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EX-32.1 - EX-32.1 - ANADYS PHARMACEUTICALS INC | a55898exv32w1.htm |
EX-31.1 - EX-31.1 - ANADYS PHARMACEUTICALS INC | a55898exv31w1.htm |
EX-31.2 - EX-31.2 - ANADYS PHARMACEUTICALS INC | a55898exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-50632
ANADYS PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware | 22-3193172 | |
(STATE OR OTHER JURISDICTION OF | (I.R.S. EMPLOYER | |
INCORPORATION OR ORGANIZATION) | IDENTIFICATION NO.) | |
5871 Oberlin Drive, Suite 200 | ||
San Diego, California | 92121 | |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) | (ZIP CODE) |
Companys telephone number, including area code: 858-530-3600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The number of shares of common stock outstanding as of the close of business on April 23, 2010:
Class | Number of Shares Outstanding | |
Common Stock, $0.001 par value | 37,350,731 |
ANADYS PHARMACEUTICALS, INC.
TABLE OF CONTENTS
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
ANADYS PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(In thousands, except share and per share amounts)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | (Note) | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,950 | $ | 4,497 | ||||
Securities available-for-sale |
11,912 | 15,993 | ||||||
Prepaid expenses and other current assets |
655 | 559 | ||||||
Total current assets |
15,517 | 21,049 | ||||||
Property and equipment, net |
528 | 626 | ||||||
Other assets |
30 | 60 | ||||||
Total assets |
$ | 16,075 | $ | 21,735 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 2,515 | $ | 3,383 | ||||
Common stock warrant liability |
4,790 | 3,897 | ||||||
Total current liabilities |
7,305 | 7,280 | ||||||
Other long-term liabilities |
23 | 26 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.001 par value;
10,000,000 shares authorized at March
31, 2010 and December 31, 2009; no
shares issued and outstanding at March
31, 2010 and December 31, 2009 |
| | ||||||
Common stock, $0.001 par value;
90,000,000 shares authorized at March
31, 2010 and December 31, 2009;
37,342,057 and 37,341,957 shares issued
and outstanding at March 31, 2010 and
December 31, 2009, respectively |
37 | 37 | ||||||
Additional paid-in capital |
298,225 | 297,687 | ||||||
Accumulated other comprehensive gain |
20 | 37 | ||||||
Accumulated deficit |
(289,535 | ) | (283,332 | ) | ||||
Total stockholders equity |
8,747 | 14,429 | ||||||
Total liabilities and stockholders equity |
$ | 16,075 | $ | 21,735 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
Note: The balance sheet at December 31, 2009, has been derived from audited financial
statements at that date but does not include all of the disclosures required by U.S. generally
accepted accounting principles for complete financial statements.
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Table of Contents
ANADYS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
(In thousands, except per share amounts)
(Unaudited)
Three months ended March 31, | ||||||||
2010 | 2009 | |||||||
Expenses: |
||||||||
Research and development |
$ | 3,721 | $ | 6,876 | ||||
General and administrative |
1,642 | 2,055 | ||||||
Total operating expenses |
5,363 | 8,931 | ||||||
Interest income and other, net |
53 | 172 | ||||||
Loss from valuation of common stock warrant liability |
(893 | ) | | |||||
Total other income (expense), net |
(840 | ) | 172 | |||||
Net loss |
$ | (6,203 | ) | $ | (8,759 | ) | ||
Net loss per share, basic and diluted |
$ | (0.17 | ) | $ | (0.30 | ) | ||
Shares used in calculating net loss per share, basic and diluted |
37,342 | 28,838 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
ANADYS PHARMACEUTICALS, INC.
Condensed Consolidated Cash Flow Statements
(In thousands)
(Unaudited)
(In thousands)
(Unaudited)
Three months ended March 31, | ||||||||
2010 | 2009 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net loss |
$ | (6,203 | ) | $ | (8,759 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
105 | 293 | ||||||
Share-based compensation expense |
538 | 684 | ||||||
Rent expense related to warrants issued in connection with operating lease
for our former facility |
| 13 | ||||||
Loss on valuation of common stock warrant liability issued in connection
with equity financing |
893 | | ||||||
Gain from the sale of disposal of property and equipment |
(6 | ) | | |||||
Amortization of premium/discount on securities available-for-sale |
95 | 37 | ||||||
Changes in operating assets and liabilities: |
||||||||
Other assets |
30 | | ||||||
Prepaid expenses and other current assets |
(96 | ) | 107 | |||||
Accounts payable and accrued expenses |
(868 | ) | 553 | |||||
Deferred rent |
| (142 | ) | |||||
Other current and long-term liabilities |
(3 | ) | (2 | ) | ||||
Net cash used in operating activities |
(5,515 | ) | (7,216 | ) | ||||
Cash Flows from Investing Activities: |
||||||||
Purchases of securities available-for-sale |
(2,231 | ) | (1,999 | ) | ||||
Proceeds from sale and maturity of securities available-for-sale |
6,200 | 3,283 | ||||||
Purchases of property and equipment |
(7 | ) | | |||||
Proceeds from the sale of property and equipment |
6 | | ||||||
Net cash provided by investing activities |
3,968 | 1,284 | ||||||
Cash Flows from Financing Activities: |
||||||||
Proceeds from exercise of stock options |
| 168 | ||||||
Net cash provided by financing activities |
| 168 | ||||||
Net decrease in cash and cash equivalents |
(1,547 | ) | (5,764 | ) | ||||
Cash and cash equivalents at beginning of period |
4,497 | 10,476 | ||||||
Cash and cash equivalents at end of period |
$ | 2,950 | $ | 4,712 | ||||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: |
||||||||
Unrealized loss on securities available-for-sale |
$ | (17 | ) | $ | (6 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
ANADYS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
1. Organization and Basis of Presentation
Organization and Business
The accompanying unaudited condensed consolidated financial statements of Anadys
Pharmaceuticals, Inc. (together with its wholly owned subsidiaries, Anadys Pharmaceuticals Europe
GmbH and Anadys Development Limited, the Company) should be read in conjunction with the audited
consolidated financial statements and related disclosures included in the Companys 2009 Annual
Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2010.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial
information, in accordance with the instructions to Form 10-Q and the guidance in Article 10 of
Regulation S-X. Accordingly, since they are interim financial statements, the accompanying
unaudited condensed consolidated financial statements do not include all of the information and
disclosures required by U.S. GAAP for complete financial statements. The accompanying unaudited
condensed consolidated financial statements reflect all adjustments, consisting of normal recurring
adjustments, that are, in the opinion of management, necessary for the fair statement of the
results of operations for the interim periods presented. Interim results are not necessarily
indicative of results for a full year.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect amounts reported in the financial statements and notes
thereto. Actual results may differ from these estimates under different assumptions or conditions.
Securities Available-for-Sale
Investments with an original maturity of more than three months when purchased have been
classified by management as securities available-for-sale. Such investments are carried at fair
value, with unrealized gains and losses included as a component of accumulated other comprehensive
gain (loss) in stockholders equity. Realized gains and losses and declines in value judged to be
other-than-temporary (of which there have been none to date) on available-for-sale securities are
included in interest income in the Statements of Operations. The cost of securities sold is based
on the specific-identification method. The Company views its available-for-sale securities as
available for use in current operations. Accordingly, the Company has classified all investments as
short-term, even though the stated maturity date may be one year or more beyond the current balance
sheet date.
Subsequent Events
The Company evaluated all events or transactions that occurred after the balance sheet date of
March 31, 2010 through the date it issued these financial statements. No subsequent events were
identified requiring additional disclosure in the notes to these financial statements.
2. Net Loss Per Share
Basic net loss per share was calculated by dividing the net loss for the period by the
weighted-average number of common shares outstanding during the period, without consideration for
common stock equivalents. Diluted net loss per share was calculated by dividing the net loss for
the period by the weighted-average number of common stock equivalents outstanding during the period
determined using the treasury-stock method. For purposes of this calculation, options and warrants
are considered to be common stock equivalents and are only included in the calculation of diluted
earnings per share when their effect is dilutive. The Company has excluded all outstanding options
and warrants from the calculation of diluted net loss per common share because all such securities
are anti-dilutive for all periods presented.
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As of March 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Historical outstanding anti-dilutive
securities not included in diluted net loss per
share calculation: |
||||||||
Options to purchase common stock |
7,073 | 6,368 | ||||||
Common stock warrants |
2,944 | 19 | ||||||
10,017 | 6,387 | |||||||
The increase in common stock warrants as of March 31, 2010, is the result of the issuance
of 2.9 million common stock warrants to institutional investors in conjunction with the Companys
equity financing in June 2009.
3. Comprehensive Loss
Comprehensive loss is comprised of net loss adjusted for changes in market values in
securities available-for-sale. Below is a reconciliation of net loss to comprehensive loss for the
periods presented (in thousands):
Three months ended March 31, | ||||||||
2010 | 2009 | |||||||
Net loss |
$ | (6,203 | ) | $ | (8,759 | ) | ||
Unrealized loss on
securities
available-for-sale |
(17 | ) | (6 | ) | ||||
Comprehensive loss |
$ | (6,220 | ) | $ | (8,765 | ) | ||
4. Share-Based Payment
Share-based compensation cost is estimated at the grant date based on the awards fair value
as calculated by a Black-Scholes pricing model and is recognized as expense on a straight-line
basis over the requisite service period. The Company accounts for compensation expense for options
granted to non-employees other than directors based on the fair value of the options issued using
the Black-Scholes pricing model and is periodically re-measured as the underlying options vest.
A summary of the Companys stock options and related information as of March 31, 2010 is as
follows:
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | |||||||||||||||
Options | Exercise | Term in | Aggregate | |||||||||||||
Outstanding | Price | Years | Intrinsic Value | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Balance at March 31, 2010 |
7,073 | $ | 3.54 | 6.25 | $ | 1,269 | ||||||||||
Exercisable at March 31, 2010 |
4,823 | $ | 4.12 | 5.03 | $ | 589 | ||||||||||
The Company has reported the following amounts of share-based compensation expense in the
unaudited condensed consolidated Statements of Operations (in thousands, except per share data):
Three months ended March 31, | ||||||||
2010 | 2009 | |||||||
Research and development expense |
$ | 250 | $ | 328 | ||||
General and administrative expense |
288 | 356 | ||||||
Total share-based compensation expense |
$ | 538 | $ | 684 | ||||
Net share-based compensation expense, per common share
basic and diluted |
$ | 0.01 | $ | 0.02 | ||||
As of March 31, 2010, there was an additional $2.6 million of total unrecognized compensation
cost related to unvested share-based awards granted under the Companys stock option plans. This
unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.42
years.
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There were no options granted during the three months ended March 31, 2010 or March 31, 2009.
Share-based compensation expense is based on awards ultimately expected to vest, and therefore
is reduced by expected forfeitures. The Company estimates forfeitures based upon historical
forfeiture rates, and will adjust its estimate of forfeitures if actual forfeitures differ, or are
expected to differ, from such estimates.
5. Securities Available-for-Sale
Securities available-for-sale consisted of the following as of March 31, 2010 and December 31,
2009, respectively (in thousands):
March 31, 2010 | ||||||||||||||||
Amortized | Unrealized | Market | ||||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
Commercial paper |
$ | 1,600 | $ | | $ | | $ | 1,600 | ||||||||
Municipal bonds |
1,012 | | | 1,012 | ||||||||||||
U.S. treasury notes |
2,029 | | | 2,029 | ||||||||||||
U.S. government sponsored enterprise securities |
5,087 | 3 | (1 | ) | 5,089 | |||||||||||
Corporate debt securities |
2,164 | 19 | (1 | ) | 2,182 | |||||||||||
$ | 11,892 | $ | 22 | $ | (2 | ) | $ | 11,912 | ||||||||
December 31, 2009 | ||||||||||||||||
Amortized | Unrealized | Market | ||||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
Commercial paper |
$ | 2,199 | $ | | $ | | $ | 2,199 | ||||||||
Municipal bonds |
1,026 | | | 1,026 | ||||||||||||
U.S. treasury notes |
2,048 | | (1 | ) | 2,047 | |||||||||||
U.S. government sponsored enterprise securities |
9,127 | 8 | (5 | ) | 9,130 | |||||||||||
Corporate debt securities |
1,556 | 35 | | 1,591 | ||||||||||||
$ | 15,956 | $ | 43 | $ | (6 | ) | $ | 15,993 | ||||||||
The amortized cost and estimated fair value of the Company securities available-for-sale by
contractual maturity as of March 31, 2010 and December 31, 2009 are shown below (in thousands):
March 31, 2010 | ||||||||||||||||
Amortized | Unrealized | Market | ||||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
Within one year |
$ | 11,892 | $ | 22 | $ | (2 | ) | $ | 11,912 | |||||||
After one year |
| | | | ||||||||||||
$ | 11,892 | $ | 22 | $ | (2 | ) | $ | 11,912 | ||||||||
December 31, 2009 | ||||||||||||||||
Amortized | Unrealized | Market | ||||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
Within one year |
$ | 15,956 | $ | 43 | $ | (6 | ) | $ | 15,993 | |||||||
After one year |
| | | | ||||||||||||
$ | 15,956 | $ | 43 | $ | (6 | ) | $ | 15,993 | ||||||||
As of March 31, 2010, the Company performed a review of all of the securities in its portfolio
with an unrealized loss position to determine if any other-than-temporary impairments were required
to be recorded. Factors considered in the Companys assessment included but were not limited to the
following: the Companys ability and intent to hold the security until maturity; the number of
months until the securitys maturity, the number of quarters that each security was in an
unrealized loss position, ratings assigned to each security by independent rating agencies, the
magnitude of the unrealized loss compared to the face value of the security and other market
conditions. Impairments are not considered other than temporary as the Company has the intent and
ability to hold these investments until maturity. No other-than-temporary impairments were
identified as of March 31, 2010 related to securities currently in the Companys portfolio. The
Company also noted that none of the securities as of March 31, 2010 have been in an unrealized loss
position for greater than one year.
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6. Fair Value Disclosures
As of March 31, 2010, the Company has $14.7 million of marketable securities consisting of
money market funds, commercial paper, municipal bonds, U.S. treasury notes, U.S. government
sponsored enterprise securities and corporate debt securities with maturities that range from 1 day
to 9.1 months with an overall average time to maturity of 3.1 months. The Company has the ability
to liquidate these investments without restriction. The Company determines fair value for
marketable securities with Level 1 inputs through quoted market prices. The Company determines fair
value for marketable securities with Level 2 inputs through broker or dealer quotations or
alternative pricing sources with reasonable levels of price transparency. Our Level 2 marketable
securities have been initially valued at the transaction price and subsequently valued, at the end
of each reporting period, typically utilizing third party pricing services or other market
observable data. The pricing services utilize industry standard valuation models, including both
income and market based approaches and observable market inputs to determine value. These
observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer
quotes, bids, offers, and other industry and economic events. The Company determines fair value for
the common stock warrants with Level 3 inputs through a Black-Scholes pricing model.
There have been no transfers of assets or liabilities between the fair value measurement
classifications.
The following table presents the Companys assets and liabilities that are measured at fair
value on a recurring basis as of March 31, 2010 (in thousands):
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
March 31, 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Description |
||||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 364 | $ | 364 | $ | | $ | | ||||||||
Commercial paper |
2,999 | | 2,999 | | ||||||||||||
Municipal bonds |
1,012 | | 1,012 | | ||||||||||||
U.S. treasury notes |
2,029 | | 2,029 | | ||||||||||||
U.S. government sponsored enterprise securities |
6,094 | | 6,094 | | ||||||||||||
Corporate debt securities |
2,182 | | 2,182 | | ||||||||||||
Total financial assets |
$ | 14,680 | $ | 364 | $ | 14,316 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Common stock warrants |
$ | 4,790 | $ | | $ | | $ | 4,790 | ||||||||
Total financial liabilities |
$ | 4,790 | $ | | $ | | $ | 4,790 | ||||||||
As of March 31, 2010, the Company has a $4.8 million common stock warrant liability. This
liability is associated with warrants to purchase 2.9 million shares of common stock, issued in
connection with the Companys common stock offering, which closed in June 2009.
The Company reassesses the fair value of the common stock warrants at each reporting date
utilizing a Black-Scholes pricing model. As of December 31, 2009, inputs used in the Black-Scholes
pricing model included a dividend yield of 0%, expected volatility of 93.82%, risk-free interest
rate of 2.69% and expected life of approximately 4.4 years. As of March 31, 2010, inputs used in
the Black-Scholes pricing model included a dividend yield of 0%, expected volatility of 94.16%,
risk-free interest rate of 2.08% and expected life of approximately 4.2 years. As a result of this
calculation, the Company recorded a loss of $0.9 million for the three months ended March 31, 2010.
The loss is reflected in the Companys unaudited condensed consolidated Statement of Operations as
a component of other income (expense), net.
The following table is a roll forward of the fair value of the common stock warrants, as to
which fair value is determined by Level 3 inputs (in thousands):
Three months ended | ||||
March 31, 2010 | ||||
Description |
||||
Beginning balance |
$ | 3,897 | ||
Purchases, issuances, and settlements |
| |||
Realized loss included in net loss |
893 | |||
Ending balance |
$ | 4,790 | ||
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This discussion and analysis should be read in conjunction with our unaudited condensed
consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (this
Quarterly Report) and the audited consolidated financial statements and notes as of and for the
year ended December 31, 2009 included with the Companys Annual Report on Form 10-K filed with the
U.S. Securities and Exchange Commission (SEC) on March 1, 2010. Operating results are not
necessarily indicative of results that may occur in future periods.
This Quarterly Report contains forward-looking statements. These forward-looking statements
involve a number of risks and uncertainties. Such forward-looking statements include statements
about our strategies, objectives, discoveries, clinical trials, development programs, financial
forecasts and other statements that are not historical facts, including statements which may be
preceded by the words intend, will, plan, expect, anticipate, estimate, aim, seek,
believe, hope or similar words. For such statements, we claim the protection of the Private
Securities Litigation Reform Act of 1995. Readers of this Quarterly Report are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of the date on which
they are made. We undertake no obligation to update publicly or revise any forward-looking
statements. Actual events or results may differ materially from our expectations. Important factors
that could cause actual results to differ materially from those stated or implied by our
forward-looking statements include, but are not limited to, the risk factors identified in our SEC
reports, including this Quarterly Report.
Overview
Background
Anadys Pharmaceuticals, Inc. is a biopharmaceutical company dedicated to improving patient
care by developing novel medicines for the treatment of hepatitis C. We believe hepatitis C
represents a large and significant unmet medical need. Our objective is to contribute to an
improved treatment outcome for patients with this serious disease. We are currently focusing our
efforts on the development of ANA598, a small-molecule, non-nucleoside inhibitor of the NS5B
polymerase for the treatment of hepatitis C. We are currently conducting a Phase II study of ANA598
in combination with pegylated interferon alpha and ribavirin, which is the current standard of care
(SOC) for the treatment of hepatitis C. This study is being conducted in patients infected with
hepatitis C virus (HCV).
On June 3, 2009, we initiated a strategic restructuring to focus our operations on the
development of ANA598, in particular the Phase II study of ANA598 in combination with interferon
and ribavirin. The strategic restructuring resulted in a reduction in our workforce of
approximately 40%, with most of the employees having departed by the end of June 2009 and several
others departing at later dates prior to the end of 2009.
We also have investigated ANA773, an oral, small-molecule inducer of endogenous interferons
that acts via the Toll-like receptor 7, or TLR7, pathway in a Phase I trial in hepatitis C. In 2009
we concluded a Phase I clinical trial of ANA773 in HCV patients.
We have also investigated ANA773 for the treatment of cancer. In 2009 we elected to stop
enrollment of new patients in the ongoing Phase I oncology trial to focus our resources on ANA598.
We plan for currently enrolled patients to continue to receive ANA773 until disease progression is
observed and to conclude the trial once all patients reach this point.
Recent Developments
On April 15, 2010 we presented data from our ongoing ANA598 Phase II combination study at the
45th Annual Meeting of the European Association for the Study of the Liver (EASL).
Specifically, we reported positive preliminary antiviral response and safety results through
week eight from the second dose cohort (400 mg bid) and updated control group response data. 72% of
patients receiving ANA598 at 400 mg bid in combination with SOC achieved undetectable levels of
virus (<15 IU/ml) at week eight, compared to 38% of patients receiving placebo plus SOC.
The incidence of adverse events was similar between the active and control groups, with
reported adverse events being typical for patients treated with interferon and ribavirin.
We have recently concluded dosing patients at 400 mg bid through 12 weeks and expect to
release 12 week data from this dose cohort in the latter half of May 2010.
We have incurred significant operating losses since our inception and, as of March 31, 2010,
our accumulated deficit was $289.5 million. We expect to incur substantial losses for at least the
next several years as we:
| continue the development of ANA598 for the treatment of HCV; |
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| develop methods for and scale-up manufacturing of ANA598 for clinical trials and potential commercialization; | ||
| commercialize any product candidates that receive regulatory approval; and | ||
| potentially in-license technology and acquire or invest in businesses, products or technologies that are synergistic with our own. |
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on
our unaudited condensed consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities and expenses and related disclosure of contingent assets and liabilities. We review our
estimates on an on-going basis and make adjustments to the financials statements as considered
necessary. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.
Drug Development Costs. Drug development costs include costs associated with the development
of our product candidates including non-clinical activities, toxicology studies, manufacturing of
non-clinical and clinical materials and clinical trials. We review and accrue drug development
costs based on work performed. We estimate work performed utilizing factors such as subject
enrollment, estimated timeline for completion of studies and other factors. These costs and
estimates vary based on the type, scope and length of non-clinical and clinical studies as well as
other factors. Drug development cost accruals are subject to revisions as studies, projects and
trials progress to completion. Expense is adjusted for revisions in the period in which the facts
that give rise to the revision become known.
Common Stock Warrant Liability. We account for common stock warrants which may potentially be
settled with cash as a liability. The common stock warrants have been recorded at their fair value
at issuance and will continue to be recorded at fair value each subsequent balance sheet date until
such time that they are exercised or are otherwise modified to remove the provisions that require
this treatment, at which time the warrants will be adjusted to fair value and reclassified from
liabilities to stockholders equity. Any change in value between reporting periods will be recorded
as other income (expense) at each reporting date. The fair value of the warrants is estimated using
the Black-Scholes pricing model.
Share-Based Compensation. Share-based compensation cost is estimated at the grant date based
on the awards fair-value as calculated by a Black-Scholes pricing model and the portion that is
expected to vest is recognized as expense evenly over the requisite service period. The
determination of the fair value of share-based payment awards on the date of grant using an
option-pricing model is affected by our stock price as well as assumptions regarding a number of
complex and subjective variables. These variables include, but are not limited to, our expected
stock price volatility over the term of the awards, the risk-free interest rate, the expected term
of the awards and expected forfeitures. If any of the assumptions used in the model change
significantly, share-based compensation expense may differ materially in the future from that
recorded in the current period.
Results of Operations
Three Months Ended March 31, 2010 and 2009
Research and Development Expenses. Research and development expenses were $3.7 million for
the three months ended March 31, 2010 compared to $6.9 million for the three months ended March 31,
2009. The $3.2 million decrease was primarily attributable to a $1.0 million decrease in ANA598
development costs, a $1.4 million decrease in ANA773 development costs and, to a lesser extent,
cost savings associated with our strategic restructuring completed in 2009. During the three months
ended March 31, 2010, our development costs associated with ANA598 were primarily associated with
our Phase II study of ANA598 in combination with pegylated interferon alpha and ribavirin, which is
the current standard of care (SOC) for the treatment of hepatitis C. During the three months ended
March 31, 2009, development costs for ANA598 were primarily associated with our completed Phase Ib
clinical trial which was initiated during September 2008, our 14-day healthy volunteer study which
was initiated in February 2009 and our then on-going long-term chronic toxicology studies which
were initiated during September 2008. Our ANA773 development costs during the three months ended
March 31, 2009 were primarily driven by our then on-going Phase I clinical trial for the treatment
of HCV. Our non-cash share-based compensation expense associated with share-based payments granted
to our research and development employees was $0.2 and $0.3 million for the three months ended
March 31, 2010 and 2009, respectively.
The following summarizes our research and development expenses for the three months ended
March 31, 2010 and 2009. Facility
costs, depreciation and amortization, research and development support personnel and other
indirect personnel related costs are included as a component of infrastructure and support
personnel.
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Three months ended March 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
ANA598 |
$ | 2,803 | $ | 3,813 | ||||
ANA773 - HCV |
36 | 985 | ||||||
ANA773 - Oncology |
29 | 501 | ||||||
Infrastructure, support personnel and other |
603 | 1,249 | ||||||
Non-cash employee and non-employee share-based compensation |
250 | 328 | ||||||
Total research and development expense |
$ | 3,721 | $ | 6,876 | ||||
General and Administrative Expenses. General and administrative expenses were $1.6 million
for the three months ended March 31, 2010 compared to $2.1 million for the three months ended March
31, 2009. The $0.5 million decrease primarily resulted from cost savings associated with the
strategic restructuring completed in 2009. Non-cash share-based compensation expense associated
with share-based payments granted to our general and administrative employees and non-employee
directors was $0.3 million and $0.4 million for the three months ended March 31, 2010 and 2009,
respectively.
Interest Income and Other, net. Interest income and other, net was $0.1 million for the three
months ended March 31, 2010 compared to $0.2 million for the three months ended March 31, 2009. The
$0.1 million decrease in our interest income and other from the three months ended March 31, 2009
to the three months ended March 31, 2010 was primarily the result of lower average cash, cash
equivalents and securities available-for-sale balances, which were invested in interest bearing
securities, during the three months ended March 31, 2010 compared to the three months ended March
31, 2009. The decrease in our interest income from the three months ended March 31, 2009 to the
three months ended March 31, 2010 was also driven by a reduction in the yield on our investment
portfolio which was attributable to a decrease in short-term interest rates between the two
periods.
Common Stock Warrant Liability. Non-operating expense associated with the increase in common
stock warrant liability was $0.9 million for the three months ended March 31, 2010. This represents
the increase in the fair value of the warrants from December 31, 2009 to March 31, 2010. The fair
value was calculated using the Black-Scholes pricing model and is remeasured at each reporting
period. Potential future increases in our stock price will result in losses being recognized in our
statement of operations in future periods. Conversely, potential future declines in our stock price
will result in gains being recognized in our statement of operations in future periods.
Liquidity and Capital Resources
Overview
Our March 31, 2010 cash, cash equivalents and
securities available-for-sale balance was $14.9 million. Our cash, cash equivalents and securities available-for sale decreased by
$5.6 million from December 31, 2009 to March 31, 2010. The decrease in cash, cash equivalents and securities available-for-sale is
the result of year-to-date cash utilization to fund our operations, including external expenditures associated with our Phase II
combination study of ANA598. We expect to continue to fund our operations over the next several quarters utilizing our cash, cash
equivalents and securities available-for-sale. We will need to seek additional funding in order to conduct future development
activities beyond completion of the current Phase II combination study of ANA598. Cash to conduct such future development activities
will most likely have to be obtained from one of the following sources: a new strategic alliance or other transaction, the sale of
equity securities, project financing or debt financing.
We believe that our existing cash, cash
equivalents and securities available-for-sale will be sufficient to meet our projected operating requirements for at least the next
twelve months. We expect external expenditures associated with our on-going ANA598 Phase II combination study to decrease significantly
during the second half of 2010.
Future Cash Requirements
Over time we expect our development expenses to be substantial and to increase as we continue
the advancement of our development programs. The lengthy process of completing clinical trials and
seeking regulatory approval for our product candidates requires the expenditure of substantial
resources. Any failure by us or delay in completing clinical trials, or in obtaining regulatory
approvals, could cause our research and development expenses to increase and, in turn, have a
material adverse effect on our results of operations.
Our future capital uses and requirements depend on numerous forward-looking factors. These
factors may include but are not limited to the following:
| the progress of our clinical trials; |
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| the progress of our nonclinical development activities; | ||
| our ability to establish and maintain strategic alliances; | ||
| the costs involved in enforcing or defending patent claims and other intellectual property rights; | ||
| the costs and timing of regulatory approvals; | ||
| the costs of establishing or expanding manufacturing, sales and distribution capabilities; | ||
| the costs related to development and manufacture of non-clinical, clinical and validation lots for regulatory and commercialization of drug supply; | ||
| the success of the commercialization of ANA598, ANA773 or any other product candidates we may develop; and | ||
| the extent to which we acquire or invest in other products, technologies and businesses. |
Investment Portfolio
As of March 31, 2010, the Company has $14.7 million of marketable securities consisting of
money market funds, commercial paper, municipal bonds, U.S. treasury notes, U.S. government
sponsored enterprise securities and corporate debt securities with maturities that range from 1 day
to 9.1 months with an overall average time to maturity of 3.1 months. We have the ability to
liquidate these marketable securities without restriction. As of March 31, 2010, we do not own any
marketable securities which are classified as asset-backed securities or auction rate securities.
Fair Value Inputs
Fair value is a market-based measurement that is determined based on assumptions that market
participants would use in pricing an asset. We value our marketable securities by using quoted
market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of
price transparency. The types of securities valued based on quoted market prices in active markets
include money market securities. We do not adjust the quoted price for such securities. The types
of instruments valued based on quoted prices in markets that are not active, broker or dealer
quotations, or alternative pricing sources with reasonable levels of price transparency include
U.S. government sponsored enterprise securities, municipal bonds, U.S. treasury notes and corporate
debt securities. The price for each security at the measurement date is sourced from an independent
pricing vendor. Periodically, management assesses the reasonableness of these sourced prices by
comparing them to the prices provided by our portfolio managers to derive the fair value of these
financial instruments. Historically, we have not experienced significant deviation between the
prices from the independent pricing vendor and our portfolio managers. Management assesses the
inputs of the pricing in order to categorize the financial instruments into the appropriate
hierarchy levels. The fair value of the common stock warrants, which may potentially be settled
with cash and are therefore treated as a liability, is estimated using the Black-Scholes pricing
model.
Off-Balance Sheet Arrangements
As of March 31, 2010 and 2009, we did not have any relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage
in trading activities involving non-exchange traded contracts. As such, we are not materially
exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in
these relationships. We do not have relationships or transactions with persons or entities that
derive benefits from their non-independent relationship with us or our related parties.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Our primary exposure to market risk is interest income sensitivity, which is affected by
changes in the general level of U.S. interest rates, particularly because the majority of our
investments are in short-term marketable securities. Due to the nature of our short-term
investments, we believe that we are not subject to any material market risk exposure. We do not
hold any foreign currency or other derivative financial instruments.
Item 4. Controls and Procedures
Our President and Chief Executive Officer and our Vice President, Finance and Operations
performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-l5(e) and l5d-15(e) of the Securities Exchange Act of
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1934 (the Exchange Act)) as of
the end of the period covered by this Quarterly Report. Based on that evaluation, our President and
Chief Executive Officer and our Vice President, Finance and Operations concluded that as of the
date of such evaluation, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in our periodic reports under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in U.S. Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our President and Chief Executive Officer
and our Vice President, Finance and Operations, as appropriate, to allow timely decisions regarding
required disclosure. It should be noted that the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and can therefore only provide
reasonable, not absolute, assurance that the design will succeed in achieving its stated goals.
There were no changes in our internal control over financial reporting that occurred during
our most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1A. | Risk Factors |
You should consider carefully the following information about the risks described below,
together with the other information contained in this Quarterly Report and in our other public
filings before making any investment decisions regarding our stock. If any of the following risks
actually occurs, our business, financial condition, results of operations and future growth
prospects would likely be materially and adversely affected. In these circumstances, the market
price of our common stock would likely decline, and you may lose all or part of the money you paid
to buy our common stock.
The risk factors set forth below with an asterisk (*) next to the title are new risk factors
or risk factors containing changes, including any material changes, from the risk factors
previously disclosed in our annual report on Form 10-K for the year ended December 31, 2009, as
filed with the U.S. Securities and Exchange Commission.
Risks Related to Our Business
Any significant set-back regarding, or the failure of, ANA598 will have a large negative
impact on our business and stock price.
Currently, we are actively pursuing only the development of ANA598. As a result, our
development portfolio entails a highly concentrated risk of failure. If the timing or results of
clinical trials and non clinical studies of ANA598 do not meet our, your, analysts or others
expectations, the market price of our common stock could decline significantly. Any significant
set-back regarding, or the failure of, ANA598 will have a significant negative impact on us and our
stock price.
*We may be unable to enter into future strategic transactions, and in particular
transactions around ANA598 or ANA773, on terms acceptable to us, or at all.
Our near and long-term viability will depend in part on our ability to successfully establish
strategic transactions with pharmaceutical and biotechnology companies. Since we do not currently
possess the resources necessary to pursue the development of ANA598 beyond the current Phase II
combination study or advance the development of ANA773, we either will need to develop or acquire
these resources on our own, which will require substantial funding, time and effort, or will need
to enter into collaborative agreements to assist in the development of these programs. If we fail
to establish collaborations or licensing arrangements on acceptable terms, we may need to forego
the future development of one or both of our programs. Even if we successfully establish new
collaborations, these relationships may never result in the successful development or
commercialization of any product candidates or the generation of milestone, sales or royalty
revenue.
More specifically, we are currently pursuing discussions with certain biotechnology and
pharmaceutical companies regarding a potential transaction around ANA598. In addition, we may
seek outlicensing opportunities as a way to potentially continue advancing the development of
ANA773. However, there is no guarantee that we will enter into a transaction around ANA598 or
ANA773 on favorable terms, or at all, or that discussions will initiate or progress on our desired
timelines. Completing transactions of this nature is difficult and time-consuming. Potentially
interested parties may decline to engage or may terminate discussions based upon their assessment
of our competitive, financial, regulatory or intellectual property position, their internal
portfolio dynamics, or for any other reason. Further, depending on the availability of any
potential transaction, or the offered terms of a transaction, if available, we could choose to
pursue an alternative strategy of continuing the development of ANA598 on our own. This would
require raising additional funds, most likely through the equity markets. However, there is no
guarantee that we would be able to sell equity securities at an attractive price, if at all, and
there is no guarantee that this alternative would turn out to be more favorable than a potential
transaction. Furthermore, if we postpone a transaction around ANA598 until we have additional
data, we and our stockholders will bear the risk that ANA598 will fail prior to any future
potential transaction.
*In order to advance ANA598 into Phase IIb development, we will require additional funds and we
may not be able to obtain such funds.
Prior to advancing ANA598 into Phase IIb development, we will need to obtain additional
funds. However, we may not be successful in obtaining such funds. Potential sources of additional
funds include a new strategic alliance or other transaction, the sale of equity securities, project
financing or debt financing. We cannot be sure that additional funding will be available or that
such funding will be obtained on terms favorable to us or our stockholders.
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*We will need additional funding and may be unable to raise capital when needed, which
would force us to delay, reduce or eliminate our development programs.
Our March 31, 2010 cash, cash equivalents and marketable securities balance was $14.9
million. We believe that this balance will be sufficient to satisfy our anticipated operational
cash needs for at least the next 12 months. However, we will need to seek additional funding in
order to conduct future development activities beyond completion of the current Phase II
combination study of ANA598. There is no guarantee that additional funding will be available to us
on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce the
scope of or eliminate one or both of our development programs.
In addition, we will need to raise additional capital if we choose to conduct certain
activities, including:
| fund our development programs; | ||
| acquire rights to products or product candidates, technologies or businesses; | ||
| establish and maintain manufacturing, sales and marketing operations; and | ||
| commercialize our product candidates, if any, that receive regulatory approval. |
Our future funding requirements will depend on, and could increase significantly as a
result of many factors, including:
| the progress of our clinical trials; | ||
| the progress of our nonclinical development activities; | ||
| our ability to establish and maintain strategic alliances; | ||
| the costs involved in enforcing or defending patent claims and other intellectual property rights; | ||
| the pace and timing of development activities conducted under joint development arrangements we may establish; | ||
| the cost and timing of regulatory approvals; | ||
| the costs of establishing or expanding manufacturing, sales and distribution capabilities; | ||
| the costs related to development and manufacture of pre-clinical, clinical and validation lots for regulatory and commercialization of drug supply; | ||
| the commercialization of ANA598, ANA773 and any additional products; and | ||
| the extent to which we acquire or invest in other products technologies and businesses. |
We do not anticipate that we will generate significant revenues from operations for at
least several years, if ever. Until we can generate significant revenues from operations, we expect
to satisfy our future cash needs through public or private equity offerings, debt financings,
strategic alliances or other transactions, project financing and grant funding, as well as through
interest income earned on cash balances. We cannot be certain that additional funding will be
available to us on acceptable terms, or at all. If funds are not available, we may be required to
delay, reduce the scope of or eliminate one or more of our research or development programs or our
commercialization efforts.
Raising additional funds by issuing securities or through debt or project financing or
strategic alliances and licensing arrangements may cause dilution to existing stockholders,
restrict our operations or require us to relinquish proprietary rights.
We may seek to raise additional funds through public or private equity offerings, debt
financings, project financings or strategic alliances and licensing arrangements. We cannot be
certain that additional funding will be available on acceptable terms, or at all. To the extent
that we raise additional capital by issuing equity securities, our stockholders ownership will be
diluted. Other financing activities may also have an equity component, which also may lead to
dilution. Any debt or project financing we enter into may involve covenants that restrict our
operations. These restrictive covenants may include limitations on borrowing, specific restrictions
on the use of our assets as well as prohibitions on our ability to create liens, pay dividends,
redeem capital stocks or make investments. In addition, if we raise additional funds through
strategic alliances and licensing arrangements, it may be necessary to relinquish potentially
valuable rights to our potential products or proprietary technologies, or grant licenses on terms
that are not favorable to us. For example, we might be forced to relinquish all or a portion of our
sales and marketing rights with respect to potential products or license intellectual property that
enables licensees to develop competing products.
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We are at an early stage of development, and we may never attain product sales.
Our existing organizational structure was formed in May 2000. Since then, most of our
resources have been dedicated to the development of our proprietary drug discovery technologies,
research and development and preclinical and early-stage clinical testing of compounds. Our current
product candidates are at only the very early stages of clinical trials. ANA598, ANA773 and any
other compounds that we may develop, may never be approved for commercial sales. These compounds
will require extensive and costly development, preclinical testing and clinical trials prior to
seeking regulatory approval for commercial sales. The time required to attain product sales and
profitability is lengthy and highly uncertain, and we cannot assure you that we will be able to
achieve or maintain product sales.
*We expect our net losses to continue for at least several years, and we are unable to
predict the extent of future losses and when we will become profitable in our business operations,
if ever.
We have incurred net losses since our incorporation in 1992, and through March 31, 2010
we have an accumulated deficit of $289.5 million. Our losses are attributable in large part to the
significant research and development costs required to identify and validate potential product
candidates and conduct preclinical studies and clinical trials. To date, we have generated limited
revenues, consisting of one-time or limited payments associated with past collaborations or grants,
and we do not anticipate generating product revenues for at least several years, if ever. We would
need to increase our operating expenses over at least the next several years in order to fund the
development costs of our product candidates and further our development activities. As a result,
over time, we expect to continue to incur significant and increasing operating losses for the
foreseeable future. Because of the numerous risks and uncertainties associated with our research
and product development efforts, we are unable to predict the extent of any future losses or when
we will become profitable in our business operations, if ever. Even if we do achieve profitability
in our business operations, we may not be able to sustain or increase such profitability on an
ongoing basis.
The technologies on which we rely are unproven and may not result in the development of
commercially viable products.
Our current product candidates, ANA598 and ANA773, were selected based on the presumption
that intervention at their respective targets, HCV polymerase and TLR7, offers a therapeutic
benefit. There can be no assurance that intervention at either target will offer sufficient benefit
and acceptable toxicity to warrant continued development and approval. ANA773 relies on the biology
of a specific receptor, or protein, named Toll-Like Receptor-7, or TLR7. However, the interaction
between small molecules and TLR7 represents a relatively new mechanism of action for the treatment
of disease, including HCV and cancer, and there is no guarantee that an acceptable balance between
therapeutic benefit and risk will be achieved with TLR7 agonists in HCV infected patients or in
cancer patients. For example, in June 2006 we suspended dosing of ANA975, a TLR7 agonist prodrug,
in our then on-going ANA975 clinical trial due to information from 13-week toxicology studies in
animals that showed intense immune stimulation. We subsequently conducted additional pre-clinical
studies and were unable to identify an acceptable balance between therapeutic benefit and risk
using a daily dosing schedule over 13-weeks. Accordingly, we subsequently discontinued the
development of ANA975 as a therapy for HCV infection. The science underlying ANA598 is also new and
unproven, as no products acting at the HCV polymerase have been approved for marketing. ANA598 and
ANA773 are at only the early stage of clinical investigation. The process of successfully
discovering product candidates is expensive, time-consuming and unpredictable, and the historical
rate of failure for drug candidates is extremely high. If our approaches to drug discovery and
development are not successful, we will not be able to establish or maintain a clinical development
portfolio or generate product revenue.
*Because the results of preclinical studies and early clinical trials are not necessarily
predictive of future results, we can provide no assurances that ANA598 or ANA773 will have
favorable results in future clinical trials, or receive regulatory approval.
Positive results from preclinical studies or early clinical trials should not be relied
upon as evidence that later or larger-scale clinical trials will succeed. There is typically an
extremely high rate of attrition from the failure of drug candidates proceeding through clinical
trials. There is no guarantee that viral load declines seen in early patient trials will be
replicated in future trials of longer duration and/or larger patient populations. For example,
short-term viral load data from our ANA598 Phase Ib study may not translate into long-term benefit
due to the potential emergence of resistant variants or other factors. Similarly, there is no
guarantee that favorable safety and tolerability seen in short term studies will be replicated in
studies of longer duration and/or in larger subject populations. For example, in a 14 day healthy
volunteer study conducted in 2009, three of the 24 subjects who received ANA598 discontinued from
the study due to the onset of a skin rash during the study. Furthermore, if future toxicology
studies have unexpected results, the clinical development of the compound at issue could be
suspended, delayed and/or terminated. If ANA598, or any other product candidate, fails to
demonstrate sufficient safety and efficacy in any clinical trial or shows unexpected findings in
future toxicology studies, we would experience potentially significant delays in, or be required to
abandon, development of ANA598. If we delay or abandon our development efforts related to ANA598,
we may not be able to generate sufficient revenues to become profitable, and our reputation in the
industry and in the investment community would likely be significantly damaged, each of which would
cause our stock price to decrease significantly.
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*Future results of our ongoing ANA598 Phase II combination study and results of future trials
may not be as favorable as results we have seen to date.
To date, we have seen positive preliminary antiviral response and safety data in our ongoing
Phase II combination study in which ANA598 is being dosed for 12 weeks in combination with
pegylated interferon and ribavirin, including data through 12 weeks for the 200 mg bid dose cohort
and data through eight weeks for the 400 mg dose cohort. However, there is no guarantee that
future data from the study, including data through 12 weeks for the 400 mg dose cohort, will be as
favorable, or viewed as favorably, as the data received to date. Furthermore, as part of the study
design for this trial, we will be following patients for 24 weeks after stopping therapy to
determine the rate of patients who maintain undetectable levels of virus as of such date, referred
to as achieving a Sustained Virological Response, or SVR. However, the overall number of patients
in this study is small, and therefore it may be difficult to assess the true impact of ANA598 based
on limited SVR data. If the SVR rates from this small study are less than hoped for, or do not
meet your, analysts, potential collaborators or others expectations, the perception of the value
of ANA598 could be harmed, causing our stock price to suffer.
More generally, it remains unknown whether the favorable antiviral response we have seen to
date with ANA598 will provide sustained benefit resulting in improved SVR rates in larger studies.
If the results of future ANA598 studies do not show improved SVR rates over pegylated interferon
and ribavirin alone, then the prospects for developing ANA598 as a competitive component of future
HCV treatment could be limited.
*We intend to develop ANA598 as a component of combination treatments, which presents
additional challenges to the drug development process.
We are developing ANA598 as a potential component of future combination treatments. We
may face additional challenges with this approach, as opposed to developing product candidates for
monotherapy. For example, any negative properties of our product candidates may be exacerbated when
combined with other agents and/or have unexpected effects in humans. Furthermore, the optimal
development of our product candidates may entail explorations of combinations with other agents,
which could require us to establish agreements or alliances with other companies or third parties.
There is no guarantee that we will be able to enter into such alliances or agreements on terms that
we view as favorable, or at all. An important element of development for an agent such as ANA598
will be to test the agent in combination with one or more other direct antivirals. In order for us
to pursue this development strategy, we will need to engage the interest of other biopharmaceutical
or pharmaceutical companies, since we do not have another direct antiviral to combine with ANA598.
Our ability to engage this interest will be impacted by other companies internal HCV portfolio
dynamics, with such dynamics influencing the companies perceived attractiveness of combining
with an agent such as ANA598. For those companies that have a desire to combine with an agent such
as ANA598, we will be dependent on their perception of the profile of ANA598. If they do not view
the profile of ANA598 as favorably as we do, or if they establish other criteria for combination
that we have not yet satisfied with ANA598, we could experience difficulties or delays in pursuing
such combination trials. For example, within the HCV community to date there has been an emphasis
on the genetic barrier to resistance of antiviral agents (leading one to conclude that the
administration of non-nucleosides is more likely to result in resistance than the administration of
other types of direct acting antivirals in development for HCV (including protease inhibitors and
nucleoside polymerase inhibitors) due to the lower genetic barrier of resistance to non-nucleosides
relative to these other types of compounds). Only more recently has there been an appreciation of
the importance of a pharmacological barrier to resistance, which ANA598 has exhibited thus far in
the ongoing Phase II combination study. Depending on other companies perception of this issue, we
could experience less enthusiasm for ANA598 as a combination partner. If we are unable to optimize
the development of ANA598, our business prospects could be harmed, causing our stock price to
suffer.
There is no guarantee that in future studies of ANA598, in which ANA598 may be dosed for
longer duration in combination with other agents, that we will be able to identify safe and
tolerable doses that result in clinical benefit, as measured by clearance of virus and durability
of that clearance.
Although we are currently conducting a Phase II study in which ANA598 is being dosed for
12 weeks with current standard of care, it is presently unknown what duration of dosing of ANA598
will be most appropriate when used as a component of combination therapy, and further studies of
longer duration may need to be explored. In addition, although we have presented in vitro data
showing that combinations of ANA598 with current standard of care and with certain direct antiviral
agents appear to be synergistic, these results may not be replicated in clinical trials. Also, it
is possible that ANA598 will not be additive or synergistic with other potential components of
future treatment regimens. Furthermore, it is possible that tolerability will be worse over longer
durations of treatment than was seen for the same dose at a shorter duration of treatment. For
example, in a 14 day healthy volunteer study conducted in 2009, three of the 24 subjects who
received ANA598 discontinued from the study due to the onset of a skin rash characterized as mild
to moderate with itching during the study, at comparable dose levels that were well tolerated over
three days in patients. Similarly, if the tolerability of doses of ANA598 required for long-term
treatment as part of future combinations is unacceptable or unfavorable
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relative to competitive product candidates, then the prospects for developing ANA598 as a treatment
for chronic hepatitis C will be diminished, causing our stock price to decrease significantly.
The FDA could impose additional requirements on the development of ANA598 which could
result in unexpected cost increases and/or delays to our development timelines.
The development of ANA598 in the United States is subject to ongoing regulation by the FDA.
There is no guarantee that the FDA will not impose additional requirements on our development
program for ANA598, including requirements associated with patient enrollment, manufacturing
processes of our clinical trials materials or other development activities related to ANA598, which
could result in increased costs to us or a delay in our desired timelines.
Fast track designation does not guarantee approval, or expedited approval, of ANA598 and
there is no guarantee that ANA598 will maintain fast track designation.
In December 2008, we announced that the FDA granted fast track designation to ANA598 for
the treatment of chronic HCV infection. Under the FDA Modernization Act of 1997, fast track
designation is designed to facilitate the development and expedite the review of new drugs that are
intended to treat serious or life-threatening conditions. Compounds selected must demonstrate the
potential to address an unmet medical need for such a condition. Mechanisms intended to facilitate
development include opportunities for frequent dialogue with FDA reviewers and for timely review of
submitted protocols. However, the designation does not guarantee approval or expedited approval of
any application for the product. Furthermore, the FDA may revoke fast track designation from a
product candidate at any time if it determines that the criteria are no longer met.
During 2009 we completed a Phase I clinical trial of ANA773 for HCV and intend to explore
partnership opportunities as a way to potentially continue the development of ANA773. There is no
guarantee that we will be able to obtain a partnership around ANA773 or that the development of the
program will be continued.
During 2009 we completed a Phase I trial of ANA773 in HCV infected patients. While we are
encouraged by the data obtained to date, particularly at the higher doses at which we were able to
confirm a dose response for ANA773 in HCV infected patients, further schedule exploration will
likely be advisable before proceeding into larger scale studies. In connection with the
restructuring we implemented in the middle of 2009 and our desire to focus our resources on our
ANA598 program, we have decided to suspend further development of ANA773 while we look for a
partner to potentially fund further development of the program. There is no guarantee that we will
be able to obtain a partnership around ANA773 or that the development of the program will be able
to be continued. If the program is continued, if we or a licensee are unable to achieve viral load
reduction at levels comparable to injectable interferon but with a cleaner side effect profile, the
prospects for developing ANA773 as a competitive HCV product will be diminished. Furthermore, the
Phase I clinical trial was conducted in the Netherlands and not under a U.S. investigational new
drug application, or IND. If, in the future, we or a licensee want to proceed with the development
of ANA773 for HCV in the United States, approval from the FDA under a U.S. IND will be required.
There is no assurance that the FDA will agree that ANA773 should be tested as an investigational
treatment for HCV. Currently, there is no evidence that a TLR7 agonist can confer long-term benefit
as a therapy for HCV at an acceptable safety risk, and there is no assurance that the FDA will view
the data from our Phase I study in the Netherlands as sufficiently compelling to allow clinical
investigation. If the FDA does not view the data from our Phase I study in the Netherlands as
sufficiently compelling, it may not allow studies under a U.S. IND, in which case development and
commercialization of ANA773 for HCV in the United States would be precluded.
In 2007 we terminated our ANA975 development program due to challenges seen in animal
toxicology studies. To the extent that the ANA975 toxicology observations are mechanism related,
our ANA773 programs for cancer and hepatitis C and ability to out-license this product candidate
could be negatively impacted, causing our stock price to decline.
ANA975 is an oral prodrug of isatoribine, a TLR7 agonist. In 2007 we discontinued the
development of ANA975 as a treatment for HCV infection due to intense immune stimulation in
animals. To the extent that any of the ANA975 toxicology observations are mechanism related, rather
than compound specific, we, or a potential future collaborator, will need to determine whether the
level of immune stimulation induced by TLR7 agonists can be modulated to achieve a potential
therapeutic benefit with an acceptable safety profile. Although results from our ANA773 13-week
animal toxicology study indicated that with every-other-day dosing of ANA773, immune stimulation of
a magnitude believed to confer therapeutic potential can be achieved without adverse toxicology
findings, there is no guarantee that this favorable toxicology profile will persist in future
toxicology studies of longer duration, or that we will not see adverse safety findings in humans.
If we are unable to modulate the immunomodulatory effect with a dose and schedule that provides
therapeutic benefit without causing unacceptable adverse events, then the future development of
ANA773 may not be viable or attractive to a potential licensee, which could materially and
adversely affect our business and cause our stock price to decline.
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Delays in the commencement of clinical testing of our current and potential product
candidates could result in increased costs to us and delay our ability to generate revenues.
Our potential drug products will require additional nonclinical testing and extensive
clinical trials prior to submission of any regulatory application for commercial sales. Previously,
we have conducted only early-stage clinical trials on our own. As a result, we have very limited
experience conducting clinical trials. In part because of this limited experience, we cannot be
certain that planned clinical trials will begin or be completed on time, if at all. Delays in the
commencement of clinical testing could significantly increase our product development costs and
delay product commercialization. In addition, many of the factors that may cause, or lead to, a
delay in the commencement of clinical trials may also ultimately lead to denial of regulatory
approval of a product candidate.
The commencement of clinical trials can be delayed for a variety of reasons, including
delays in:
| demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial; | ||
| reaching agreement on acceptable terms with prospective contract research organizations and trial sites; | ||
| manufacturing sufficient quantities or producing drug meeting our quality standards for a product candidate; | ||
| obtaining approval of an IND application or proposed trial design from the FDA; and | ||
| obtaining institutional review board approval to conduct a clinical trial at a prospective site. |
In addition, the commencement of clinical trials may be delayed due to insufficient
patient enrollment, which is a function of many factors, including the size and nature of the
patient population, the nature of the protocol, the proximity of patients to clinical sites, the
availability of effective treatments for the relevant disease, the number of other products under
development competing for the same patients in trials and the eligibility criteria for the clinical
trial.
Delays in the completion of, or the termination of, clinical testing of our current and
potential product candidates could result in increased costs to us and delay or prevent us from
generating revenues.
Once a clinical trial has begun, it may be delayed, suspended or terminated by us,
potential future collaborators, the FDA, or other regulatory authorities due to a number of
factors, including:
| ongoing discussions with the FDA or other regulatory authorities regarding the scope or design of our clinical trials; | ||
| failure to conduct clinical trials in accordance with regulatory requirements; | ||
| lower than anticipated enrollment or retention rate of patients in clinical trials; | ||
| inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold; | ||
| lack of adequate funding to continue clinical trials; | ||
| negative results of clinical trials; | ||
| negative or potentially problematic results of ongoing and concurrent non-clinical toxicology studies; | ||
| requests by the FDA for supplemental information on, or clarification of, the results of clinical trials conducted in other countries; | ||
| insufficient supply or deficient quality of drug candidates or other materials necessary for the conduct of our clinical trials; or | ||
| serious adverse events or other undesirable drug-related side effects experienced by participants. |
Many of the factors that may lead to a delay, suspension or termination of clinical
testing of a current or potential product candidate may also ultimately lead to denial of
regulatory approval of a current or potential product candidate. If we experience delays in the
completion of, or termination of, clinical testing, our financial results and the commercial
prospects for our product candidates may be harmed, and our ability to generate product revenues
will be delayed.
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Even if we successfully complete clinical trials of ANA598 or any future product
candidate, there are no assurances that we will be able to submit, or obtain FDA approval of, a new
drug application.
There can be no assurance that if our clinical trials of ANA598 or any other potential
product candidate are successfully completed, we will be able to submit a new drug application, or
NDA, to the FDA or that any NDA we submit will be approved by the FDA in a timely manner, if at
all. If we are unable to submit a NDA with respect to ANA598 or any future product candidate, or if
any NDA we submit is not approved by the FDA, we will be unable to commercialize that product in
the United States. The FDA can and does reject NDAs and may require additional clinical trials,
even when drug candidates performed well or achieved favorable results in large-scale Phase III
clinical trials. If we fail to commercialize ANA598 or any future product candidate, we may be
unable to generate sufficient revenues to attain profitability, and our reputation in the industry
and in the investment community would likely be damaged, each of which would cause our stock price
to decrease.
If we successfully develop products but those products do not achieve and maintain market
acceptance, our business will not be profitable.
Even if ANA598 or any future product candidates are approved for commercial sale by the
FDA or other regulatory authorities, the degree of market acceptance of any approved product
candidate by physicians, healthcare professionals and third-party payors and our profitability and
growth will depend on a number of factors, including:
| our ability to provide acceptable evidence of safety and efficacy; | ||
| relative convenience and ease of administration; | ||
| the prevalence and severity of any adverse side effects; | ||
| availability of alternative treatments; | ||
| pricing and cost effectiveness; | ||
| effectiveness of our or our collaborators sales and marketing strategy; | ||
| our ability to obtain sufficient third-party insurance coverage or reimbursement; and | ||
| our ability to establish or maintain an attractive price for ANA598 when used in combination with other agents. |
If ANA598 or any future product candidate does not provide additional clinical benefit when
included within a treatment regimen, that product likely will not be accepted favorably by the
market. Similarly, if ANA773 does not provide additional clinical benefit when included within a
treatment regimen, that product will likewise not be accepted favorably by the market. If any
products we or our collaborators may develop do not achieve market acceptance, then we will not
generate sufficient revenue to achieve or maintain profitability.
In addition, even if our products achieve market acceptance, we may not be able to
maintain that market acceptance over time if:
| new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete; or | ||
| complications, such as long-term toxicities and viral resistance, arise with respect to use of our products. |
We depend on outside parties to conduct our clinical trials, which may result in costs
and delays that prevent us from obtaining regulatory approval or successfully commercializing
product candidates.
We engage clinical investigators and medical institutions to enroll patients in planned
clinical trials and contract research organizations to perform data collection and analysis and
other aspects of our preclinical studies and clinical trials. As a result, we depend on these
clinical investigators, medical institutions and contract research organizations to properly
perform the studies and trials. If these parties do not successfully carry out their contractual
duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical
data they obtain is compromised due to the failure to adhere to our clinical protocols or for other
reasons, our clinical trials may be extended, delayed or terminated. We may not be able to enter
into replacement arrangements without undue delays or excessive expenditures. If there are delays
in testing or regulatory approvals as a result of the failure to perform by third-parties, our drug
development costs will increase and we may not be able to obtain regulatory approval for or
successfully commercialize our product candidates. In addition, we may not be able to maintain any
of these existing relationships, or establish new ones on acceptable terms, if at all.
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We do not have internal manufacturing capabilities, and if we fail to develop and
maintain supply relationships with future collaborators or other outside manufacturers, we may be
unable to develop or commercialize any of our products.
Our ability to develop and commercialize products will depend in part on our ability to
manufacture, or arrange for collaborators or other parties to manufacture, our products at a
competitive cost, in accordance with regulatory requirements and in sufficient quantities for
clinical testing and eventual commercialization. Our current manufacturing agreements reflect a
much smaller scale than would be required for commercialization. If we are unable to enter into or
maintain commercial-scale manufacturing agreements with future collaborators or capable contract
manufacturers on acceptable terms the development and commercialization of our products could be
delayed, which would adversely affect our ability to generate revenues and would increase our
expenses.
If we are unable to establish sales and marketing capabilities or enter into agreements
with third parties to sell and market any products we may develop, we may not be able to generate
product revenue.
We do not currently have the capabilities for the sales, marketing and distribution of
pharmaceutical products. In order to commercialize any products, we would have to build our sales,
marketing, distribution, managerial and other non-technical capabilities or make arrangements with
third parties to perform these services. The establishment and development of our own sales force
to market any products we may develop in the United States will be expensive and time-consuming and
could delay any product launch, and we cannot be certain that we would be able to successfully
develop this capacity. If we are unable to establish our sales and marketing capability or any
other non-technical capabilities necessary to commercialize any product we may develop, we will
need to contract with third parties to market and sell any products we may develop in the United
States. We will also need to develop a plan to market and sell any products we may develop outside
the United States. If we are unable to establish adequate sales, marketing and distribution
capabilities, whether independently or with third parties, we may not be able to generate product
revenue and may not become profitable.
If we are unable to retain key management and scientific staff, we may be unable to
successfully develop or commercialize our product candidates.
We are a small company and have approximately 30 employees. Our success depends on our
continued ability to retain and motivate highly qualified management and scientific personnel. In
particular, our programs depend on our ability to retain highly skilled clinical and preclinical
personnel in the field of HCV, as well as biologists and chemists.
We may not be able to retain qualified management and scientific personnel in the future
due to the intense competition for qualified personnel among biotechnology and pharmaceutical
businesses, particularly in the San Diego, California area. If we are not able to retain the
necessary personnel to accomplish our business objectives, we may experience constraints that will
impede significantly the achievement of our development objectives. In addition, all of our
employees are at will employees, which means that any employee may quit at any time and we may
terminate any employee at any time. Currently we do not have employment agreements with any
employees or members of senior management that provide any guarantee of continued employment by us.
We do not currently carry key person insurance covering members of senior management other than
Steve Worland, Ph.D., our President and Chief Executive Officer. The insurance covering Dr. Worland
is in the amount of $1.5 million. If we lose the services of Dr. Worland, or James L. Freddo, M.D.,
our Senior Vice President, Drug Development and Chief Medical Officer, or other members of our
senior management team or key personnel, we may not be able to find suitable replacements, and our
business may be harmed as a result.
Earthquake or wildfire damage to our facilities could delay our research and development
efforts and adversely affect our business.
Our headquarters and research and development facilities in San Diego, California, are
located in a seismic zone, and there is the possibility of an earthquake, which could be disruptive
to our operations and result in delays in our research and development efforts. In addition, San
Diego has experienced several severe wildfires during the past several years which have destroyed
or damaged many businesses and residences in the San Diego area. In the event of an earthquake or a
severe wildfire, if our facilities or the equipment in our facilities are significantly damaged or
destroyed for any reason, or we are otherwise required to shut down our operations, we may not be
able to rebuild or relocate our facility or replace any damaged equipment, or otherwise recommence
our business operations, in a timely manner and our business, financial condition and results of
operations could be materially and adversely affected.
Our securities available-for-sale held in the form of marketable securities are subject
to market, interest and credit risk that may reduce their value.
A portion of our securities available-for-sale is invested in marketable securities. Our
cash position may be adversely affected by changes in the value of these securities. In particular,
the value of these holdings may be adversely affected by increases in interest rates, downgrades by
rating agencies on the issuers of corporate bonds included in the portfolio and by other factors
which may result
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in other than temporary declines in value of the investments. Each of these events may cause us to
record charges to reduce the carrying value of our investment portfolio and may adversely affect
our cash position.
Risks Related to Our Industry
Because our product candidates and development and collaboration efforts depend on our
intellectual property rights, adverse events affecting our intellectual property rights will harm
our ability to commercialize products.
Our commercial success depends on obtaining and maintaining patent protection and trade
secret protection of our product candidates, proprietary technologies and their uses, as well as
successfully defending these patents against third-party challenges. We will only be able to
protect our product candidates, proprietary technologies and their uses from unauthorized use by
third parties to the extent that valid and enforceable patents or effectively-protected trade
secrets cover them.
Due to evolving legal standards relating to the patentability, validity and
enforceability of patents covering pharmaceutical inventions and the scope of claims made under
these patents, our ability to obtain and enforce patents is uncertain and involves complex legal
and factual questions. Accordingly, rights under any issued patents may not provide us with
sufficient protection for ANA598 or ANA773 or provide sufficient protection to afford us a
commercial advantage against competitive products or processes. In addition, we cannot guarantee
that any patents will issue from any pending or future patent applications owned by or licensed to
us.
Even with respect to patents that have issued or will issue, we cannot guarantee that the
claims of these patents are, or will be valid, enforceable or will provide us with any significant
protection against competitive products or otherwise be commercially valuable to us. For example:
| we might not have been the first to make, conceive, or reduce to practice the inventions covered by all or any of our pending patent applications and issued patents; | ||
| we might not have been the first to file patent applications for these inventions; | ||
| others may independently develop similar or alternative technologies or duplicate any of our technologies; | ||
| it is possible that none of our pending patent applications will result in issued patents; | ||
| our issued or acquired patents may not provide a basis for commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties; | ||
| our issued patents may not be valid or enforceable; | ||
| we may not develop additional proprietary technologies that are patentable; or | ||
| the patents of others may have an adverse effect on our business. |
Patent applications in the United States are maintained in confidence for up to 18 months
or longer after their filing. Consequently, we cannot be certain that we were the first to invent,
or the first to file patent applications on our product candidates. In the event that a third party
has also filed a U.S. patent application relating to our product candidates or a similar invention,
we may have to participate in interference proceedings declared by the U.S. Patent Office to
determine priority of invention in the United States. The costs of these proceedings could be
substantial and it is possible that our efforts would be unsuccessful, resulting in a material
adverse effect on our U.S. patent position. Furthermore, we may not have identified all U.S. and
foreign patents or published applications that affect our business either by blocking our ability
to commercialize our drugs or by covering similar technologies that affect our drug market.
In addition, some countries, including many in Europe, do not grant patent claims
directed to methods of treating humans, and in these countries patent protection may not be
available at all to protect our drug candidates. Even if patents issue, we cannot guarantee that
the claims of those patents will be valid and enforceable or provide us with any significant
protection against competitive products, or otherwise be commercially valuable to us. We may be
particularly affected by this because we expect that ANA598, if approved, will be marketed in
foreign countries with high incidences of HCV infection.
Other companies may obtain patents and/or regulatory approvals to use the same drugs to
treat diseases other than HCV or cancer. As a result, we may not be able to enforce our patents
effectively because we may not be able to prevent healthcare providers from prescribing,
administering or using another companys product that contains the same active substance as our
products when treating patients infected with HCV or who have cancer.
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If we fail to obtain and maintain patent protection and trade secret protection of ANA598
or ANA773, proprietary technologies and their uses, the competition we face would increase,
reducing our potential revenues and adversely affecting our ability to attain or maintain
profitability.
If we are sued for infringing intellectual property rights of others, it will be costly
and time-consuming, and an unfavorable outcome in that litigation would have a material adverse
effect on our business.
Our commercial success also depends upon our ability to develop, manufacture, market and
sell our product candidates and use our proprietary technologies without infringing the proprietary
rights of third parties. We may be exposed to future litigation by third parties based on claims
that our product candidates, technologies or activities infringe the intellectual property rights
of others. Numerous U.S. and foreign issued patents and pending patent applications owned by others
exist in HCV and cancer. These could materially affect our ability to develop our drug candidates
or sell our products. Because patent applications can take many years to issue, there may be
currently pending applications, unknown to us, which may later result in issued patents that our
product candidates or technologies may infringe. There also may be existing patents, of which we
are not aware, that our product candidates or technologies may inadvertently infringe. Further,
there may be issued patents and pending patent applications in fields relevant to our business, of
which we may become aware from time to time, that we believe we do not infringe or that we believe
are invalid or relate to immaterial portions of our overall drug discovery and development efforts.
We cannot assure you that third parties holding any of these patents or patent applications will
not assert infringement claims against us for damages or seeking to enjoin our activities. We also
cannot assure you that, in the event of litigation, we will be able to successfully assert any
belief we may have as to non-infringement, invalidity or immateriality, or that any infringement
claims will be resolved in our favor.
There is a substantial amount of litigation involving patent and other intellectual
property rights in the biotechnology and biopharmaceutical industries generally. Any litigation or
claims against us, with or without merit, may cause us to incur substantial costs, could place a
significant strain on our financial resources, divert the attention of management from our core
business and harm our reputation. In addition, intellectual property litigation or claims could
result in substantial damages and force us to do one or more of the following if a court decides
that we infringe on another partys patent or other intellectual property rights:
| cease selling, incorporating or using any of our product candidates or technologies that incorporate the challenged intellectual property; | ||
| obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, it at all; or | ||
| redesign our processes or technologies so that they do not infringe, which could be costly and time consuming and may not be possible. |
If we find during clinical evaluation that our drug candidates for the treatment of HCV
or cancer should be used in combination with a product covered by a patent held by another company
or institution, and that a labeling instruction is required in product packaging recommending that
combination, we could be accused of, or held liable for, inducing infringement of the third-party
patents covering the product recommended for co-administration with our product. In that case, we
may be required to obtain a license from the other company or institution to use the required or
desired package labeling, which may not be available on reasonable terms, or at all.
If we fail to obtain any required licenses or make any necessary changes to our
technologies, we may be unable to develop or commercialize some or all of our product candidates.
We may be involved in lawsuits or proceedings to protect or enforce our patent rights,
trade secrets or know-how, which could be expensive and time-consuming.
The defense and prosecution of intellectual property suits and related legal and
administrative proceedings can be both costly and time-consuming. Litigation and interference
proceedings could result in substantial expense to us and significant diversion of effort by our
technical and management personnel. Further, the outcome of patent litigation is subject to
uncertainties that cannot be adequately quantified in advance, including the demeanor and
credibility of witnesses and the identity of the adverse party. This is especially true in
biotechnology related patent cases that may turn on the testimony of experts as to technical facts
upon which experts may reasonably disagree and which may be difficult to comprehend by a judge or
jury. An adverse determination in an interference proceeding or litigation with respect to ANA598
or ANA773, to which we may become a party could subject us to significant liabilities to third
parties or require us to seek licenses from third parties. If required, the necessary licenses may
not be available on acceptable terms, or at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses
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could prevent us from commercializing ANA598 or ANA773, which could have a material and adverse
effect on our results of operations.
Furthermore, because of the substantial amount of pre-trial document and witness
discovery required in connection with intellectual property litigation, there is risk that some of
our confidential information could be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there could be public announcements of the
results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a substantial adverse effect on
the trading price of our common stock.
Confidentiality agreements with employees and others may not adequately prevent
disclosure of trade secrets and other proprietary information and may not adequately protect our
intellectual property.
We also rely on trade secrets to protect our technology, especially where we do not
believe patent protection is appropriate or obtainable. However, trade secrets are difficult to
protect. In order to protect our proprietary technology and processes, we also rely in part on
confidentiality and intellectual property assignment agreements with our corporate partners,
employees, consultants, outside scientific collaborators and sponsored researchers and other
advisors. These agreements may not effectively prevent disclosure of confidential information nor
result in the effective assignment to us of intellectual property, and may not provide an adequate
remedy in the event of unauthorized disclosure of confidential information or other breaches of the
agreements. In addition, others may independently discover our trade secrets and proprietary
information, and in such case we could not assert any trade secret rights against such party.
Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult,
expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the
United States may be less willing to protect trade secrets. Costly and time-consuming litigation
could be necessary to seek to enforce and determine the scope of our proprietary rights, and
failure to obtain or maintain trade secret protection could adversely affect our competitive
business position.
Many competitors have significantly more resources and experience, which may harm our
commercial opportunity.
The biotechnology and pharmaceutical industries are subject to intense competition and
rapid and significant technological change. We have many potential competitors, including major
drug and chemical companies, specialized biotechnology firms, academic institutions, government
agencies and private and public research institutions. Many of our competitors have significantly
greater financial resources, experience and expertise in:
| research and development; | ||
| preclinical testing; | ||
| clinical trials; | ||
| regulatory approvals; | ||
| manufacturing; and | ||
| sales and marketing of approved products. |
Smaller or early-stage companies and research institutions may also prove to be
significant competitors, particularly through collaborative arrangements with large and established
pharmaceutical or other companies. We will also face competition from these parties in recruiting
and retaining qualified scientific and management personnel, establishing clinical trial sites and
patient registration for clinical trials, and acquiring and in-licensing technologies and products
complementary to our programs or potentially advantageous to our business. If any of our
competitors succeed in obtaining approval from the FDA or other regulatory authorities for their
products sooner than we do or for products that are more effective or less costly than ours, our
commercial opportunity could be significantly reduced.
*If our competitors develop treatments for HCV or cancer that are approved faster,
marketed better or demonstrated to be more effective than ANA598, ANA773, or any other products
that we may develop, our commercial opportunity will be reduced or eliminated.
We believe that a significant number of drugs are currently under development and may
become available in the future for the treatment of HCV and certain cancers. Potential competitors
may develop treatments for HCV or certain cancers that are more effective or less costly than our
product candidates or that would make our product candidates obsolete or non-competitive. Some of
these products may use therapeutic approaches that compete directly with ANA598 or ANA773. In
addition, less expensive generic forms of currently marketed drugs could lead to additional
competition upon patent expiration or invalidations.
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ANA598, a non-nucleoside polymerase inhibitor, was selected as a development candidate in
June 2007. If approved, ANA598 would likely be used in combination with the current standard of
care and/or other direct antiviral agents such as protease inhibitors and polymerase inhibitors.
Any product currently approved or approved in the future for the treatment of HCV infection could
decrease or eliminate the commercial opportunity of ANA598. Other non-nucleoside inhibitors would
likely be the most direct competitors for ANA598. To our knowledge, non-nucleoside polymerase
inhibitor programs are currently under clinical evaluation by Pfizer, Gilead, Merck, Abbott,
Boehringer Ingelheim and Vertex. Further, a number of companies have non-nucleoside polymerase
inhibitor research and pre-clinical development programs.
Other potential competitors are products currently approved for the treatment of HCV
infection: Peg- Intron (pegylated interferon-alpha-2b), Rebetol (ribavirin), and Intron-A
(interferon-alpha-2b), which are marketed by Merck, Pegasys (pegylated interferon-alpha-2a),
Copegus (ribavirin USP), and Roferon- A (interferon-alpha-2a), which are marketed by Roche.
Additional compounds in late state clinical trials for HCV include Zalbin/Joulferon (albinterferon
alfa-2b), in development by Human Genome Sciences and Novartis, telaprevir, in development by
Vertex Pharmaceuticals, Janssen Pharmaceutica (Johnson & Johnson) and Mitsubishi Tanabe Pharma,
boceprevir, MK-7009 and narlaprevir, in development by Merck, RG7227, in development by Intermune
and Roche, TMC-435350, in development by Johnson & Johnson (Tibotec) and Medivir, BI-201335 in
development by Boehringer Ingelheim, RG7128 in development by Roche and Pharmasset and BMS-790052 in development by Bristol Myers Squibb.
ANA773 is also subject to competition in the treatment of HCV from all of the HCV
products and compounds in development listed above as potential competitors of ANA598 and most
specifically from the products and development candidates that act as an immunomodulator or have an
immunomodulatory component, including Peg-Intron (pegylated interferon-alpha-2b), Rebetol
(ribavirin), Intron-A (interferonalpha- 2b), Pegasys (pegylated interferon-alpha-2a), Copegus
(ribavirin USP), and Roferon-A (interferon-alpha- 2a), each of which are products currently
approved for the treatment of HCV. IMO-2055, a TLR9 agonist in development by Idera, is also being
studied in early stage clinical trials in HCV patients. Other agents in development as potential
replacements to pegylated interferon-alfa include Zalbin/Joulferon (albinterferon alfa-2b), in
development by Human Genome Sciences and Novartis and Locteron, in development by Biolex
Therapeutics, both of which are longer-acting versions of interferon alfa. Also, in development as
potential improvements to existing interferons are PEG-interferon lambda, in development by
Zymogenetics and Bristol Myers-Squibb, and omega interferon in development by Intarcia
Therapeutics.
Any product currently approved or approved in the future for the treatment of cancer could
decrease or eliminate the commercial opportunity of ANA773 in the oncology markets. Programs that
most directly compete with the ANA773 oncology program at this time are other TLR agonists under
evaluation for oncology indications, IMO-2055, in development by Idera and Merck KGaA and a cancer
program in development by Dynavax.
*If we cannot establish pricing of our product candidates acceptable to the government,
insurance companies, managed care organizations and other payors, any product sales will be
severely hindered.
The continuing efforts of the government, insurance companies, managed care organizations
and other payors of health care costs to contain or reduce costs of health care may adversely
affect:
| our ability to set a price we believe is fair for any products we or our collaborators may develop; | ||
| our ability to generate adequate revenues and gross margins; and | ||
| the availability of capital. |
In certain foreign markets, the pricing of prescription pharmaceuticals is subject to
government control. In the United States, comprehensive health care reform legislation was recently
enacted by the Federal government and we expect that there will continue to be a number of federal
and state proposals to implement government control over the cost of prescription pharmaceuticals
and on the reform of the Medicare and Medicaid systems. The trend toward managed health care in the
United States will continue to put pressure on the rate of adoption and pricing of prescription
pharmaceuticals, which may result in lower prices for our product candidates. We are currently
unable to predict what additional legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future or what effect the
recently enacted federal health care reform legislation or any such additional legislation or
regulation would have on our business.
*If we cannot arrange for reimbursement policies favorable to our product candidates,
their sales will be severely hindered.
Our ability to commercialize ANA598 or any other product candidate successfully will depend in
part on the extent to which governmental authorities, private health insurers and other
organizations establish appropriate reimbursement levels for the cost of ANA598 or any other
product and related treatments. Third party payors are increasingly challenging the prices charged
for medical
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products and services, including treatments for HCV. Also, the trend toward managed health
care in the United States as well as the comprehensive health care reform legislation recently
enacted by the Federal government could result in exclusion of our product candidates from
reimbursement programs such as Medicare and Medicaid. The cost containment measures that health
care payors and providers are instituting and the effect of the comprehensive health care reform
legislation recently enacted by the Federal government could materially and adversely affect our
ability to earn product revenue and generate significant profits and could impact our ability to
raise capital.
Product liability claims may damage our reputation and, if insurance proves inadequate,
the product liability claims may harm our results of operations.
We face an inherent risk of product liability exposure for claimed injuries related to
the testing of our product candidates in human clinical trials, and will face an even greater risk
if we or our potential future collaborators sell our product candidates commercially. If we cannot
successfully defend ourselves against product liability claims, we will incur substantial
liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
| decreased demand for our product candidates; | ||
| injury to our reputation; | ||
| withdrawal of clinical trial participants; | ||
| the inability to establish new collaborations with potential collaborators; | ||
| substantial costs of related litigation; | ||
| substantial monetary awards to patients; and | ||
| the inability to commercialize our product candidates. |
We currently have product liability insurance that covers our clinical trials and plan to
increase and expand this coverage as we commence larger scale trials. We also intend to expand our
insurance coverage to include the sale of commercial products if marketing approval is obtained for
any of our product candidates. However, insurance coverage is increasingly expensive. We may not be
able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance
coverage that will be adequate to satisfy any liability that may arise.
Any claims relating to our improper handling, storage or disposal of biological,
hazardous and radioactive materials could be time-consuming and costly.
Our research and development involves the controlled use of hazardous materials,
including chemicals that cause cancer, volatile solvents, including ethylacetate and acetonitrile,
radioactive materials and biological materials including plasma from patients infected with HCV or
other infectious diseases that have the potential to transmit disease. Our operations also produce
hazardous waste products. We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of these materials and waste products. If we
fail to comply with these laws and regulations or with the conditions attached to our operating
licenses, the licenses could be revoked, and we could be subjected to criminal sanctions and
substantial liability or required to suspend or modify our operations. Although we believe that our
safety procedures for handling and disposing of these materials comply with legally prescribed
standards, we cannot completely eliminate the risk of accidental contamination or injury from these
materials. In the event of contamination or injury, we could be held liable for damages or
penalized with fines in an amount exceeding our resources, and our clinical trials could be
suspended. In addition, we may have to incur significant costs to comply with future environmental
laws and regulations.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war
and telecommunication and electrical failures. Any system failure, accident or security breach that
causes interruptions in our operations could result in a material disruption of our development
programs. To the extent that any disruption or security breach results in a loss or damage to our
data or applications, or inappropriate disclosure of confidential or proprietary information, we
may incur liability as a result, our development programs may be adversely affected and the further
development of our product candidates may be delayed. In addition, we may incur additional costs to
remedy the damages caused by these disruptions or security breaches.
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Risks Related to Our Common Stock
Future sales of our common stock may cause our stock price to decline.
Our current stockholders hold a substantial number of shares of our common stock that
they are able to sell in the public market. Significant portions of these shares are held by a
small number of stockholders. Sales by our current stockholders of a substantial number of shares
or the expectation that such sale may occur, could significantly reduce the market price of our
common stock.
Our stock price may be volatile.
The market price of our common stock may fluctuate significantly in response to a number
of factors, most of which we cannot control, including:
| changes in the regulatory status of our product candidates, including the status and results of our clinical trials of ANA598 and ANA773; | ||
| significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments; | ||
| disputes or other developments relating to proprietary rights, including patents, trade secrets, litigation matters, and our ability to patent or otherwise protect our product candidates and technologies; | ||
| conditions or trends in the pharmaceutical and biotechnology industries; | ||
| fluctuations in stock market prices and trading volumes of similar companies, of our competitors or of the markets generally; | ||
| variations in our quarterly operating results; | ||
| changes in securities analysts estimates of our financial performance; | ||
| failure to meet or exceed securities analysts or investors expectations of our quarterly financial results, clinical results or our achievement of milestones; | ||
| sales of large blocks of our common stock, or the expectation that such sales may occur, including sales by our executive officers, directors and significant stockholders; | ||
| additions or departures of key personnel; | ||
| discussion of our business, products, financial performance, prospects or our stock price by the financial and scientific press and online investor communities such as chat rooms; | ||
| regulatory developments in the United States and foreign countries; | ||
| economic and political factors, including wars, terrorism and political unrest; and | ||
| technological advances by our competitors. |
*Our quarterly results may fluctuate significantly, resulting in fluctuations in our stock
price.
We expect our results of operations to be subject to quarterly fluctuations. The level of
our revenues, if any, and results of operations at any given time, will be based primarily on the
following factors:
| the status of development of ANA598, ANA773 and our other product candidates, including results of preclinical studies and clinical trials and changes in regulatory status; | ||
| our execution of collaborative, licensing or other arrangements and the timing and accounting treatment of payments we make or receive under these arrangements; | ||
| whether or not we achieve specified research or commercialization milestones under any agreement that we enter into with collaborators and the timely payment by commercial collaborators of any amounts payable to us; |
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| variations in the level of expenses related to our product candidates or potential product candidates during any given period; and | ||
| the effect of competing technological and market developments. |
These factors, some of which are not within our control, may cause the price of our stock
to fluctuate substantially. In particular, if our quarterly operating results fail to meet or
exceed the expectations of securities analysts or investors, our stock price could drop suddenly
and significantly. We believe that quarterly comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an indication of our future performance.
Our largest stockholders may take actions that are contrary to your interests, including
selling their stock.
A small number of our stockholders hold a significant amount of our outstanding stock.
These stockholders may support competing transactions and have interests that are different from
yours. In addition, the average number of shares of our stock that trade each day is generally low.
As a result, sales of a large number of shares of our stock by these large stockholders or other
stockholders within a short period of time could adversely affect our stock price.
Anti-takeover provisions in our organizational documents and Delaware law may discourage
or prevent a change in control, even if an acquisition would be beneficial to our stockholders,
which could affect our stock price adversely and prevent attempts by our stockholders to replace or
remove our current management.
Our amended and restated certificate of incorporation and amended and restated bylaws
contain provisions that may delay or prevent a change in control, discourage bids at a premium over
the market price of our common stock and adversely affect the market price of our common stock and
the voting and other rights of the holders of our common stock. These provisions include:
| dividing our board of directors into three classes serving staggered three-year terms; | ||
| prohibiting our stockholders from calling a special meeting of stockholders; | ||
| permitting the issuance of additional shares of our common stock or preferred stock without stockholder approval; | ||
| prohibiting our stockholders from making certain changes to our amended and restated certificate of incorporation or amended and restated bylaws except with 66 2/3% stockholder approval; and | ||
| requiring advance notice for raising matters of business or making nominations at stockholders meetings. |
We are also subject to provisions of the Delaware corporation law that, in general,
prohibit any business combination with a beneficial owner of 15% or more of our common stock for
five years unless the holders acquisition of our stock was approved in advance by our board of
directors. Although we believe these provisions collectively provide for an opportunity to receive
higher bids by requiring potential acquirers to negotiate with our board of directors, they would
apply even if the offer may be considered beneficial by some stockholders. In addition, these
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our
current management by making it more difficult for stockholders to replace members of our board of
directors, which is responsible for appointing the members of our management.
We have never paid cash dividends on our capital stock and we do not anticipate paying
dividends in the foreseeable future.
We have paid no cash dividends on any of our classes of capital stock to date, and we
currently intend to retain our future earnings, if any, to fund the development and growth of our
business. In addition, the terms of any future debt or credit facility may preclude us from paying
any dividends. As a result, capital appreciation, if any, of our common stock will be your sole
source of potential gain for the foreseeable future.
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Item 6. | Exhibits |
Exhibit | ||||
Number | Exhibit Description | Incorporated by Reference or Attached Hereto | ||
3.1
|
Form of Amended and Restated Certificate of Incorporation of the Registrant | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q (SEC File No. 000-50632) filed on May 14, 2004. | ||
3.2
|
Amended and Restated Bylaws of the Registrant | Incorporated by reference to the Registrants Current Report on Form 8-K (SEC File No. 000-50632) filed on December 5, 2007. | ||
4.1
|
Form of Specimen Common Stock Certificate | Incorporated by reference to the Registrants Registration Statement on Form S-1 (SEC File No. 333-110528) filed on March 18, 2004. | ||
4.2
|
Form of Warrant | Incorporated by reference to the Registrants Current Report on Form 8-K (SEC File No. 000-50632) filed on June 4, 2009. | ||
31.1
|
Certification of President and Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Act of 1934, as amended | Attached Hereto. | ||
31.2
|
Certification of Vice President, Finance and Operations pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Act of 1934, as amended | Attached Hereto. | ||
32.1
|
Certifications of President and Chief Executive Officer and Vice President, Finance and Operations pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Attached Hereto. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 27, 2010 | ANADYS PHARMACEUTICALS, INC. |
|||
By: | /s/ Stephen T. Worland, Ph.D. | |||
Stephen T. Worland, Ph.D. | ||||
President and Chief Executive Officer | ||||
By: | /s/ Peter T. Slover | |||
Peter T. Slover | ||||
Vice President, Finance and Operations | ||||
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EXHIBIT INDEX
Exhibit | ||||
Number | Exhibit Description | Incorporated by Reference or Attached Hereto | ||
3.1
|
Form of Amended and Restated Certificate of Incorporation of the Registrant | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q (SEC File No. 000-50632) filed on May 14, 2004. | ||
3.2
|
Amended and Restated Bylaws of the Registrant | Incorporated by reference to the Registrants Current Report on Form 8-K (SEC File No. 000-50632) filed on December 5, 2007. | ||
4.1
|
Form of Specimen Common Stock Certificate | Incorporated by reference to the Registrants Registration Statement on Form S-1 (SEC File No. 333-110528) filed on March 18, 2004. | ||
4.2
|
Form of Warrant | Incorporated by reference to the Registrants Current Report on Form 8-K (SEC File No. 000-50632) filed on June 4, 2009. | ||
31.1
|
Certification of President and Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Act of 1934, as amended | Attached Hereto. | ||
31.2
|
Certification of Vice President, Finance and Operations pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Act of 1934, as amended | Attached Hereto. | ||
32.1
|
Certifications of President and Chief Executive Officer and Vice President, Finance and Operations pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Attached Hereto. |
32