may not be
able to generate sufficient revenue and we may never be able to achieve or maintain
profitability.
We are dependent on the successful
outcome of clinical trials for our six lead product candidates.
25
None
of our product candidates is currently approved for sale by the FDA or by any other
regulatory agency in the world, and our product candidates may never be approved for sale
or become commercially viable. Before obtaining regulatory approval for the sale of our
product candidates, they must be subjected to extensive preclinical and clinical testing
to demonstrate their safety and efficacy for humans. Our success will depend on the
success of our currently ongoing clinical trials and subsequent clinical trials that have
not yet begun.
There
are a number of difficulties and risks associated with clinical trials. The possibility
exists that:
- we may discover that a product candidate may cause harmful side effects;
- we may discover that a product candidate does not exhibit the expected therapeutic results in humans;
- results may not be statistically significant or predictive of results that will be obtained from
large-scale, advanced clinical trials;
- we or the FDA may suspend the clinical trials of our product candidates for any of a number of reasons;
- patient recruitment may be slower than expected; and
- patients may drop out of our clinical trials.
On
October 2, 2003, the FDA placed the start of our Phase III pivotal clinical trial of
ocinaplon on hold and requested that we produce additional safety information. We cannot
assure you that we will be able to provide the necessary information requested by the FDA,
or that any information we do provide will be satisfactory to the FDA, or that the FDA
will release the hold placed by it on the commencement of the Phase III trial. Given the
uncertainty surrounding the regulatory and clinical trial process, we may not be able to
successfully advance the development of safe, commercially viable products including
ocinaplon. If we are unable to successfully develop and commercialize any of our product
candidates, this could severely harm our business, impair our ability to generate revenues
and adversely impact our stock price.
We may not receive regulatory
approvals for our product candidates or approvals may be delayed.
Regulation
by government authorities in the United States and foreign countries is a significant
factor in the development, manufacture and commercialization of our product candidates and
in our ongoing research and development activities. All our product candidates are in
various stages of research and development and we have not yet requested or received
regulatory approval to commercialize any product candidate from the FDA or any other
regulatory body.
In
particular, human therapeutic products are subject to rigorous preclinical testing,
clinical trials and other approval procedures of the FDA and similar regulatory
authorities in foreign countries. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of biopharmaceutical products. Securing FDA
approval requires the submission of extensive preclinical and clinical data and supporting
information to the FDA for each therapeutic indication to establish the product
candidate’s safety and efficacy. The approval process may take many years to complete
and may involve ongoing requirements for post-marketing studies. Additionally, even after
receipt of FDA approval, the FDA may request additional trials to evaluate any adverse
reactions or long-term effects. The scope and expense of such post-approval trials could
be extensive and costly to us. Any FDA or other regulatory approval of our product
candidates, once obtained, may be withdrawn. If our product candidates are marketed
abroad, they will also be subject to extensive regulation by foreign governments.
Any
failure to receive regulatory approvals necessary to commercialize our product candidates
would have a material adverse effect on our business. The process of obtaining these
approvals and the subsequent compliance with appropriate federal and state statutes and
regulations require spending substantial time and financial resources. If we, or our
collaborators or licensees, fail to obtain or maintain or encounter delays in obtaining or
maintaining regulatory approvals, it could adversely affect the marketing of any product
candidates we develop, our ability to receive product or royalty revenues and our
liquidity and capital resources.
26
On
October 2, 2003, the FDA placed the start of our Phase III pivotal clinical trial of
ocinaplon, our anti-anxiety product candidate, on hold and requested that we produce
additional safety information. We intend to diligently assemble the necessary information
in accordance with FDA comments and communicate further with the FDA as soon as reasonably
practicable. We cannot assure you that we will be able to provide the necessary
information requested by the FDA, or that any information we do provide will be
satisfactory to the FDA, or that the FDA will release the hold placed by it on the
commencement of the Phase III clinical trial.
Our operating results are subject
to fluctuations that may cause our stock price to decline.
Our
revenue is unpredictable and has fluctuated significantly from year-to-year and
quarter-to-quarter and will likely continue to be highly volatile. We believe that
period-to-period comparisons of our past operating results are not good indicators of our
future performance and should not be relied on to predict our future results. In the
future, our operating results in a particular period may not meet the expectations of any
securities analysts whose attention we may attract, or those of our investors, which may
result in a decline in the market price of our common stock.
We rely entirely on the efforts of
Neurocrine and Pfizer for the development, design and implementation of clinical trials,
regulatory approval and commercialization of our insomnia compound, indiplon.
In
1998, we sublicensed indiplon to Neurocrine without retaining any material rights other
than the right to receive milestone payments and royalties on product sales, if any. In
December 2002, Neurocrine entered into a development and commercialization agreement
with Pfizer Inc. for indiplon. The clinical development, design and implementation of
clinical trials, the preparation of filings for FDA approval and, if approved, the
subsequent commercialization of indiplon, and all other matters relating to indiplon, are
entirely within the control of Neurocrine and Pfizer. We will have no control over the
process and, as a result, our ability to receive any revenue from indiplon is entirely
dependent on the success of their efforts. Neurocrine and Pfizer may fail or otherwise
decide not to devote the resources necessary to successfully develop and commercialize
indiplon, which would impair our ability to receive milestone or royalty payments, if any,
in respect of indiplon.
Our success in developing our
product candidates depends upon the performance of our licensees and collaborative
partners.
Our
efforts to develop, obtain regulatory approval for and commercialize our existing and any
future product candidates depend in part upon the performance of our licensees and
collaborative partners. Currently, we have license and collaborative agreements with,
Neurocrine, Pfizer and Wyeth. Neurocrine has entered into a development and
commercialization agreement with Pfizer involving a further sublicense under our agreement
with Neurocrine. In connection with certain of these agreements, we have granted certain
rights, including development and marketing rights and rights to defend and enforce our
intellectual property. We do not have day-to-day control over the activities of our
licensees or collaborative partners and cannot assure you that they will fulfill their
obligations to us, including their development and commercialization responsibilities in
respect of our product candidates. We also cannot assure you that our licensees or
collaborators will properly maintain or defend our intellectual property rights or that
they will not utilize our proprietary information in such a way as to invite litigation
that could jeopardize or potentially invalidate our proprietary information or expose us
to potential liability. Further, we cannot assure you that our licensees or collaborators
will not encounter conflicts of interest, changes in business strategy or other business
issues, or that they will not acquire or develop rights to competing products, all of
which could adversely affect their willingness or ability to fulfill their obligations to
us.
From
January 1999 until October 21, 2003, Elan and we were engaged in developing
controlled release formulations of bicifadine and ocinaplon pursuant to our joint venture.
Effective January 1, 2003, Elan no longer funded its pro rata portion of the joint
venture’s expenses and, on October 21, 2003, we acquired from Elan 100%
ownership of Nascime Limited, the joint venture’s operating subsidiary, and the
product candidates bicifadine and ocinaplon. This acquisition ended our involvement with
Elan in the nearly five-year joint venture. If we decide to retain Elan to provide
additional development and manufacturing services, we and Elan will negotiate appropriate
terms under a new agreement.
Any
failure on the part of our licensees or collaborators to perform or satisfy their
obligations to us could lead to delays in the development or commercialization of our
product candidates and affect our ability to realize product revenues. Disagreements with
our licensees or collaborators could require or result in litigation or arbitration, which
could be time-consuming and expensive. If we fail to maintain our existing agreements or
establish new agreements as necessary, we could be required to undertake development,
manufacturing and commercialization activities solely at our own expense. This would
significantly increase our capital requirements and may also delay the commercialization
of our product candidates.
27
Our existing collaborative and
licensing agreements contain, and any such agreements that we may enter into in the future
may contain, covenants that restrict our product development and commercialization
activities.
Our
existing license and collaborative agreements contain covenants that restrict our product
development or future business efforts and have involved, among other things, the issuance
of debt and equity securities, certain limitations on our ability to license our product
candidates to third parties and restrictions on our ability to compete. Because of these
restrictive covenants, if our licensees or collaborators fail to fulfill their obligations
to us or we are otherwise not able to maintain these relationships, we cannot assure you
that we will be able to enter into alternative arrangements or assume the development of
these product candidates ourselves. This would significantly affect our ability to
commercialize our product candidates. Further, we cannot assure you, even if alternative
arrangements are available to us, that they will be any less restrictive on our business
activities.
If we are unable to create sales,
marketing and distribution capabilities, or enter into agreements with third parties to
perform these functions, we will not be able to commercialize our product candidates.
We
do not have any sales, marketing or distribution capabilities. In order to commercialize
our product candidates, if any are approved, we must either acquire or internally develop
sales, marketing and distribution capabilities or make arrangements with third parties to
perform these services for us. If we obtain FDA approval for our existing product
candidates, we intend to rely on relationships with one or more pharmaceutical companies
or other third parties with established distribution systems and direct sales forces to
market our product candidates. If we decide to market any of our product candidates
directly, we must either acquire or internally develop a marketing and sales force with
technical expertise and with supporting distribution capabilities. The acquisition or
development of a sales and distribution infrastructure would require substantial
resources, which may divert the attention of our management and key personnel, and
negatively impact our product development efforts. Moreover, we may not be able to
establish in-house sales and distribution capabilities or relationships with third
parties. To the extent we enter into co-promotion or other licensing agreements without,
or do not exercise, co-promotion rights, our product revenues are likely to be lower than
if we directly marketed and sold our product candidates, and any revenue we receive will
depend upon the efforts of third parties, which may not be successful.
If we cannot raise additional
funding, we may be unable to complete development of our product candidates.
At
September 30, 2003, we had cash and cash equivalents and marketable securities of $63.7
million. We currently have no commitments or arrangements for any financing. We believe
that our existing cash and cash equivalents will be sufficient to fund our anticipated
operating expenses, debt obligations and capital requirements until at least the end of
2004. We believe that we may require additional funding after that time to continue our
research and development programs, including preclinical testing and clinical trials of
our product candidates, for operating expenses, and to pursue regulatory approvals for our
product candidates. Lack of funding could adversely affect our ability to pursue our
business. We cannot assure you that financing will be available when needed on terms
acceptable to us, if at all. We may continue to seek additional capital through public or
private financing or collaborative agreements. If adequate funds are not available, we may
be required to curtail significantly or eliminate one or more of our product development
programs.
The success of our business
depends upon the members of our senior management team, our scientific staff and our
ability to continue to attract and retain qualified scientific, technical and business
personnel.
We
are dependent on the members of our senior management team, in particular, our Chief
Executive Officer, Dr. Arnold Lippa, our President, Dr. Bernard Beer, and our Senior Vice
President and Chief Scientific Officer, Dr. Phil Skolnick, for our business success.
Moreover, because of the specialized scientific and technical nature of our business, we
are also highly dependent upon our scientific staff, the members of our scientific
advisory board and our continued ability to attract and retain qualified scientific,
technical and business development personnel. Drs. Lippa and Beer each hold a substantial
amount of vested common stock not subject to repurchase in the event of termination. We do
not carry key man life insurance on the lives of any of our key personnel. There is
intense competition for human resources, including management in the scientific fields in
which we operate and there can be no assurance that we will be able to attract and retain
qualified personnel necessary for the successful development of our product candidates,
and any expansion into areas and activities requiring additional expertise. In addition,
there can be no assurance that such personnel or resources will be available when needed.
The loss of the services of Drs. Lippa, Beer, or Skolnick, or other key personnel, could
severely harm our business if a replacement possessing a similar level of expertise cannot be
retained or if the key person’s responsibilities can not be assumed by existing
employees.
28
Because some of our patents with
respect to some of our product candidates have expired or will expire in the near term, we
may be required to rely solely on the Hatch-Waxman Act for market exclusivity.
A
number of patents that we licensed from Wyeth have expired, including the patent that
provides protection for the use of DOV 216,303 for the treatment of depression and the use
of bicifadine for the treatment of pain. In addition, our patent covering ocinaplon
expired in June 2003. Patents protecting intermediates useful in the manufacture of
ocinaplon are due to expire in 2007. The numerous patent applications pending and others
in preparation covering our compounds, even if approved, may not afford us adequate
protection against generic versions of our product candidates or other competitive
products. In the event we achieve regulatory approval to market any of our product
candidates, including bicifadine, DOV 216,303 or ocinaplon, and we are unable to obtain
adequate patent protection for the ultimate marketed product, we will be required to rely
to a greater extent on the Hatch-Waxman Act, and applicable foreign legislation, to
achieve market exclusivity. The Hatch-Waxman Act generally provides for marketing
exclusivity to the first applicant to gain approval for a particular drug by prohibiting
filing of an abbreviated new drug application, or ANDA, by a generic competitor for up to
five years after the drug is first approved. The Hatch-Waxman Act, however, also
accelerates the approval process for generic competitors using the same active ingredients
once the period of statutory exclusivity has expired. It may also in practice encourage
more aggressive legal challenges to the patents protecting approved drugs. In addition,
because some of our patents have expired, third parties may develop competing product
candidates using our product compounds and if they obtain regulatory approval for those
products before we do, we would be barred from seeking an ANDA for those products under
the Hatch-Waxman Act for the applicable statutory exclusivity period.
Our business activities require
compliance with environmental laws, which if violated could result in significant fines
and work stoppage.
Our
research and development programs, and the manufacturing operations and disposal
procedures of our contractor s and collaborators, are affected by federal, state, local
and foreign environmental laws. Although we intend to comply with applicable environmental
laws, our contractors and collaborators may not comply with these laws. Failure to comply
with environmental laws could result in significant fines and work stoppage, and may harm
our business.
We intend to pursue a rapid growth
strategy, which could give rise to difficulties in managing and successfully implementing
such growth.
Our
company was formed in April 1995 and, consequently, we have a limited operating
history. As of November 2, 2003, we employed 35 full-time employees and three part-time
employees, and we have numerous product candidates in various stages of development. We
intend to pursue a strategy of growth, both with regard to infrastructure and personnel,
and will seek to aggressively develop our current product candidates and to acquire new
product candidates. In the event of rapid growth in our operations, we will need to hire
additional personnel, some of whom, due to the specialized scientific and technical nature
of our business, must possess advanced degrees, be highly skilled and have many years of
experience. We may be unable to attract and retain the necessary qualified personnel, or
such personnel may not be available when needed, to successfully meet our growth needs. We
cannot assure you that we will be able to obtain the personnel needed to achieve such
growth or that we will be able to obtain and maintain all regulatory approvals or employ
the best personnel to ensure compliance with all applicable laws, regulations and
licensing requirements that may be necessary as a result of such growth.
Our bylaws require us to indemnify
our officers and directors to the fullest extent permitted by law, which may obligate us
to make substantial payments and in some instances payments in advance of judicial
resolution of entitlement.
Our
bylaws require that we indemnify our directors, officers and scientific advisory board
members, and permit us to indemnify our other employees and agents, to the fullest extent
permitted by the Delaware corporate law. This could require us, with some legally
prescribed exceptions, to indemnify our directors, officers and scientific advisory board
members against any and all expenses, judgments, penalties, fines and amounts reasonably
paid in defense or settlement in connection with an action, suit or proceeding. For
directors, our bylaws require us to pay in advance of final disposition all expenses
including attorneys’ fees incurred by them in connection with any action, suit or
proceeding relating to their status or actions as directors. Advance payment of legal
expenses is discretionary for officers, scientific advisory board members and other
employees or agents. We may make these advance payments provided that they are preceded or
accompanied by an undertaking on behalf of the indemnified party to repay all advances if
it is ultimately determined that he or she is not entitled to be indemnified by us.
Accordingly, we may incur expenses to meet these indemnification obligations, including
expenses that in hindsight are not qualified for reimbursement and possibly not subject to
recovery as a practical matter.
29
Provisions of Delaware law, our
charter and by-laws and our stockholders rights plan may make a takeover more
difficult.
Provisions
of our certificate of incorporation and by-laws and in the Delaware corporate law may make
it difficult and expensive for a third party to pursue a tender offer, change in control
or takeover attempt that is opposed by our management and board of directors. Moreover,
our stockholders rights plan, adopted in October 2003, commonly called a poison pill,
empowers our board of directors to delay or negotiate, and thereby possibly to thwart, any
tender or takeover attempt the board of directors opposes. Public stockholders who might
desire to participate in such a transaction may not have an opportunity to do so. We also
have a staggered board of directors that makes it difficult for stockholders to change the
composition of our board of directors in any one year. These anti-takeover provisions
could substantially impede the ability of public stockholders to change our management and
board of directors.
Risks Related to our
Industry
We face intense competition and if
we are unable to compete effectively, the demand for our products, if any, may be reduced.
The
pharmaceutical industry is highly competitive and marked by a number of established, large
pharmaceutical companies, as well as smaller emerging companies, whose activities are
directly focused on our target markets and areas of expertise. We face and will continue
to face competition in the discovery, in-licensing, development and commercialization of
our product candidates, which could severely impact our ability to generate revenue or
achieve significant market acceptance of our product candidates. Furthermore, new
developments, including the development of other drug technologies and methods of
preventing the incidence of disease, occur in the pharmaceutical industry at a rapid pace.
These developments may render our product candidates or technologies obsolete or
noncompetitive. We are focused on developing product candidates for the treatment of
central nervous system and other disorders, including cardiovascular and urological, that
involve alterations in neuronal processing, and we have a number of competitors. If one or
more of their products or programs are successful, the market for our product candidates
may be reduced or eliminated. Compared to us, many of our competitors and potential
competitors have substantially greater:
- research and development resources, including personnel and technology;
- preclinical study and clinical testing experience; and
- manufacturing, distribution and marketing experience.
As
a result of these factors, our competitors may obtain regulatory approval of their
products more rapidly than we. Our competitors may obtain patent protection or other
intellectual property rights that limit our ability to develop or commercialize our
product candidates or technologies. Our competitors may also develop drugs that are more
effective, useful and less costly than ours and may also be more successful than we and
our collaborators or licensees in manufacturing and marketing their products.
If we are unable to protect our
intellectual property, our competitors could develop and market products based on our
discoveries, which may reduce demand for our product candidates.
To
a substantial degree, our success will depend on the following intellectual property
achievements:
- our ability to obtain patent protection for our proprietary technologies and product candidates, as well as our
ability to preserve our trade secrets;
- our ability to qualify for the market exclusivity available under the Hatch-Waxman Act;
the ability of our collaborators and licensees to obtain patent protection for their
proprietary technologies and product candidates covered by our agreements, as well as
their ability to preserve related trade secrets; and
30
Because
of the substantial length of time and expense associated with bringing new products
through the development and regulatory approval processes in order to reach the
marketplace, the pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Accordingly, we, either alone or together with our collaborators or licensees, intend to
seek and enhance patent protection for our proprietary technologies and product
candidates. The risk exists, however, that these patents may be unobtainable and that the
breadth of the claims in a patent, if obtained, may not provide adequate protection of
our, or our collaborators’ or licensees’, proprietary technologies or product
candidates. We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our competitive
position, which we seek to protect, in part, by confidentiality agreements with our
collaborators, licensees, employees and consultants. We also have confidentiality and
invention or patent assignment agreements with our employees and some of, but not all, our
collaborators and consultants. If our employees, collaborators or consultants breach these
agreements, we may not have adequate remedies for any such breach, and our trade secrets
may otherwise become known to or independently discovered by our competitors. In addition,
although we own or otherwise have certain rights to a number of patents, the issuance of a
patent is not conclusive as to its validity or enforceability, and third parties may
challenge the validity or enforceability of our patents or the patents of our
collaborators or licensees. We cannot assure you how much protection, if any, will be
given to our patents if we attempt to enforce them or if they are challenged in court or
in other proceedings. It is possible that a competitor may successfully challenge our
patents, or the patents of our collaborators or licensees, or that challenges will result
in elimination of patent claims and therefore limitations of coverage. Moreover,
competitors may infringe our patents, the patents of our collaborators or licensees, or
successfully avoid them through design innovation. To prevent infringement or unauthorized
use, we may be required to file infringement claims, which are expensive and
time-consuming. Competitors may obtain regulatory approval for such of our compounds
lacking patent protection, and thus gain five-year market exclusivity under Hatch-Waxman
ahead of us. In addition, in an infringement proceeding, a court may decide that a patent
of ours is not valid or is unenforceable, or may refuse to stop the other party from using
the technology at issue on the ground that our patents do not cover its technology. In
addition, interference proceedings brought by the United States Patent and Trademark
Office may be necessary to determine the priority of inventions with respect to our patent
applications or those of our collaborators or licensees. Litigation or interference
proceedings may fail and, even if successful, may result in substantial costs and be a
distraction to management. We cannot assure you that we, or our collaborators or
licensees, will be able to prevent misappropriation of our respective proprietary rights,
particularly in countries where the laws may not protect such rights as fully as in the
United States.
The intellectual property of our
competitors or other third parties may prevent us from developing or commercializing our
product candidates.
Our
product candidates and the technologies we use in our research may inadvertently infringe
the patents or violate the proprietary rights of third parties. In addition, other parties
conduct their research and development efforts in segments where we, or our collaborators
or licensees, focus research and development activities. We cannot assure you that third
parties will not assert patent or other intellectual property infringement claims against
us, or our collaborators or licensees, with respect to technologies used in potential
product candidates. Any claims that might be brought against us relating to infringement
of patents may cause us to incur significant expenses and, if successfully asserted
against us, may cause us to pay substantial damages. Even if we were to prevail, any
litigation could be costly and time-consuming and could divert the attention of our
management and key personnel from our business operations. In addition, any patent claims
brought against our collaborators or licensees could affect their ability to carry out
their obligations to us. Furthermore, as a result of a patent infringement suit brought
against us, or our collaborators or licensees, the development, manufacture or potential
sale of product candidates claimed to infringe a third party’s intellectual property
may have to stop or be delayed, unless that party is willing to grant certain rights to
use its intellectual property. In such cases, we may be required to obtain licenses to
patents or proprietary rights of others in order to continue to commercialize our product
candidates. We may not, however, be able to obtain any licenses required under any patents
or proprietary rights of third parties on acceptable terms, or at all. Even if we, or our
collaborators or licensees, were able to obtain rights to a third party’s
intellectual property, these rights may be non-exclusive, thereby giving our competitors
potential access to the same intellectual property. Ultimately, we may be unable to
commercialize some of our potential products or may have to cease some of our business
operations as a result of patent infringement claims, which could severely harm our
business.
31
Our ability to receive royalties
and profits from product sales depends in part upon the availability of reimbursement for
the use of our products from third-party payors, for which we may or may not qualify.
Our
royalties or profits will be heavily dependent upon the availability of reimbursement for
the use of our products from third-party health care payors, both in the United States and
in foreign markets. The health care industry and these third-party payors are experiencing
a trend toward containing or reducing the costs of health care through various means,
including lowering reimbursement rates and negotiating reduced payment schedules with
service providers for drug products. These cost containment efforts could adversely affect
the market acceptance of our product candidates and may also harm our business. There can
be no assurance that we will be able to offset any of or all the payment reductions that
may occur. Reimbursement by a third-party payor may depend upon a number of factors,
including the third-party payor’s determination that use of a product is:
- safe, effective and medically necessary;
- appropriate for the specific patient;
- neither experimental nor investigational.
Reimbursement
approval is required from each third-party payor individually, and seeking this approval
is a time-consuming and costly process. Third-party payors may require cost-benefit
analysis data from us in order to demonstrate the cost-effectiveness of any product we
might bring to market. We cannot assure you that we will be able to provide data
sufficient to gain acceptance with respect to reimbursement. There also exists substantial
uncertainty concerning third-party reimbursement for the use of any drug product
incorporating new technology. We cannot assure you that third-party reimbursement will be
available for our product candidates utilizing new technology, or that any reimbursement
authorization, if obtained, will be adequate.
We face potential product
liability exposure, and if successful claims are brought against us, we may incur
substantial liability for a product and may have to limit its commercialization.
The
use of our product candidates in clinical trials and the sale of any approved products may
expose us to a substantial risk of product liability claims and the adverse publicity
resulting from such claims. These claims might be brought against us by consumers, health
care providers, pharmaceutical companies or others selling our products. If we cannot
successfully defend ourselves against these claims, we may incur substantial losses or
expenses, or be required to limit the commercialization of our product candidates. We have
obtained limited product liability insurance coverage for our clinical trials in the
amount of $3.0 million per occurrence and $3.0 million in the aggregate. Our insurance
coverage, however, may not reimburse us or may not be sufficient to reimburse us for any
expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly
expensive, and we may not be able to maintain insurance coverage at a reasonable cost or
in sufficient amounts to protect us against losses due to liability. We intend to expand
our insurance coverage to include the sale of commercial products if we obtain marketing
approval for our product candidates in development, but we may be unable to obtain
commercially reasonable product liability insurance for any products approved for
marketing. On occasion, large judgments have been awarded in class action lawsuits based
on drugs that had unanticipated side effects. A successful product liability claim or
series of claims brought against us would decrease our cash and could cause our stock
price to fall.
Item 6. Exhibits and
Reports on Form 8-K
(a)
Exhibits.
The
following is a complete list of exhibits filed or incorporated by reference as part of
this report.
Exhibit No.
10.1 |
|
Securities
Purchase Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.1 to the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference). |
10.2 |
|
Registration
Rights Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.2 to the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference). |
10.3 |
|
Form
of Warrant Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.3 to the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference). |
31 |
|
Certification of Chief Executive Officer of DOV Pharmaceutical, Inc., pursuant
to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc. pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
32
32.1 |
|
Certification
of Chief Executive Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
|
Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b)
Reports on Form 8-K.
We
filed a current report on Form 8-K on July 8, 2003 and August 18, 2003 reporting information under Items 7, 9 and 12.
33
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
DOV PHARMACEUTICAL, INC. |
Date: November 14, 2003 |
|
By: |
/s/ ARNOLD S. LIPPA
Name: Arnold S. Lippa
Title: Chief Executive Officer and Secretary |
|
|
DOV PHARMACEUTICAL, INC. |
|
|
By: |
/s/ BARBARA G. DUNCAN
Name: Barbara G. Duncan
Title: Vice President of Finance and
Chief Financial Officer |
EXHIBIT INDEX
Exhibit No.
|
|
Description
|
10.1 |
|
Securities
Purchase Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.1 to the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference). |
10.2 |
|
Registration
Rights Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.2 to the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference). |
10.3 |
|
Form
of Warrant Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed Associates
LLC (filed as Exhibit 10.3 to the Current Report on Form 8-K on July 8, 2003 and
incorporated herein by reference). |
31.1 |
|
Certification
of Chief Executive Officer of DOV Pharmaceutical, Inc., pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
31.2 |
|
Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc. pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
32.1 |
|
Certification
of Chief Executive Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
|
Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
35